Could someone help me to understand why the interest rate assumptions are based on the pricing assumptions, which in turn is based on based on backing assets backing the liabilities. Why?
My understanding is that the assumptions used to calculate surrender value are most likely "realistic". As a results we do not need to use risk free rate as interest rate. We can use the yield from the assets backing the liabilities. The assets do not behave exactly like the liabilities so we adjust for credit risk??
Thanks,
Tong