In brief
The UK bulk annuity market is uniquely positioned within the UK Solvency II regulated market operating under the Matching Adjustment. This provides life insurers with the ability to invest in matching portfolios containing long dated spread assets without generating significant capital charges and with minimal volatility in their own funds. The MA is complex and our intention is to provide clarity and precision to the regulatory requirements which can be challenging to comprehend, especially for those new to the industry.
This paper provides a detailed overview of all the key topics that are relevant to managing the assets of Matching Adjustment portfolios with a particular focus on developing efficient MA portfolios through the global fixed income markets. This is particularly important in the context of the current levels of growth in the pension risk transfer market and the lack of diversification offered by UK fixed income.
The 2024 edition provides insight into the proposed MA reforms and the key areas in which this will impact insurers from an investment and reporting perspective.
Key takeaways
Quantitative Tools Are Essential
Portfolio construction is complex, requiring the assistance of quantitative tools for efficient implementation. Investors should recognize the importance of utilizing such tools to navigate intricacies and optimize their portfolios effectively.
Efficient Portfolio Construction
We propose a methodology for the design and implementation of an efficient MA portfolio through a combination of strategic asset allocation and bottom-up security selection under a novel optimisation framework.
Diversification and Market Access
By accessing the full spectrum of core and extended global fixed income markets, we demonstrate how to deliver competitive levels of MA through public markets which reduces reliance on scarce private assets.
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