- EIOPA has published a new UFR for insurers, which will be effective as of January 2018
- The new UFR is slightly lower than the initial proposal but includes a somewhat longer phasing-in period
- If yields stay at current levels, the UFR will be continuously adjusted downwards
- Given the more gradual implementation, we expect that insurers will have ample time to adhere to new capital requirements and to assess their strategic asset allocation
- As such, we expect no direct impact in the rates market following the new proposal
- The new UFR will eventually lead to an overall increase in demand for long dated swaps and bonds
- Going forward, we judge that hedging in the ultra-long end via core government bonds could be favoured over swaps
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