Question ID: 1343
Regulation Reference: Risk-Free Interest Rate - Extrapolation
Article: 46
Status: Final
Date of submission: 26 Jun 2018
Question
My question is regarding the new UFR changes. Currently the GBP UFR is 4.2%, and under the new methodology it will be 4.05% from January 2018.
However, because I am aware of this change, should my one year projections be constructed using 4.05% or 4.2% for the rest of this year? In other words does the methodology for accounting for a dynamically changing UFR come into effect now, or from January 2018?
EIOPA answer
Thank you for your question on the implementation of the Ultimate Forward Rate (UFR).
Please accept our sincere apologies for replying only with delay.
EIOPA applies the changes to the UFRs announced in April 2017 for reference dates since 1 January 2018. The first implementing acts which makes binding risk-free interest rates that are based on the new UFRs relates to the reporting reference dates of 31 March 2018 onwards. Where insurance and reinsurance undertakings projected the relevant risk-free interest rate term structures into the future, those changes to the UFRs were required to be taken into account in the projected term structures for 31 March 2018 onwards.
Moreover, it should be taken into account that further changes of the UFR in the following years are possible. In this respect, the statement in section 4 of the announcement of the UFRs for 2018 is relevant (see https://www.eiopa.europa.eu/sites/default/files/publications/consultations/updated_calculation_of_the_ufr_for_2018.pdf).