Today, the European Insurance and Occupational Pensions Authority (EIOPA) published an updated technical documentation on the methodology to derive the relevant risk-free interest rate term structures (RFR) for Solvency II.
The update reflects the following changes to the methodology:
- To avoid the impact of negative euro swap rates on the calculation of the credit risk adjustment to the RFR, its methodology was modified. This change affects the calculation of the adjustment for the Czech koruna and for sixteen non-EEA currencies.
- The Thai baht interest rate swaps for the maturities of 6, 8 and 9 years were removed from the list of instruments used to derive the RFR for the Thai baht. The change was done because the financial markets for these swaps are not anymore deep, liquid and transparent.
Furthermore, EIOPA supplements the technical documentation with two new Excel files, which illustrate the calculation of the volatility adjustment for one euro area and for one non-euro area country.
These changes will already be reflected in the RFR Coding to be released on 7 June 2016 simultaneously with the RFR monthly technical information with reference to the end of May 2016.
Click here to view the updated Solvency II RFR technical documentation.
Since February 2015 EIOPA has published technical information on the RFR term structures as well as – after having previously consulted on – the technical documentation with a complete description of the inputs, assumptions and methodology applied.
The legal basis for the publication of the technical information is laid out in Article 77e(1) of Directive 2009/138/EC (Solvency II Directive).