Financial Intelligence Team
Consultation Paper 35 sets out principles with regard to the valuation of assets and liabilities (other than Technical Provisions). The objective is to determine the economic (or fair) value of the assets and liabilities and the amount at which they could be exchanged between knowledgeable willing parties in an arm’s length transaction. CEIOPS recommends adopting the International Financial Reporting Standard (IFRS) as a reference framework — with additional specifications to be provided only where IFRS is not compatible with the Solvency II Directive. This would be the case, for instance, for items that can be measured at historical cost under IFRS. The consideration of assets for solvency purposes further requires that all the risks inherent to them be addressed through solvency requirements.
Wherever possible, the fair value of assets is to be based on a mark-to-market approach, using readily available prices in orderly transactions that are sourced independently. Where it is not possible to mark to market, mark-to-model procedures should be used (marking to model is any valuation which has to be benchmarked, extrapolated, or otherwise calculated as far as possible from a market input).
The paper then sets out specific valuation rules for certain assets and liabilities for Solvency II purposes — e.g., goodwill; intangible assets; property, plant and equipment; investment property; contingent assets and liabilities.
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