CP7/25 – Matching Adjustment Investment Accelerator

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Responses are requested by 4 June 2025.

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Responses can be sent by email to: CP7_25@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:

Insurance Policy Division

Prudential Policy Division

Prudential Regulation Authority

20 Moorgate

London

EC2R 6DA

1: Overview

1.1 This consultation paper (CP) proposes the introduction of a new framework to enable faster, capital efficient, investment by UK insurance firms in new assets. Over the next decade, the insurance industry estimates that regulatory changes already made to Solvency II are expected to enable insurance firms to be able to invest at least £100 billion in UK productive assets. The proposal in this paper is intended to help accelerate those investments.

1.2 The framework, known as the Matching Adjustment Investment Accelerator (MAIA), will remove the requirement to obtain prior approval from the Prudential Regulation Authority (PRA) before a firm can claim Matching Adjustment (MA) benefit on certain assets, thereby making it easier for insurers to take advantage of investment opportunities more quickly. This is expected to promote growth in the UK insurance sector and broader economy and promote the PRA’s secondary competitiveness and growth (SCGO) objective.

1.3 The proposal builds on those introduced in policy statement (PS) 10/24 – Review of Solvency II: Reform of the Matching Adjustment, which made changes to the MA regime to improve business flexibility (as well as increasing responsiveness to the level of the risk and enhancing firms’ responsibility for risk management). Those business flexibility changes included providing a clear framework to permit the inclusion of assets that do not have fixed cash flows, expanding the range of insurance business that may claim the MA, and removing the restriction on the amount of MA that may be claimed from sub-investment grade (SIG) assets.

1.4 Under the proposed MAIA framework insurance firms who hold an MA permission could apply for a MAIA permission.^{footnote [1]} Firms granted a MAIA permission would be able to include a limited quantity of self-assessed MA eligible assets (with features for which the firm does not already hold an MA permission) in an MA portfolio without requiring PRA approval in advance. The MA benefit on these ‘MAIA assets’, which in effect increases a firm’s capital resources, could be claimed immediately.^{footnote [2]} Firms would then have 24 months to submit an MA application to regularise MAIA assets during which time they would continue to benefit from the MA capital treatment.^{footnote [3]}

1.5 The proposal in this CP would result in changes to the Matching Adjustment and Reporting Parts of the PRA Rulebook, changes to supervisory statement (SS)7/18 – Solvency II: Matching adjustment, SS8/18 – Solvency II: Internal models – modelling of the matching adjustment, SS5/24 – Funded reinsurance and the PRA’s Statement of Policy (SoP) Matching Adjustment Permissions.

1.6 This CP is relevant to firms that currently have an MA permission, or those that may seek an MA permission in the future.

1.7 The PRA has a statutory duty to consult when introducing new rules (section 138J of the Financial Services and Markets Act (FSMA)). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so. 

1.8 The Insurance Practitioner’s Panel were consulted about the proposal in this CP on 18 November 2024.

1.9 The PRA considers that this proposal advances its statutory objectives, with analysis set out in paragraphs 3.55 to 3.65.

1.10 The PRA considers that the benefits of the proposal outweigh the costs, with analysis set out in paragraphs 3.66 to 3.99.

1.11 In carrying out its policymaking functions, the PRA is required to comply with several legal obligations. The analysis in this CP (paragraphs 3.100 to 3.101) explains how the proposal has had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposal. Where analysis has not been provided against a ‘have regard’, it is because the PRA considers that ‘have regard’ to not be a significant factor for the proposal.

Implementation

1.12 Subject to consideration of the responses to this CP, the PRA expects that the implementation of the proposal in this CP could be in Q4 2025, with the exception of proposed changes to Matching Adjustment Asset and Liability Information Return (MALIR) reporting which would commence from 31 December 2026 to prevent undue burden on firms.

Responses and next steps

1.13 This 8-week consultation period closes on Wednesday 4 June 2025. The PRA invites feedback on the proposal set out in this consultation. Please address any comments or enquiries to CP7_25@bankofengland.co.uk.

1.14 When providing your response, please tell us whether or not you consent to the PRA publishing your name, and/or the name of your organisation, as a respondent to this CP.

1.15 Please also indicate in your response if you believe the proposal in this consultation paper is likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

2: Background

Background to the matching adjustment

2.1 The UK’s Solvency II regime recognises that insurers with predictable liability cash flows that are closely matched by asset cash flows are not materially exposed to the risk of short-term fluctuations in asset prices.^{footnote [4]} The regime allows firms to apply to the PRA for an MA permission which effectively increases the capital resources of the insurer.

2.2 Insurers manage these assets and liabilities in an MA portfolio. Where insurers wish to add assets with new features to an MA portfolio, they currently need to apply to the PRA for permission to include those new features within the scope of an MA permission. The PRA’s assessment of this application is generally expected to take up to 6 months, although typical review times are shorter. Firms will also spend time preparing the application. Firms state that this time results in missed investment opportunities as firms may not add such assets to the MA portfolio until permission is granted.

2.3 MA Permission is subject to satisfying the MA eligibility conditions, including conditions for the assets and matching liabilities to which the MA is applied. The MA eligibility conditions define the features that the asset portfolio, and in some cases, the individual assets within it, must have. These features, together with the ability to identify, measure and manage the risks of an individual asset, and of the MA portfolio, in accordance with the requirements of the Prudent Person Principle, determine eligibility, not the notional class to which the asset (or group of assets) belongs. For this reason, there is no prescribed or ‘closed list’ of eligible assets for MA purposes. Instead, the PRA expects firms to be able to demonstrate at the point of application, and on a continuous basis, that their portfolios satisfy the MA asset eligibility conditions.

CP19/23 and PS10/24

2.4 As part of the Solvency UK reforms the PRA consulted on changes to the MA framework in CP19/23 – Review of Solvency II: Reform of the Matching Adjustment. The PRA received responses to CP19/23, which suggested introducing various forms of ‘MA Sandbox’ which would allow additional flexibility around the inclusion of assets in MA portfolios.^{footnote [5]} Proposals of this nature were not within the scope of CP19/23. However, the PRA and the Association of British Insurers (ABI) established a Subject Expert Group (SEG) which met between March and July 2024 to consider the industry’s view of the potential risks and benefits different reform variants could bring, over and above the benefits from the significant MA application process reforms already implemented in PS10/24 – Review of Solvency II: Reform of the Matching Adjustment.^{footnote [6]}

2.5 SEG participants asserted that they were unable to invest in certain assets that they considered to be MA eligible for inclusion in the MA portfolio under the PRA’s rules, due to investment windows being shorter than the time expected to be required to vary MA permissions to include such assets with new features. Those participants asserted that a more flexible approach to MA permissions would accordingly increase their ability to make investments that may contribute to increased productivity in the UK economy and the transition to net zero. The output from the SEG has been used to inform the MAIA proposal in this CP.

