Insurance Risk

adipelinoadipelino
in General

I find it confusing how to define insurance risk, because different readings have different definitions.
For example,
IFRS 17-IC = risk (other than financial risk) transferred from insured to insurer
MCT = risk arising from potential for claim payments to be made to policyholders or beneficiaries
Freihaut Risk Transfer = UW and timing risk

I don't see how risk of timing and amount of CF isn't financial, so I find these somewhat contradictory.
Any advice on what definition to use if we're asked?

Comments

  • Staff-T1Staff-T1

    The issue here is that the papers are written on their own and don't talk to each other, but I do see consistency between the three of them though.
    IFRS 17 defines financial risk as:
    "The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, currency exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract"
    As you can see, timing and CF amounts are not considered financial risk.
    Each question will have a general theme - That's where you should judge which definition to use although I don't think any examiner will begrudge you using a definition from a different paper

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