Updated technical RFR documentation applicable as of 1 January 2024

EIOPA published the updated Technical Documentation of the methodology to derive EIOPA’s risk-free interest rate term structures. This documentation is set to take effect on 1 January 2024, with the first calculation under the new rules scheduled for the end of January 2024. Until the close of 2023, the existing technical documentation will continue to apply.
The RFR term structures are essential for determining technical provisions for insurance and reinsurance obligations, as mandated by the Solvency II Directive. EIOPA periodically updates this technical information to ensure consistency in calculating these provisions across the European insurance market.
The latest update introduces several changes. Notably, it extends the instrument list, updates instrument types for certain currencies, and adjusts tenors for government bonds and interest rate swaps in various currencies. These modifications aim to improve the accuracy and uniformity of RFR calculations.
These changes stem from various sources, including the Peer Country Review for 2023 (eventid=22367), which led to adjustments in the peer countries used for calculating long-term average spreads of government bonds. Additionally, the method for calculating the Credit Risk Adjustment for Situation 3 Currencies has been updated.
CHANGES WHICH WILL BECOME EFFECTIVE AS OF 1 JANUARY 2024:
Changes (errata):
– Table 2 – Swap and government bond RICs used for the derivation of the technical information:
+ The instrument list has been extended from GVT/SWP to GVT/SWP/OIS.
+ For currencies for which the risk-free rate term structure is based on OIS the instrument has been updated from SWP to OIS. The affected currencies are CHF, GBP, JPY, SGD, and USD.
Changes stemming from the DLT Assessment 2023:
– Table 2 – Swap and government bond RICs used for the derivation of the technical information:
+ For Canada (CAD) the instrument changed from SWP to OIS and the relevant RIC has been added.
+ For India (IND) and Thailand (THB) the instrument changed from GVT to OIS and the relevant RICs have been added.
– Table 3 – EEA currencies: instruments and tenors used for the derivation of the basic risk-free interest rate term structures:
+ CHF – Added: 1Y.
+ CZK – Added: 3Y.
+ ISK – Added: 6Y, 8Y; Deleted: 3Y, 4Y.
– Table 4 – Non-EEA currencies: Tenors of government bonds used for the derivation of the basic risk-free interest rate term structures:
+ CLP – Added: 7Y; Deleted: 4Y, 6Y.
+ COP – Added: 7Y.
+ RUB – Added: 10Y, 11Y, 13Y.
+ TRY – Added: 7Y; Deleted: 6Y.
+ INR and THB have been removed from Table 4 and added to Table 5 (see below) due to change to OIS.
– Table 5 – Non-EEA currencies: tenors of interest rate swaps used for the derivation of the basic risk-free interest rate term structures:
+ CAD – Although the instrument changed from SWP to OIS, the tenor points including the LLP are unchanged: 1-5Y, 7Y, 10Y, 30Y.
+ GBP – Added: 25Y.
+ HKD – Deleted: 4Y, 7Y.
+ INR – Added: 1-5Y.
+ JPY – Deleted: 25Y.
+ MXN – Added: 7Y.
+ NZD – Deleted: 6Y, 7Y.
+ SGD – Deleted: 3Y.
+ THB – Added: 1Y, 2Y, 4Y, 10Y.
+ ZAR – Added: 7Y, 8Y.
+ USD – Added: 6Y, 8Y, 12Y, 25Y.
– Table 6 – Currencies with DLT overnight indexed swap markets: the entry for Canada has been removed from the table due to the change of the input instrument to OIS resulting in a CRA equal to zero.
– Table 8 – Last liquid points of non-EEA currencies:
+ INR: LLP from 10Y to 5Y due to change to OIS.
+ THB: LLP from 15Y to 10Y due to change to OIS.
– Table 14 – Disregarded maturities for the LTAS- calculation of government bonds:
+ BGN – Added: 6Y, 8Y; Deleted: 7Y, 9Y.
+ DKK – Added: 4Y, 6Y, 10Y; Deleted: 3Y, 5Y, 9Y.
+ ISK – Added: 6Y, 8Y; Deleted: 3Y, 4Y.
+ CLP – Added: 5Y, 7Y; Deleted: 4Y, 6Y.
+ COP – Removed from table due to no more disregarded LTAS maturities.
+ HKD – Added: 6Y, 9Y; Deleted: 10Y.
+ MXN – Added: 6Y, 8Y, 10Y; Deleted: 5Y, 7Y.
+ RUB – Removed from table due to no more disregarded LTAS maturities.
+ TRY – Added: 7Y; Deleted: 6Y.
+ ZAR – Added: 2Y, 5Y; Deleted: 4Y.
– C.7 Annex to Section 6: History of relevant financial instruments: updated for the changes as indicated above.
+ G.1 Annex to subsection 12.3 – History of government bond rates for calculating the LTAS: updated for the changes as indicated above.
Changes stemming from the Peer Country Review 2023 Q1:
– Table 12 – Peer countries as issuers for the calculation of the long-term average spreads ofgovernment bonds:
+ Change of peer country for Cyprus from Portugal to Italy.
Changes stemming from the Change of the CRA for Situation 3 Currencies:
– Paragraph 7.3.8: the method for calculating the CRA for Situation 3 Currencies has been updated to take account of the new method.