• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

SA2 Volatility adjustment vs matching adjustment

Okay, however, wouldn't the bonds have to be sold at some point which would be matched to the liaibility payouts? So say, a payout has to be made today and the spreads are high leading to greater liquidity risk and thus, lower bond prices. The insurer would be at risk of not meeting the payout they'd expected to match? If I am getting this wrong, a numerical example would be very helpful.
 
No - if the bonds are cashflow matched to the liability cashflows, that means that the company will hold them to maturity (it has to do this, because it has matched the redemption amounts to some of the liability cashflows due to be paid - so it needs the redemption proceeds to meet those payments) and so the bonds will not be sold at any point.
 
You must log in or register to reply here.
Back
Top