Question

Why might traditional immunization methodology not be suitable for measuring interest rate risk with innovative insurance products?

a.

Because it assumes fixed and independent cash flows unaffected by interest rate fluctuations

b.

Because it maximizes variations in cash inflows and outflows

c.

Because it eliminates the need for hedging against interest rate changes

d.

Because it relies on stochastic interest rate approaches for hedging purposes

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (a).Because it assumes fixed and independent cash flows unaffected by interest rate fluctuations Explanation:Traditional immunization methodology assumes that cash flows are fixed and independent of interest rate fluctuations, which may not hold true for innovative insurance products where the timing or amount of cash flows can depend on interest rate changes.

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