PRA consults on MA reforms

Written by Adam Cadle

28/09/2023

The PRA is consulting today on a significant package of reforms to the Matching Adjustment (MA), aiming to improve the flexibility for life insurers to make more productive, long-term investments in the UK economy while supporting safety and soundness and policyholder protection.

The proposals cover reforms to MA regulations relating to greater investment flexibility and revised eligibility rules and more flexibility in MA processes, along with risk management enhancements, a greater role for senior manager responsibility including through attestations, and certain changes to MA calculation and reporting.

Sam Woods, deputy governor for prudential regulation at the PRA, said: “We propose to adjust regulations to reflect the decisions made by the Government about the level of financial resilience that should be required of insurance companies. These proposals aim to promote policyholder protection while enabling the annuity sector to meet its commitments to the Government to increase investment in the UK economy.”

David Burton, UK financial services regulatory capital lead at EY, commented: “The matching adjustment (MA) has been a key area of contention and debate in discussions about UK Solvency II reforms. Today’s announcement from the PRA should give the industry greater clarity around how the MA will work in the new regime, however, some of the proposals do not go as far as many firms had hoped.

“While certain directional changes will be welcomed – such as the introduction of notching, the removal of the two-month MA elimination, and proposals to widen the scope of assets and liabilities to be included in the MA – many firms hoped to see greater flexibility and a wider range of assets with predictable cashflows included in the MA.

“Firms need to understand the practical implications of the proposals on their operations, which will likely lead to further discussions with the regulator. Whether this will result in any changes to the eventual rules, however, especially considering the tight implementation deadlines, is unclear.”

The MA reforms are expected to be finalised and implemented by 30 June 2024, subject to consultation responses and the Government’s legislative timetable.

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