Prudential Regulation Authority Rulebook

1

Where a firm applies the matching adjustment, it must carry out the scenario-based calculation for spread risk as follows:

1. (1) the relevant portfolio of assets must be subject to the instantaneous decrease in value for spread risk set out in 3D17, 3D21 and 3D24; and
2. (2) the firm must recalculate the technical provisions to take into account the impact on the amount of the matching adjustment of the instantaneous decrease in value of the relevant portfolio of assets and, in particular, the firm must increase the fundamental spread calculated in respect of assigned assets by an absolute amount that is calculated as the product of the following:
   1. (a) the absolute increase in spread that, multiplied by the modified duration of the relevant asset, would result in the relevant risk factor stress_i, referred to in 3D17, 3D21 and 3D24; and
   2. (b) a reduction factor, depending on the credit quality as set out in the following table:

2

In respect of the assigned assets for which no credit assessment by a nominated external credit assessment institution is available, and for qualifying infrastructure assets and for qualifying infrastructure corporate assets that have been assigned credit quality step 3, a firm must apply a reduction factor of 100%.