The 2027 interest rate shock: why an average will not tell you enough
From 30 January 2027, the interest rate risk sub-module of the standard formula moves to a new shock methodology. Commission Delegated Regulation (EU) 2026/269, published in the Official Journal on 18 February 2026, replaces the purely relative shock with a shifted relative approach: a smaller multiplicative factor plus an additive add-on.
Fenion has implemented the new approach in full and run a parallel calculation for insurance clients — reference date 30 June 2026, EIOPA risk-free curves without volatility adjustment. The result can be summarised in one sentence and taken apart again in the next.
Headline result
Across the portfolio under review, the interest rate SCR rises by two thirds in the up scenario (factor 1.71) and by just over 60 % in the down scenario (factor 1.58). The up scenario remains the binding one under both methodologies.
What matters, though, is not the average but the dispersion behind it: individual fund factors range from 0.92 to 2.34. One fund goes down; another more than doubles. Anyone inferring their own exposure from a portfolio average will be off by a factor of two on individual positions.
Three drivers explain the spread
Duration. In the up scenario the new shock bites hardest at the short end — at one year it doubles, from 181 to 372 basis points, while at fifty years it is essentially unchanged. In the down scenario it is the reverse: the new relative factor is far larger at the long end than before, 65 % instead of 25 % at fifty years. Short-dated portfolios see the up scenario move; long cash flows see the down scenario move.
The rate level of the currency. The additive add-on is a fixed amount, whereas the reduced relative factor costs more the higher the underlying rate. That produces a tipping point — around 8.8 % at the ten-year tenor. Below it the new rule shocks harder, above it more softly. The euro, at 2.6 to 3.2 %, sits far below; high-yielding currencies sit above it and are systematically relieved. The calibration is visibly aimed at a rate environment of roughly 0 to 4 %.
Instrument type. Funds with optionality or an inverted sign — convertibles, callable subordinated debt, debt-financed real estate — do not respond linearly. In our calculation exactly one fund falls in both directions, while another carries a negative interest rate shock, and therefore a diversification benefit that grows with the same mechanics.
What to do now
Run it in parallel, do not switch. The current methodology remains binding until 30 January 2027. The sensible step is to carry the new curves alongside from now on — capital planning and ORSA need the number well before reporting does.
Decide on the phase-in. Subject to approval, Article 46a allows a convergence parameter of 20 % in 2027, declining linearly to 2032, instead of 11 % in the end state. For long-dated books this makes a tangible difference beyond the first smoothing point — twenty years for the euro. That decision should rest on calculated variants, not on an estimate.
Check data quality before the numbers travel. Every outlier in our calculation turned out to be explainable — but only after looking at the currency, residual maturity and optionality profile. At module level, an outlier caused by a data gap looks exactly like one caused by the methodology.
Where Fenion stands
The new shock methodology is implemented and ready to use: the shifted relative shock in both directions, the maturity-dependent floor, the new extrapolation beyond the first smoothing point, and the boundary rules for very short and very long maturities. The methodology has been validated against EIOPA’s reference calculation. Parallel calculations for individual funds or entire books can be produced at short notice, with or without phase-in.
