Solvency II: reform of the matching adjustment final guidance

Commenting on the release of Solvency II: matching adjustment final guidance, Nick Ford, Partner, Head of Risk & Capital risk says: 

“UK Life insurers are now going to be able to invest more of their assets into the UK productive economy thanks to the rules just finalised by the Prudential Regulation Authority (PRA). These deliver on the most technical component of the initial phase of Solvency UK reform which primarily impacts how insurers invest to secure the payments they will be making to pensioners for decades to come. With around £50bn of funds transferring from pension funds to these insurers each year this has the potential to deliver some of the £100bn of extra investment sought by the UK government into productive and green finance.

“Today’s announcement has confirmed that there will be increased flexibility in the type of assets that insurers can invest in. However, it will take time to significantly increase flows into these newly permitted assets and there will still be asset classes, such as some infrastructure funds that pension schemes currently hold, that they will find very challenging to include in their portfolios. Expecting that, insurers have already engaged with the PRA to explore suggestions on further reform to accelerate these moves and deliver the extra investment that the government is seeking.”