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Version status: Amended | Document consolidation status: Updated to reflect all known changes
Version date: 30 December 2019 - onwards
Version 2 of 2

Article 77d Volatility adjustment to the relevant risk-free interest rate term structure

DRAFT Paragraph replaced Article 1 Amendments to Directive 2009/138/EC of the Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (COM(2021) 581 final / 2021/0295 (COD)) (updated 18 June 2024 with Information Note - Proposals under the ordinary legislative procedure expected to undergo the Corrigendum Procedure in the European Parliament (part I))

1. Member States may require prior approval by supervisory authorities for insurance and reinsurance undertakings to apply a volatility adjustment to the relevant risk-free interest rate term structure to calculate the best estimate referred to in Article 77(2).

2. For each relevant currency, the volatility adjustment to the relevant risk-free interest rate term structure shall be based on the spread between the interest rate that could be earned from assets included in a reference portfolio for that currency and the rates of the relevant basic risk-free interest rate term structure for that currency.

The reference portfolio for a currency shall be representative for the assets which are denominated in that currency and which insurance and reinsurance undertakings are invested in to cover the best estimate for insurance and reinsurance obligations denominated in that currency.

3. The amount of the volatility adjustment to risk-free interest rates shall correspond to 65 % of the risk-corrected currency spread.

The risk-corrected currency spread shall be calculated as the difference between the spread referred to in paragraph 2 and the portion of that spread that is attributable to a realistic assessment of expected losses or unexpected credit or other risk of the assets.

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