EUROPE – Sweden's financial regulator, Finansinspektionen (FI), has set out details of its new Solvency II discount rate for insurers and occupational pension firms, saying the rate should be more stable and predictable.

The proposal is now being submitted for consultation, FI said.

It added: "In order for insurance companies to be able to manage and control their risks from a long-term perspective, FI believes it is necessary for the approach to be similar to the approach that will apply when the Solvency II regulatory framework is implemented."

Companies will have to use market data to calculate the discount rate under the new method, determining a discount rate curve for maturities of up to 10 years, the regulator said.

After the 10-year point – the last liquid point – the curve will then move towards an established long-term rate – the ultimate forward rate, FI said.

"This new approach makes the discount rate less sensitive to market fluctuations since it is based on both market and model assumptions," it said.

While it is primarily life insurance companies and non-life insurance companies with life and disability annuities that will be affected by the new regulations, FI said occupational pension funds would also be able to use the new approach.

Under the proposal, the new discount rate will take effect from 31 December.

Organisations affected by the new plan have until 19 July to comment on it, the regulator said, adding that it also planned to hold a consultation meeting soon to allow questions and feedback.

In February, FI announced it was extending the temporary floor to the discount rate used by pension funds until the end of 2013, to dovetail with the implementation of a Solvency II-based discount rate.

FI also said it would develop the traffic-light model – the supervisory tool it uses to measure insurance companies' exposure to risk – to bring it into line with the new regulations.

Changes to this will be announced after the summer, it said, with the preliminary start date for this to be in the last quarter of 2013.

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