The Prudential Regulation Authority (PRA) recently published a consultation paper (CP7/25) proposing to introduce the Matching Adjustment Investment Accelerator (MAIA) framework. It is intended to help firms take advantage of certain investment opportunities more quickly by allowing them to include matching adjustment (MA) eligible assets in their MA portfolio before applying to vary the scope of their MA permission. In line with the PRA’s previous communication,1 the objective of the consultation is to ‘promote growth in the UK insurance sector and broader economy.’ This also aligns with reforms to the MA introduced by Policy Statement 10/24 (PS 10/24).2
Reponses to the consultation must be submitted by 4 June, with the planned implementation by end of 2025. We see these short timescales as a positive development, signalling the PRA’s intention for the MAIA to take effect soon.
As well as an overview of the MAIA, this briefing note includes our comments on the proposals and possible commercial implications.
What is the MAIA?
Under the current regulations, firms wishing to include new assets in their MA portfolios (unless those assets possess the same features as asset types for which they already have an MA permission) are required to apply for a variation of their MA permissions beforehand.
Under the MAIA proposals, firms can apply for a MAIA permission, which would enable them to include a limited quantity of self-assessed, MA-eligible assets with features for which they do not already hold an MA permission. Firms would then have 24 months to submit an MA application to regularise the MAIA assets, although we also note the comment that the PRA expects firms to apply for MAIA permission or an update at the same time as applying to vary the scope of the MA permission,3 and it will be interesting to see how this plays out in practice.
Whilst the current MA framework is supported by eligibility requirements and risk management processes and controls, the MAIA proposals come with separate policies, procedures and controls.
In brief, the MAIA requirements can be summarised as follows:
- Firms will include self-assessed, MA-eligible assets in their MA portfolios under the MAIA framework.
- Under the framework, exposure to new assets and asset classes will be limited to 5% of MA best estimate liabilities (measured at the point of MAIA application) and no greater than £2 billion.
- A key requirement is that firms must maintain a MAIA policy, approved by the board. This describes the process for assessing assets against MA-eligibility conditions and the intended use of MAIA, amongst other things.
- They must also include a MAIA contingency plan, setting out the process to be followed if an asset is determined to be ineligible, and submit a MAIA use report to the PRA at least annually.4
- In addition, the PRA expects that firms with permission to use the MAIA will not assume assets with new features would, via the permission to use the MAIA, be injected into the MA portfolio as a rebalancing action in their internal models.5 Further, no allowance for MAIA can be made when assessing collateral recapture and MA eligibility for funded reinsurance.6
Our comments on the proposals
The authors consider that the MAIA is a welcome regulatory development and expect it to encourage wider investment, enhancing opportunities and asset class diversification and to ultimately benefit policyholders. However, the MAIA does not give firms carte blanche. Firms will need to specify and adhere to the MAIA criteria, and the PRA states that certain asset features, such as for complex or potentially more risky assets, would be inappropriate for the MAIA, as set out in the proposed new paragraph 10.8 of Supervisory Statement 7/18 (SS7/18).
While we have already observed faster approvals for MA permissions, CP7/25 shows further the regulator’s commitment to making investment in new assets and asset classes more straightforward, all while keeping proportionate regulatory controls. Overall, the MAIA proposals and the separate policies, procedures and controls seem practical and proportionate, supporting the objective of simplifying investments in UK productive assets; though, we note that CP7/25 will of course apply to other asset types and non-UK assets.
We welcome that the MAIA can be applied to assets that do not share the same features as those in the latest MA permission without imposing additional requirements (like ‘same risks’) that would have been more restrictive.
We also recognise that a limit on the size of MAIA assets is sensible and necessary. However, establishing limits based on the size of best estimate liabilities might hinder new entrants or smaller firms from utilising MAIA. For example, practical minimum investment sizes may apply to some asset classes (e.g., £50 million), and putting these through MAIA would require a 20-times-larger minimum best estimate liability (i.e., £1 billion).
The proposals that prevent simultaneous applications for MAIA and MA could further restrict new entrants from leveraging MAIA, even though we understand the PRA’s reasoning that a track record of MA experience is appropriate beforehand.
The 24-month limit to apply for submission for an MA application to regularise MAIA assets seems reasonable, as it does not give rise to any undue time pressure (and submission date rather than approval date means this is in the firms’ control). There will of course be an incentive for firms to quickly apply for MA permission on MAIA assets (i.e., faster than 24 months) so that they can get them approved and then cycle different asset types into the MAIA. The PRA considers that the proposals could lead to a more efficient flow of MA applications, and we would hope and expect that this is the case, for the benefit of both insurers and the PRA.
