10

### Risk-Free Interest Rates

10.1

A *firm* may only apply the* risk-free interest rate transitional measure*:

- (1) in respect of
*admissible insurance and reinsurance obligations*; and - (2) if it has received approval to do so from the
*PRA*.

- 01/01/2016

10.2

Where a *firm* applies the *risk-free interest rate transitional measure*, it must calculate the adjustment for each currency as a portion of the difference between:

- (1) the interest rate as determined by the
*firm*in accordance with INSPRU 3.1.28R to INSPRU 3.1.47R of the*PRA Handbook*as at 31 December 2015; and - (2) the annual effective rate, calculated as the single discount rate that, where applied to the cash-flows of the portfolio of
*admissible insurance and reinsurance obligations*, results in a value that is equal to the value of the*best estimate*of the portfolio of*admissible insurance and reinsurance obligations*where the time value is taken into account using the*relevant risk-free interest rate term structure*.

**[Note: Art. 308c(2) of the Solvency II Directive]**

- 01/01/2016

10.3

The portion referred to in 10.1 shall decrease linearly at the end of each year from 100% during 2016 to 0% during 2032.

**[Note: Art. 308c(2) of the Solvency II Directive]**

- 01/01/2016

10.4

Where a *firm* applies the *volatility adjustment* in accordance with Technical Provisions 8, the *relevant risk-free interest rate term structure* referred to in 10.2(2) shall be based on the risk-free interest rates adjusted with the *volatility adjustment*.

**[Note: Art. 308c(2) of the Solvency II Directive]**

- 01/01/2016

10.5

A *firm* that applies the *risk-free interest rate transitional measure* must:

- (1) not include the
*admissible insurance and reinsurance obligations*in the calculation of the*volatility adjustment*; - (2) not apply the
*technical provisions transitional measure*; and - (3) as part of its
*SFCR*publically disclose that it applies the*risk-free interest rate transitional measure*and the quantification of the impact of not applying the*risk-free interest rate transitional measure*on its financial position.

**[Note: Art. 308c(4) of the Solvency II Directive]**

- 01/01/2016