Introduction:

IFRS 17 requires an entity to hold a risk adjustment reflecting the compensation required for bearing therisk of uncertainty about the amount and timing of cash flows arising from non-financial risks.Risk adjustment is one of the main components to compute the total Insurance Contract Liability, asdemonstrated below:

Characteristics of Risk Adjustment:

The non-financials risks considered under risk adjustment, have the following characteristics:

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Methods of Calculation:

Risk adjustment can be calculated using different methods, some of the common approaches are:

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Entities are required to disclose the method of calculation/technique and the confidence level correspondingto the results to which the risk adjustment for non-financial risks corresponds.

To gain more insights on how to set and compute a Risk adjustment under IFRS17 or for any other related discussions, please feel free to reach out to us at kap@ka-pandit.com.

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