The European Insurance and Occupational Pensions Authority (EIOPA) have issued a press release1confirming that the ultimate forward rates (UFRs), used by insurance and reinsurance undertakings to calculate the risk-free interest rate term structures under Solvency II, will remain unchanged until the end of 2016.

EIOPA wants to ensure the stability of the framework for the implementation of Solvency II and intends to decide on the outcome of the review and on how and when to implement it in September 2016.

There is a requirement under Solvency II for the calculation of UFRs to take account of the expectations of the long-term real interest rate and of expected inflation. For most currencies, including the Euro, the UFR is currently set at 4.2% as the sum of the long-term averages of past real rates (2.2%) and on the inflation target of the European Central Bank (2%).