Prudential Regulation Authority Rulebook

5.1

The PRA expects firms to document the methodology used to calculate the MA to a sufficient level of detail such that it can be understood by a suitably knowledgeable third party.

5.2

[Deleted]

5.3

[Deleted]

5.4

[Deleted]

5.5

The PRA does not have a preferred approach as to how firms should reflect the FS (see also paragraphs 5.6 to 5.11 below for more details) within the MA calculation. All firms are expected to justify their chosen approach and to ensure that any calculations provided to the PRA are easily followed.

5.6

In relation to reflecting the FS within the MA calculation, the PRA notes that one method of performing the MA calculation is by extending the annual effective rate approach set down in Matching Adjustment 4.3, so that it incorporates all components of the FS published by the PRA (ie PD, Cost of Downgrade (CoD) and Long-Term Average Spread floor (LTAS floor)) and not only the part corresponding to the PD. The PRA recognises that this approach has advantages from the point of view of consistency, as all of the components of the FS are allowed for in the same way.

5.7

[Deleted]

5.7A

There are effectively three elements to the FS (as illustrated in Figure 1 below):

• The ‘basic FS’, which comprises the PD, CoD and LTAS floor. In most cases, firms will be required to use the technical information published by the PRA for each CQS in order to calculate the basic FS. Chapter 6 of the Matching Adjustment Part sets out adjustments that firms must make to this technical information (where possible and appropriate) to allow for differences in credit quality by rating notch. The PRA expects that, as part of ongoing risk management, firms’ risk functions would seek the most up-to-date credit risk information possible, including in respect of differences in credit quality by rating notch. Chapter 6 of the Matching Adjustment Part also requires that firms must make an adjustment to the FS to reflect the corresponding rating notch where such a rating notch is ‘available’. The PRA expects that most (if not all) assets should have a rating available on a notched basis within six months of the asset becoming an assigned asset^[25] in the MA portfolio. Where certain assets are not rated on a notched basis within this time period, the firm should be able to explain to the PRA why this is the case, and the PRA would expect the appropriateness of the resulting FS to be explicitly considered as part of the attestation process, including firstly, whether there is potential bias in the assigned assets towards the lower notch within a given CQS, and secondly whether the lack of notching information reflects greater uncertainty around the credit quality of the assets in question and, if so, whether the FS sufficiently allows for this;
• FS additions in respect of assets with HP cash flows (Matching Adjustment 4.16 and 8.2); and
• FS additions made by firms, including as part of the attestation process, to ensure the FS covers all retained risks in accordance with Matching Adjustment 4.17. Such additions can be applied in respect of the basic FS and/or FS additions in respect of assets with HP cash flows. In the latter case, a firm may make an addition on top of the existing FS addition for assets with HP cash flows due to, for example, changes in market conditions.

Figure 1: Structure of the FS

5.7B

Firms are required to reflect differences in credit quality by rating notch in the basic FS (where possible and appropriate) for all assigned assets that do not use published FS tables for assets issued by governments and central banks. Matching Adjustment 6.1 requires the PD to be adjusted (where possible and appropriate) to reflect differences in credit quality by rating notch. Firms are also required to reflect such differences in the basic FS, which can be done by either:

• adjusting the CoD and LTAS floor components of the basic FS to reflect differences in credit quality by rating notch, which is the PRA’s preferred approach; or
• adjusting the basic FS directly to reflect differences in credit quality by rating notch. In this case the non-PD component of the FS (often referred to as the ‘residual FS’) would be derived as a balancing item, but it would not be possible to further split this into CoD and LTAS floor components.

5.7C

Where reference is made to the FS, the PRA expects firms to consider all three elements of the FS as set out in paragraph 5.7A above unless stated otherwise.

5.8

The PRA expects firms to be able to explain how they map assets to the relevant asset classes and CQSs for the purpose of assigning an FS. In particular, firms are expected to be able to explain the reliance they place on external credit ratings. The PRA expects firms to map assets based on the issue rating of an asset. Where such a rating does not exist, firms are expected to produce an internal rating that is broadly consistent with the expected issue rating were it to be produced by a CRA. Firms should take into account the PRA’s guidance on internal ratings in SS3/17.

5.9

The PRA expects hedging assets included in component A (see paragraph 4.5 of this SS) to be included both in the PRA Matching Tests and in the MA calculation. All such assets should be mapped to an FS – either in isolation or on a grouped basis (as appropriate). However, in any scenarios where an MA portfolio is required to make net cash flow payments to the counterparty in respect of such assets (eg payments due under a swap contract), then these payments should not be adjusted for default.

