Prudential Regulation Authority Rulebook

1.1

In this supervisory statement (SS), the Prudential Regulation Authority (PRA) sets out its expectations of firms in respect of application of the matching adjustment (MA). The MA allows firms to adjust the relevant risk-free interest rate term structure for the calculation of a best estimate of a portfolio of eligible insurance obligations.

1.2

The scope of this SS includes:

• the assumptions underlying the MA;
• the assessment of eligibility for assets and liabilities;
• demonstrating compliance with the MA eligibility criteria for matching;
• calculation of the MA and attestation to the appropriateness of the MA benefit being claimed;
• ongoing management and compliance of MA portfolios;
• applications for MA permission and subsequent changes to an MA portfolio; and
• the implication of changes to the MA portfolio that are outside the scope of an existing MA permission.

1.3

This SS is relevant to all UK Solvency II firms and the Society of Lloyd’s and its managing agents (collectively called ‘firms’ in this SS), where they are applying for, or have, permission to use the MA. This statement should be read in conjunction with the PRA’s rules in the Solvency II Sector of the PRA Rulebook, in particular the Matching Adjustment Part of the PRA Rulebook, the PRA’s approach to insurance supervision,^[1] SS9/14,^[2] SS15/15,^[3] SS3/17,^[4] SS1/20,^[5] the statement of policy (SoP) on MA permissions^[6] and The Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations 2023 (referred to here as the 'IRPR regulations').

1.4

As part of meeting the applicable eligibility conditions as set out in regulation 4 of the IRPR regulations and Chapter 2 of the Matching Adjustment Part, referred to in this SS as ‘the MA eligibility conditions’, firms should note that this includes compliance with the Prudent Person Principle (PPP). The PRA expects that firms should also assess carefully, and be able to demonstrate, their compliance with all other relevant requirements, including for the calculation of the MA and risk management that are set out in the Matching Adjustment Part, Conditions Governing Business Part and the Investments Part of the PRA Rulebook.

1.4A

In this SS, any reference to any provision of direct EU legislation is a reference to it as it forms part of assimilated law.

1.5

The PRA expects firms to assess their use of the MA taking into account the assumptions underlying the MA, as set out in Chapter 1A of this SS. The PRA will also assess firms’ use of the MA taking into account these assumptions.