Challenge
A private capital solutions firm sought Milliman’s expertise to evaluate the feasibility of a proposed loan arrangement to a managing general agent (MGA). An independently commissioned due diligence report highlighted numerous uncertainties, prompting the capital provider to seek an in-depth understanding of the potential risks. High among the concerns was the accuracy of the MGA’s incurred but not reported (IBNR) reserves, which needed validation to support informed decision-making on the funding requirement.
Approach
Due diligence review and independent calculations: Milliman undertook a comprehensive review of the due diligence report. Drawing on limited but focused data, we performed independent calculations to assess the MGA’s reserving methodology, assumptions and processes.
Collaborative engagement: We engaged in detailed discussions with the MGA to clarify its business model, reserving processes, data limitations and areas of uncertainty.
Evidence-based validation: We leveraged Milliman’s specialised expertise in data analytics and actuarial reserving, as well as class-specific best practices. This multifaceted analysis enabled us to validate both the methodology and assumptions underpinning the MGA’s reserve estimates. Our findings were benchmarked against both internal and external reference points.
Impact
Evidence-based advisory: Milliman delivered rigorous validation of the MGA’s reserves, providing critical insights into key risk factors influencing the MGA’s performance. We equipped senior management with early warning indicators and clear intervention triggers to enable proactive management of evolving conditions.
Strategic loan structuring and negotiations: By delivering detailed and actionable insights, Milliman empowered the capital providers to proceed with greater confidence and engage in highly focused conversations with the MGA, ultimately refining loan terms and negotiating more effective funding structures.