The MAIA route will not be appropriate for all assets, particularly those with different features to those in firms’ MA permissions, given the expectations set out in CP7/25 that the PRA will be informed by consideration of a firm’s ability to appropriately use a MAIA permission.7
The requirement for firms to establish a contingency plan may act as an additional constraint on top of the quantitative exposure limits. The contingency plan addresses the risk of MAIA assets not being approved, potentially affecting firms’ solvency and liquidity. Given that firms should not assume they can sell assets quickly, contingency plans may involve holding these assets outside MA portfolios for a certain period, possibly requiring additional capital beyond Solvency Capital Requirement (SCR). Other options could include third-party support to manage unapproved assets.
The expectations that firms may not assume that MAIA assets are available for inclusion in MA portfolios as part of collateral recapture for funded reinsurance nor as a rebalancing asset for matching adjustment under stress may seem penal, but we note this has been set out quite clearly in the relevant proposed updates to supervisory statements.
In a nutshell
Overall, the MAIA proposals seem helpful and reasonable, particularly for large-scale and established firms. However, new entrants or below-scale firms will likely find it difficult to make efficient use of MAIA, due to the various restrictions, which may put them at a relative competitive disadvantage. However, we note the PRA’s overall expectations and requirements for the MAIA to be based on established practices of running an MA portfolio before using MAIA. Further, sub-scale firms will want to avoid asset concentration risk to individual names or asset types anyway, and it may not be cost effective for them to invest in certain asset types, so the reduction in flexibility from not being able to make significant use of MAIA may be partly moot.
The MAIA will be of most competitive benefit for firms with the greatest investment agility, and we expect that CP7/25 will be a driver across firms to continue to enhance this, across asset classes and/or geography.
The MAIA may encourage greater levels of investment in highly predictable cashflow (HPC) assets, but it is worth noting that some HPC assets may have different risks on top of different features, for which an initial full Matching Adjustment application may be suitable. The MAIA may also create opportunities for sub-investment grade (SIG) assets, but we note that the requirements in SS7/18 for SIG assets are relatively restrictive, particularly ensuring holdings of SIG assets are kept to prudent levels, and investments in SIG assets align with the Prudent Person Principle.8 Therefore, firms are likely to need a thoughtfully considered strategy in this area.
How Milliman can help
Milliman consultants have extensive experience with the treatment and management of bulk annuity business under Solvency UK and are well placed to understand the consultation and implications for insurers.
For example, we have already worked with several large insurers in relation to MA proposals introduced as part of PS 10/24. We have also supported bulk annuity firms right across their business model, including on investment management, asset and liability management, and internal models.
Please contact the authors or your usual Milliman consultant if you wish to discuss further.
1 Woods, S. (2025, 15 January). Letter to the Prime Minister. Prudential Regulation Authority (PRA). Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/letter/2025/pra-response-letter-15-january-2025.pdf.
2 PRA. (2024, 6 June). PS 10/24 – Review of Solvency II: Reform of the matching adjustment. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/prudential-regulation/publication/2024/june/review-of-solvency-ii-reform-of-the-matching-adjustment-policy-statement.
3 PRA. (2025, April). Appendix 3: Proposed updated to SS 7/18 – Solvency II: Matching Adjustment, paragraph 1.6. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2025/april/cp725app3.pdf.
4 PRA. (2025, April). Appendix 1: Draft amendments to the Matching Adjustment Part of the PRA Rulebook, sections 17–19. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2025/april/cp725app1.pdf.
5 PRA. (2025, April). Appendix 4: Solvency II: Internal models – modelling of the matching adjustment, paragraph 5.11A. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2025/april/cp725app4.pdf.
6 PRA. (2025, April). Appendix 5: Draft amendments to SS 5/24 – Funded reinsurance. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2025/april/cp725app5.pdf.
7 PRA. (2025, 8 April). CP 7/25 – Matching Adjustment Investment Accelerator, paragraph 3.10. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/prudential-regulation/publication/2025/april/matching-adjustment-investment-accelerator-consultation-paper.
8 PRA. (2024, June). Supervisory Statement SS 1/20: Solvency II: Prudent Person Principle. Bank of England. Retrieved 1 May 2025 from https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2024/ss120-november-2024-update.pdf.