Long-term guarantee measures and transitionals

A life insurer holds bonds to pay annuities over thirty years. When credit spreads widen, the bonds fall in value at once, but the annuities are still paid from the same coupons. Under pure market-consistent valuation (L4.6.02: Market-consistent valuation and the risk-free curve) own funds would swing with every spread move. The long-term guarantee measuresLong-term guarantee (LTG) measures: the adjustments to the risk-free rate and the extrapolation rules that Directive 2014/51/EU (Omnibus II) added for business with long-term guarantees: the matching adjustment, the volatility adjustment and the extrapolation to the ultimate forward rate. are the rules that let the liability side move too. On RiskAtoms Insurance SE they are worth from €531.8m to €1,303.7m of own funds, and the book uses none of them.

The matching adjustment

The matching adjustmentMatching adjustment (MA): an addition to the risk-free rate for a ring-fenced block of predictable liabilities backed by assets held to maturity whose fixed cash flows replicate them: the assets' spread less a fundamental spread for default and downgrade (Directive Arts 77b–77c). is for business the insurer can hold to maturity without being forced to sell. Art 77b(1) asks for a portfolio of bonds and similar assets assigned to the obligations, kept separate from the rest of the business, whose fixed cash flows replicate the liabilities' in the same currency. The liabilities may carry no future premiums, only longevity, expense, revision and mortality risk (with a mortality stress raising the best estimate by no more than 5%), and no option except a limited surrender option. Annuities in payment fit; Level 1's promise that annuities have “special rules” (L1.3.04: Annuities and perpetuities) is this one.

The adjustment is the assets' spread less the fundamental spreadFundamental spread: the part of a bond's spread that pays for the insurer's retained risk of default and downgrade. It is not passed into the MA, and may not be below 30% (Member States' central governments and central banks) or 35% (other assets) of the long-term average spread (Art 77c(2)). (Art 77c), which may not be below 30% of the long-term average spread for exposures to Member States' central governments and central banks or 35% for others. On the book's annuities: 120bp − 45bp = 75bp, which cuts their best estimate from €19,928.3m to €18,624.6m. A firm that breaks the conditions and cannot restore them within two months loses the MA on all its business for a further 24 months (Art 77b(2)). And the MA cannot be combined with the VA or the transitional on rates for the same obligations (Art 77b(3)).

The volatility adjustment, today and from 2027

The volatility adjustmentVolatility adjustment (VA): an addition to the risk-free rate for all eligible liabilities, based on the spread of a reference portfolio of assets, so that short-lived spread moves do not flow fully into own funds (Art 77d). needs no ring-fence. Until 29 January 2027 it is 65% of the risk-corrected spreadRisk-corrected spread: the reference portfolio's spread over the risk-free rate less the part that pays for expected defaults and other credit risk. of a reference portfolio per currency, with a country increase in some cases (Art 77d(3)–(4)); EIOPA publishes it with the risk-free curves. On 30bp that is 19.5bp, which lowers the book's best estimate of €50,921.6m by €531.8m.

From 30 January 2027 the review replaces the formula with 85% × CSSRCredit spread sensitivity ratio (CSSR): from 2027, the ratio of how much the insurer's assets move with spreads to how much its best estimate moves with rates, between 0 and 1; it scales the VA to the insurer's own position (Art 77d as amended). × RCS (Art 77d(3) as amended), adds a macro-economic component for countries whose spreads move far from the currency's, lets supervisors stop a firm applying the VA, and allows an approved undertaking-specific adjustment to the spread capped at 105%. The book's bonds move almost as much with spreads as its best estimate does with rates: CSSR 0.975. So on the same spread the 2027 VA is 24.9bp and worth €674.2m.

Transitionals and extrapolation

Two measures smoothed the move from Solvency I in 2016. The transitional on the risk-free rateTransitional measure on the risk-free rate: for contracts written before 2016, discounting partly at the old Solvency I rate, the part falling to nil on 1 January 2032 (Art 308c). (Art 308c) and the transitional on technical provisionsTransitional deduction on technical provisions (TMTP): a deduction of part of the excess of Solvency II provisions over Solvency I provisions at 1 January 2016, falling linearly to nil on 1 January 2032 (Art 308d). (Art 308d) need prior approval, apply only to business written before 2016, and fall linearly at each year end to nil on 1 January 2032. During 2025 43.75% of the original deduction remains; during 2027, 31.25%. A firm that would fail its SCR without them reports each year on how it will comply by the end. The book has none: No transitional: the book has no Solvency I provisions, and its Solvency II provisions are below its IFRS ones.

