The Committee on Life Insurance Financial Reporting (CLIFR) has prepared this educational note to summarize some of the methods available to calculate the risk adjustment for non-financial risk and its corresponding confidence level, in accordance with IFRS 17 requirements.
The educational note is structured into seven sections. Section 1 introduces the content presented in this report. Section 2 highlights the key similarities and differences between IFRS 4 and IFRS 17 with regards to adjustments for uncertainty in estimates of future cash flows. Section 3 presents general considerations related to the measurement and disclosure of the risk adjustment. Sections 4 through 6 present different methods for measurement of the risk adjustment: risk margins in Section 4, cost of capital in Section 5, and quantile techniques in Section 6. Section 7 concludes the note with considerations for the calculation of the confidence level associated with the risk adjustment.