3: The PRA’s proposal

3.1 This chapter sets out the PRA’s proposal to introduce a MAIA permission process and operational framework. A firm with MAIA permission would be able to add assets to its MA portfolio that do not possess the same features as those included in its most recent MA permission, without first seeking a variation. This ability would be subject to the conditions of a firm’s MAIA permission and compliance with the MA eligibility conditions.

3.2 An exposure limit would be placed on the amount of assets that can be in a firm’s MA portfolio using the MAIA permission at any point in time. This exposure limit would be based on the size of a firm’s MA portfolio as outlined in paragraphs 3.31 to 3.42.

3.3 A firm using its MAIA permission would need to submit to the PRA an application to vary the scope of its MA permission to ‘regularise’ MAIA assets within 24 months of their inclusion in the MA portfolio. Where applications are approved relevant assets would subsequently be covered by the firm’s MA permission and therefore no longer count towards the MAIA exposure limit. Where such applications are not approved firms would be required to remove the relevant assets from the MA portfolio.

3.4 Firms with an MA permission may apply for a MAIA permission. The PRA generally does not expect firms who do not currently have an MA permission to submit initial applications for both an MA permission and MAIA permission concurrently, as such firms would not yet have experience of the MA framework, nor liabilities to determine a MAIA exposure limit.

3.5 The policy proposal in this chapter would:

• introduce a MAIA permissions framework;
• place controls on firms’ use of an MA permission in accordance with the MAIA rules, including making a rule for firms to have a MAIA policy; and
• make a rule introducing a new annual reporting for firms using the MAIA to provide a use report for MAIA permissions and update the MALIR reporting template and the related instructions.

3.6 The proposal in this chapter would:

• make changes to the Matching Adjustment Part of the PRA Rulebook (Appendix 1);
• make changes to the Reporting Part the PRA Rulebook (Appendix 2);
• make changes to SS7/18 – Solvency II: Matching Adjustment (Appendix 3);
• make changes to SS8/18 – Solvency II: Internal Models Modelling of Matching Adjustment (Appendix 4);
• make changes to SS5/24 – Funded Reinsurance (Appendix 5);
• make changes to the SoP – Matching Adjustment Permissions, including by renaming it as SoP – Matching Adjustment Permissions and Matching Adjustment Investment Accelerator Permissions (Appendix 6);
• make changes to the MALIR instructions (Appendix 7);
• make changes to the MALIR template (Appendix 8);
• make changes to the Matching Adjustment supplementary information form (Appendix 9); and
• introduce a Matching Adjustment Investment Accelerator supplementary information form (Appendix 10)

The MAIA permissions process

3.7 The PRA proposes the introduction of the MAIA framework through a new permission process. This would grant a firm permission to include MA eligible assets with new features in their MA portfolio without needing to first apply to vary the scope of their MA permission (subject to the conditions set out in the firm’s MAIA permission). This would enable firms to make investments in assets that they are satisfied are MA eligible but are not within the scope of their existing MA permission and claim an MA benefit immediately. A separate permissions process for the MAIA will allow for tailored MAIA permissions, eg proportionate exposure limits. MAIA permissions would be given under FSMA s138BA, with an updated SoP (Appendix 6) setting out the PRA’s approach to granting, varying and (in exceptional circumstances) revoking MAIA permissions.

3.8 The PRA has sought to design a straightforward application process for MAIA permissions. Where firms provide the information requested by the PRA, the PRA does not expect the permission process to be lengthy. The PRA proposes that authority for approval for submission of MAIA applications may be delegated from the board of a firm to a suitable sub-committee of the board or to approved senior managers. This approach is consistent with the existing application process for MA permissions. Additionally, the PRA proposes that the Application Readiness Assessment Process (ARAP), which firms are strongly encouraged to participate in before submitting an MA application, is not necessary for MAIA applications.

3.9 The PRA also considered an alternative framework that would permit all firms with MA permission to use the MAIA framework without requiring an initial MAIA permission from the PRA. This was discounted on the basis that it would unreasonably increase risks compared to the proposal in this CP. The PRA considers that the proposed MAIA framework would appropriately limit the level of prudential risk introduced by ensuring that the PRA can review applications for MAIA permissions, set limits that are appropriate to firm circumstances, and consider variations and/or revocations of MAIA permissions where necessary.

3.10 The PRA proposes that, to appropriately limit the prudential risks introduced by the MAIA framework, its assessment of applications would be informed by consideration of a firm’s ability to appropriately use a MAIA permission. The PRA may require additional information to inform its assessment of a firm’s MAIA application in cases where the PRA considers the firm’s ability to use a MAIA permission in a manner consistent with its MA permission and in compliance with the MA eligibility conditions is uncertain. For example, this uncertainty may arise from the firm’s history in managing their MA portfolio, or from the firm’s solvency or liquidity position.

3.11 Firms seeking a MAIA permission should make use of the s138BA permission application form on the PRA website, and they are also expected to make use of the MAIA supplementary information form that is included in Appendix 10.

3.12 Once a firm has received a MAIA permission, the PRA proposes that this permission would be varied over time in line with variations of the firm’s MA permission. Variations to the MAIA permission would be required to ensure that the MAIA exposure limit (see paragraphs 3.31 to 3.42) reflects changes to the size of the MA portfolio over time. To ensure efficient use of firms’ and PRA resources, the PRA proposes that, where relevant, applications for variations of MA and MAIA permissions should be submitted together. If the application for variation of the MA permission were rejected by the PRA, the PRA proposes that the MAIA variation application would generally also no longer be appropriate (as a change to the MAIA exposure limit would no longer be necessary).

