5.1 The PRA expects firms to document the methodology used to calculate the MA to a sufficient level of detail such that it can be understood by a suitably knowledgeable third party.
5.2 [Deleted]
5.3 [Deleted]
5.4 [Deleted]
5.5 The PRA does not have a preferred approach as to how firms should reflect the FS (see also paragraphs 5.6 to 5.11 below for more details) within the MA calculation. All firms are expected to justify their chosen approach and to ensure that any calculations provided to the PRA are easily followed.
5.6 In relation to reflecting the FS within the MA calculation, the PRA notes that one method of performing the MA calculation is by extending the annual effective rate approach set down in Matching Adjustment 4.3, so that it incorporates all components of the FS published by the PRA (ie PD, Cost of Downgrade (CoD) and Long-Term Average Spread floor (LTAS floor)) and not only the part corresponding to the PD. The PRA recognises that this approach has advantages from th
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