Private credit and UK life insurers: structuring for matching adjustment

An estimated £600bn of assets is expected to move from UK defined benefit pension schemes to insurers over the next decade, with around £150bn transferred in the last three years, according to estimates from PIC and LCP. As schemes have become fully funded or in surplus, de-risking has accelerated, and as assets move to insurer balance sheets, annuities must be backed by long-dated, liability-matched portfolios that insurers increasingly source from private credit.

Illiquid credit already represents more than 40% of UK matching adjustment portfolios, though most of it is secured lending against property and infrastructure. Insurers and asset managers are showing interest in broader illiquid exposures such as corporate direct lending and asset-based finance. Recent transactions illustrate the trend: Apollo-backed Athora completed its acquisition of Pension Insurance Corporation in March 2026, Brookfield acquired Just Group for £2.4bn in 2025, and Blackstone agreed a private credit partnership with Legal & General worth up to $20bn. Standard Life also launched a UK Pension Risk Transfer Partnership with CVC, Prudential Financial, Goldman Sachs and MS&AD, giving it access to direct lending, asset-backed lending and structured credit origination.

Regulatory changes under Solvency UK, the PRA's post-Brexit rebuild of Solvency II, have shaped this demand. The matching adjustment allows insurers to discount liabilities at a rate closer to the credit-adjusted yield on matched assets held to maturity, which reduces technical provisions and capital requirements. Two changes took effect in 2024: up to 10% of MA benefit may come from highly predictable cash flows, and the sub-investment-grade cliff was removed. The Matching Adjustment Investment Accelerator, introduced in October 2025, lets insurers with existing permissions add eligible assets and claim benefit immediately, subject to a cap. Uptake of the highly predictable bucket has been slower than expected, and most managers are targeting the larger fixed cash flow bucket.

The article notes that the constraint in the UK PRT market is typically the supply of MA-eligible assets, so independent managers can find opportunities even where insurers have in-house capabilities. A manager's prospects depend mainly on whether its originated assets can meet MA requirements and whether its strategy complements existing insurer origination. Typical private credit features, such as floating rates and prepayment optionality, do not directly meet MA requirements, so structuring is required. Two approaches dominate: private debt CLOs, which tranche loans into an SPV with a senior note eligible for MA but fall under securitisation regulation with higher capital charges, and rated note feeders, which invest in private credit funds and issue rated notes alongside subordinated equity. The article adds that EU changes from 2027 may make CLOs more attractive for EU insurers, while the PRA has not proposed an equivalent recalibration for UK insurers.