(1) For each currency the matching adjustment referred to in Regulation 86 shall be calculated in accordance with the following principles:

(a) the matching adjustment shall be equal to the difference between -

(i) the annual effective rate, calculated as the single discount rate that, where applied to the cash flows of the portfolio of insurance or reinsurance obligations, results in a value that is equal to the value in accordance with Regulation 82 of the portfolio of assigned assets, and

(ii) the annual effective rate, calculated as the single discount rate that, where applied to the cash flows of the portfolio of insurance or reinsurance obligations, results in a value that is equal to the value of the best estimate of the portfolio of insurance or reinsurance obligations where the time value of money is taken into account using the basic risk-free interest rate term structure;

(b) the matching adjustment must not include the fundamental spread reflecting the risks retained by the insurance undertaking or reinsurance undertaking;

(c) despite subparagraph (a), the fundamental spread must be increased where necessary to ensure that the matching adjustment for assets with sub-investment grade credit quality does not exceed the matching adjustments for assets of investment grade credit quality and the same duration and asset class;