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Matching Adjustments

This Working Party will consider the management of Matching Adjustment portfolios as a measure approved by PRA under Solvency II, but whose subsequent management is not laid down in all areas. The sums involved are very material but aspects of the future management and fluctuation in the measure is unclear.

Key objectives:

  • Can the IFoA provide guidance on how new assets should be treated for MA purposes – other than by individual application by all MA holders to the PRA
  • The opening MA portfolios will over time develop more complex excesses of assets, and/or need for replenishment as new business flows and assumptions change. What is a rational approach to this, their management, extraction or timely reassessment? (Acknowledging some of this will have been covered in MA applications to the PRA).
  • Under plausible changes how do the three PRA matching tests perform, and should there be wider limits, or timescales for action, over those tests to avoid volatile and costly micromanagement across a year
  • Are there more pragmatic ways to treat reassurance (as an asset) and separation of collateral arrangements for MA portfolios?
  • How speedily do fresh insurance assumptions (updating a longevity table say) need application to avoid undermining MA portfolio compliance with PRA matching tests – particularly at the financial year end
  • The EIOPA driven fundamental spreads (FS) are anticipated to be quite stable other than in extreme conditions. Approved internal models (and the Standard Formula) anticipate quite sharp moves by assuming a material part of any spread widening to be subsumed in the FS.  How might firms manage this contradiction in their profit and loss attribution?
  • What monitoring would be deemed suitable to inform the governance functions in the entity holding the MA approval?

Key outputs:

Chair: Ross Evans
Membership: 7
Established: 2016

 

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If you want more information about this research working party please contact the Communities Team.

professional.communities@actuaries.org.uk

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    1 December 2021

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