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Home > Prudential Regulation Authority > Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages – CP48/16

Solvency II: Matching adjustment – illiquid unrated assets and equity release mortgages – CP48/16

15 December 2016


In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposed expectations in respect of firms investing in illiquid, unrated assets within their Solvency II matching adjustment (MA) portfolios. It also provides feedback to the responses the PRA received to Discussion Paper (DP) 1/16 ‘Equity release mortgages’.

The PRA has observed that insurance firms are increasingly including illiquid, unrated assets (including, restructured ERMs) within their Solvency II MA portfolios. These assets can be a good match for long-term annuity liabilities and increasing investment in real assets may have wider economic benefits. The PRA recognises these can be complex assets that lack observable market prices as well as external credit ratings, making it difficult to assess what an appropriate amount of MA benefit should be. The PRA seeks to support firms wishing to invest in illiquid assets by giving clarity about its expectations of appropriate practice.

Summary of proposals

The draft supervisory statement (SS) at Appendix 1 contains proposals relating to internally-rated assets that are included in MA portfolios. It also contains specific proposals relating to the valuation approach and fundamental spread (FS) mapping to be used for restructured ERMs when determining their contribution to a firm’s overall MA benefit. This CP seeks views on those proposals.

Appendix 2 to this CP includes a summary of responses from DP1/16.


This CP is relevant to life insurance and reinsurance companies holding or intending to hold restructured illiquid assets (including equity release mortgages (ERMs)) in an MA portfolio.

This consultation closes on Tuesday 14 March 2017. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to

The finalisation of the industry-wide review of ERMs will build on the proposals in this CP. The proposed implementation date for the proposals in this CP is 2017 H2.

Consultation paper 

Solvency II: Matching adjustment – illiquid assets and equity release mortgages – CP48/16