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July 13, 2018

PRA published the policy statement PS18/18, which provides feedback on responses to the consultation paper (CP21/17) on matching adjustment under Solvency II. PS18/18 also contains the final supervisory statement SS7/18, which sets out the expectations of PRA in respect of firms seeking to apply the matching adjustment to an eligible portfolio of assets and liabilities. SS7/18 will come into effect on July 13, 2018.

The consultation on CP21/17 ran from October 2017 to January 2018 and PRA received eleven responses. PRA made changes to the draft supervisory statement after considering responses to the consultation and after further analysis. Details of changes have been included in Chapter 2 of PS18/18. In SS7/18, PRA sets out its expectations from firms in respect of the application of the matching adjustment. The matching adjustment allows firms to adjust the relevant risk-free interest rate term structure for calculation of a best estimate of a portfolio of eligible insurance obligations. The scope of the SS7/18 includes the following:

  • Assessment of eligibility for assets and liabilities
  • Demonstrating compliance with the matching conditions
  • Calculation of the matching adjustment benefit
  • Ongoing management and compliance of matching adjustment portfolios
  • Applications for matching adjustment approval and subsequent changes to an matching adjustment portfolio
  • Implication of changes to the matching adjustment portfolio that are outside the scope of an existing matching adjustment approval

 

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Effective Date: July 13, 2018

Keywords: Europe, UK, Insurance, Solvency II, Matching Adjustment, PS18/18, SS7/18, PRA

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