White Paper

Managing a Matching Adjustment portfolio

Company: Standard Life Investments

Standard Life Investments case study

Category: Interest Rate Derivatives

Published: 09 February 2016




In the UK a number of insurers have successfully applied to the Prudential Regulation Authority (PRA) to use the Matching Adjustment in respect of annuity business.

The construction and implementation of an optimal Solvency II Matching Adjustment asset portfolio is far from straightforward.

Key challenges include:

  • Defining the cash flow matching approach and the permitted tolerances around that position;
  • Identifying asset classes, or sectors, which provide attractive capital-adjusted returns; and
  • Sourcing assets within asset classes which meet the client’s eligibility requirements.

This white paper focuses on the cash flow matching approach to portfolio management; how interest rate derivatives can be used within that process; and where the investment manager can add value for its insurance clients. 

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