Interest Rate Selection and the Transfer of Risk Test
In the source, Freihaut mentions that a company may not want to use an interest rate less than the risk-free rate because it may "over-detect" the transfer of risk. But why would that be a bad thing? When does a company have an incentive to fail the risk transfer test rather than pass it?
Comments
They may do it, if they do not want to use reinsurance accounting for some reason.