Enterprise Risk Management Technology Guide 2023

Milliman - Milliman Economic Scenario Generator

Type of System

  • Climate risk management
  • Economic / risk scenario generator
  • IFRS 17 solution
  • LDTI solution
  • Risk management
  • Solvency II solution
  • Stress and scenario testing

Type of platform

  • Cloud
  • SaaS
  • Web-based

Other features - does your offering facilitate

  • Curve-fitting
  • IFRS 17
  • LDTI
  • Least-squares Monte Carlo
  • NAIC Principle-based reserving
  • Replicating portfolios
  • Solvency II internal model
  • Solvency II standard formula

What are the typical implementation costs?

For most cases, there is typically no implementation cost as the Milliman Economic Scenario Generator is delivered as a SaaS with an intuitive and user-friendly web interface. Bespoke implementations using the integration-ready API of Milliman ESG can be done within weeks to a few months. Implementation costs will depend on the integration level of Milliman ESG required by the client.

How long does your software take to implement on site?

Milliman ESG is a Software as a Service (SaaS) solution based on a secured interface between a website and a calculation engine hosted in Microsoft Azure Cloud. As a result, the solution is readily usable limiting implementation work. In addition, we assist our clients to set up their modelling framework (choice of the risk factors, choice of the models, etc.) and to develop approaches adapted to their needs, in line with their internal ambitions and the most up-to-date regulatory guidance. This configuration phase can be settled quickly in collaboration with internal teams.

We also offer a turnkey economic scenario delivery service, from data sourcing to scenarios validation, meeting technical and regulatory requirements, to help our clients control their solvency and manage their risks, while reducing the operational constraints of in-house production.

Please name companies that use the system/solution

Milliman ESG is used by various clients worldwide with specific needs and requirements. See below how Milliman ESG is helping businesses globally.

After the merger of a UK multinational, Milliman ESG was employed to seamlessly homogenise existing processes into a single cohesive ESG, optimising methodologies and configurations while ensuring efficient scenario delivery. Read the case study.

A European multinational was looking to outsource its Economic Scenario Generator (ESG) tool alongside seeking consulting support and improved regulatory compliance. Fortunately, the Milliman ESG team provides consulting expertise in addition to an industry-leading solution. The full case study can be read here.

A major American insurer needed the production of risk-neutral scenarios delivered with a time constraint of D+1. Embedded long-term volatilities were also essential for this insurer to perform valuation on their products. Today, Milliman produces and delivers scenarios for this client monthly. Read the case study here.

Milliman ESG provided a tailored, cost-effective solution to a small European life insurance company by delivering high-quality economic scenarios, ensuring compliance, and offering advanced calibration methods. To learn more, read the case study.

Most recent significant update:

Milliman is a market and industry leader in ESGs thanks to its Research and Development (R&D) team, that is constantly exploring new approaches and trends, ensuring that we stay ahead of the curve. In the past 12 months, we have been working closely with our clients on:

·         Implementing a customised validation framework, aggregating granular tests based on thresholds to have a single validation rating per scenario set and providing validation reporting and dashboards in both risk-neutral and real-world universes. This work has been motivated by regulator recommendations and needs for industrialisation.  

·         Updating the random number generator (RNG) to improve the stability of the results. This research work (which can be read here) has been motivated by the questions of the client and its requirements in terms of cash-flow model ESG leakage.

·         Data quality based on our client requirements. We have studied credit spread data leading to the writing of a joint white paper with S&P Global Market Intelligence. We have also studied the impact of long-term equity volatilities. Read the full story here.

·         Proposing modelling alternatives to benchmark existing approaches. Recently, we have studied a variant of the Libor Market Model, embedding a constant elasticity volatility parameter: find the full study here. Furthermore, we have added regime switching models for equity-like assets in Real-World universe to improve the accuracy in capturing complex market behaviours such as trend regime shifts, volatility changes and crisis periods.

·         Introducing new risks. We have investigated the implementation of the climate change stresses proposed by EIOPA. This led to a further analysis on the inclusion of climate risk in the equity SCR module.

The inclusion of climate risk modelling has become part of the continuous improvement of Milliman ESG and is key for the upcoming years. Additionally, we have enhanced the modelling of sector-specific risk factors such as spreads (sovereign and sectorial corporate) and inflation indices that turned to be key for some of our clients.

·         Delivering continuous improvement to the tool. In particular, we have upgraded the sensitivity manager to be more generic and complete than ever, allowing all Milliman ESG inputs and parameters to be modified. We have also added a scenario sign-off feature for enhanced governance and custom Analysis of Movement (AoM) features to step through from one base valuation date to another.


Planned future enhancements:

In our continuous commitment to improve Milliman ESG functionalities, the following enhancements are planned in the near future:  

·         Integrating an AI chatbot for user support to streamline assistance, deliver real-time solutions, and gain valuable insights to enhance the user experience.

·         Continuous improvement of climate risk modelling by implementing new approaches such as a parent-child equity (using a carbon risk factor).

·         Delivering an advanced in-house load balancer tailored to distribute ESG calculations more efficiently in comparison to standard load balancing solutions.

·         Implementing the FSP interpolation and extrapolation method which is expected to become the new approach for constructing the yield curve as part of the Solvency II review by the EIOPA.

·         Providing a comparison feature allowing to easily check the differences between the configuration and the validation of two economic scenario sets.

·         Enhancing the real-world features by adding new interest rate models, such as the G2++ model, implied volatility models, new risks like mortality, or by implementing specific modelling of macroeconomic factors (e.g., unemployment).

How does your solution integrate with third-party systems or in-house systems?

The solution is readily compatible with the variety of existing systems. Milliman ESG also offers a complete REST API for optimizing large-scale economic scenario generation within third-party or in-house systems. This can be integrated within any operating system and work with any programming languages through HTTP requests. Milliman ESG is also part of Milliman Integrate, providing reliability and efficiency with a proven technology.

What is the key attribute of your product(s) that differentiates it from your competitors?

·         Provides ergonomic and seamless user experience for rapid skills upgrading and diversification of company users.

·         Offers an ergonomic and seamless user experience, facilitating swift skills enhancement and enabling company users to diversify their expertise efficiently.

·         Includes the most up-to-date models, methodologies, and parameters.

·         Offers a transparent, automated, and customisable generation and validation process.

·         Comes with full service and operational support from our teams of actuaries.

·         Provides continuous compliance in all aspects of scenarios validation.

·         Benefits from alliance contracts with recognized financial data providers, allowing us access to high-quality data.

·         Readily compatible with the variety of existing systems.

·         Offers a complete REST API for optimizing large-scale economic scenario generation within third-party or in-house systems.


What trends are you seeing in terms of customer demand?

The demand for a harmonised ESG capability -- meeting challenges about valuation accuracy, regulatory compliance, and production efficiency -- seems unfulfilled by the overall ESG offering in the market, as it has for a long time been delivered with heterogeneous levels of actuarial services and solution efficiency, each offering being more focused on one of the two aspects.

We see an improved path forward where we propose a distinctive combination of ESG and actuarial knowledge, alongside state-of-the-art production efficiency and services, meeting production challenges under increasing regulator and auditor reviews.

Moreover, we anticipate the rise of new risks, notably climate-related, which we deem critical for imminent risk management. Milliman's ESG capabilities, coupled with continuous improvement, are poised to enhance the accuracy and comprehensiveness of scenario generation.


Milliman Economic Scenario Generator. Software & Service Economic Scenario Generation. Anywhere. Anytime.


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