Prudential Regulation Authority Rulebook

5.1

Firms must ensure that the relevant risk-free interest rate term structure:

1. (1) is determined using, and consistent with, information derived from relevant financial instruments;
2. (2) takes account of relevant financial instruments of those maturities where the markets for those financial instruments as well as for bonds, are deep, liquid and transparent; and
3. (3) is only extrapolated for maturities where the markets for the relevant financial instruments or for bonds are not deep, liquid and transparent.

5.2

For the purpose of 5.1, the extrapolated part of the relevant risk-free interest rate term structure shall be based on forward rates converging smoothly from one set of forward rates in relation to the longest maturities for which the relevant financial instrument and the bonds can be observed in a deep, liquid and transparent market to an ultimate forward rate.

[Note: Art. 77a of the Solvency II Directive]