The Comité Européen des Assurances (CEA) released a joint submission by the CRO Forum and
CEA Chief Risk Officer Forum clarifying the main subjects submitted to the Commission on the ‘second wave’ of Calls for Advice in the framework of the Solvency II project. The document should help focus the debate and clarify positions on the overall framework and the highest priority issue for Solvency II. Detailed technical papers on other high priority issues will subsequently be produced.
Top priority issue discussed in this paper contains the valuation of insurance liabilities. It states among others, that:
Technical provisions for solvency purposes should be set equal to the market-consistent value of liabilities (MVL), including the value of both hedgeable and non-hedgeable risks
The value of hedgeable risks should be determined by mark-to-market approaches
The value for non-hedgeable risks is determined by an appropriate mark-to-model approach:
- For non-hedgeable non-financial risks, liability values are determined as best estimate plus MVM and we recommend a ‘cost of capital’ approach for determining the MVM rather than setting arbitrary confidence interval standards
- For non-hedgeable financial risks, using appropriate economic methods to extend market prices is also an option in addition to the ‘best estimate plus MVM’ approach
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© CEA - Comité Européen des Assurances
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