Quick Search
|
Valuation of Assets and Liabilities
The directive sets out standards for valuing assets and liabilities in all statutory solvency calculations. Both assets and liabilities should be valued at the level at which they could be transferred (exchanged, settled) to a “knowledgeable willing party in an arm's length transaction”.
It states that technical provisions shall be calculated in a prudent, reliable and objective manner, and (unless they can be replicated using financial instruments for which a market value is directly observable) that they shall be equal to the best-estimate, plus a risk margin. The best-estimate is defined as the mean of the present value of cash flows using the relevant risk-free interest rate term structure. The risk margin shall be determined using a “cost-of-capital” approach, and is defined as the cost of providing funds equal to the SCR to support the run-off of the liabilities. The cost-of-capital rate will be fixed for all firms, but has yet to be determined
The business should be segmented into homogeneous risk groups and, as a minimum, by line of business, when calculating technical provisions. Gross and reinsurance amounts should be calculated separately, with the reinsurance reduced to allow for the predicted default.
|
|
|
