Finansinspektionen (FI) has enacted new rules for calculating the discount rates to be used by insurance companies for calculating technical provisions. The rules mainly affect life insurance companies and insurance companies that provide life and disability annuities. Occupational pension funds will also be able to use the new method.
The new discount rate method is based on the principles that will apply when the Solvency 2 regulatory framework, the upcoming EU regulatory framework for the insurance industry, is implemented.
After the ten year point (last liquid point), the discount rate curve will move towards an established long-term rate (the ultimate forward rate). As it combines a market-consistent with a model-based valuation approach, the new method for calculating the discount rate will be less sensitive to short term fluctuations in the market rates.
FI has also published new instructions and templates for its regulatory tool, the traffic light model, which measures the risk exposures for insurance companies.
The new rules for calculating the discount rate will come into force on the 31st December 2013. Changes proposed for the traffic light model will also become effective at that time.
When the new regulation has come into force, FI also intends to publish discount rate curves in conjunction with the solvency and traffic light reporting. A first publication of the new discount rate curves is planned for the end of November.