5.10

Firms should pay careful attention to the fact that FSs vary for each maturity of cash flow for any given asset. The PRA expects firms to take this into account in both the default adjustment and in any ‘residual FS’ deduction (CoD subject to LTAS floor). Simplifications, for example using a single FS based on the duration of the asset, would be inconsistent with the way in which the FSs are intended to be applied in practice.

5.11

For the purposes of calculating the MA, the PRA expects firms to first apply those FSs laid down in technical information published in accordance with regulation 3(1) of the IRPR regulations, adjusted as required in Chapter 6 of the Matching Adjustment Part to reflect differences in credit quality of exposures by rating notch. In the event that an asset held by a firm does not correspond exactly to one of the asset classes or other categories laid down in this technical information, the firm should treat that asset as falling within the respective class or category identified in such technical information that most closely reflects that asset, and justify this decision in its application.

5.12

The PRA expects that, in order to meet the requirements of Technical Provisions 2.1 of the PRA Rulebook, regardless of whether the insurer and reinsurer are within the same group, the ceding entity’s balance sheet must be valued independently of the reinsurer’s and similarly, the reinsurer’s balance sheet must be valued independently of the cedant’s. In particular, the cedant should not take credit for any MA benefit available to the reinsurer.

5.13

In the case where an insurer has reinsured part of an insurance portfolio for which it has obtained permission to use the MA, then that permission relates only to the valuation of technical provisions of that insurer and does not automatically extend to any reinsuring entity to which it may cede risks. A reinsurance undertaking can only take credit for MA where it has been granted MA permission.

5.14

As noted in paragraph 2.62 of this SS, Article 335(3) of the Commission Delegated Regulation (EU) 2015/35 requires that the BEL of group insurance and reinsurance undertakings and consolidated group own funds be calculated net of any intra-group transactions.

5.15

More generally, the PRA requirements for group solvency calculations, of which the requirements of Commission Delegated Regulation (EU) 2015/35 regarding intra-group netting are a part, indicate that the elimination of both the double use of eligible own funds and the intra-group creation of capital are key elements in its design. The PRA expects that the absence of either of these factors from any intra-group transactions designed to secure MA eligibility will be relevant in determining whether preservation of any MA benefit obtained at solo level is justified when consolidating assets and liabilities at group level.

5.16

For the purposes of group solvency calculated on the basis of Method 1 (accounting/consolidation), the PRA does not consider that Article 339 of the Commission Delegated Regulation (EU) 2015/35 requires a re-assessment of MA eligibility at the group level where MA permission has been granted at a solo level in respect of an insurance or reinsurance undertaking in the group. This is particularly relevant to intra-group reinsurance. For example, where a reinsurance undertaking has the benefit of an MA that would be lost as a result of the netting referred to in that Article 339, the PRA considers that an adjustment to the group consolidated BEL would be appropriate to reflect the value of the reinsurer’s MA benefit that would otherwise be lost, provided this does not result in intra-group creation of capital or double-counting of own funds within the group.

5.17

Assets with HP cash flows are likely to introduce additional risks into firms’ MA portfolios and therefore increases to the FS for these assets will be required (in accordance with Matching Adjustment 4.16) to provision for these additional risks. As required by Chapter 8 of the Matching Adjustment Part, firms must identify all sources of uncertainty in cash flow timing and/or amount and make an adequate allowance for these. The PRA expects firms to document details of these sources of uncertainty and how they have allowed for them.

5.18

Firms should maximise use of observable data where it is available. Where there is insufficient data for firms to model the cash flow uncertainty reliably, the application of an addition to the FS could be supported by other safeguards to mitigate risks to the quality of matching.

5.19

The FS addition should be determined such that the part of the credit spread that arises from borrower optionality does not result in recognition of a further MA benefit for the firm. The PRA considers that for a diversified portfolio of exposures that have HP cash flows, firms could make an adequate allowance for the risks arising from cash flow variability by targeting a percentile of the distribution of potential losses.

