Following the United Kingdom’s departure from the European Union in 2020, and concurrent with the Solvency II review in Europe, the UK government launched an own review to set up a Solvency UK regime for the UK insurance market. In a series of consultation papers and policy statements that came into force on 1 January 2025, the Prudential Regulation Authority (PRA) proposed major reforms aimed at simplifying and increasing the flexibility of the regime while streamlining its over- all structure. Taking that campaign one step further, the PRA recently proposed the introduction of the Matching Adjustment Investment Accelerator (MAIA) frame- work to enable faster and more capital-efficient investments by UK insurance firms in new assets. This paper provides a concise overview of the key changes within the reforms, focusing primarily on the Matching Adjustment and MAIA, and explores the opportunities for more efficient capital management available to insurance companies under the new regime.
Overview of the main changes
Improved flexibility and streamlining of the Matching Adjustment (MA)
- Expansion of eligible investments within MA portfolios
- Changes to MA calculation methodology and treatment of breaches
- Streamlining of the MA application process while enhancing governance and oversight requirements
The expansion of eligible asset and liability classes has the potential to increase capital benefits for life insurers or make MA more accessible to firms that have not previously used it. However, these benefits must be balanced against the additio- nal governance requirements, particularly those affecting senior management.
Furthermore, firms will need to allocate resources to adjust internal processes and systems to comply with the new requirements, such as the determination of funda- mental spread additions and internal ratings. Firms utilizing internal models may also need to assess whether adjustments to their models will be necessary under the revised framework.
Matching Adjustment Investment Accelerator (MAIA)
- Possibility to include a limited quantity of self-assessed assets into the MA portfolio without specific prior approval and claim MA benefit immediately
- Transitional period of two years to obtain regular approval for MAIA assets
- Requirement for robust governance and contingency plans for MAIA assets accompanied by changes to the reporting requirements
The proposed MAIA reforms will enable insurers with MA permission to take advantage of time-sensitive investments by introducing a transitional two-year period with less onerous regulatory requirements. The immediate recognition of the MA benefit allows for better capital allocation, while efficiencies can be gained in the MA permission process by the possibility to group multiple assets into a sin- gle application. While larger firms are better placed to source new assets and can benefit more from the exposure limit proportional to the MA portfolio size, smaller firms tend to have narrower MA permissions and conversely have a larger potential to add new eligible assets. The requirements to develop a firm-owned MAIA policy and adjust further governance structures and processes are expected to incur costs, however, an individual assessment is more likely to show that the benefits out- weigh the costs. […]
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Authors
Dr Hristo Velkov, Manager and Solvency UK Expert
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Dr Jochen Kienert, Partner and Risk & Capital Expert
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