This final report includes a summary of the main comments received by stakeholders and EIOPA’s resolution of these comments.
On 20 April 2016, EIOPA launched a public consultation a proposal for the methodology to derive the ultimate forward rate (UFR) and its implementation. The public consultation was part of EIOPA’s work on the UFR methodology that started in May 2015. That work included a workshop with stakeholders in July 2015 based on an issue paper on the UFR methodology.
Article 77a of Directive 2009/138/EC (Solvency II Directive) requires that the risk-free interest rates used in the valuation of insurance liabilities shall be extrapolated towards a UFR for maturities where the markets are no longer deep, liquid and transparent. The UFR that EIOPA currently applies in the calculation of the risk-free interest rates is for most currencies 4.2%. Article 47 of the Commission Delegated Regulation (EU) No 2015/35 (Delegated Regulation on Solvency II) requires that the UFR is derived on the basis of a clearly specified methodology.
According to Article 77e(1) of the Solvency II Directive, EIOPA is required to derive and publish risk-free interest rates at least on a quarterly basis. In order to ensure uniform conditions for the valuation of insurance and reinsurance liabilities, the European Commission can make the risk-free interest rates binding by setting it out in implementing acts in accordance with Article 77e(2). The implementing acts shall make use of the technical information published by EIOPA.
This final report includes a summary of the main comments received by stakeholders and EIOPA’s resolution of these comments in section 2, the final methodology to derive the UFR and how it will be implemented in section 3, the results of an information request to undertakings on the UFR in section 4 and a resolution table with all stakeholder comments in the Annex.
EIOPA has calculated ultimate forward rate (UFR) for 2018 in accordance with the methodology to derive the UFR. For the euro the calculated UFR for 2018 is 3.65%.
As the current UFR for the euro is 4.2% and the annual change of the UFR is limited to 15 basis points according to the methodology the applicable UFR is 4.05%. That UFR is for the first time applicable for the calculation of the risk-free interest rates of 1 January 2018.
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