On 8 April 2025, the UK’s Prudential Regulation Authority (the “PRA”) launched a consultation on proposals to create a new framework – to be known as the ‘Matching Adjustment Investment Accelerator’ (the “MAIA”) – which is designed to help accelerate capital-efficient investment by UK insurance firms in new assets. The PRA believes that this will reduce the risk of insurers missing out on time-sensitive investment opportunities.
Background
As part of the UK government and the PRA’s work to review and reform the UK Solvency II framework, on 30 June 2024 various reforms were made to the rules governing firms’ use of the matching adjustment (the “MA”) (see our client alert for an overview).
When it was consulting on these changes, the PRA received feedback from some stakeholders suggesting that the introduction of an ‘MA sandbox’ might allow for additional flexibility around firms’ inclusion of assets in MA portfolios. Proposals of this nature were beyond the scope of the PRA’s consultation and did not form part of the June 2024 reforms. However, the PRA and the Association of British Insurers established a Subject Expert Group (the “SEG”) to scrutinise these ideas and this workstream has assisted the PRA in the development of its current proposals.
Purpose of the MAIA
Participants in the SEG suggested that that they were unable to invest in certain assets that they considered to be MA eligible for inclusion in the MA portfolio under the PRA’s rules, due to investment windows being shorter than the time expected to be required to vary MA permissions to include such assets with new features. Those participants asserted that a more flexible approach to MA permissions would accordingly increase their ability to make investments that may contribute to increased productivity in the UK economy and the transition to net zero.
The MAIA is therefore intended to make it easier for insurers to take advantage of investment opportunities more quickly. The PRA believes that this should promote growth in the UK insurance sector and broader economy.
Operation of the MAIA
Under the new framework, insurers who hold an MA permission would be able to apply for an MAIA permission. The PRA says that it has sought to design a straightforward application process for MAIA permissions and that, where firms provide the information requested by the PRA, it does not expect the permission process to be lengthy.
Firms granted an MAIA permission would be able to include a limited quantity of self-assessed MA eligible assets (with features for which the firm does not already hold an MA permission) in an MA portfolio without needing to first apply to vary the scope of their MA permission. This ability would be subject to the conditions of a firm’s MAIA permission and compliance with the MA eligibility conditions.
The MA benefit on these ‘MAIA assets’, which in effect increases a firm’s capital resources, could be claimed immediately. This contrasts with the existing process, where MA benefits on new assets can take some time to obtain: the PRA’s assessment of an application to include new features within the scope of an existing MA permission is generally expected to take up to 6 months (although the PRA says that typical review times are shorter), with firms also needing to spend time on top of this in preparing their application.
Controls
The PRA considers that, without adequate controls, the MAIA framework would have the potential to introduce material new risks to the PRA’s primary objectives where firms include assets in their MA portfolio which are not MA eligible. To manage these risks, the PRA proposes that the following controls should be introduced:
Regularisation
A firm using its MAIA permission would need to submit to the PRA an application to vary the scope of its MA permission to ‘regularise’ MAIA assets within 24 months of their inclusion in the MA portfolio. During this time, they would continue to benefit from the MA capital treatment. Where applications are approved, relevant assets would subsequently be covered by the firm’s MA permission and therefore no longer count towards the MAIA exposure limit. Where such applications are not approved, firms would be required to remove the relevant assets from the MA portfolio.
Exposure limit
An exposure limit would be placed on the amount of assets that can be in a firm’s MA portfolio using the MAIA permission at any point in time. The PRA proposes making an expectation that, in general, an appropriate MAIA exposure limit would be the lower of:
- 5% of the Best Estimate of Liabilities of the MA portfolio (net of reinsurance); and
- an amount proposed by the firm which is no greater than £2 billion.
The PRA proposes making an expectation that the overall use of MAIA permissions across the whole group does not exceed these levels on a cumulative basis.
Other controls
The PRA’s proposes introducing a number of further controls, including:
- a rule requiring firms applying for MAIA permission to establish suitable procedures and controls, including maintaining an MAIA policy and contingency plans for each MAIA asset that would be followed in the event that MAIA assets were determined not to be MA eligible and therefore needed to be removed from the MA portfolio;
- expectations that firms would update relevant policies to consider the risk that MAIA assets could be determined not to be MA eligible, and therefore need to be removed from the MA portfolio; and
- new reporting requirements of an MAIA use report and changes to the Matching Adjustment Asset and Liability Information Return (the “MALIR”).
The PRA also proposes making rules to address breaches of MAIA permissions.
Changes to PRA materials
The PRA’s proposals would result in amendments to various of the PRA’s materials, as further described in its consultation, including changes to the Matching Adjustment and Reporting Parts of the PRA Rulebook, various PRA supervisory statements and the PRA’s Statement of Policy on Matching Adjustment Permissions.
Next steps
The consultation closes on 4 June 2025.
The PRA anticipates that implementation of its proposals could happen in Q4 2025, with the exception of proposed changes to MALIR reporting, which would commence from 31 December 2026 to prevent an undue burden on firms.
For further information, please contact:
Duncan Barber, Partner, Linklaters
duncan.barber@linklaters.com
