Towers Watson has published a paper on the matching adjustment and the implications for long-term savings with financial support from the CRO Forum.

The need for a new regulatory regime (Solvency II) is widely accepted in the insurance industry. However, there are still areas of disagreement between the industry and stakeholders – one of which is how to ensure the framework recognizes the nature of liabilities for long-term business. Impact studies, which were performed to understand  the potential impact of Solvency II, have raised concerns in the industry over the ability to provide long-term products with guarantees that represent value for money for customers. Therefore, the industry aims to recognize specific features of insurance products in the new framework.

The purpose of this article is to take a critical look at the proposals being made and to consider the impact on the industry, consumers and wider economy if these measures are not introduced. In summary, Towers Watson finds that the design of life insurance products means that in many cases insurers can invest assets with a long-term perspective. Insurers need not suffer losses from forced sales in times of financial crisis. The current proposed regulations do not adequately recognize this feature, and therefore Towers Watson advocates a wider application of the proposed matching adjustment. Addressing this issue will bring benefits for consumers and the wider economy without impairing policyholder protection.

Note : The development of the article was financially supported by the CRO Forum (as well as the CFO Forum and Insurance Europe), however the views expressed are solely those of Towers Watson.