PRA Consultation on Matching Adjustment Investment Accelerator

MAIA, as it seems likely to be known, was publicly signalled by the PRA at the House of Lords Financial Services Regulation Committee meeting on 8 January, but this week the PRA published the detail of its proposed regime in CP7/25.  It proposes further major relaxation of the UK Matching Adjustment (MA) regime through the introduction of a new permission that UK insurers can apply for.  This has potential to fulfil longstanding industry requests for additional MA flexibility and to provide clear evidence to the UK government and parliament that the PRA is actively delivering against its secondary growth objective.

The PRA proposes that firms that obtain MAIA permission will be able to self-certify the MA eligibility of assets up to the lower of £2bn and 5% of net-of-reinsurance best estimate technical provision across their MA portfolios, for up to 24 months for each self-certified asset.  It seems likely that most UK insurers seeking to write bulk annuity new business would apply for this permission if/when it implements.

A MAIA application (see section 2A of Appendix 6) requires the firm to have a MAIA policy in place approved by its Board (but not to submit that policy to the PRA), and for that policy to include contingency plans if any MAIA asset were in the future removed from the MA portfolio.  The PRAs consideration of a MAIA application will take into account the firm’s solvency and liquidity position and past record of effective risk management and governance both in relation to MA and more broadly.

The PRA indicates that MAIA applications might open as early as Q4 2025.

Once a firm holds MAIA permission:

1. It can put (up to MAIA limits) assets into its MA portfolio that are outside the scope of asset types/sectors that it currently holds MA permission to hold in its MA portfolio.
2. It can still only put assets into its MA portfolio that it “satisfies all applicable MA eligibility conditions” (see Appendix 1 of Appendix 2  ).  I.e. full risk identification, screening and internal credit assessment (if applicable) is still required upfront.  How hard firms will choose to push the boundaries in their interpretation of MA eligibility within MAIA is unclear, but an asset that has been previously removed from an MA portfolio or formally turned down for full regularised inclusion in an MA portfolio will be excluded from MAIA eligibility, and past inappropriate use of MAIA may be considered by the PRA regarding a firm’s ongoing access to MAIA.
3. It appears that MAIA assets could have only highly-predictable cashflows, be of sub-IG quality, be unrated by authorised credit rating agencies, have no linkage to the UK, and fall outside any definition of “productive assets”. Whether firms choose to use their MAIA asset capacity for UK productive assets that are closely-aligned to UK government’s aims, or not, will be visible to the PRA, but not obviously publicly (other than via Select Committees).
4. During the 24 months from entry into MA portfolio to “regularisation” via an MA application, the firm’s internal model (IM) “should consider the extent to which use of the MAIA introduces any additional material and quantifiable risks”, but it remains unclear whether this will require minor IM change for the new asset during the MAIA period, or whether MAIA asset X will be allowed to be modelled as if it were already IM-approved asset Y. This means that new IM developments for new asset classes or borrower sectors for firms with MAIA permission are likely to commence in earnest only after the firm has already invested substantially in such assets.
5. In-firm approval of assets for inclusion in a MA portfolio as a MAIA asset must be in line with a governance process defined in the MAIA policy, but the degree of delegation below Board-level or even senior management function holder which the PRA considers to be acceptable appears unclear.
6. The PRA will reserve the right to vary or remove MAIA permission under certain circumstances but “does not expect to make use of this power routinely”. The proposal appears to place key dependence upon a firm’s MAIA contingency plans and on how willing the PRA will be to strongly encourage firms to implement those plans even where doing so and removing an asset from the MA portfolio would materially worsen the firm’s SCR ratio.
7. An annual MAIA use report will be required, alongside additional annual information for MAIA assets via minor changes to the MALIR template. While there is no explicit requirement for a firm to update the PRA in real time regarding the extent or scope of its MAIA assets, a choice to not mention such activity to the PRA in a timely manner could potentially fall foul of wider existing transparency requirements.

While this is only a consultation at present, the indicated timeline is relatively short for a change of this scale, and the potential competitive relevance of these proposals to bulk annuity insurers is sufficiently high that some preparatory activity within these firms could reasonably commence as soon as resource and budget constraints permit.

If you would like to discuss this topic further with APR, please get in touch with Kuljit Bhangra, Sammy Ford, Alan Reed or your usual APR contact.

Alan Reed

April 2025