The Prudential Regulation Authority has published a much-anticipated consultation paper on reform of the matching adjustment as part of its broader programme of work to implement the UK government’s Solvency II reform package.
The PRA’s proposals would widen the range of investments that insurers are able to include in their MA portfolios so as to embrace assets with ‘highly predictable’, and not just ‘fixed’, cash flows. This, the PRA suggests, will allow life insurers to play a bigger part in productive investment in the UK economy. The universe of liabilities that would be eligible for MA treatment would be expanded and firms may also welcome a new streamlined process for certain MA applications.
It is not, however, a one-way street for insurers: the PRA is proposing to introduce a number of controls as it eyes possible concerns about the level of risk that might be generated in firms’ MA portfolios as a result of these reforms.
Overall, however, it is clear that these reforms will open up new opportunities for some insurers – even if at some cost.
For further information, please contact:
Duncan Barber, Partner, Linklaters
duncan.barber@linklaters.com