Controls on the use of MAIA permissions

3.13 The PRA considers that without adequate controls, the MAIA framework would have the potential to introduce material new risks to the PRA’s primary objectives where firms include assets in their MA portfolio which are not MA eligible. These risks include firms overstating financial resources for a period of time, and the effect of disorderly sales of assets that are ultimately determined to not be MA eligible. To manage these risks, the PRA proposes that the MAIA framework should make use of both existing controls for managing MA portfolios, and the introduction of MAIA specific controls related to the risks that a MAIA permission could pose. The proposed controls include:

• a rule requiring firms applying for MAIA permission to establish suitable procedures and controls, including maintaining a MAIA policy and contingency plans for each MAIA asset that would be followed in the event that MAIA assets were determined to not be MA eligible and therefore needed to be removed from the MA portfolio;
• expectations that firms would update relevant policies (including the liquidity plan) to consider the risk that MAIA assets could be determined to not be MA eligible, and therefore need to be removed from the MA portfolio;
• an exposure limit for assets in the MAIA;
• a time limit of 24 months to regularise MAIA assets through the submission of an application for variation of MA permission; and
• new reporting requirements of a MAIA use report and changes to the MALIR.

3.14 The PRA also proposes making rules to address breaches of MAIA permissions.

Implementing and maintaining a MAIA policy

3.15 The PRA proposes making a rule that firms with a MAIA permission must implement and maintain a MAIA policy. The PRA considers that an effective MAIA policy would enable firms to both take advantage of the potential benefits of using a MAIA permission, and appropriately manage any associated risks.

3.16 To assist firms seeking to establish effective MAIA policies, the PRA proposes expectations in SS7/18, including that MAIA policies:

• describe the process for the governance and oversight that applies to the assessment of assets being considered for inclusion in the MA portfolio using the MAIA permission against the MA eligibility conditions;
• either confirm that any policies relating to the management of the wider MA portfolio will also apply to MAIA assets, or specify how those assets will be managed to ensure compliance with relevant requirements relating to the management of the MA portfolio;
• specify the intended use of the MAIA permission, in line with the investment policy for assets in the MA portfolio. This may include specifying criteria or asset features that would or would not be deemed appropriate for MAIA assets;
• describe the process to establish and review contingency plans for MAIA assets covering actions that would be taken in the event that the asset(s) are determined to not be MA eligible, including by considering the interaction between the contingency plans on multiple assets should they be triggered simultaneously;
• describe the MAIA risk appetite framework, including consideration of stress tests to assess and manage the risk that MAIA assets could be determined to not be MA eligible, and subsequently be removed from the MA portfolio; and
• describe the process to regularise MAIA assets.

3.17 The PRA considers that its proposed expectations in relation to MAIA policies will support firms in their use of the permission while mitigating the risks introduced by the proposed MAIA framework. The PRA has sought to minimise burdens on firms by allowing firms to rely on existing MA policies and processes where appropriate. The PRA is taking a proportionate approach and will expect firms to confirm that they have a MAIA policy in place as part of the application process. However, submission of the MAIA policy is not part of the proposed MAIA application process nor, under normal circumstances, does the PRA expect to review firms’ MAIA policies as part of the application process.

3.18 The PRA proposes making a rule that the MAIA policy is subject to the approval of a firm’s governing body, reflecting its intended use to manage the risks of use of a MAIA permission for a firm and to support the firm in streamlining its ongoing investment decisions.

MAIA contingency plans

3.19 The PRA proposes to introduce a rule that firms using a MAIA permission must establish effective written contingency plans for each MAIA asset. These contingency plans would need to be followed in the event that an asset is determined to not be MA eligible for inclusion in the MA portfolio and therefore needs to be removed from the MA portfolio. The PRA considers that this rule is necessary to ensure that firms identify and manage the risks of this potential outcome, including the capital and liquidity strain that would be incurred by removing a MAIA asset from the MA portfolio, without compromising the compliance of the MA portfolio with the MA permission.

3.20 The PRA proposes introducing a rule that contingency plans for MAIA assets be kept up to date. The process and frequency of review, and the associated governance of MAIA contingency plans are for each firm to determine and should be described in a firm’s MAIA policy.

3.21 The PRA further proposes making expectations in SS7/18 relating to the assumptions that firms may apply in the contingency plans for MAIA assets. In particular, owing to the uncertainty of the time required to complete a transaction, the PRA proposes that firms should not rely on the sale of MAIA assets in the short or medium term.

Reporting of use of MAIA permissions

3.22 The PRA proposes making a rule to introduce an annual MAIA use report, and to amend the existing MALIR reporting.

3.23 The PRA proposes setting expectations in SS7/18 to support firms with completing the MAIA use report. These include expectations relating to firms outlining how they manage their MAIA permission in accordance with their MAIA policy, and noting any breaches of the MAIA policy. To minimise burdens, firms will be able to determine the format for this report. Additionally, the PRA proposes making a rule that the MAIA use report must be submitted to the PRA within 14 weeks after the firm's financial year end.

3.24 The PRA considers that the MAIA use report would support firms’ internal operations and governance by including an assessment of the effectiveness of eligibility assessments of MAIA assets and identifying potential areas of risk management weakness. The PRA expects to use the use report to understand how MAIA permissions are being used, understand issues with firms’ compliance with their MAIA policies, and assess the pipeline of prospective applications to regularise MAIA assets. The MAIA use report would also be used by the PRA as part of its ongoing supervision of the firm and support future policy development.

3.25 In PS10/24 – Review of Solvency II: Reform of the Matching Adjustment the PRA introduced the MALIR requirement for all insurance firms with permission to use the MA. In that PS, the PRA repeated its commitment to not change the MALIR from year end 2024 unless a change was important and unanticipated.^{footnote [7]}

3.26 The PRA now proposes to add two additional fields to the MALIR reporting template. The PRA considers that making a change to MALIR fields to incorporate new MAIA permissions meets the importance and unanticipated criteria, as without these changes the PRA would not be able to identify: (i) which assets are placed in MA portfolios using a MAIA permission, or (ii) those for which an MA application has not been made in the required timeframe. Without this data the PRA would be unable to monitor whether MAIA permissions are being appropriately used, plan for regularisation MA applications, or assess the impact of introducing MAIA permissions.

