The risk adjustment for non-financial risk

Learning objectives

• Explain that the risk adjustment for non-financial risk represents the compensation required for bearing the uncertainty about the amount and timing of the cash flows.L1
• Distinguish the risk adjustment for non-financial risk from a prudence margin and from the effect of financial risk.L2

Normative references

• IFRS 17 §37The risk adjustment for non-financial risk is the compensation the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• What does the risk adjustment for non-financial risk represent in the measurement of a group of insurance contracts?L1
• The risk adjustment for non-financial risk of a group of insurance contracts also covers the uncertainty arising from changes in the interest rates applied to future cash flows.L2