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📉 '''Realised loss''' refers to a financial loss that an [[Definition:Insurance carrier | insurer]] or [[Definition:Reinsurance | reinsurer]] formally recognizes when it sells or disposes of an [[Definition:Investment portfolio | investment asset]] for less than its original purchase price or [[Definition:Amortised cost | amortised cost]] basis. Unlike an [[Definition:Unrealised loss | unrealised loss]], which exists only on paper while the asset is still held, a realised loss becomes a concrete reduction in the entity's reported income or [[Definition:Surplus | surplus]] once the transaction is completed. For insurance companies — which maintain substantial investment portfolios to back [[Definition:Reserves | reserves]] and [[Definition:Policyholder | policyholder]] obligations — realised losses directly affect net income, [[Definition:Regulatory capital | regulatory capital]] adequacy, and financial ratios that rating agencies and regulators scrutinize.

💱 When an insurer decides to sell a bond, equity holding, or other financial instrument below its carrying value, the difference between the sale proceeds and the book value is recorded as a realised loss in the income statement. The accounting treatment varies by jurisdiction and framework: under [[Definition:US GAAP | US GAAP]], realised gains and losses on available-for-sale securities flow through net income at the point of sale, whereas [[Definition:IFRS 9 | IFRS 9]] — applicable across much of Europe, Asia, and other markets — classifies and measures financial instruments in ways that may accelerate or alter the timing of loss recognition depending on the asset's classification. Regulatory frameworks such as [[Definition:Solvency II | Solvency II]] in the European Union and the [[Definition:Risk-based capital (RBC) | risk-based capital]] system overseen by the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] in the United States treat realised losses as deductions from available capital, which can trigger management actions if an insurer's capital position approaches minimum thresholds.

🔍 The strategic significance of realised losses lies in the tension between [[Definition:Asset-liability management (ALM) | asset-liability management]] discipline and short-term financial reporting. Insurers sometimes defer selling depreciated assets to avoid booking a realised loss, a practice that can lead to concentration risk or duration mismatches in the investment portfolio. Conversely, a well-timed realisation of losses can be paired with realised gains for tax management or portfolio rebalancing purposes. During periods of rising [[Definition:Interest rate risk | interest rates]] — when bond portfolios suffer mark-to-market declines — the decision of when to crystallise losses becomes a critical element of investment strategy, with implications for everything from [[Definition:Credit rating | credit ratings]] to [[Definition:Dividend | dividend]] capacity.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Unrealised loss]]
* [[Definition:Investment portfolio]]
* [[Definition:Asset-liability management (ALM)]]
* [[Definition:Regulatory capital]]
* [[Definition:IFRS 9]]
* [[Definition:Realised gain]]
{{Div col end}}

Definition:Realised loss - Revision history

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