Cost of Capital Operationally Complex
In the source it states that the cost of capital is operationally complex because the projection of capital requirements and its underwriting component are inputs to the RA. In the wiki it states a similar fact that the CoC method is more complex because the projection of capital requirements is an input to the liability calculation. I assume these two sentences mean the same thing but I am struggling to understand what they mean?
Comments
It basically just means that the cost of capital requires projecting future capital needs to support the associated underwriting risks and this flows in to the calculation of the RA. Projecting this cost of capital is not easy due to the numerous assumptions and uncertainties