Discounting [24]

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Bullet points include: IAA (2013) notes that given these issues some practitioners use swap rates (even though swaps face some counterparty risk and credit risks and there is agency risk implicit in the reference floating rate itself): Swaps market usually highly liquid; may be more liquid than government debt Is approach adopted for Solvency II QIS5 Counterparty may be highly rated, swaps are typically collateralised Can in theory subtract a credit spread to arrive at a rate that is as close to risk-free as possible; QIS5 used 0.1% pa [but LTGA assessment used a different figure?] IAA (2013) notes that corporate bonds typically do express credit risk But still often used to account for DB pension obligations and annuity portfolios

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