Xavier Solano: The main change from the reforms to Solvency II, which in the UK will be known as Solvency UK, has been a reform that allows for a widening of the scope of new asset classes where investors can invest.
We're talking about the matching adjustment (MA), which is a mechanism that is vital to UK insurers, where they can obtain a beneficial treatment on their balance sheets for certain long-term liabilities (such as annuity liabilities) where those liabilities are ‘matched’ in a portfolio with certain long-term assets.
Previously, to qualify for inclusion in an MA portfolio, assets had to have cash flows that were absolutely fixed in time and amount. Now, eligibility has been extended to assets with ‘highly predictable’ cash flows also.
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