The European Insurance and Occupational Pensions Authority (EIOPA) published the methodology to derive the Ultimate Forward Rate (UFR) and its implementation process.
The methodology follows the principles laid down in the Solvency II legislative framework, in particular to be stable over time and to be only changed as a result of changes in long-term expectations. EIOPA’s methodology derives the UFR in a transparent, prudent, reliable and objective manner that is consistent over time. Furthermore, the UFR takes into account expectations of the long-term real interest rate and of expected inflation.
The UFR methodology will be applied for the first time in the calculation of the risk-free interest rates of January 2018 to be published in February 2018.
In line with the methodology, and reflecting the significant changes in the long-term expectations of interest rates in recent years, the calculated value of the UFR for the euro is 3.65%. Annual changes will not be higher than 15 basis points. In a first step of the phasing-in the current UFR of 4.2% will therefore be lowered in January 2018 to 4.05%.
Gabriel Bernardino, Chairman of EIOPA, said: “This methodology strikes the right balance between a stable UFR and the need to adjust it in case of changes in longterm expectations about interest rates and inflation. The methodology ensures that the UFR moves gradually and in a predictable manner, allowing insurers to adjust to changes in the interest rate environment and ensuring policyholder protection.”
The consultation report including EIOPA’s responses to the stakeholders’ comments will be published by the beginning of May 2017.
Press release
Specification of the methodology to derive the UFR
Results of the impact analysis of changes to the UFR
Calculation of the UFR for 2018
Frequently Asked Questions
© EIOPA
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