On 5 April 2017, the European Insurance and Occupational Pensions Authority (EIOPA) announced changes1 to the Ultimate Forward Rate used in the Solvency II valuation of insurers’ technical provisions that will come in force at the beginning of 2018

  • These changes will have an adverse impact on European life insurers’ solvency and their ability to meet dividend expectation if insurers wish to maintain their capital adequacy ratios
  • Based on the impact analysis carried out by EIOPA,2 we summarise the impact and highlight the implications of the forthcoming changes for insurers
  • In light of the forthcoming changes, insurers are well-advised to revisit their asset allocations to increase the likelihood that returns on their investments over time would be sufficient to cover the higher value of their liabilities


Under the Solvency II regime, insurers are required to hold capital against adverse changes in the value of their assets and liabilities. The value of insurance liabilities is determined by discounting the future cashflows using a risk-free interest rate term structure. For shorter maturities, this term structure is derived from the market prices of interest rate swaps and government bonds. For longer maturities (20 years and over for Euro-denominated liabilities), it is extrapolated using the Ultimate Forward Rate (UFR).


1 EIOPA sets out the Methodology to Derive The Ultimate Forward Rate – EIOPA, 5 April 2017

2 Risk-free interest rate term structures: Results of the impact analysis of changes to the UFR – EIOPA, 30 March 2017