Matching adjustment

Approval of the use of a matching adjustment

Overview of the measure

Insurance and reinsurance institutions may, after authorisation, apply a matching adjustment to the relevant risk-free interest rate curve to calculate the best estimate of a portfolio of life insurance or reinsurance liabilities, including annuities resulting from non-life insurance and reinsurance contracts.

Insurance portfolios meeting the criteria listed in Article 77 (b) of Directive 2009/138/EC (Solvency II) are eligible for this measure. In particular, they must be subject to separate asset management arrangements from the rest of the institution and it must be possible to replicate liability flows using the interest rate products making up the asset portfolio.

This measure is not compatible with the application of the transitional measure on interest rates or the use of the volatility adjustment.

 

Regulatory references

The matching adjustment is defined in Article L.351-4 of the Insurance Code, applicable to institutions covered by each of the three codes, which transposes Articles 77 (b) and 77 (c) of Directive 2009/138/EC, known as “Solvency II”.

These provisions are supplemented by Articles 52, 53 and 54 of Delegated Regulation (EU) 2015/35, known as “Level 2”.

Finally, the approval procedure is detailed in Implementing Regulation (EU) 2015/500 defining the Implementing Technical Standards (ITS) concerning the procedures to be followed for the prudential approval of applications to use the matching adjustment.

 

Content of the application

The minimum content of the application is defined in Articles 2 to 4 of the aforementioned implementing regulation.

In summary, the application must contain the following:

  • documentation evidencing compliance with criteria concerning the asset portfolio, including in particular the following:
    • a demonstration of compliance with the requirements laid down in paragraph 1 (a) of Article 77 (b) of the directive
    • a line-by-line description of the asset portfolio to which the application relates
  • documentation evidencing compliance with criteria concerning the portfolio of insurance liabilities, including in particular the following:
    • a demonstration of compliance with the requirements laid down in paragraph 1 (d), (e), (g) and (j) of Article 77 (b) of the directive
    • where the portfolio is sensitive to mortality risk, a demonstration that the best estimate does not increase by more than 5% if the scenario detailed in Article 52 of the Delegated Regulation is applied
  • documentation evidencing compliance with criteria concerning the matching of asset and liability flows and the management of the portfolio in question, including in particular the following:
    • a demonstration of compliance with the requirements laid down in paragraph 1 (b) and (c) of Article 77 (b) of the directive
    • a demonstration that the reduced availability of portfolio own funds has been taken into account and that Article 81 of the Delegated Regulation has been applied
    • a demonstration that the reduction in the effect of diversification on the SCR calculation has been taken into account
  • documentation confirming the proper application of paragraph 3 of Article 77 (b) of the directive as well as the items required by Articles 44 (2) and 45 (2) (a) of the directive
  • documentation explaining in detail the calculation process laid down in Article 77 (c) of the directive and used to determine the matching adjustment.

 

Procedure

Applications should be sent by post to the following address, as well as by e-mail to the inspection team responsible for the group:

Secrétariat général de l’Autorité de contrôle prudentiel et de résolution
Brigade de contrôle des organismes d’assurance
61 rue Taitbout
75436 Paris Cedex 09

The ACPR will reach its decision within a maximum of six months from receipt of the completed application.

 

Consequences for the group

If an institution using this procedure belongs to a group, the group’s combined or consolidated financial statements are prepared on the basis of the individual financial statements after applying the measure; the group need not request the same authorisation. However, the group is subject to the reporting requirements in connection with the use of that measure.

Updated on: 07/17/2017 15:26