What is rationale for 6% cost of capital?
There were also concerns in the industry that there is no rationale or basis for the 6% cost of capital rate. The CEA paper notes that “the rate of 6% may not be appropriate as it is a figure that originates from the Swiss Solvency Test which uses a different methodology to Solvency II” and recommends that further work is done. Calibration of some SCR modules “unjustifiably high” Surprisingly, the CEA paper reveals there are still a lot of complaints about the SCR standard approach. The calibration of some SCR modules is said to remain “unjustifiably high”. Parts of the SCR design are “disproportionally complex”. • The CEA recommends a number of measures to CEIOPS: • The use of entity-specific parameters should be allowed for life business where the undertaking’s experience differs from the market average. • More information is needed on the calibration of the standard factors and correlations. • A consideration of age-dependency is requested in both the mortality stress and the longev