3.27 Furthermore, it would assist the PRA in assessing the effectiveness of MAIA permissions in advancing the PRA’s primary and secondary objectives, and any emerging risks (eg developing concentrations).

3.28 The PRA recognises there would be a modest cost to all MA firms to implement the changes to the MALIR reporting template, and an additional ongoing reporting cost to firms that have a MAIA permission. The PRA sets out these costs in the Cost Benefit Analysis (CBA) part of this CP.

3.29 Firms would be required to use the revised MALIR template from year end 2026 onwards. The PRA considers that this is sufficient time for firms to make the required changes to systems and processes. The PRA considered implementing these changes from year end 2025, but did not consider that the potential additional costs and burdens on firms of having a short implementation period would be justified when assessed against advancing the PRA’s objectives.

3.30 The PRA considered as an alternative to updating the MALIR template, firms would provide this information in the MAIA use report. However, the PRA considers that this would make the information harder to analyse for the PRA, and potentially be more onerous for firms to provide.

MAIA Exposure Limits

3.31 The PRA proposes that firms should propose an appropriate MAIA exposure limit as part of their application for a MAIA permission. The PRA proposes that standard exposure limits are generally applied in MAIA permissions. The limits would be calibrated using the Best Estimate of Liabilities (BEL) of the MA portfolio, net of reinsurance, at the time of the MAIA permission and would remain fixed in monetary terms until the next variation of MAIA permission. Total MAIA assets at any point in time would be assessed against the limit based on the sterling amount invested (rather than the fluctuating market value), thus removing the risk of passive breaches of the limit.

3.32 As a firm regularises MAIA assets by making applications to vary its MA permissions to include assets with the relevant features, these assets would no longer count against the MAIA exposure limit, freeing up further MAIA permission capacity for new investments.

3.33 The PRA proposes making an expectation that, in general, an appropriate MAIA exposure limit would be the lower of:

• 5% of the BEL of the MA portfolio (net of reinsurance); and
• an amount proposed by the firm which is no greater than £2 billion.

3.34 The PRA proposes making an expectation that the overall use of MAIA permissions across the whole group does not exceed these levels on a cumulative basis. Therefore, when specifying an amount, the firm should take into account any MAIA exposure limits applicable to other MA portfolios in the firm and in its group. This is to ensure that the overall use of MAIA permissions across the whole group is no more than the lower of £2 billion or 5% of the BEL of the MA portfolios (net of reinsurance).

3.35 These proposed expectations for standard MAIA exposure limits are designed to balance supporting firms to invest in a broader range of assets more swiftly, and with sufficient capacity, against the prudential risks posed by including assets that are outside of a firm’s existing MA permission in the MA portfolio using a MAIA permission.

3.36 In proposing these limits the PRA has considered investment data available from MALIR. The PRA has considered the impact of MAIA assets ultimately being determined to not be MA eligible for inclusion in the MA portfolio, and the consequential impact on insurers’ financial resources, including how firms would rebalance their MA portfolios to ensure that the MA eligibility conditions remain met. In undertaking this modelling, the PRA has considered idiosyncratic insurer risks and aggregated risks across the annuity sector.

3.37 The PRA considers that using a percentage of BEL of the MA portfolio (net of reinsurance) would ensure that the limit is proportional to the size of the MA portfolio. This approach would ensure that, if crystalised, the risks from using a MAIA permission should not disproportionately impact the MA portfolio. The proposed £2 billion limit is intended to ensure that a firm or group’s overall use of MAIA permission(s) would be within a level that does not create material prudential risks in absolute terms.

3.38 In proposing these standard exposure limits the PRA proposes balancing the increased prudential risks from potential asset concentrations or, where relevant, operational constraints where related firms have shared investment management resources, against competition considerations. The PRA considers that this recognises each firm’s appetite to use MAIA permissions is unlikely to be perfectly correlated with the size of its existing stock of MA liabilities.

3.39 The PRA considered both higher and lower standard exposure limits than those proposed. The PRA considers that lower exposure limits would further advance its primary objectives but result in firms needing to make more frequent applications to regularise assets, if they wished to continue a given flow of investment. In considering higher exposure limits the PRA considered that these would increase prudential risks to a level such that additional controls on the use of MAIA permissions would be required. These additional controls could include PRA review of MAIA policies at the point of application, Senior Management Function attestation of the MA eligibility of MAIA assets, more frequent and/or more detailed reporting, or shorter time limits before MAIA assets must be regularised. The PRA considers that the proposed standard exposure limits would best balance advancing the PRA’s primary objectives with having a framework that permits firms to invest quickly where appropriate.

3.40 The PRA has set out in SS7/18 proposed expectations that firms in insurance groups would have MAIA exposure limits based on each firm’s size, and that firms should consider how they wish the cumulative position to be managed in a manner that meets PRA expectations. This would ensure that the PRA’s expectations in relation to the cumulative use of MAIA permissions is complied with. The PRA proposes flexibility to address circumstances such as merger and acquisition activity.

3.41 Where a firm has more than one MA permission the PRA proposes flexibility that the firm may determine how the aggregate use of MAIA permissions can be managed in a manner that meets PRA expectations on MAIA exposure limits.

3.42 If the proposed MAIA exposure limit in a MAIA application exceeds that stated in SS7/18, the PRA proposes that it would not generally grant a MAIA permission.

Time Limit

3.43 To manage the risks from assets that are later determined to not be MA eligible for inclusion in the MA portfolio, the PRA considers it would be appropriate to require firms to make an application to regularise MAIA assets within a fixed time period. The PRA proposes a rule that would require firms to include MAIA assets in an MA application submitted to the PRA within 24 months of their inclusion in the MA portfolio. The PRA notes that this rule relates to the date of application and not the date of PRA decision, thus in practice MAIA assets could be held in the MA portfolio for over 24 months whilst applications are being reviewed by the PRA.

3.44 The PRA proposes that permitting up to 24 months for an MA application to be submitted would allow firms to focus on timely investment in MA eligible assets with new features, reducing the risk that firms miss out on time-sensitive investment opportunities. The PRA considers that this would also allow firms sufficient time to plan their pipeline of MA applications alongside their investment pipeline and where appropriate, to plan for other necessary applications for these assets (eg internal model), in order to streamline their engagement with the PRA.

