PRA Consultation: Matching Adjustment Investment Accelerator (MAIA)

Introduction

The recent “Solvency UK” reforms to Solvency II represent the UK’s tailored approach to insurance prudential regulation post-Brexit, aiming to enhance flexibility and competitiveness in the insurance industry. Related to this, the Prudential Regulation Authority (PRA) has a new secondary objective, introduced under the Financial Services and Markets Act 2023, to facilitate the international competitiveness and growth of the UK economy, particularly within the financial services sector.

In line with this objective, the PRA is now consulting on a new Matching Adjustment Investment Accelerator (MAIA) framework: CP7/25 – Matching Adjustment Investment Accelerator, published 08 April 2025. This new initiative follows, and aims to enhance, a series of changes to Solvency II that the PRA expects will unlock insurer investments of at least £100 billion into UK productive assets over the next decade. The current consultation closes on 4 June 2025.

Matching Adjustment

The Matching Adjustment (MA) is a mechanism that permits a life insurer to adjust the discount rate used for valuing certain long-term liabilities. This adjustment reflects the “illiquidity premium” earned from holding assets that match the expected cash flows of these liabilities, thereby reducing the present value of the liabilities and lowering the insurer’s capital requirements.

To apply the MA, a life insurer is required to obtain prior approval from the PRA. This includes an assessment of:

• Asset Eligibility: though the PRA does not mandate a closed list of eligible assets, assets must have fixed (or otherwise “highly predictable”) cash flows that closely align with the timing and amount of corresponding liabilities; and
• Governance and Risk Management: in addition to adhering to the 'Prudent Person Principle', a firm is expected to maintain robust governance frameworks, including documented policies and contingency plans, to manage the risks associated with its MA portfolio.

Key Proposals under the MAIA framework

• Accelerated Investment: an insurer with an existing MA permission may, following successful application for MAIA permission, add eligible assets to its MA portfolio with features beyond those which its existing MA permission allows, and claim regulatory capital benefits immediately. A firm would then have a 2-year period in which to apply to the PRA for a variation to its MA permission to "regularise" these MAIA assets (as to which, see further below).The intention here is that (assuming the PRA permits the variation) the firm would continue to benefit from the MA capital treatment throughout. Only firms that already have an MA permission are eligible - the PRA would not expect a firm to apply for both an MA permission and an MAIA permission simultaneously, as it would not yet have the requisite MA experience or track record.
• Exposure Limits: MAIA assets added to a firm’s MA portfolio in the above manner would be capped at the lower of: (i) 5% of the Best Estimate Liabilities (BEL) of the MA portfolio (net of reinsurance); and (ii) £2 billion. Total MAIA assets would be assessed against the amount invested, rather than a fluctuating market value, to avoid the risk of passive breaches. These limits would apply to all MAIA exposures across the firm and its group.
• Governance Requirements: a firm must maintain a board-approved MAIA policy, develop contingency plans for each asset, and submit an annual MAIA use report (as to which, see further below).

The PRA notes: “The MAIA framework will particularly benefit firms in the scale-up phase of their annuity business, where the size of their MA portfolio has reached a level that allows a suitable MAIA exposure limit to warrant new investment types. The MAIA framework also supports the development of financial assets that are MA eligible by giving insurance firms greater scope to take advantage of time-limited investment opportunities, hence increasing the profile of the insurance sector as a provider of long-term capital.”

MAIA Permission

Once a firm has received MAIA permission, the PRA proposes that this would be varied over time to reflect variations to the firm's MA permission. In particular, any changes to the size of a firm's MA portfolio over time would need to be captured by its MAIA exposure limit, which would in turn entail a variation to the firm's MAIA permission. For efficiency, the PRA proposes that a firm's applications to vary its MA permission and its MAIA permission (where relevant) be submitted together – and that if the application to vary its MA permission is rejected, the MAIA variation application would generally also fall away.

Risk Management, Controls and Reporting

Misuse of the MAIA runs the risk of firms overstating financial resources for a period of time, and the risk of disorderly sales of assets that are included in a firm's MA portfolio but ultimately determined not to be MA eligible. Accordingly, the PRA proposes strong controls to manage these risks, including:

• a 24-month deadline for formally applying to “regularise” MAIA assets, i.e. to vary the firm’s existing MA permissions to include these assets within the firm’s MA portfolio;
• supervisory powers to revoke MAIA permissions in the event of misuse;
• a requirement for firms to maintain an MAIA policy setting out internal governance, risk appetite, and contingency plans for each MAIA asset. These plans are to be followed in the event that any such assets are subsequently determined not to be MA eligible (and therefore required to be removed from the MA portfolio). As part of this, the PRA urges firms not to rely simply on the sale of MAIA assets in the short or medium term, due to uncertainty as to the time required to complete such a transaction;
• annual reporting to be introduced through a new MAIA use report, to be submitted to the PRA within 14 weeks after the firm’s financial year end. Additionally, updates are proposed to the existing Matching Adjustment Asset and Liability Information Return (MALIR) template, to make it easier for the PRA to identify which assets firms are successfully placing in their MA portfolios using an MAIA permission; and
• a requirement for firms to rectify any breaches in MAIA permissions within 2 months or else face a reduction in MA benefit.

Timeline and Next Steps

Implementation of the proposed changes is expected in Q4 2025. The revised MALIR template will need to be adopted by firms from the year end 2026.

We will be closely following regulatory developments in this space and will follow up with a further alert in due course. For any further information, please contact Tom MacAulay, Partner, George Belcher, Partner, or Ali Siddiqui, Associate, in our Global Insurance Industry Group, or your usual Mayer Brown contact.