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European Insurance and Occupational Pensions Authority

Basic risk-free interest rate term structure of currencies pegged to the euro

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TITLE I > CHAPTER III > SECTION 4 > SUBSECTION 2

Article number:  48

1. For a currency pegged to the euro, the basic risk-free interest rate term structure for the euro, adjusted for currency risk, may be used to calculate the best estimate with respect to insurance or reinsurance obligations denoted in that currency, provided that all of the following conditions are met:

(a) the pegging ensures that the exchange rate between that currency and the euro stays within a range not wider than 20 % of the upper limit of the range;

(b) the economic situation of the euro area and the area of that currency are sufficiently similar to ensure that interest rates for the euro and that currency develop in a similar way;

(c) the pegging arrangement ensures that the relative changes in the exchange rate over a one-year-period do not exceed the range referred to in point (a) of this paragraph, in the event of extreme market events, that correspond to the confidence level set out in Article 101(3) of Directive 2009/138/EC;

(d) one of the following criteria is complied with:

(i) participation of that currency in the European Exchange Rate Mechanism (ERM II);

(ii) existence of a decision from the Council which recognizes pegging arrangements between that currency and the euro;

(iii) establishment of the pegging arrangement by the law of the country establishing that country's currency.

For the purpose of point (c), the financial resources of the parties that guarantee the pegging shall be taken into account.

2. The adjustment for currency risk shall be negative and shall correspond to the cost of hedging against the risk that the value in the pegged currency of an investment denominated in euro decreases as a result of changes in the level of the exchange rate between the euro and the pegged currency. The adjustment shall be the same for all insurance and reinsurance undertakings.

Metadata

RULEBOOK TOPIC:  SUBSECTION 2 - Basic Risk Free interest rate term structure

RULEBOOK CATEGORY:  DELEGATED REGULATION (EU) 2015/35

Last update on:  03 May 2021