This supervisory statement (SS) sets out the PRA’s expectations in respect of firms investing in illiquid, unrated assets within their Solvency II matching adjustment (MA) portfolios. It is relevant to life insurance and reinsurance companies holding or intending to hold unrated assets (including restructured equity release mortgages (ERMs)) in an MA portfolio.
This statement should be read in conjunction with Chapters 6 and 7 of the Technical Provisions Part of the PRA Rulebook.
Chapter 2 of this SS clarifies the PRA’s expectations where internal credit assessments are used as part of determining the fundamental spread (FS), including expectations that are specific to restructured assets (including ERMs). Chapter 3 then sets out principles to be applied when assessing the risks from guarantees embedded within ERMs, for the purposes of verifying the appropriateness of the FS for restructured ERM notes.