3.45 The PRA considered a longer time limit but does not propose this so as to prevent assets which might ultimately be determined to not be MA eligible for inclusion in the MA portfolio generating an MA benefit for an overly prolonged period. Conversely the PRA has not proposed a shorter time limit as the PRA considers that this would reduce the benefits of MAIA permissions without materially advancing the PRA’s objectives. The PRA also considered having no time limit, however considered the resulting prudential risks to be excessive and unwarranted.

3.46 The PRA also considered an alternative approach to the regularisation of assets by having a time limit based on requiring assets to be regularised within a fixed time period (eg 2 years). Such an approach would mean that firms would have to account for the anticipated duration of the PRA’s decision processes which could have unintended and undue consequences on the flexibility of the framework.

Breaches of MAIA permissions

3.47 The PRA proposes that where a firm is in breach of certain elements of the MAIA rules in the MA Part of the PRA Rulebook, including MA eligibility conditions, MAIA exposure limits and MAIA regularisation timescales, this would, result in a breach that would, if not rectified within two months, result in a reduction in the MA benefit that can be claimed.^{footnote [8]} This is consistent with the current MA Part of the PRA Rulebook (which will also continue to apply to MAIA assets), where a firm has two months to remedy a breach of MA eligibility conditions. If a firm does not remedy the breach in this period, then the MA would be reduced in accordance with Matching Adjustment 13.5.

3.48 The PRA proposes that for other breaches of the MAIA permission, the PRA expects firms to promptly re-establish compliance with the relevant rules, and will consider whether the circumstances of the breach indicates wider risk management failures.

3.49 Where a firm includes MAIA assets in the MA portfolio that are determined to not be MA eligible for inclusion in the MA portfolio, the PRA expects in the first instance to address this through supervisory engagement. However, in cases of consistent inappropriate use, including regular inclusion of assets that do not comply with the MA eligibility conditions or a significant breach of the MA eligibility conditions, the PRA proposes that it may remove or vary the scope of the MAIA permission if necessary to advance the PRA’s objectives.

Consequential Impacts

3.50 The proposal to introduce a MAIA framework would also have consequential impacts on the MA framework, as well as other aspects of the Solvency II regime. This would result in impacts which were not envisaged at the time of publication of the relevant policy materials. The PRA proposes that amendments be made to the following policy materials as a consequence of the introduction of the MAIA framework:

• SS8/18 – Internal Models – Modelling of Matching Adjustment; and
• SS5/24 – Funded Reinsurance.

3.51 Firms with permission to use the MA that also have permission to use an internal model for the purpose of calculating the Solvency Capital Requirement (SCR) should have confidence that the level of MA benefit in their calculation of the SCR is fit for purpose. The PRA proposes that, where such firms also obtain MAIA permission, those firms would be expected to consider whether their use of the MAIA permission has implications for the level of MA benefit in the calculation of the SCR. Changes have therefore been proposed to SS8/18 to incorporate consideration of the use of MAIA permissions.

3.52 In respect of Funded Reinsurance, the PRA considers that assets should only be modelled as recaptured into an MA Portfolio where they have the same features as assets for which MA permission has already been granted. The PRA has therefore proposed making expectations that firms should not assume recapture of Funded Reinsurance assets with new features using the MAIA permission. This expectation is proposed to apply to Funded Reinsurance limit setting, assessment of collateral management arrangements, and SCR modelling. The PRA therefore proposes making changes to SS5/24 to set out its expectations in these areas.

3.53 As stated in paragraph 3.4 of SS11/16, auditors are not expected to express an opinion on the validity of an approval, waiver or other supervisory determination. The PRA considers this would be applicable to the proposed MAIA framework.

3.54 The PRA also considers that minor updates would be required to the Matching Adjustment supplementary information form if the PRA’s proposed MAIA framework were to be implemented. These updates would be required to ensure that appropriate information is requested of firms making applications to vary their MA permissions, where those firms also hold a MAIA permission. An updated Matching Adjustment supplementary information form would be published on the PRA website at the point of implementation of the MAIA framework. The proposed changes to the Matching Adjustment supplementary information form can be found in Appendix 9.

PRA objectives analysis

3.55 The PRA considers that the proposed MAIA framework, in the context of the Solvency II regime, continues to advance the PRA’s primary objectives of promoting the safety and soundness of firms and contributing to the securing of an appropriate level of protection for policyholders. In particular, it maintains the principle that an MA benefit (ie the reduction in the valuation of MA liabilities through the application of the MA) may only be derived from MA eligible assets (relying, for a temporary period, on firms’ self-assessment for a limited quantity of those assets).

3.56 The PRA considers the primary prudential risk is that firms include MAIA assets in the MA which are determined to not be MA eligible for inclusion in the MA portfolio. This would lead to the firm having overstated financial resources for a period of time. The PRA considers that this risk is mitigated through the proposed controls.

3.57 In the very unlikely event that firms only invest in MAIA assets which are determined to not be MA eligible for inclusion in the MA portfolio, the proposal is expected to ensure that the resulting risks would not endanger the safety and soundness of firms.

3.58 The PRA has estimated the impact of firms using MAIA permissions as described in the previous paragraph, based on current levels of capitalisation across the insurance industry. The PRA’s modelling indicates that although this could have a negative impact on the financial resources of insurers, the MAIA framework proposed by the PRA would ensure that it would be unlikely to result in material prudential concerns at any specific firm. The PRA considers that firms could be more impacted if there were credit stress events that reduced the value of MAIA assets between inclusion and removal from the MA portfolio, hence the PRAs proposal for contingency plans. The PRA considers that additional risks could arise where assets were relatively illiquid.

3.59 Overall, the PRA considers the additional risks to its primary objectives from the proposed MAIA framework are mitigated by the proposed standard exposure and time limits in MAIA permissions and other proposed features of the framework (eg reporting).

3.60 The PRA considers that the proposed MAIA framework advances the PRA’s secondary objective in respect of international competitiveness and medium to long-term growth of the UK economy.

3.61 The proposed MAIA framework would reduce barriers to investment by insurance firms by allowing firms to benefit from earlier recognition of an MA benefit ahead of the granting of MA permission. This would allow firms to more quickly deliver on plans to make additional investments in the UK, improve capital allocation and so support economic growth. The PRA considers that this may permit firms to invest in assets where funding is limited and hence may lead to greater investment returns on MAIA assets supporting growth and competitiveness. The MAIA framework also supports the development of new financial assets that are MA eligible by giving insurance firms greater scope to take advantage of time-limited investment opportunities, hence increasing the competitiveness of the insurance sector as a provider of long-term capital. The PRA considers that MAIA permissions could support the writing of additional MA eligible liabilities and the growth of firms using the MA.

