Why can't a yield curve be used to discount cash flows in a risk transfer analysis under SSAP 62?

• A. Because yield curves are too complex
• B. Not consistent with accounting standards, would produce different interest rates in each iteration when timing differs
• C. Because they would produce identical results across iterations
• D. Because they would always understate risk

Answer: (B)

The key idea is consistency in how you value cash flows when assessing risk transfer under SSAP 62. In this context, the discounting approach should be fixed so that changes in the analysis come from the cash flow timing and amounts, not from the discount rate itself.

Using a yield curve would tie the discount rate to when cash flows occur in each modeled iteration. As you vary timing across iterations to test different risk scenarios, the implied discount rate would change accordingly. That makes the present values depend on the timing assumptions, not just the underlying risk transfer, which violates the required accounting treatment. So the discounting method must avoid iteration-dependent rates to keep the analysis aligned with SSAP 62.

Others attributes aren’t the issue: yield curves aren’t inherently too complex, the problem isn’t that different iterations would all look the same, and the concern isn’t that risk would always be understated. The real problem is the inconsistency introduced by tying discount rates to the timing of cash flows across iterations.