18 February 2013

Swedish regulator plans to implement a Solvency II-based discount rate for insurance companies

The Swedish financial regulator Finansinspektionen plans to implement the discount rate of the Solvency II regulations. The new discount rate will be in place by the turn of the year. Until then, the floor on discount rate will remain in effect.

In the summer of 2012, Finansinspektionen (FI) implemented a temporary floor on the discount rate for life insurance companies and occupational pension funds to use when calculating the discount rate. The floor was introduced to prevent short-sighted behaviour that would have a negative impact on future pensioners. The original decision was for a temporary floor until 15 June, 2013. FI now plans to extend the floor until the end of the year, at which point FI will implement a new discount rate based on the methodology in Solvency II, the pending EU regulations for the insurance industry.

FI's proposal will be submitted for consultation in the spring and the planned date for its entry into force is 31 December, 2013. In order for insurance companies to be able to plan and manage their operations, FI has chosen to announce the upcoming proposal now.

Press release

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The Solvency II discount rate curve consists of two parts. Market rates are used for maturities that have deep, liquid, active and transparent markets, while the interest rates for longer maturities beyond a last liquid point (LLP) converge toward a long-term equilibrium rate called the ultimate forward rate (UFR).

European legislators have suggested an LLP of 20 years and a UFR of 4.2 per cent – a figure that reflects an assumed long-term average real yield of 2.2 per cent and expected inflation of 2 per cent.

The Dutch and Danish regulators introduced Solvency II discount rate methodology last year in response to persistently low interest rates.

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© Finansinspektionen - Swedish Financial Supervisory Authority