I always think I understand market risk until I try and apply it in a question In A2015 Q1(ii), market risk is mentioned in the solution as applying to only the UL pension business... except if interest rate risk is included in market risk, in which case it also applies to the immediate annuity business. Market risk basically comes down to the risk of assets moving differently to liabilities following market movements (interest rate, equities, property exchange rates). So: Why is the distinction made to include interest rates in this definition? Doesn't market risk include this anyway? Why does the answer only include the immediate annuities if interest rates are included in the definition (and why is it not necessary to be included for the UL pensions)? Am I right in saying that immediate annuities are likely to be matched by bonds and a matching adjustment could apply (if sufficiently predictable, like no surrender values)? So the market risk should be very small here, right?
