1A.1 The MA is an adjustment to the discount rate used to value certain insurance liabilities that represents a proportion of the spread (above the relevant risk-free rate) that an insurer projects to earn over the future lifetime of the assets matching its MA liabilities. It effectively increases the capital resources of the insurer through the associated reduction in the valuation of the MA liabilities. The MA framework recognises that insurers with predictable liability cash flows that are closely matched by asset cash flows are not materially exposed to the risk of having to realise those matching assets in unfavourable circumstances. Consequently, the MA framework does not encourage procyclical behaviour.
1A.2 Under Conditions Governing Business 3.2(2), firms are required to assess the sensitivity of technical provisions and eligible own funds to the assumptions underlying the calculation of the MA (or equivalently ‘assumptions underlying the MA’). A firm should also assess th
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