Hello, I find the notes not too clear on how benchmark is related to assessment of market risk. Benchmark could be used to set performance target and failure to meet performance target could be a risk itself. First few sections talked about how investment return can vary/modelled. But there is loss only when the investment return is lower than the rate used to discount the liabilities. This is the benchmark the notes is talking about. Am I right to say that?
You may not always be investing to match liabilities. In which case you are looking to outperform some benchmark (eg the FTSE100 or a competitor maybe). Even if you are trying to meet liabilities, the performance target you set your fund manager is likely to be versus some benchmark, not necessarily the discount rate for the liabilities.
