Hi all, As a first posting I was hoping for a challenging item, but I suspect someone could easily clarify this one. In Question 7.1 in the Q&A bank reference is made to "allow for the cost of tied-in assets" when one values an insurer for purchase. An example is the statutory solvency margin. In the solution the answer seems (to me) to calculate this cost as the present value of future investment return on the "tied in" assets. But, surely all investment income are reported in the operating profit in future? Isn't the true cost of capital the difference between the shareholders' RDR and the expected investment income? If not, can anyone point me in the right direction? Thanks!
Yes, I think you're right. This is what the paragraph on the top of page 7 of the solutions is trying to get at.
