John Taylor (President elect, the Institute) writes to the FT today
Jonathan Ford’s column (April 15) describes the “matching adjustment”, a key component of the regulatory framework of life insurance companies, as an “actuarial trick” that is “vulnerable to abuse”. The matching adjustment is a documented financial calculation mechanism and a fundamental actuarial principle. It is used to ensure there is consistency between the liabilities a life insurer incurs and the assets held to cover them. Without this consistency, the insurer would have to hold excessive amounts of money, which would result in the price of annuities rising to the detriment of consumers.
This mechanism is not open to abuse as the rules for its use are laid out in strict statute under the Solvency II regulatory capital regime. This has been in place for the last three years and largely accepted as an improvement on prior solvency regimes. Furthermore, the Prudential Regulation Authority has additional strict rules and application processes to ensure it is used appropriately.
John Taylor
President-elect, Institute and Faculty of Actuaries, London WC1, UK
Taylor is a partner at Hymans Robertson, who are extensively involved in the pension buyout market.