different rates

oxalisoxalis
in CIA.IFRS17-DR

Hi,

I'm really confused with all the terminologies here, can you please clarify what are these rates please?

  • discount rates
  • current interest rates
  • invest return rates
  • spot rates

Thank you!

Comments

  • Staff-T1Staff-T1

    Discount Rates: The rates that we will use to discount our LRC and LIC. Generally calculated using a reference portfolio and one of the top-down, bottom-up or hybrid approach.

    Current interest rates: The overnight rate target set by the Bank of Canada or Federal Reserve? I think this is pretty ambiguous. It depends on the context of your question really... This is not talked about in the educational note except for when they define spot rate (Their definition is ambiguous here as well)

    Investment return rates: The rate of return on your investment portfolio

    Spot Rate: Rate for immediate settlement of a security. For example if a bond with face value of 1000 maturing in one year has a price of 980, then the spot rate is 1000/980 = 2.04%

  • oxalisoxalis

    can investment return rate and current interest rates be used as discount rates? is there any connection between these different rates?

  • Staff-T1Staff-T1

    No, neither of them can be used as a discount rate under IFRS17. Remember, you either need to use the top-down, bottom-up or hybrid approach to set discount rates. To do this, you need a risk-free curve + a reference portfolio (CIA FIERA curves can also be used to provide a reference discount rate)

    In general, the higher the current interest rates, the higher your investment rate of return. But that's about it in terms of connection

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