Key highlights

Insurers coped with rapid interest rate shift due to the Covid-19 crisis effects

• The Covid-19 crisis led to a notable shift in interest rates from historically low levels to an upward trajectory. This prompted a swift repricing of global bond markets, requiring insurers to adapt their fixed income investment portfolios accordingly.
• In many countries, insurance companies are regulated by authorities requiring them to set aside a specific amount of capital (“prudential capital charge”) based on the risks associated with their operations including the assets held in their financial portfolio

Reposition fixed income assets to accompany a rising interest rate cycle, while seeking prudential efficiency using the Matching Adjustment mechanism

• A rising interest rate environment provides more attractive yields for government and credit assets, but this leads to higher costs in terms of capital requirement.
• The Matching Adjustment (MA) is a regulatory provision that allows a reduction in the capital charge when fixed income asset cash flows are aligned (‘matched’) to anticipated liability cashflows.
• Hence, in this environment, there are opportunities to simultaneously improve the overall yield of the assets, and reduce capital requirement.

You can now read the full whitepaper at the link below