5.20

Firms will be exposed to the risk of additional reinvestment or rebalancing costs for the MA portfolio if the timing and/or amount of HP cash flows changes. The PRA therefore expects firms to hold as a minimum an allowance for these costs in the FS addition. The PRA expects that an allowance of 10 basis points (bps) would generally be adequate in normal market conditions, although firms may include their own experience data for the costs of trading assets in their MA portfolios in order to justify an alternative allowance. This minimum amount is intended to be a floor rather than a specific increase to the FS addition where a firm takes a standard approach to determining the FS addition for event risks.

5.21

Firms should model a term structure for the addition to the FS unless it can be demonstrated that a uniform allowance would not materially affect the adequacy of the allowance for the risks arising from cash flow uncertainty, and that a uniform allowance would not materially affect the assessment of the quality of asset and liability cash flow matching or the results of the PRA’s Matching Tests.

5.22

The PRA understands that, at the point of initial investment, in many cases it may not be possible to develop a robust methodology for the addition to the FS, for example due to data scarcity. Firms may therefore propose a simpler (standard) methodology for calculating the FS, together with any safeguards that could mitigate the risks to the quality of matching. The PRA does not necessarily expect a firm to go beyond a standard methodology to model a term structure as set out in paragraph 5.21 above.

5.22A

The PRA has set out expectations in paragraphs 5.23 to 5.25 below for standard approaches for economic and event risk exposures. For assets with both economic and event risk exposures, firms should follow the approach for the dominant risks. For pooled asset exposures where the underlying assets are exposed to economic risks but where there is sufficient evidence of predictability, firms may propose to apply the standard approach to the FS addition for event risks.

5.23

Where assets are exposed to economic cash flow variability risks, the PRA expects that a standard approach would assume a pattern of cash flows where the yield for the investor is at a minimum (ie ‘yield to worst’). Where the features or contractual terms of an asset make an alternative method more appropriate, this could be considered on a case-by-case basis, provided that the method retains the assumption that the issuer will act in economically rational manner. The FS addition should include an appropriate de minimis allowance for the risk of reinvestment and rebalancing costs as set out in paragraph 5.20 above.

5.24

For assets with event-driven variability, a standard approach could be for the firm to increase the FS by a proportion of the additional MA above the minimum MA (worst) outcome. The PRA considers that, given the data limitations, this proportion would generally be at least one quarter of this additional MA, and firms should ensure this proportion makes sufficient allowance for the costs of reinvestment and/or rebalancing the portfolio as set out in paragraph 5.20 above. Where a firm has credible data, it may be able to justify a lower proportion of the additional MA for particularly remote risks subject to appropriate allowance for reinvestment and/or rebalancing costs.

5.24A

For this approach, where the cash flows resulting in the minimum (worst) MA are expected to be received earlier than in the best estimate projection, firms may assume that the expected proceeds are reinvested for the balance of the original term in assets with the same FS sector and credit quality at a prudent reinvestment spread above the risk-free rate, less the FS that the replacement assets would incur consistent with that permitted for Matching Test 4 in paragraph 4.10A of this SS.

5.24B

The PRA understands that a firm may have a preference for expressing the FS addition developed consistently with this approach as a number of bps using spreads and economic conditions at the point of origination or investment. The PRA expects firms to assess the ongoing adequacy of the provision for the risks arising from cash flow variability and, where necessary, to adjust the allowance so that it remains consistent with the approach agreed with the PRA. Where a firm expresses the FS addition as a number of bps, the PRA does not expect that this will automatically require adjustment at each valuation date, but rather that the firm should have a framework for assessing whether the fixed allowance remains adequate as conditions change.

5.24C

The PRA has set out worked examples below for the application of standard approaches to the FS addition:

• A callable bond that can be repaid at either year 5 or year 10 would be categorised under the standard approach as having economic risk. The firm would determine the yield assuming (i) repayment at year 5 and (ii) repayment at year 10, and take the cash flow profile corresponding to the lower (worst) of these as the starting point for matching the liabilities. Finally, the firm would apply the FS in the usual way, increasing this for the allowance for potential reinvestment or rebalancing costs.
• For an asset with event risk, such as an asset repayable at par at any time triggered by a defined event (without prepayment protection), under the standard approach the firm should determine the minimum MA benefit and the best estimate MA benefit. The minimum MA benefit would not generally be expected to be less than zero, recognising that receipts from early repayment could be reinvested. The firm should then provision at least one quarter of this as the FS addition, subject to a minimum that also allows for the potential costs of reinvestment or rebalancing of the MA portfolio. Thus if the worst MA benefit were 5 bps and the best estimate MA benefit 65 bps, the provision would be one quarter of 60 bps, ie 15 bps, where this exceeds the minimum allowance for potential reinvestment or rebalancing costs.

