Why the risk adjustment of IFRS 17 only concerns the non-financial risk ?

It's because the base liabilities are calculated on a market-consistent basis. This automatically takes into account the market's assessment of the 'financial risks', eg by using risk-free discount rates (so basically assuming that all assets are expected to earn the risk-free rate).

 

Hi

Taking your example forward, the base liability would use a best estimate mortality assumption. The risk adjustment is then applied in order to reflect the risk that actual mortality turns out to be different from the best estimate.

Turning to the discount rate, the base liability doesn't use a best estimate investment return for the discount rate, it uses the risk-free rate - which will be (if anything) lower than the best estimate and therefore will result in a higher liability valuation.

We could consider the best estimate investment return to be equal to risk-free rate + risk margin. So discounting at the risk-free rate is equivalent to discounting at 'best estimate return - risk margin' ... which I think would satisfy your logic, as it more clearly shows how an adjustment has effectively been made in relation to investment risk?

The different approaches are taken because we can observe the 'price' (or 'fair value') that the market places on investment risk, and so can allow for it directly through using the risk-free rate. For other types of risk, we cannot observe the 'fair value' of that risk in the same way (at least, there is much less likely to be a deep and liquid market from which such values could be observed). Therefore the risk adjustment is used as an approximation, with the calculation being designed to represent roughly what compensation the 'market' would need to trade in those non-investment risks.

Hope that helps a little more.

 

And to you! Glad it helped