Matching Adjustment Impact

Overview

This calculator implements the Matching Adjustment (MA) impact analysis within the Solvency II valuation framework.^[1] This tool is used to monitor the reduction in technical provisions and the corresponding increase in basic own funds resulting from the application of the MA to a matched-portfolio of assets and liabilities.

Input Terms

• Matching Adjustment (bp): The prescribed spread-adjustment applied to the risk-free rate curve for the matched portfolio.^[1]
• Matched Technical Provisions: The value of the technical provisions for the specific ring-fenced portfolio.
• Economic Value of Equity Impact: The net increase in the undertaking’s basic own funds resulting from the MA.

Technical Rationale

The Matching Adjustment is a valuation driver intended to reflect the undertaking's long-term investment strategy. It ensures that the undertaking’s technical provisions are representative of its ability to hold assets to maturity, thereby avoiding capital volatility from short-term market spread movements.

The calculation assesses the difference between the Best Estimate Liability (BEL) valued using the standard risk-free rate curve and the BEL valued using the MA-augmented curve. This ensures the undertaking can quantify the specific capital-benefit derived from its matching strategy. The result represents the net impact on Basic Own Funds and the corresponding Solvency Ratio.^[1]

Important Notes

• Eligibility: The matching adjustment is subject to strict eligibility criteria, including the ring-fencing of assets and liabilities and the absence of discretionary policyholder options.
• Reporting: The displayed result is intended to support the valuation and LTG-impact components feeding the S.22.01 reporting views.^[2]