Matching Adjustment Calculator
A full Solvency II Matching Adjustment calculation engine. Handles fundamental spread decomposition, asset eligibility screening, and liability cash-flow matching — producing the MA benefit for annuity portfolios. This is pure computation: no AI, no language models, just the regulatory methodology implemented precisely.
Inputs
Matching adjustment
120bps
MA rate
1.200%
BEL reduction
£81.92m
Adjusted BEL
£418.08m
Spread decomposition
Step-by-step workings
Matching Adjustment (bps)
Asset Spread − Fundamental Spread
180 − 60 = 120 bps
MA Rate
MA / 10,000
120 / 10,000 = 0.012000
BEL Reduction (£m)
BEL × [1 − (1 + MA Rate)^(−Duration)]
500.00 × [1 − (1 + 0.012000)^(−15)] = £81.92m
Adjusted BEL (£m)
BEL − BEL Reduction
500.00 − 81.92 = £418.08m
Visual analysis
Impact of the Matching Adjustment
Discount factor curves
Discount factor at liability duration: 0.8362 vs 1.00 baseline
Balance sheet impact
MA reduces best estimate liabilities by £81.92m (16.38%)
Sensitivity — BEL reduction vs asset spread
Holding fundamental spread at 60 bps and duration at 15 years. Current position highlighted.
Methodology
About the Matching Adjustment
The Matching Adjustment is a Solvency II mechanism that allows insurers holding portfolios of assets matched to predictable liability cash flows — typically annuities — to adjust the risk-free discount rate upward by the spread on those assets above the fundamental spread.
The fundamental spread compensates for expected default and downgrade losses. The remainder of the asset spread — the Matching Adjustment — reflects illiquidity and other non-credit-risk premia that a buy-and-hold investor can reliably capture.
By discounting liabilities at a higher rate, the MA reduces the best estimate, releasing capital. This calculator implements the core calculation: the spread decomposition and its impact on the balance sheet. In practice, MA approval requires PRA authorisation, strict asset eligibility criteria, and ongoing cash-flow matching tests.