A market cost of capital approach to market value margins

As stated earlier, under the development of Solvency II, there is agreement amongst most parties involved that the assets and liabilities should be measured on a consistent basis for solvency purposes and this basis should be market value. In order to determine the market consistent value of liabilities, it is agreed, we need to determine a market value margin (MVM) to be added to the expected present value of future liability cash flows.