Hi Pls explain that in Q1 vi) risk risk margin calculation,what is the discounting rate used is it the risk free rate ? Because the question states current yield curve and not sure if that is the risk free rate. Also what is the risk discount rate? Getting a bit confused. v) Want to ensure that my understanding of the interest rate risk is correct.So it would impact both assets and liabilities right? (So NAV =Assets-liabilties )would be lower. Interest rate risk- Due to the yield being higher,value of bonds would be lower and hence the interest rate risk SCR would be lower. Also,BEL would be lower as the interest rate is higher.
Yes: the risk margin is discounted using the risk-free yield curve (this is explained in Chapter 10, Section 2.2, third point under 'The cost of capital method')
This phrase tends to be used when talking about the discount rate used to discount future profits, such as for traditional basis EV calculations or profit testing. It would typically reflect the shareholders' required rate of return, allowing for an appropriate level of risk (more risk -> higher discount rate).
Okay thanks but the question mentions about the current yield curve,so then we assume this yield curve is the risk free yield curve? Not clear on this .
