APN 107 (EV)

Question 1

(CoRC) What should projected capital releases be based on

Answer 1

Underlying risk drivers

Question 2

What are high level MCEV principles

Answer 2

-allowance for risk should be calibrated to match the market price for risk where reliably observed
-must allow for the stochastic valuation of options and guarantees including TVOM

Question 3

What discount rate should be used in MCEV

Answer 3

risk free rate with an illiquidity premium

Question 4

What are the components of MCEV

Answer 4

1) FS (A-restricted As)
2)EC (RC - RoRC)
3)VIF
-PVFP
-TV of O&G
-Frictional cost of capital (double tax and
inv management fees and agency risk)
-cost of residual non-hedgeable risk