The extra yield paid by an asset that cannot easily be sold, which an insurer can capture without additional risk when its liabilities are predictable.
An investor who gives up the ability to sell demands extra compensation, and this illiquidity premium is one of the few sources of yield an insurer can capture without increasing its real risk, on one strict condition: that its liabilities are so predictable in amount and timing that it will never be forced to sell. Annuities in payment meet that condition, a savings contract surrenderable at any time does not, and it is that distinction, not the nature of the asset, that governs prudential treatment. The European regime expresses this through the matching adjustment, which permits a portfolio of liabilities to be discounted at a rate lifted by the premium observed on the assets backing it, subject to strict matching, exclusive assignment and absence of surrender options. The price of the privilege is permanent discipline, since breaching the matching conditions withdraws the benefit, and it is that pairing of a premium granted against a constraint kept that makes the mechanism prudentially defensible rather than a favor.
The matching adjustment set out in Article 77b of Directive 2009/138/EC, applicable since 1 January 2016, conditions the uplift in the discount rate on the exclusive assignment of an asset portfolio to liabilities with no surrender option, a condition the supervisor verifies continuously.
illiquidity premium, prime d'illiquidité, matching adjustment, ajustement égalisateur