Published by Scott Eason on
Firstly, EIOPA has produced risk-free-interest-rate curves, fundamental spreads for MA and country specific VA figures as at year end 2014, January and February. Key points are:
There appears to still be a significant discount rate benefit (c60-80bps) to using the MA over VA as well as the credit spread capital relief from being allowed to re-calculate the MA under the stress scenario.
Secondly, the PRA has released another Director’s letter on the Matching Adjustment. Of most interest is the three 'matching test thresholds' that companies are required to meet to demonstrate adequate matching. These will need to be monitored quarterly, with the exception of (the revised) Test 1 which will need to be performed monthly for portfolios open to new business.
Finally, the UK Government has produced draft legislation confirming their intention to use a VA application process. The Government state that they are being as light touch as possible but information to be submitted will include (at least) a liquidity plan, ORSA and quantitative impact of applying the VA.
No requirements on business/policy type or asset holdings are set out in the legislation nor do we have any information on on-going requirements. PRA are expected to announce further details in the near future, not least because the VA application process is expected to be open from April 2015.
Standalone VA application decisions will take up to six weeks. However, concurrent applications (with MA or internal model) will be allowed but will take up to six months to review.
The documents can be found at the following external sites: