The PRA has published a consultation paper (CP16/16) on a draft Supervisory Statement setting out its expectations on firms in relation to application of the matching adjustment for the purposes of calculating technical provisions, including in the context of applications for matching adjustment approval and the ongoing management of matching adjustment portfolios (MAPs) under the Solvency II Directive.

In particular, the Supervisory Statement sets out the PRA position on the following topics:

  • Annuity assets purchased in a secondary annuity market;
  • Ongoing matching adjustment compliance;
  • Breach of the matching adjustment; and
  • Changes to matching adjustment portfolios.

Firms need to consider the implications of any change to their matching adjustment portfolios including whether a change will require a new application for approval from the PRA. The PRA suggests that firms might need to consider whether a new application is required in the following circumstances:

  • Restructurings, mergers or disposals;
  • The entry into new, or changes to existing, reinsurance and other risk transfer arrangements;
  • Changes to the way firms maintain and manage their MAPs; and,
  • Changes to the scope of MAPs including the addition or removal of matching adjustment assets or liabilities and changes to the features of any matching adjustment asset or liability covered by the original application.

The PRA expects the firm to form its own judgement on whether a change requires a new application for approval.

The consultation closes on 15 July 2016.

View: PRA consults on draft Supervisory Statement on the matching adjustment under Solvency II