3.62 The PRA would also expect firms taking advantage of the MAIA framework to benefit from greater efficiencies in MA permissions, through the grouping of multiple assets with new features in a single application for variation of the MA permission. This would reduce regulatory burdens and increase the competitiveness of the sector.

3.63 The PRA considers that the MAIA framework proposal would have a more modest impact on the PRA’s secondary objective to facilitate effective competition. The PRA considers that there may be a slightly greater take-up of MAIA permissions by larger firms who are more able to source assets with new features. Smaller firms are less likely to be resourced appropriately to source assets with new features, and to appropriately manage the risks arising from the use of a MAIA permission.

3.64 The PRA considers that while the BEL component of the proposed standard exposure limits gives weight to the existing stock of liabilities that a firm holds, it may not be reflective of future new business volumes. The PRA considers that it is appropriate to therefore balance that larger firms may have more developed investment risk management capabilities against competition considerations, particularly for smaller firms and new entrants. The PRA considers that the inclusion of a proposed overall standard exposure limit in MAIA permissions would limit the opportunities for larger firms to receive outsized benefits from the introduction of the MAIA framework. The MAIA framework will particularly benefit firms in the scale-up phase of their annuity business, where the size of their MA portfolio has reached a level that allows a suitable MAIA exposure limit to warrant new investment types.

3.65 The PRA further considers that while firms with a smaller existing stock of liabilities may be more restricted in their use of a MAIA permission, they may benefit to a greater extent. Such firms may currently have less broad MA permissions relative to larger firms, and therefore more assets may fall within scope for inclusion in the MAIA than for larger firms (where some assets may already be added to an MA portfolio on a ‘same features’ basis).

Cost benefit analysis (CBA)

Introduction

3.66 In developing the proposal set out in this CP, the PRA has considered its objectives and a range of key factors that contribute to the CBA. The counterfactual for the CBA is the status quo position of the PRA’s current policy. The PRA considers that there are two potential approaches firms may currently take:

• Approach 1: firms do not invest in assets with new features until they have secured MA permission for the relevant features.
• Approach 2: firms invest in assets with new features that they consider to be eligible for inclusion in the MA portfolio and retain these assets outside of the MA portfolio until the relevant MA permission is secured.

3.67 Based on feedback from firms provided through the Subject Expert Group (SEG), the PRA understands that Approach 2, the warehousing of assets outside the MA portfolio, is undertaken infrequently given the additional capital requirements and liquidity impacts associated with this approach.

3.68 The PRA therefore considers Approach 1 as the most realistic counterfactual, based on the PRA’s current policy framework, as implemented from 30 June 2024, and this is the basis for estimates in this CBA. This framework includes the 2024 reforms to PRA processes set out in PS10/24 on assessing MA applications with the objective of speeding up approval processes.

3.69 Where costs and benefits are analysed for firms, the PRA has considered these in respect of:

• MAIA firms – firms which will seek (and obtain) MAIA permission;
• MA firms – all firms which have MA permission, including those with and without MAIA permissions; and
• Non-MA firms – firms which do not have MA permissions.

3.70 The PRA notes that the proposed MAIA framework would be optional for firms and considers that firms are more likely to opt to use the MAIA where the firm expects the benefits to outweigh the costs.

3.71 The estimates in the CBA are indicative and rely on key assumptions based on available quantitative and qualitative data. These assumptions relate to:

1. The number of firms that apply for MAIA permissions.
2. Use of MAIA permissions in each firm (ie volume of MAIA assets).
3. Average length of time before MAIA assets are regularised through an MA application, and the credit spread on these assets.
4. Operational and application-related assumptions for firms using MAIA permissions.
5. Resourcing impacts on the PRA.

3.72 These assumptions are all subject to uncertainty and could lead to far greater or potentially lower benefits than the PRA’s central estimate for changes in the parameters. For example, if the use of volume of MAIA assets is high and there is a higher average MA benefit than assumed then the benefits estimated would be higher.

Summary of benefits and costs

3.73 The PRA considers that the benefits of the MAIA framework proposal outweigh the costs. The PRA considers that the MAIA proposal, while introducing new risks relative to the counterfactual, would continue to advance its primary objectives and advance its SCGO and secondary competition objective. In particular, the proposal is expected to benefit firms and the wider economy by potentially increasing investment opportunities and providing firms with a quicker route to investment than the PRA's current MA policy. These in turn could allow firms to make more efficient use of capital.

3.74 The PRA’s Cost Benefit Analysis Panel was not consulted on the CBA as the direct impacts on insurers are expected to be below the materiality threshold of +/- £10 million based on the PRA central estimate of the direct impacts. However, the central estimate is based on the fact that the Solvency II reforms from June 2024 already provide a much more streamlined approach to MA applications, and furthermore much of the benefit depends on the assumptions made on the utilisation and returns for MAIA assets, which are subject to high uncertainty. In any case, the PRA notes that many of the benefits of the proposal are indirect benefits which are not considered as part of the threshold. The PRA concludes that while the MAIA will have a beneficial impact there is uncertainty as to the magnitude of this. The PRA expects to use the reporting requirements in respect of MAIA to support the monitoring and tracking of the benefits.

Costs of proposal

Costs to firms

3.75 The PRA estimates the total one-off implementation cost across the insurance industry to introduce the MAIA framework to be no more than £900,000, depending on the take up rate of the MAIA framework by firms. These implementation costs may arise through:

• the initial development of a firm-owned MAIA policy;
• the proposed rule requiring the firm to submit an application for MAIA permission; and
• introducing or amending governance structures and processes to meet the PRA’s rules and expectations.

3.76 The PRA considers that implementation costs will vary according to the scale and complexity of firms’ MA portfolios, and the extent to which firms need to adapt documentation and processes to enable them to use the MAIA framework. The proposal seeks to minimises these costs by setting proportionate expectations and making the MAIA permissions process as efficient as possible. The PRA notes that applying for MAIA permission is optional for firms and therefore only firms making use of the MAIA framework would incur these costs. Moreover, and importantly, only firms that consider the use of a MAIA permission to be net beneficial would incur these costs.

