Reference Portfolio
Why should we not consider Market risk if the reference portfolio consists only of bonds?
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Why should we not consider Market risk if the reference portfolio consists only of bonds?
Comments
Market risk is not relevant to insurance contract liabilities. The purpose of the adjustments is to remove characteristics from the reference portfolio that are irrelevant to the insurance contract
I agree that Market risk is not relevant and should therefore be removed.
So to answer to my own question, if we use bond only, there is no market risk and therefore no adjustment is needed? Is that accurate?
Bond values have market risk though - When the financial position of a company deteriorates and causes yields on their bonds to rise; this decreases the value of bespoke bonds