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April 2017 Q1 iv

V

Viki2010

Member
Would interest rate risk SCR module be also a possible solution here? The application of MA to discount rate allows for better matching of assets and liabilities, thus reduced interest rate risk.

I am trying to understand a clear distinction between a credit spread risk and interest rate risk, as they are very similar risks relating to movement in interest rates on assets and it may be a bit confusing............
 
No, the interest rate risk sub-module is not part of the answer here. That sub-module is about assessing the impact of changes to risk-free interest rates, assuming that credit spreads remain the same size. So, for example, if the stress is that interest rates increase by x% then bond values (government and corporates) will fall on the asset side - but also the base risk-free discount rate (ie that part based on swaps) used for the BEL will increase so the BEL will fall.

The question is asking about the impact of being able to use an MA on the SCR. The use of an MA in itself does not affect the underlying interest rate risk: the MA is part of the allowance for spread.
 
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