Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes - June 2013 Review of Long-term Assumptions

Published 4 Jul 2013
Page updated 7 Aug 2013

The purpose of this paper is to document a review of the long-term assumptions that were originally set in the Methodology published July 2010.

The Treasury has published the associated Methodology which comprises three papers; the original methodology dated July 2010 and two subsequent papers dated May 2012 and June 2013 (this paper). This paper documents the latest review of the long-term assumptions in the Methodology. The long-term nominal risk free rate has now been reduced to 5.5% and changes have been made to the bridging between the end of the market yield curve and the long-term assumptions.

This methodology is not intended to apply to the valuation of traded securities.

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1 Introduction 1.1 Background and purpose 1.2 Approach 1.3 Summary of findings 2 Real long-term risk-free discount rates 2.1 Introduction 2.2 Market data 2.3 The Treasury fiscal forecasts 2.4 Conclusion 3 Nominal long-term risk-free discount rates 3.1 Introduction 3.2 Market data 3.3 Conclusion 4 Long-term inflation 4.1 Introduction 4.2 Market data 4.3 Conclusion 5 Bridging assumption 5.1 Introduction 5.2 Recent studies 5.3 US Treasury forward rates 5.4 Comparison of different long-term rates and slopes 5.5 Conclusion 6 Literature review 6.1 Introduction 6.2 Mulquiney & Miller 6.3 EIOPA	disc-rates-meth-rlea-jun13.pdf (1.39 MB) pp. (2),i,27

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