Comparison of UFR implementations in Europe

  • Danqin Jiang Danqin Jiang

Several ultimate forward rate methods have been proposed to extrapolate the riskfree yield curve, which aims to value long-term liabilities. Different UFR methods may lead to different values for the long-term liabilities. Also different UFR methods may have different impact on the solvency risk of the insurer. In this thesis, I compare five UFR methods in terms of their valuation impact and solvency risk. It turns out that some UFR methods tend to offer a higher price than the others. And the difference of UFR liabiltiy values can be up to 2.32% in this thesis. Besides, if the UFR value of the Swedish and EIOPA methods is set to be around the marketUFR, then there is no material difference between the solvency risk corresponding to the UFR method.What’s more, given the UFR value of the Swedish and EIOPA methods higher than the market UFR, the SCR of Swedish UFR is higher than that of EIOPA UFR, which is about 2%. This number decreases after changing the convergence period from 40 years to 10 years.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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