06 Jun 2024

PRA Policy Statement 10/24 - Review of Solvency II: Reform of the Matching Adjustment

On 6 June 2024, the Prudential Regulation Authority (PRA) published its policy statement 10/24 (PS) on reforms to the Matching Adjustment (MA). This provided feedback to responses received to the PRA related consultation (see below) and details of the final policy and changes to rules. The final policy will come into force on 30 June 2024.

Matching adjustment reform implementation considerations

The Prudential Regulation Authority (PRA) issued on 15 April 2024 an update, in response to clarification requests, regarding the consultation (see below) on reforms to the Matching Adjustment (MA).

The PRA are on track to publish a policy statement, including final rules, in early June 2024. They will provide further guidance and materials on the MA application process under the reformed regime in advance of the expected implementation date of 30 June 2024.

PRA consultation on matching adjustment reforms

On 28 September 2023 the PRA published a consultation (Consultation paper 19/23) on reforms to the MA. This is part of a package of measures in relation to reforming Solvency II in the UK. The aim of the MA reforms is 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.

With the assistance of AREF's Public Policy Committee, AREF submitted a joint response to the consultation with BPF, INREV and IPF on 5 January 2024. We welcomed the policy change to widen the range of assets eligible for the Matching Adjustment through allowing investment in assets with highly predictable cash flows rather than just fixed cash flows. We were not in a position to comment in detail on the proposals in the consultation. However, we raised our concerns with the complexity of the rules proposed by the PRA and the increased Fundamental Spread. Also, we believed that the requirement for third party attestation would make the regime unattractive, thus undermining the policy objective of widening the range of eligible assets. We felt that this would defeat the government’s broader objective of encouraging investment by insurers in infrastructure, housing and urban regeneration.

We shared with the PRA, again, the paper AREF, BPF, INREV and IPF had jointly submitted to HM Treasury in 2023, setting out the importance of investment in real estate within the Matching Adjustment.


Jacqui Bungay

Jacqui Bungay

Head of Policy and Company Secretary, AREF

Jacqui is AREF’s Company Secretary and provides policy guidance and secretariat services to AREF’s Board and Management Committee as well as many of AREF's committees and working groups.

Jacqui joined AREF in 2014 after working for over 25 years in fund compliance, client relationships and administration in the trustee and depositary sector.