The Swedish regulator Finansinspektionen (FI) is proposing a new Solvency II-based approach to calculating the discount rate for insurance companies. The approach is intended to be more stable and predictable for the companies, which in turn protects policy-holders.
In order for insurance companies to be able to manage and control their risks from a long-term perspective, FI believes that it is necessary for the approach to be similar to the approach that will apply when the Solvency II regulatory framework is implemented. This approach for calculating the discount rate will require companies to use market data to determine a discount rate curve for maturities up to ten years. After the 10 year point (last liquid point), the discount rate curve will move towards an established long-term rate (the ultimate forward rate). This new approach makes the discount rate less sensitive to market fluctuations since it is based on both market and model assumptions.
Primarily life insurance companies and non-life insurance companies with life and disability annuities will be affected by the new regulations. Occupational pension funds will also be able to use the new approach.
The proposal is for the new discount rate calculation to take effect from 31 December, 2013. The proposal is now being submitted for consultation and affected organisations will have until 19 July to submit comments. FI plan to hold a consultation meeting in the near future during which affected organisations will have the opportunity to ask questions and offer feedback to FI’s proposal.
Full press release
© Finansinspektionen - Swedish Financial Supervisory Authority
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