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Apr 2017 Q1 (iv)

Y

yogesh167

Member
Hello

The solution says BEL will decrease after an increase in credit spread stress, to the extent that we are able to take account of the increased liquidity premiums in credit spread as MA. As a result, SCR will reduce too.

But i am not sure why are we not considering the impact on reduction in market value of assets after an increase in credit spread, which should also impact my SCR.
Thanks in advance
 
yogesh167 said:
Hello

The solution says BEL will decrease after an increase in credit spread stress, to the extent that we are able to take account of the increased liquidity premiums in credit spread as MA. As a result, SCR will reduce too.

But i am not sure why are we not considering the impact on reduction in market value of assets after an increase in credit spread, which should also impact my SCR.
Thanks in advance
Click to expand...

In general, it's helpful to include the actual question [as opposed to the paper reference] here to save the lazy amongst us from trawling the Institute's website :).

I've had a look at the question - which asks about the impact of the matching adjustment on the SF SCR. The matching adjustment (MA) is an addition to the risk-free rate that firms use to value their best estimate liabilities. MA does not affect the value of a firm's asset or the size of the asset stress; it dampens the size of the overall credit stress.

Hope that helps.
 
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