Calculation of the matching adjustment

The matching adjustment under section 80 must be calculated for each currency in accordance with the following principles:
1. the matching adjustment corresponds to the difference between
a) the effective annual interest rate, calculated as the constant discount rate that, when applied to the cash flows of the portfolio of insurance or reinsurance obligations, results in a value equal to the value, under section 74, of the portfolio of assigned assets;
b) the effective annual interest rate, calculated as a constant discount rate that, when applied to the cash flows of the portfolio of insurance or reinsurance obligations, results in a value equal to the best estimate of the portfolio of insurance or reinsurance obligations, where the time value of money is taken into account using the basic risk-free interest rate term structure;
2. the matching adjustment does not include the fundamental spread reflecting the risks retained by the insurance undertaking;
3. without prejudice to point 1, the fundamental spread is increased, where necessary, to ensure that the matching adjustment for assets whose credit quality is below investment grade is not higher than the matching adjustment for assets whose credit quality has been classified as investment grade and which have the same duration and belong to the same asset category;
4. the use of external ratings in calculating the matching adjustment must be consistent with the delegated acts issued by the European Commission under Article 111(1), letter n, of Directive 2009/138/EC.