Question ID: 3564
Regulation Reference: Risk-Free Interest Rate - Extrapolation
Valdkond: Risk Free Rate (RFR)
Olek: Final
Date of submission: 07 May 2026
Question
How can the forward rates f_20,25, f_20,30, f_20,40 and f_20,50 be derived from par swap rates with maturities 1, 2,3,…,10,12,15,20,25,30,40,50? the same assumption (constant 1-year forward rates) should be used as for f_15,20? These forward rates are required for the calculation of the Last Liquid Forward Rate (LLFR) under the new extrapolation methodology introduced in the Solvency II Review 2020. does EIOPA plan a dual run (LSP-Extrapolation vs SW-Extraplolation) for the implementation of review 2020?
Background of the question
In the new extrapolation method for RFR curves (LSP approach), the LLFR is calculated using forward rates both before and after the FSP. While an explicit assumption is provided for the forward rates before the FSP (constant 1-year forward rates), neither a methodology nor an assumption is specified for deriving the multi-year forward rates beyond the FSP (see A.83, Annex 2.5 of EIOPA-BoS-20-750 Background Analysisthe FSP. (See A.83, Annex 2.5, eiopa-bos-20-750-background-analysis)
EIOPA answer
We have recently published the new RFR Technical Documentation for 2027 which includes a description of the extrapolation.
You can find it at:
The description of how the forward rates in question are derived can be found in paragraphs 8.5.2 and 8.5.6.
Furthermore, we have released an Excel workbook exemplifying the extrapolation at:
EIOPA plans to publish term structures using the new methodology in parallel with the currently SW-extrapolated curves in a preparatory phase. More details on that will be released in due course.