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20 April 2016

EIOPA consults on methodology to derive ultimate forward rate (UFR) under Solvency II


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To achieve the main objective of Solvency II, protection of policyholders, the UFR needs to be chosen appropriately. The proposed UFR strives for a balance between the stability of the UFR and the need to adjust the UFR in case of change in long-term expectations about interest rates and inflation.


According to the Solvency II legislative framework the ultimate forward rate shall be stable over time and shall only change as a result of changes in long-term expectations.

The methodology to derive the ultimate forward rate shall be clearly specified and be determined in a transparent, prudent, reliable and objective manner that is consistent over time.

Furthermore, the ultimate forward rate shall take account of expectations of the long-term real interest rate and of expected inflation.

EIOPA invites stakeholders and interested parties to provide feedback on the proposal for the UFR methodology and its implementation (section 2).

The consultation paper also explains the underlying rationale of European Insurance and Occupational Pensions Authority’s(EIOPA) proposal (section 3) and analyses the impact of changing the UFR on the risk-free interest rates, the time value of money and on the present value of insurance cash-flows (section 4).

The consultation period will end on 18 July 2016. EIOPA plans to decide on the outcome of the review in September 2016. The currently used UFRs will not be changed until at least the end of 2016.

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Consultation paper

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