Demographic Change and the Ultimate Forward Rate

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ID: 321462
2026
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Abstract
Abstract This chapter discusses the risk-free interest rate term structure, which is published at regular intervals by EIOPA for the calculation of technical provisions under Solvency II. The ultimate forward rate (UFR) plays a key role in this context. In this chapter, it is suggested to base estimates of the ultimate forward rate on the natural rate of return, using a quantitative macroeconomic model. The approach followed a forward-looking mechanism by modeling how demographic change suppresses asset returns because of labour shortage and capital abundance. An analysis is made of the impact of demographic change on asset returns within a large-scale quantitative overlapping generations model that uses inputs from a detailed population projection model for Germany. The analysis suggests that until 2060 the estimate of the real natural rate decreases to −1.7% to −2.1%. From this perspective, negative real interest rates can be expected for the next decades, and nominal rates will be only slightly above zero.
Reference Key
openalex_W7169570759 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Alexander Ludwig, J. Otte
Journal Oxford University Press eBooks
Year 2026
DOI
10.1093/law/9780198927617.003.0022
URL
https://doi.org/10.1093/law/9780198927617.003.0022
Keywords Keywords not found

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