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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