PRA Solvency II reforms: CP19/23 Reform of the Matching Adjustment

From our work supporting many UK insurers, we appreciate that the Solvency UK reforms will be a key focus for the industry for the remainder of 2023 and through 2024.

Clearly those insurers with annuity portfolios, particularly the large bulk annuity writers, should find the MA changes welcome (and expected) news. The ability to include additional assets into the MA portfolio, plus the removal of technical restrictions on the likes of sub-investment grade bonds, open up the way to utilise wider investment opportunities which a number of firms are already exploring.

However, this apparent relaxation is tempered by the PRA in a number of areas, including a restriction on the percentage of portfolio that can be invested in assets with “highly predictable cashflows”. In addition, the PRA expects governance to adhere to the Prudent Person Principle, and now also to the new MA Attestation requirement.

The attestation process raises some interesting aspects, such as the responsibility expected to (generally) be with the CFO, with technical points such as the “high degree of confidence” part of the standard wording, which would indicate that firms will need to demonstrate that this is more likely than a best estimate, and numerous issues to consider relating to internal credit ratings applied to any assets.

For those firms that do not have large annuity portfolios, and other firms that have income protection business, or business that has guaranteed policy cashflows, the MA proposals should also be welcome and could offer opportunities. Such firms might be unlikely to use the additional asset freedoms, but nevertheless they should now find that the potential to gain regulatory approval and ongoing use of an MA is less of a hurdle. The attestation process might not be too onerous if fairly standard assets are used, and the relaxation of the administrative rules surrounding any breaches of MA conditions (eg a 2-month window, and a staged reduction to the MA if MA compliance is not restored) would help such firms in terms of processes and management of the MA. For these firms, an MA could give capital benefits for existing business, and potentially give added viability to new business opportunities.

At Zenith Actuarial we have significant experience and expertise in helping our clients consider such opportunities and would be pleased to assist – contact Dan Wainwright ( for further information.