White Paper

Illiquid investments for matching adjustment

Company: Standard Life Investments

Standard Life Investments case study

Category: Liquidity Risk

Published: 17 December 2015

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Overview

The Solvency II regime comes into force in the EU on 1st January 2016. Under this regime, insurance companies can make use of the matching adjustment (MA), provided they meet various qualifying criteria.

The MA is an adjustment to the regulatory discount rate, allowing insurers to incorporate an allowance for the illiquidity of their assets into the valuation of certain liabilities, such as annuity business.

In this case study, we set out some key features of a recent commercial real estate (CRE) debt transaction carried out by an insurer. We also set out key criteria that the insurer had to meet to demonstrate that it was eligible for an MA portfolio.

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