3.77 The PRA considers that, compared to the counterfactual, the proposal would result in resource impacts for firms with MAIA permission arising from ongoing operational and compliance costs. These may include costs associated with:

• preparing and submitting MAIA applications;
• maintenance of the MAIA policy and MAIA contingency plans; and
• preparing and submitting the MAIA use report and updated MALIR requirements.

3.78 The PRA considers that the proposal would lead to an overall net reduction in operational costs for firms using MAIA permissions compared to the counterfactual. The estimated net reduction in operational costs is achieved through the efficiencies gained by firms being better able to group together MA applications for new assets and improvement in the quality of applications due to practical experience in owning these assets. The PRA estimates that this should equate to a total net cost reduction of up to £1 million per annum across the insurance industry. For individual firms the benefits they gain will depend on the extent to which the firm is able to benefit from grouping applications.

3.79 For firms using MAIA permissions direct costs also include capital costs. As the counterfactual is that firms do not invest in assets with new features until they have MA permission, and there are no changes to the capital requirements as a result of the introduction of the MAIA framework, the PRA assumes no cost for this.

3.80 For all firms with MA permission, the PRA expects the proposal to lead to a small one-off implementation cost due to the addition of two columns to the MALIR reporting template. The PRA estimates that this would lead to a one-off implementation cost for each firm with MA permission but not a MAIA permission of less than £10,000.

3.81 The PRA does not expect that the proposed reforms to the MALIR template should result in any increase in ongoing costs to firms with MA permission but not a MAIA permission.

3.82 The PRA does not consider that the proposal would result in any implementation or ongoing costs for firms not using the MA.

Costs to the PRA

3.83 The PRA expects the proposal to give rise to implementation costs to the PRA, in particular with respect to applications for MAIA permission once the policy is implemented. Based on the assumed take up rate the PRA estimates this cost as c.£25,000.

3.84 The PRA considers that the proposal would result in ongoing resource impacts for the PRA for supervising against the proposed rules and expectations, as well as for review of MAIA permission applications and the ongoing supervision of those firms. This includes costs associated with:

• review of MAIA permission applications;
• review of MAIA use reports; and
• review of MALIR reporting data.

3.85 The PRA considers that the additional PRA resource required for ongoing management of MAIA permissions should be broadly offset by the reduction in resource required due to reviewing fewer MA applications from firms. The PRA expects fewer applications, as firms will be able to better group assets together in a single application rather than applying separately for each asset with new features. As such, the PRA expects that net costs to the PRA arising from the proposal to be broadly neutral.

Costs to policyholders

3.86 The PRA considers the additional prudential risks of introducing the MAIA framework could result in costs to policyholders where firms include MAIA assets which are determined to not be MA eligible for inclusion in the MA portfolio This impact is covered in the analysis of primary objectives and the PRA consider that this cost is mitigated by the proposed controls.

Benefits of the proposal

Benefits to firms

Increased investment opportunities

3.87 This proposal is being introduced in addition to the reforms delivered following the Solvency II Review, initiated by HMT in October 2020.^{footnote [9]} In particular in June 2024 the PRA introduced a number of measures to facilitate faster investment by UK insurance firms, including a streamlined eligibility application process for certain assets. Accordingly, a key consideration when assessing the direct benefits of the MAIA is the assumed baseline level of burden to obtain a timely MA permission prior to including an asset in the MA portfolio. If the PS10/24 reforms are considered very effective, the MAIA would be assessed to add marginal benefits to an already streamlined process. On the other hand, if those reforms are considered to still result in delays that prevent investment, the MAIA could be assessed to add significant benefits.

3.88 The PRA considers that the Solvency II review reforms introduced in PS10/24 have been successful in achieving faster MA permissions, based on experience between 30 June 2024 to 28 February 2025, and this has been reflected in the CBA baseline. An alternative assumption of a more onerous MA permission process would result in larger estimated direct benefits. In any event, the MAIA is expected to provide an indirect benefit of de-risking the PS10/24 reforms relating to streamlined applications.

3.89 The PRA considers that key direct benefit of the proposal in this CP is to provide firms with a quicker route to investment than is supported by the current MA regime. Feedback from the SEG indicated that the MA permission process (as it was prior to PS10/24) often limited firms’ ability to invest in certain assets due to the length of the PRA application process being longer than the investment window. As part of the reforms made in PS10/24 the PRA set up a dedicated team to assess MA applications which has resulted in reductions in decision times for MA permission applications. Nevertheless, the need for permission prior to adding assets with new features to the MA portfolio can result in processes taking longer than the window available for an investment opportunity.

3.90 The PRA considers that allowing firms to benefit from early recognition of an MA benefit ahead of the receipt of an MA permission will provide the indirect benefit of expanding the investment opportunities available to firms. This could allow firms to better optimise their MA portfolios including in respect of cash flow matching, risk, yield and diversification. It could also provide greater ability for firms to take advantage of the reforms made in PS10/24 to expand the range of investments that can be included in MA portfolios.

3.91 The PRA considers that there may be a small increase in the MA benefit which firms will receive by widening the firms’ investment opportunities, above and beyond that currently possible with firms’ existing MA permissions. This will result in a direct benefit for firms. The extent of this will depend on firms’ utilisation of MAIA permissions, as well as the extent to which the proposal will increase the level of competition for these assets, both of these assumptions are subject to uncertainty. For example, the PRA’s estimate of direct benefits assumes that less than half of the total permitted MAIA exposure limits are utilised at any given time. The PRA considers that depending on competition in the annuity market, part of any additional yield earned on MAIA assets could be passed through to prospective policyholders rather than being retained by firms’ shareholders.

Improved PRA process interaction

3.91 The PRA’s current MA framework means that firms are unlikely to invest in assets with new features until they have MA permission for those new features. This is because firms will not be able to benefit from an MA benefit by using these assets to match MA liabilities. While the process reforms the PRA introduced after PS10/24 have reduced MA permission timelines, the PRA acknowledges that firms still experience a wait to obtain permissions. This is usually up to 6 months.

