What changes to reporting reveal about your Matching Adjustment Portfolio

Our survey of MALIR reporting provides UK life insurers with new visibility on how their Matching Adjustment Portfolio compares to other industry participants.

Matching Adjustment Portfolios (MAPs) are a key part of the strategy of UK life insurance firms writing annuity business. The new Matching Adjustment Asset and Liability Information Return (MALIR)¹ provides more consistent and detailed information on firms’ MAPs than previously reported. Making use of the MALIR, our survey explored the differences and similarities of firms’ MAPs. We expected this survey to give insight into how firms’ investment strategies and other portfolio management decisions influenced the overall Matching Adjustment (MA) rate achieved.

Nine UK life insurance firms, authorised to use the MA, took part in our MALIR survey, drawing on data from their 31 December 2024 submissions. We expect firms will take the learnings from our survey into the preparation of their 31 December 2025 submissions, which will take place soon.

What our survey revealed

Our survey explored the key MAP features that influence the overall MA rate. Firms can compare their MAP to other participants to understand similarities and differences across these key features.

Overall, we found that key influencers included credit rating mix, asset type mix and performance of the individual assets held. There is a relationship between the credit rating, level of spread achieved and the Fundamental Spread (FS) haircut incurred which we expect firms will continue to explore for their MAPs.

Diverse investment strategies are creating notable differences on MA rates

The MA rates achieved by participants on their MAPs varied notably, highlighting diverse investment strategies. There is also notable variation in MA rates at the individual asset type level. We expect that participants will want to understand and explore these differences as they review and continue to develop their MAP investment and management strategies over time.

The average MAP across survey participants is characterised by:

On average across the participants:

• The illiquid asset types² with the highest allocations in MAPs were Equity Release Mortgages (ERM), Infrastructure Loans, Other Commercial Real Estate Lending (CREL) and Social Housing.
• The asset types with the highest average MA rates were CREL, Ground Rent, Infrastructure Loans and Student Accommodation.

This shows where life insurance firms are, on average, focussing their MAP investment strategies. We expect firms will be interested in comparing themselves to this average, as well as the spread across the other participants, to identify any areas of significant difference.

Solvency UK changes have not yet had a significant impact on MAPs

SUK has introduced several changes that could affect MAPs:

• From 30 June 2024, firms can apply to include assets with highly predictable cashflows in their MAPs. None of the survey participants held such assets in their MAPs by the end of 2024, but this may have changed by the end of 2025 given firms will have had more time to assess the opportunities and obtain the necessary approvals.
• MA attestation and the option for voluntary FS additions. The survey results show FS additions have minimal impact on the overall MA rate, with additions up to approximately 2.5 bps at the portfolio level.
• The need to incorporate notched credit ratings in FS calculations. Participants are generally more weighted towards AA- and A- than AA+ and A+, but this trend reverses for BBB, where BBB+ is more common than BBB-. This may be due to the previous Solvency II rules for MA, where the FS did not vary by notched credit rating and the capping of the MA rate for assets below BBB. This picture may therefore change over time as SUK beds in.

Overall, the impact of SUK on MAPs may change over time as the new regime embeds into firms’ processes and investment strategies. Firms should consider whether to apply for approval to include assets with highly predictable cashflows in their MAPs and embed the impact of notching into analysis of their MAPs.

Data, automation and process all offer ways to reduce the reporting burden

• Data and operational challenges mean production efforts were likely higher in the first year of MALIR reporting than they will be in future years. Participants faced various operational challenges during their first formal MALIR submission, primarily due to the need to develop new processes. Common issues included defining asset classifications for new data fields, converting internal asset data into the required format, and managing data source inconsistencies. Estimated production efforts ranged from 2 to 30 person-days, though this may decrease in future cycles.
• There are opportunities to increase process automation. Most participants used Excel to complete the MALIR, with some employing tools like Power BI or R for data management. We asked participants to rate their MALIR process automation, with 1 being low and 10 being fully automated. Most participants rated themselves 2 or 3.

There is no one size fits all approach to MAPs, however the MALIR and our survey provides firms with new visibility on how their MAPs compare to other industry participants so that differences can be assessed, understood and used to inform future decision making. There are also opportunities for firms to reduce the resource effort required for MALIR reporting by increasing the automation of the MALIR reporting process.

^{[1] Solvency UK (SUK) has established the MALIR as a yearly submission to the Prudential Regulation Authority (PRA). This comprehensive dataset details the assets and liabilities within a firm's MAP. The PRA guides firms on completing the MALIR and provides essential definitions.}

^{[2] For the purposes of this survey we defined the asset types which are more illiquid in nature to include: Social Housing, ERM, CREL, Infrastructure Loans, Education Lending, Income Producing Real Estate, Ground Rent, Student Accommodation, Financing Lease on Commercial Properties, Other Loans, Agricultural Mortgages, and Secured Financing Transactions.}