Solvency II: Matching adjustment - illiquid unrated assets and equity release mortgages

Supervisory Statement 3/17

Update 4 July 2018
This SS has been updated to reflect changes in terminology as a result of the publication of Policy Statement 15/18 ‘Strengthening individual accountability in insurance: Extension of the Senior Managers and Certification Regime to insurers’

Overview

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.

Date of publication Supervisory statement Update detail Effective from
Current version
5 July 2017  PDFSupervisory Statement 3/17   5 July 2017 
Future version  
4 July 2018 PDFSupervisory Statement 3/17 UPDATE - July 2018 Updated following PS15/18 ‘Strengthening individual accountability in banking and insurance: amendments and optimisations’. 10 December 2018 
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