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ERM Glossary: Volatility adjustment

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The volatility adjustment is an adjustment that EU insurers subject to Solvency II are allowed (subject to certain conditions) to apply to theĀ  discount rates that they would otherwise use in their Solvency II regulatory capital computations to value predictable liability cash flows, see Article 77b of the Solvency II Directive.

 

It is less difficult to get supervisory approval for use of the volatility adjustment than it is to get supervisory approval for use of the matching adjustment but the regulatory capital relief is usually smaller.

 


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