RA for reinsurance contracts held
In the IFRS17 - 2 text, the risk adjustment for reinsurance contracts held is defined as the non-financial risk transferred from the entity to the reinsurer. Essentially, the ceded RA represents the risk that is ceded to the reinsurer.
In the IFRS17 - 1 text, the risk adjustment for reinsurance contracts held is defined as the difference in the risk position of the entity with and without the reinsurance held, basically the compensation required to keep the risk and not cede it.
Are these saying the same thing? One text is saying the RA is the risk that is ceded and the other text is saying the RA is the cost to not cede the risk.
I am confused on what the risk adjustment for reinsurance contracts held means.
Comments
Yes, they mean the same thing. Isn't the cost to not cede the risk the same as the risk that is ceded?
In the IFRS17 - 2 text, it's also stated that the the Expected Cash Flows should be adjusted for Credit Risk.
Should the RA include an adjustment for Credit Risk as well, per the IFRS17 - 1 text mentioned above?
Adjustment for reinsurance non-performance risk, or credit risk on the reinsurer is done directly on the future cash flows by adjusting the probability estimates of future inflows. This is made clear in section 3.2.1 of the reinsurance paper