5.25

The PRA considers that event-driven cash flow variability risks are more likely to be best represented by fatter-tailed distributions. Where more complete credible data becomes available to support more sophisticated modelling, the PRA considers that a provision of one quarter of the difference in MA benefit from median to worst cash flows is broadly equivalent to targeting the 85th percentile of a fatter-tailed distribution and that this would likely demonstrate adequate provision for the additional retained cash flow variability risks.

5.26

The PRA expects firms to consider a range of factors when determining whether it is appropriate to move from the standard approach to one of greater sophistication, or to modify safeguards supporting the MA permission, including but not limited to:

• the extent of variability of the cash flows of the asset and how this may change over the life of the asset;
• the degree of volatility of the value of the asset;
• the extent of expertise the firm has in managing the asset; and
• the adequacy of data and extent of reliance on expert judgement in the proposed approach.

5.27

Where a firm proposes to develop a more sophisticated method for determining the FS addition, the PRA expects the firm to consider the appropriateness of the methodology used, including:

• whether the methodology covers all the additional risks and uncertainties associated with the relevant asset(s) with HP cash flows that are not covered elsewhere in the controls framework;
• how the methodology interacts with the cash flow projections for the assets in question;
• an assessment, and a justification, by the firm of the material strengths, weaknesses, and limitations of the methodology and the extent to which these could lead to the FS addition being inadequate; and
• how the FS addition calculated by the methodology would change in different market conditions.

5.28

The PRA would not expect a firm to propose a more sophisticated (modelled) approach for the FS addition if this would be substantially reliant on expert judgement, ie firms will need to be able to demonstrate there is sufficient data available to support a modelled approach for the additional risks.

5.29

The PRA recognises that not all sources of variability can be modelled using an advanced approach to calculating the FS additions, for example due to a scarcity of data. The PRA therefore expects that firms may seek to pursue advanced calculation methodologies for some assets with HP cash flows, while retaining the standard approach for others. The PRA expects firms to be able to justify why an advanced approach has been proposed for some exposures but not others.

5.30

Where, for the purpose of calculating the MA, a firm explicitly identifies the sub-portfolio of assets for which expected cash flows are used in the demonstration of cash flow matching (often referred to as the ‘sub-portfolio’ approach), the additional FS allowance may be captured in either the component A assets or the component B assets (see paragraph 4.5 of this SS) that also provisions for the CoD and any LTAS floor components of the FS.

5.31

The PRA rules require firms to have an attestation policy in place (Matching Adjustment 10.3) and within this policy the PRA expects firms to include:

• subject to paragraph 5.32 below, how the firm has determined the PRA senior management function holder (SMF) responsible for the attestation;
• subject to paragraph 5.33 below, the triggers that may result in a material change in risk profile of the firm for an out-of-cycle attestation;
• the process by which the attestor should review the FS and MA, including any criteria for subjecting assets to a more detailed review; and
• an approach for determining the amount of any addition to the FS.

5.32

Matching Adjustment 9.1(3) requires that the senior manager with the prescribed responsibility for the production and integrity of the firm’s financial information and its regulatory reporting (PR Q), as provided for in rule 3.1(4) of the Insurance – Allocation of Responsibilities Part of the PRA Rulebook, will be responsible for the attestation. This is because the SMF should have ultimate governance responsibility for the calculation of the FS and MA (regardless of delegations of any of their responsibilities), and can therefore implement an increase to the FS if required. In many cases, this will be SMF 2, the Chief Financial Officer, but this could be another SMF depending on how responsibility is allocated within the firm. A firm should approach its usual supervisory contact, in the first instance, should its governance arrangements mean that an alternative SMF would be more appropriate to undertake the attestation. Where more than one SMF holds PR Q, the PRA would expect all of those SMFs to attest. The PRA considers that the supervisory guidance contained in SS35/15 – Strengthening individual accountability in insurance^[26] on sharing prescribed responsibilities (in particular paragraph 2.19A of that SS) would also apply.

