The extrapolation conundrum
One of the most fundamental points of Solvency II still remains one of the most contentious. Blake Evans-Pritchard reports on how the risk-free rate has moved from the technical to the political
Being able to predict future liabilities accurately is at the very heart of everything a life insurer does. But despite this, some fairly fundamental questions have not been addressed adequately within the Solvency II framework about how long-term cashflows should be valued – and this is making the insurance industry nervous.
The cornerstone to predicting future cashflows is working out the rate at which market instruments should be discounted, so as to derive the best approximation of market
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