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Introduction: why are we writing such a paper "This paper summarises the key principles underlying market consistent valuations of assets and liabilities. Its underlying aim is to help actuaries and others best interpret the concept of ‘market consistency’ in contexts where several possible valuation approaches are or might be proposed. The intention of this paper is to focus on the underlying generic meaning to assign to this concept rather than on any technical meaning that might be given to it by any specific piece of legislation or regulation. Legislative and regulatory frameworks often involve political or pragmatic compromises. Meanings assigned to terms by such frameworks may diverge from their underlying generic meaning in order to implement such compromises. The concept of market consistent valuations has been popularised by inclusion of the concept in the proposed Solvency II Directive for the European insurance industry, but some of the ways in which the concept is likely to be implemented by Solvency II may include such compromises. This paper has been prepared by a Task Force of the Groupe Consultatif Actuariel Europeen, a body representing actuarial associations in different European jurisdictions. One of the reasons for preparing this paper is to provide a framework for addressing differences of opinion over what might constitute a market consistent valuation for some types of liabilities. The paper aims to characterise where there is broad agreement on the generic meaning to ascribe to a ‘market consistent’ valuation. Thus the paper is purely educational and does not aim to lobby for any economic or political interest. It is likely to be followed by other papers exploring some cases where views diverge, highlighting which views might be reasonably deemed to be ‘market consistent’ and in what circumstances."

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