Choosing discount rate for the evaluation of insurance liabilities
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Abstract
The starting EU Solvency II requirements and future accounting standards will require discounting for all of insurance liabilities. A properly chosen discount rate could guarantee the value of insurance liabilities being adequate and market consistent. In small economies this is difficult to achieve due to the unavailability of deep and liquid market for bonds. The authors of the present paper analyze if these market limitations could be bypassed and the discount rate’s term structure could be established. The research is based on the data from the Lithuanian financial market and aims at proposing an innovative approach to discount rate setting which could be used by insurance companies.
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