Hi, guys : one question regarding selecting discount rate in reserving bases , in chapter 14 page 15 mentioned: "The important thing is to realise that assets not available for investment must be taken into account when determining the rate." is my understanding as follow making sense : as when discount liability , selection of discount rate may based upon return of assets which match liab(inc term / nature/ currency ect) , but if such assets are not available in the market , the selection of discount rate should be reflected . then to my next question : how to reflect on discount rate if asset are no available to invest? thank you so much for your help
Use a lower discount rate instead, reflecting a realistic return expected to be achievable on those investments which are actually available.
Hi kiki I think the assets that are not available for investment are non-investible assets on the balance sheet like balances at the broker, and reinsurance assets (list not exhaustive) that will not be available to be invested because they are not in your possession. These will reduce the return that you expect.
Thanks BusyBee, you explained that clearer than me. I think part of the problem for a first time reader of the notes is that the concept of "non-investible funds" isn't properly introduced till later in the core reading (the chapter on investment principles).
