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Insurance

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.

Certification Exam Relevance

CFAACCAFRM

Who Needs to Know This Term?

  • Financial Analysts
  • Bankers
  • Traders

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Frequently Asked Questions

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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