Under solvency 2, the idea is for the liabilities to be market-consistent. Where risks are hedgeable, this can be taken directly from market prices. Non hedge able risks are determined from best estimate assumptions with a risk margin added.
Regarding your follow on comments, many companies will likely use their pillar 2/ica capital for pricing currently so I would imagine is less of a step change than you suggest... How would they have projected this??
Whilst taking a % of reserves for capital is simple it doesnt adequately capture the risk profile of the contract and at best will be a very rough approximation.
I suspect how insurers allow for capital will vary between companies but I don't see why it would be difficult to allow for capital if an approach different from a % of reserves were adopted.
It may be worthwhile referring to qis 5, which gives further details for projecting the scr (albeit for deriving the risk margin)
Last edited: Aug 20, 2012