Internal:Training/IFRS17/Grouping contracts: Difference between revisions

 

🔍 '''What "similar risks" means in practice.''' Two contracts share similar risks when they are exposed to the same type of peril and would be expected to respond to the same economic and demographic drivers. For example, 10,000 home insurance contracts covering storm damage along the Atlantic coast of France would typically form one portfolio because they all respond to the same weather patterns, construction standards, and [[Definition:Claims|claims]] behaviour. A separate block of motor third-party [[Definition:Liability|liability]] contracts in Spain would form a different portfolio, because the risk drivers, such as traffic density, legal [[Definition:Claims costs|claims costs]], and repair inflation, are entirely different. The practical test is straightforward: if the contracts are managed together by the same team under the same pricing and [[Definition:Reserving|reserving]] approach, they almost certainly belong in the same portfolio.

 

⚠️ '''Common misconception.''' A portfolio is not the same as a [[Definition:Line of business|line of business]]. Many insurers manage "property" as a single line of business, but within that line there could be several portfolios: one for residential property, another for commercial property, and perhaps a third for agricultural buildings. The portfolio is a finer grouping, defined by the similarity of risks, not by the organisational chart. Always look at the underlying risk characteristics, not the label on the department door.