Prudential Regulation Authority Rulebook

5.1

For the purpose, and without limiting the generality, of the condition in regulation 4(9) of the IRPR regulations, assets with cash-flows that are not fixed are only capable of being included in a firm’s relevant portfolio of assets without giving rise to material risks to the quality of matching if the cash-flows that are not fixed are highly predictable.

5.2

For the purposes of the condition in regulation 4(9)(a)(ii) of the IRPR regulations, the proportion of a firm’s relevant portfolio of assets that comprises assets with highly predictable cash-flows is subject to the following limits:

1. (1) no more than 10% of the matching adjustment benefit is attributable to an asset with highly predictable cash-flows, either on its own or when taken together with other assets with highly predictable cash-flows in the relevant portfolio of assets; and
2. (2) any applicable exposure limit.

5.3

The cash-flows of an asset are highly predictable for the purposes of 5.1 where:

1. (1) the contractual terms of the asset provide for a bounded range of variability in respect of the timing and amount of the cash-flows; and
2. (2) failure to meet such contractual terms is a default.

5.4

In assessing asset cash-flows for the purposes of 5.3, a firm must:

1. (1) base the best estimate of the cash-flows on the contractual payments of the asset;
2. (2) use assumptions consistent with the economics of the asset; and
3. (3) where expert judgment is used in determining the cash-flows, ensure that it is subject to the level of controls specified in Article 2 of Commission Delegated Regulation (Solvency II) 2015/35.

5.5

For the purposes of 5.2(1), the matching adjustment benefit means, where a firm has a matching adjustment permission, an amount equal to the impact on its best estimate of the scenario set out in Conditions Governing Business 3.2(2)(c) (and for the purposes of this calculation, ignoring any impact of rule 13.5).