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Chapter 13 - Assessing available capital

R

rlsrachaellouisesmith

Ton up Member
Hi

In this chapter over pages 12 to 13, it explains how available capital will be assessed. My understanding is that a market consistent valuation will be used and therefore the same ideas that sit behind valuing assets and liabilities for SII are applicable here. Nothing new seems to be mentioned about the approach. Would that be a correct summary? If not, what is the 'point' of this section.

Thank you,

Rachael
 
Bear in mind that the calculations underlying Solvency II are a specific example of a market-consistent approach: it is a risk-neutral valuation and allows for non-hedgeable risks through the cost of capital approach.

This Chapter 13 section is more generalised, eg could perform a market-consistent valuation using state price deflators; could allow for non-hedgeable risks through including risk margins within those assumptions.

Also, just to clarify: it isn't the case that a market-consistent approach 'will be used' to determine available capital - the first paragraph of that section states that it is a 'commonly used' approach.
 
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