3.92 The MAIA framework removes one of the barriers to investment that firms face. This reduction in regulatory processes prior to investment will bring direct benefits for firms. This includes the ability for firms to group MA applications. The quantification of benefits are captured in the reduction of direct costs for firms.

Benefits to the PRA

More efficient MA application process

3.93 The PRA considers that the MAIA framework could facilitate an efficient flow of MA applications, reducing pressure on MA application review timescales, and therefore facilitating a more efficient use of PRA resources. Further, if firms use the time MAIA assets are included in the MA portfolio to develop their understanding and to gather relevant analysis, it should improve the quality of subsequent related applications (eg internal models). This should reduce PRA’s engagement with firms on new assets and lead to faster permission decisions. It also may reduce the need for the PRA to consider exposure limits for assets in the MA portfolio to address uncertainty on the wider treatment of the asset by the firm (eg from uncertainty in the credit rating).

3.94 The PRA considers that the proposed MAIA framework will result in a reduction in the number of MA applications due to firms better grouping asset applications together. The PRA expects that this impact will be noticeable in the first year of implementation of the MAIA framework leading to a small reduction in costs. The PRA expects this effect to decrease in subsequent years as the additional PRA resource required to supervise firms with MAIA permission balances the decrease in PRA resource required for MA applications. Hence, there is a benefit as costs are expected to be reduced in the short term compared to the status quo.

Benefits to policyholders

3.95 The PRA considers that there is the potential for improved asset returns to feed through to the pricing of new annuity business as highlighted above. The extent of this depends on competitive dynamics in the individual and bulk annuity markets.

Benefits to UK economy

3.96 The PRA considers that, relative to the counterfactual, the proposal in this CP has the potential to advance the PRA’s SCGO, and thus benefit the UK economy through:

• reducing the barriers to investing, thus increasing the competitiveness of the financial services sector;
• supporting firms’ investments in assets that increase productivity in the UK economy and the transition to net zero; and,
• improving the efficiency of firms’ engagement with the PRA

3.97 Firms have stated that UK productive assets can have features that are not part of their existing MA permissions, and that they do not currently invest in such assets if they are not in scope of their current MA permission. The PRA estimates that across the annuity sector c.£10 billion could be invested using MAIA permissions at any one time if fully utilised.

3.98 The PRA notes that there is uncertainty around the amount that will be invested in UK productive assets noting that the MAIA is not restricted to solely those assets and that there are challenges in classification of assets.

3.99 The PRA considers, from the analysis of the costs and benefits, that introducing the proposed MAIA framework would continue to advance its primary objectives and advance its SCGO and Secondary Competition Objective.

‘Have regards’ analysis

3.100 In developing this proposal the PRA has had regard to the FSMA regulatory principles and aspects of the Government’s economic policy as set out in the HMT recommendation letter from November 2024. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

1. The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden: the PRA considered whether it would be more proportionate to have looser or tighter controls and limits on MAIA permissions. The PRA considers that the proposed controls and limits on use of the MAIA permission strike a balance between the increase in risk and the benefits for firms and the PRA.
2. Creating a regulatory environment which facilitates growth through supporting competition and innovation: the MAIA framework proposal would allow MA firms to invest in assets that would support innovation, more easily than under the current framework (where those assets have features not already covered by existing MA permissions). Newer and smaller firms will be able to benefit from the MAIA framework as they are likely to have fewer asset features in scope of an existing MA permission compared to larger firms. The MAIA framework allows these newer and/or smaller firms to invest in assets with features that might be common for other firms but that are not yet within the scope of their own permissions. This will help provide a more level playing field. The MAIA framework will particularly benefit firms in the scale-up phase of their annuity business, where the size of their MA portfolio has reached a level that allows a suitable MAIA exposure limit to warrant new investment types. The MAIA framework also supports the development of financial assets that are MA eligible by giving insurance firms greater scope to take advantage of time-limited investment opportunities, hence increasing the profile of the insurance sector as a provider of long-term capital.
3. Leading the world in sustainable finance, including by unlocking the full potential of the financial services sector to fund the transition to net zero; making the UK a global hub for sustainable finance activity, and delivering a world-leading sustainable finance regulatory framework; and net zero emissions target and environmental targets: the MAIA framework will reduce barriers to potential investments that may contribute to increased productivity in the UK economy with new features not already covered by MA permissions – this is also expected to support the transition to net zero.
4. The principle that the PRA should exercise its functions as transparently as possible: the PRA considers that making the proposed changes to the PRA Rulebook and Supervisory statements to introduce the MAIA framework would make it clearer what the PRA’s rules and expectations are for the MAIA framework, and hence make the execution of the PRA’s functions more transparent.
5. Efficient and economic use of PRA resources: the proposed use of the MAIA permission should support efficient use of PRA resources. Allowing firms to complete limited investments in these assets ahead of applications for MA permission should permit firms to glean relevant and useful data, improving the standard of applications for permission received by the PRA.
6. LRRA principles of good regulation: where not already covered in the items above the proposed MAIA framework meets the requirements as follows:
   1. Accountable – the PRA will receive information on use of MAIA permissions under the proposed framework, to understand whether the intended benefits are being achieved, and that risks are being appropriately managed.
   2. Proportionate – proposal facilitates the proportionate application of PRA and firm resource through supporting the efficiency of MA applications.
   3. Consistent – proposal achieves consistent application of the MAIA framework through the publication of PRA rules in the PRA Rulebook and PRA expectations in Supervisory Statements, and processes in the SoP.
   4. Targeted only at cases where action is needed – enforcement or supervisory intervention will be considered in response to significant or frequent issues with a firm’s use of the MAIA permission under the proposed framework.
   5. Regulators should carry out their activities in a way that supports those they regulate to comply and grow – MAIA framework proposal would support the growth of firms that receive permission, by reducing barriers to investment in new assets.

3.101 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this proposal, it is because the PRA considers that ‘have regard’ to not be a significant factor for this proposal.

Impact on mutuals

3.102 The PRA considers that the impact of the proposal in this CP on mutuals is expected to be no different from the impact on other firms.

Equality and diversity

3.103 In developing its proposal, the PRA has had due regard to the equality objectives under s.149 of the Equality Act 2010. The PRA considers that the MAIA framework proposal does not give rise to equality and diversity implications. The PRA is available to answer any questions that any impacted readers may have on this proposal.