FT letters today.
It is unfortunate that John Taylor (Letters, April 18) elevates “one of the weirdest emanations of the human mind”, the matching adjustment, to the status of a “fundamental actuarial principle”.
Matching adjustment allows life companies to buttress their balance sheets by creating tens of billions in fake capital, and makes companies appear to be in much better financial shape than they are. There are companies whose capital would be wiped out but for matching adjustment.
It is also naïve to think that matching adjustment is not open to abuse merely because it is consistent with rules that the companies lobbied for. For life companies, matching adjustment provides the ultimate way to game the capital rules — in some cases, with no capital. The Prudential Regulation Authority should put a stop to it.
Dean Buckner
Kevin Dowd
The Eumaeus Project and Durham University, UK