What is Risk Adjustment?
Risk Adjustment An explicit amount added to insurance liabilities to reflect the compensation an insurer requires for bearing the uncertainty of non-financial risks. Mandated under IFRS 17 and Solvency II for technical provisions.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Risk Adjustment” Used in Practice?
IFRS 17 requires a risk adjustment to quantify the uncertainty in the amount and timing of future cash flows.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Risk Adjustment?
An explicit amount added to insurance liabilities to reflect the compensation an insurer requires for bearing the uncertainty of non-financial risks. Mandated under IFRS 17 and Solvency II for technical provisions.
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