The European Insurance and Occupational Pensions Authority (EIOPA) has kicked off today an exercise to challenge the "beta"-version of its risk free interest rate (RFR) coding used in the current preparatory phase. The published coding fully reflects the methodology set out in the Risk Free Interest Rate technical documentation published on EIOPA's website.
The aim of the exercise is to collect input from stakeholders and, in particular, the MatLab community that would help further improve the coding and spot possible errors.
In the first step, the RFR coding has already been reviewed by the national supervisory authorities, which are members of EIOPA's Board of Supervisors. In addition, EIOPA believes that such a highly complex product would benefit from input and proposals from all the interested parties in the course of the exercise. It will also enhance understanding of the RFR calculations and will contribute to the preparatory efforts for Solvency II.
To appreciate high-quality proposals from academia and, in particular, from students with MatLab expertise, EIOPA will consider providing them with expert support in selected research projects. EIOPA will also indicate the best proposals in a special list published on EIOPA's website.
EIOPA is going to revise the RFR coding based upon the results of the exercise and will publish the final RFR coding and methodology before 1 January 2016.
The exercise will close on 31 August 2015.
The materials necessary to carry out the exercise can be viewed
The RFR production consists of the following stages:
The current exercise strictly refers to the stage "Matlab coding".
"Beta" serves for the indication of the version's development status.
The relevant risk free interest rate term structures are used for the calculation of the technical provisions. The risk-free interest rates term structure is applied to discount (re)insurance obligations in such a manner that technical provisions reflect the current amount, which (re)insurance undertakings would have to pay if they were to transfer their obligations immediately to another (re)insurance undertaking (Article 76(2) of the Solvency II Directive).
By publishing risk free interest rates, EIOPA will ensure consistent calculation of technical provisions by (re)insurance companies.
The main legal basis of the RFR publication is Article 77e(1) of Directive 2009/138/EC (Solvency II Directive) and Recital 23 of the Delegated Regulation of Solvency II.