Question ID: 673
Regulation Reference: Risk-Free Interest Rate - Extrapolation
Article: 77a
Status: Final
Date of submission: 01 Apr 2016
Question
I have a question in relation to the EIOPA risk-free curve, namely, the short end rate extrapolation (for maturities shorter than the first 1 year point).
Is it allowable to add a short market rate (eg, overnight, or similar) to the curve construction, or is the Smith-Wilson extrapolation method supposed to be used for maturities shorter than 1 year, without additional constraints?
EIOPA answer
We currently do not provide guidance on how to determine the risk-free interest rates for maturities shorter than one year. Where insurance and reinsurance undertakings derive such rates for the calculation of technical provisions, they should do so in line with the relevant legal provisions, in particular Articles 43 to 53 of the Delegated Regulation on Solvency II (Commission Delegated Regulation (EU) 2015/35).