Agenda item 6: (6.1) Risk free rate methodology: ultimate forward rate Justin Wray IRSG meeting on 15 September 2016

Introduction Issues Action asked from IRSG Follow-up EIOPA’s consultation on the methodology for the ultimate forward rate Action asked from IRSG To note Follow-up None at this stage

Consultation questions Should UFRs be based on combination of real interest rates and inflation? In particular on past real interest rates and expected inflation? Should the past in relation to interest rates start in 1960? Should however greater weight be given to the more recent past than the more distant past? Unlike interest rates, should there be four bands for expected inflation? Should the extent of any annual change to the UFR be limited? Should annual changes to the UFR only arise when the current UFR differs materially (5bp) from the previous UFR?

Responses to consultation 16 responses received We thank the IRSG for its response General agreement by respondents to essential parts of the methodology Though support to limit annual changes to 10 rather than 20 bp Comments also received on: Which countries to include in deriving real rate Whether to apply geographical weights to the selected countries Whether to apply slightly greater weight to more recent data No agreement on timing of first application and frequency of recalculation

Next steps Continuing discussion among EIOPA members