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The Actuary The magazine of the Institute & Faculty of Actuaries
Sunday 05 April 2020

Whitepaper: Aggregation and diversification of the IFRS 17 Risk Adjustment

This paper forms part of a series of high-level papers designed to provide an introduction to different features of the risk adjustment that should be considered in advance of implementation. 


The IFRS 17 risk adjustment is an influential factor in the pricing of insurance contracts and in how profit from insurance contracts is reported and emerges over time. While the risk adjustment must satisfy certain conditions, the method for its calculation is not prescribed and is the choice of the insurance company. As such, there are many potential methods of calculation.

This paper does not attempt to address all of the challenges in choosing and implementing a calculation methodology, but focuses on the specific issues around calculating the IFRS 17 risk adjustment at contract group level, as required by the standard.

This paper provides practical insights into the following key areas:

  • Requirements of IFRS 17
  • Types and materiality of diversification
  • Bottom-up approaches with aggregation considerations
  • Top-down approaches with allocation of diversification


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