The curve published by the supervisor for discounting insurance liabilities, which makes solvency comparable across insurers at the price of some convention.
The value of an insurance liability depends entirely on the rate used to discount future cash flows, so half a percentage point moves a life insurer's solvency ratio by several points. Letting each undertaking pick its own curve would make balance sheets incomparable and hand management a lever, which is why the European supervisor publishes a monthly risk-free rate term structure that every undertaking applies. Its construction combines three elements that should be kept apart: rates observed in liquid markets, a credit risk adjustment stripping out the part of the swap rate that pays for counterparty risk, and extrapolation beyond the last liquid maturity. The third is the most argued over, since it covers exactly the distant maturities where pension and annuity liabilities sit and where no market states a price. The curve is therefore not an observation but a norm, which is at once its theoretical weakness and its practical virtue, comparability mattering here more than accuracy.
The European Insurance and Occupational Pensions Authority publishes the risk-free rate term structure applicable under Solvency II each month, a regime in force since 1 January 2016, and every undertaking in the Union uses it to discount technical provisions.
risk-free rate term structure, courbe EIOPA, RFR, structure par terme des taux sans risque