CAS IFRS 17 Sample question #2

bicbic

I'm a bit confused about the (b): use its own assets to derive this discount curve.
The reference portfolio should have similar characteristics (e.g. liquidity, currency, timing) to the insurance contracts being measured. Why is using its own asset as a reference portfolio not matching it?

Thanks

Staff-T1

A few examples of why your own asset portfolio will not necessarily match your insurance liabilities:

• Your liabilities are all CAD denominated while you have USD denominated bonds in your asset portfolio (Currency)
• The average duration of your liabilities =/= average duration of your assets (timing)
• Your assets have an average rating of AA which means it is much more liquid than your LIC (liquidity)

bicbic

Thanks!