Illiquidity premium taxes Asian regulators


During the past few years, there has been a significant amount of debate in Europe about how to value long-term liabilities that are technically illiquid and not immediately callable by the policyholder. This issue is now growing in importance in Asia, as falling interest rates make it harder for insurers in the region to meet their long-term guarantees. But separating the illiquidity premium from the credit risk premium is not an easy thing to do, especially in Asian markets where a lack of