Maximum technical interest rates in life insurance under Solvency II

Maximum technical interest rates in life insurance under Solvency II


Thanks! Share it with your friends!


You disliked this video. Thanks for the feedback!

Sorry, only registred users can create playlists.


Speaker(s): Michael Pannenberg (HDI Leben)

Setting a maximum technical interest rate (MTIR) has been a standard procedure to assure that sufficiently high reserves are built up under local GAAP. Since premiums need to be high enough to finance reserves, this procedure leads to an industry-wide limitation of technical interest rates for market premiums.

With the introduction of Solvency II, a discussion emerged in Germany, if it remains appropriate to set up an MTIR and how such an upper bound for technical rates of statutory reserves should be determined.
In this context, the German Actuarial Association formed a working group, whose results are presented here in a form that no longer should be restricted to the particularities of the German market. Its main conclusions are as follows:

  • Like under Solvency II, an initial period tied to the durations of Fixed Income Securities for which there exists a deep and liquid market and bounded by a Last Liquid Point (LLP) should be distinguished from a final period characterized by an asymptotic convergence of forward rates to an Ultimate Forward Rate (UFR). A choice of two corresponding MTIRs then allows to avoid a systematic divergence between technical reserves under local GAAP and Solvency II.
  • Due to a demanding capital market environment, life insurance has seen a rapid evolution of ALM techniques. In Germany, this additionally has been pushed by the fact, that guaranteed benefits no longer emerge directly from interest rates and compounding processes but from multiples of the sum of premiums paid. For such products (and only for these) with an explicitly defined link between liabilities and backing assets it should be possible to replace the former discounting process by a joint valuation of the product and its backing assets, which thus are considered as one single unit of account.

Post your comment

Sign in or sign up to post comments.
Be the first to comment