CEA backs cost of capital approach

The Comité Européen des Assurances (CEA) has published a new Solvency II working document that supports the cost of capital approach to assess the market-consistent value of liabilities. The cost of capital approach, which bases the risk margin used to supplement best estimates of non-hedgeable risks on the costs to a third party of covering a company’s exposures, is held by the CEA in preference to the approach based on percentiles currently supported by Ceiops.