Extrapolation is the third LTG measure: beyond the last liquid point (20 years for the euro) the curve is drawn towards the ultimate forward rate, 3.30% for 2026 and kept at that level for 2027 (EIOPA, 30 March 2026). L4.6.02: Market-consistent valuation and the risk-free curve built it; on the book, an illustrative Smith–Wilson curve moves own funds by €12.3m against Level 3's flat curve, and the 2027 method by €8.1m more. The book's cash flows are short enough that the tail matters little.

Each measure adds to the discount rate, so its effect is a present value at a higher rate (M-A05: The number e and continuous growth). Directive Arts 77a–77d and 308c–308d.

• $s_{\text{assets}}$ is the MA portfolio's spread, FS the fundamental spread, LTAS the long-term average spread; RCS the risk-corrected spread; $D$ the best estimate's modified duration (5.48 years on the book).
• $\bar f_h$ is the average forward $h$ years past the first smoothing point (20 years), LLFR its last liquid forward and $α$ the convergence speed: 20% in 2027 falling to 11% from 2032 (Delegated Regulation 2026/269 Art 46a). With UFR 3.30%, $\omega = 3.247\%$. The UFR's weight 40 years on, 1 − (1 − e^(−40α))/(40α), is 87.50% in 2027 and 77.55% from 2032, above the 77.5% floor of the amended Art 77a.
• $s(y)$ is the share of the transitional measures still applicable during year $y$. The book discounts annually, so the e-form is an approximation.

Switch one measure on and move the spread. The ORSA must show compliance with and without the measure (Art 45(2a)), so both ratios sit side by side.

€ millions, 31 December 2025, illustrative RCS 30bp, SCR held at €5,000m, before tax. illustrative

Firms using these measures disclose the effect of removing each of them in their SFCR (Art 51(1a); for the transitionals, Arts 308c(4) and 308d(5)) and assess it in the ORSA (Art 45(2a)).

Directive 2009/138/EC Arts 77a–77e, 45(2a), 51 and 308c–308e, as amended by Directive (EU) 2025/2 from 30 January 2027; Delegated Regulation (EU) 2026/269. Status as at 4 November 2026 as at 4 Nov 2026.

• The MA adds the assets' spread less a fundamental spread to the rate for a ring-fenced, cash-flow-matched block of predictable liabilities (Arts 77b–77c); it cannot be combined with the VA on the same obligations.
• The VA is 65% of a risk-corrected spread today and 85% × CSSR × RCS from 30 January 2027: on an illustrative 30bp, 19.5bp and 24.9bp, worth €531.8m and €674.2m of own funds.
• An adjustment works through discounting: ΔOF ≈ BE (1 − e^(−D·adj)). On the book, the MA on the annuities is worth €1,303.7m (ratio 212.1%).
• The transitionals (Arts 308c–308d) fall by 1/16 a year to nil on 1 January 2032; during 2027, 31.25% remains.
• Users show their solvency with and without each measure in the ORSA and disclose the effect of removing it in the SFCR.

LTG measures

Long-term guarantee (LTG) measures: the adjustments to the risk-free rate and the extrapolation rules that Directive 2014/51/EU (Omnibus II) added for business with long-term guarantees: the matching adjustment, the volatility adjustment and the extrapolation to the ultimate forward rate.

Matching adjustment (MA)

Matching adjustment (MA): an addition to the risk-free rate for a ring-fenced block of predictable liabilities backed by assets held to maturity whose fixed cash flows replicate them: the assets' spread less a fundamental spread for default and downgrade (Directive Arts 77b–77c).

Fundamental spread

Fundamental spread: the part of a bond's spread that pays for the insurer's retained risk of default and downgrade. It is not passed into the MA, and may not be below 30% (Member States' central governments and central banks) or 35% (other assets) of the long-term average spread (Art 77c(2)).

Volatility adjustment (VA)

Volatility adjustment (VA): an addition to the risk-free rate for all eligible liabilities, based on the spread of a reference portfolio of assets, so that short-lived spread moves do not flow fully into own funds (Art 77d).

Risk-corrected spread

Risk-corrected spread: the reference portfolio's spread over the risk-free rate less the part that pays for expected defaults and other credit risk.

CSSR

Credit spread sensitivity ratio (CSSR): from 2027, the ratio of how much the insurer's assets move with spreads to how much its best estimate moves with rates, between 0 and 1; it scales the VA to the insurer's own position (Art 77d as amended).

Transitional on the risk-free rate

Transitional measure on the risk-free rate: for contracts written before 2016, discounting partly at the old Solvency I rate, the part falling to nil on 1 January 2032 (Art 308c).

Transitional on technical provisions (TMTP)

Transitional deduction on technical provisions (TMTP): a deduction of part of the excess of Solvency II provisions over Solvency I provisions at 1 January 2016, falling linearly to nil on 1 January 2032 (Art 308d).