Dekningsfaktor

Dekningsfaktor, literally “coverage factor,” is a metric used in finance, insurance and risk management to quantify the extent to which a set of resources covers a given requirement. It is a dimensionless ratio, typically expressed as a number between 0 and greater than 1, depending on whether resources fall short, meet, or exceed the needed coverage.

In pension funds and insurance, the term is used to describe the extent to which projected liabilities are covered by available assets or reserves. A dekningsfaktor of 1.0 indicates full funding for the stated liabilities; a value below 1.0 indicates underfunding, while a value above 1.0 signals overfunding or additional risk-bearing capacity. The exact definition can vary by regulation and institution, but the underlying idea is the same: the ratio of available coverage to required coverage.

In project budgeting and corporate risk management, the factor serves a similar purpose: it compares the amount of resources allocated (cash, reserves or lines of credit) to the expected need. It is often used in reporting and governance to assess solvency, liquidity, or contingency sufficiency.

Calculation example: If a plan estimates 100 million in future claims and holds 80 million in reserves, dekningsfaktor = 80/100 = 0.8. If the reserves are increased to 120 million, the factor becomes 1.2.

Limitations include reliance on estimates, market changes, and regulatory rules, which can affect both liabilities and asset valuations. Dekningsfaktor is thus best interpreted together with sensitivity analyses and accompanying metrics such as funding ratio, solvency capital, or liquidity buffers.

Etymology: from Norwegian/Swedish deknings- meaning coverage, and faktor meaning factor.