2015 Fall Q 15
For Part C I don't really understand the second part of the question.
The answer says this
Flaw: Investment strategies of different reinsurers should not have impact on the risk transfer
itself as it may result in different conclusions drawn for reinsurers with good or bad investment
strategies./An analysis of risk transfer shouldn’t take into account the reinsurer’s investment
strategy
But the question doesn't mention what the interest rate is used for. Is it used for discounting the cashflow of the reinsurance recoverable?
Comments
The reinsurer will use a discount rate to price their product to get the PV of cash flows. That discount rate used reflects their own pricing strategy, so we shouldn't take that into account when we are analysing risk transfer