The Role of Matching Adjustment and Fundamental Spread in the Dutch Residential Mortgage Market
The Matching Adjustment (MA) and Fundamental Spread (FS) are crucial components of the UK Solvency II framework, designed to enhance the stability of insurance companies by accounting for the risk characteristics of assets backing long-term liabilities. This paper examines the application of the Matching Adjustment and the calculation of the Fundamental Spread, with a specific focus on Dutch residential mortgages.
We explore how these mechanisms operate and provide detailed numerical examples to illustrate their impact on insurer solvency. Where this document discusses mortgages, it explicitly refers to directly issued mortgages. It should be noted that this document specifically does not pertain to RMBS (Residential Mortgage-Backed Securities).