5.33

The PRA rules require a firm to provide an annual attestation with the same effective date as its Solvency and Financial Condition Report (SFCR).^[27] If a firm has any concerns in providing the annual attestation, it should approach its usual supervisory contact. If there has been a material shift in a firm’s risk profile, then additional out-of-cycle attestation will be required. The PRA expects a firm to enter into discussion with it before concluding whether or not there has been a material change in risk profile, and to agree bilaterally with it the most appropriate date for the attestation reference date and the timescales for the completion of the out-of-cycle attestation. Triggers for an out-of-cycle attestation could include, for example:

• a large bulk purchase annuity transaction where the assets transferred have a materially different profile to those currently held;
• the merger of two MA portfolios; or
• a significant shift in the economic outlook for assets comprising a material proportion of the MA portfolio.

5.34

The PRA recognises that the attestation requirement may result in firms making voluntary additions to the FS as they take greater accountability for the level of MA applied in the valuation of their liabilities. The PRA does not expect its proposals to result in a general increase in the level of FS applied to all assets. Nevertheless, under the regulatory FS / MA construct there is a wide range of credit spreads, and hence of MA, even for assets of the same currency, sector, CQS and term. The PRA expects the attestation to provide greater insight into the drivers of variation in MA and improved management of the risks identified. This could result in a narrowing of the range of MA via an addition to the FS, where the risk and return characteristics of assets do not justify the variation within the range, taking risk management and mitigation into account. The PRA expects that a voluntary FS addition applied by a firm would not automatically result in a reduction to its SCR.

5.35

The PRA expects firms to adopt a systematic approach to reviewing the evidence for the attestation, which should include an assessment of whether the MA portfolio has a risk profile that is consistent with the assumptions underlying the MA (see Chapter 1A of this SS). An example process is set out below outlining considerations that the PRA expects firms to take into account (noting that these are not exhaustive), but regardless of the approach followed, firms should review the FS and MA independently of each other. The PRA considers that this will add rigour to the process and the MA can act as a market-based check on the level of FS. The PRA expects firms to take a proportionate approach to satisfying themselves of their ability to earn the MA. In practice this means that firms should place more focus on those assets with a comparatively high level of MA.

Step 1: Identify assets in the MA portfolio with a risk profile that is consistent with the assumptions underlying the MA, for example, corporate bonds or private placements that have the same risk characteristics as bonds but are not traded. While the PRA expects firms to rely on the basic FS for the majority of these assets, and does not generally expect these assets to require an increase to the FS, particularly for portfolios that broadly reflect the FS calibration data, firms should consider whether exceptions apply.

• Firms should consider whether there is any concentration of exposure (eg to any asset or sector) relative to the portfolio of assets underlying the FS calibration data, and any idiosyncratic risks or other characteristics that may not be represented in the FS calibration data (eg bonds with a maturity exceeding 30 years). Where applicable, a firm should also consider whether the FS appropriately captures the risk for exposures in different currencies.
• Firms should consider rating lags, rating inaccuracies and factors that increase the probability of future downgrades (eg where individual assets are on rating watchlists, where assets are not rated on a notched basis but subject to a potential bias towards the lower notch within a given CQS, or where there is a materially adverse economic outlook for a particular sector).
• Where needed, firms should apply an increase to the FS for these assets and document their reasons for doing so.

Step 2: Identify assets in the MA portfolio with a risk profile that is not consistent with the assumptions underlying the MA, such as assets that are internally rated, internally valued, privately placed, or restructured, or assets with HP (as opposed to fixed) cash flows.

• Firms should consider retained risks that are common to assets covered in Step 1.
• Firms should consider additional risks that are not captured in the rating, or that may result from high uncertainty. Examples of these include political, reputational, conduct or legal risks, or complex/novel features for which limited data exists.
• Firms should consider additional risks that arise from sources of cash flow variability, and ensure that these risks have been sufficiently captured by the required FS additions, based on guidance set out in paragraphs 5.17 to 5.29 of this chapter.
• Where credit is taken for collateral to support the recovery rate assumed, firms should identify risks associated with the performance of the collateral, including illiquidity and reinvestment risks.
• Where proportionate, firms should develop their own, more sophisticated models and processes to come up with an FS that reflects compensation for all retained risks.
• Where needed, firms should apply an increase to the FS for these assets and document their reasons for doing so.

Step 3: Review all assets in the MA portfolio and explain (or modify) the MA on assets that are material contributors to the MA. There should be clearly articulated metrics for identifying material contributors, for example:

• the [w] biggest contributors to the total MA amount
• corporate bonds where the spread is more than [x] standard deviations away from the index mean;
• illiquid assets with an MA that is more than [y] bps greater than that on an equivalent corporate bond; and
• corporate bonds or illiquid assets where the MA exceeds [z]% of the spread.

