  This paper sets out a framework for the valuation of insurance liabilities
that is intended to be economically realistic, elementary, reasonably
practically applicable, and as a special case to provide a basis for the
valuation in regulatory solvency systems such as Solvency II and the SST. The
valuation framework is based on the cost of producing the liabilities to an
insurance company that is subject to solvency regulation (regulatory solvency
capital requirements) and insolvency laws (consequences of failure) in finite
discrete time. Starting from the replication approach of classical no-arbitrage
theory, the framework additionally considers the nature and cost of capital
(expressed by a ``financiability condition"), that the liabilities may be
required to be fulfilled only ``in sufficiently many cases" (expressed by a
``fulfillment condition"), production using ``fully illiquid" assets in
addition to tradables, and the asymmetry between assets and liabilities. We
identify necessary and sufficient conditions on the capital investment under
which the framework recovers the market prices of tradables, investigate
extending production to take account of insolvency, implications of using
illiquid assets in the production, and show how Solvency II and SST valuation
can be derived with specific assumptions.