5.36

The PRA expects firms to consider the FS and MA on an asset-by-asset basis and not assume that prudence for one asset can be offset against an insufficient FS for another. Whilst firms may perform an initial analysis by grouping assets into homogenous risk groups (HRGs), these groups should be granular enough to ensure that both the type and level of risks are sufficiently similar within each group. The PRA considers that HRGs should be defined by a minimum set of factors; these include asset type, sector (financial / non-financial), sub-sector (retail, healthcare, industrial, etc), rating method (internal / external), rating (potentially including notches where the difference in FS is material), broad collateralisation levels and broad maturity bands. Firms should further examine specific assets where necessary, for example in order to identify idiosyncratic risks and other downgrade risks, and material MA contributors that affect specific assets within each HRG.

5.36A

When assessing the portfolio as a whole, the PRA expects firms to consider the degree to which there may be reduced diversification and increased risk to the MA due to concentration from a particular risk type or within a given asset class or sector. The PRA also expects firms to consider risks arising from the need to rebalance the portfolio when determining any voluntary FS additions. Specifically, where the associated costs deviate from those assumed in the basic FS, firms should take into account firm-specific rebalancing strategies and the potential range of market conditions under which the rebalancing might occur.

5.37

Firms should have a high degree of confidence that all the residual spread will be earned, considering the MA as:

• an addition to the risk-free discount rate of liabilities; and
• reflecting only non-retained risks, eg liquidity risks.

The PRA expects that firms would have the same degree of confidence across different asset types, including those with HP cash flows, and they would target the same level of certainty as they would for a portfolio of liquid corporate bonds with fixed cash flows taking the expected review process for these corporate bonds (as described in paragraph 5.35 above) into account.

5.38

Firms should be able to rationalise the size of the residual spreads. Where high residual spreads are attributed to origination expertise such as access to private markets or structuring skills, firms should consider the likelihood of the established asset being able to achieve a market price that reflects the ‘value-added’ during the origination process, assuming there are buyers with the same illiquid liability profile / long-term cash flow needs. A relatively high residual spread could sometimes be explained by an asset valuation being lower than the market price.

5.39

Where high residual spreads are attributed to required ongoing management expertise, firms may consider the residual spread net of any investment expense allowance when reviewing the size of the MA. Where the adjusted residual spread remains materially higher than the average for corporate bonds of the same credit quality (noting that the data underlying the technical information is based on corporate bonds), firms should explain the relative excess spread in relation to non-retained risks in the asset. The PRA expects firms to consider whether any ‘relative excess spread’ on an asset could be indicative of additional, but unidentified, risks or greater variability and uncertainty around an expected outcome, reducing the level of confidence that the MA could be earned. The PRA recognises that there is significant judgement and uncertainty in spread decomposition, which involves quantifying the likelihood and impact of certain risks materialising and the compensation that is commensurate with these risks. Hence the PRA expects that there is room for the role of judgement and reasonable differences in views. Nevertheless, firms should examine material contributors to the MA (as per Step 3 of the example process in paragraph 5.35 above) and clearly set out the rationale for these.

5.40

The PRA requires a firm to list the evidence relied upon in making the attestation, among other details as outlined in Matching Adjustment 12.3, within its attestation report, which should be submitted to the PRA alongside its attestation document via the firm’s usual supervisory contacts. The PRA expects that supervisors may request the evidence listed on an ad-hoc basis. Building on the framework above, the PRA expects the evidence to include:

• evidence that the credit ratings or assessments for all assets were accurate, reliable, and up-to-date;
• analysis of the credit risk exposure and how this compares to the risks underlying the assets used to calibrate the FS and assumptions underlying the MA;
• justification that the methodology and amount of any FS additions for assets with HP cash flows remain appropriate;
• details of assets that have been identified as material contributors to the MA and justification for that amount of MA; and
• an explanation of how any voluntary FS additions were determined.

5.41

In accordance with Matching Adjustment 11.1, a firm will be required to disclose in its SFCR a statement as to whether or not it has provided the attestation in respect of the financial year to which that SFCR relates. However, a firm’s attestation is directed to the PRA and consequently the PRA does not require a firm to publicly disclose the content of its attestation report, nor expect auditors to take into account the attestation requirement when considering the amount of MA claimed by the firm.