Other significant market movements leading capital positions to 8  deteriorate include a fall UK property prices, downgrades in credit ratings of corporate bonds , a fall in UK equity markets and widening in the spread between sterling interest rate swap and gilt yields. But life insurers’ capital positions are not especially exposed to a widening of credit spreads, partly because of the insulating effect of the Solvency II Matching Adjustment. The interest rate sensitivity is primarily due to the risk margin. Risk margins for annuity writers increase by 40%-50% for a 100bps fall in interest rates, which the PRA believes to be excessive. Insurers do not  5  https://www.bankofengland.co.uk/prudential-regulation/publication/2018/financial-management-and-planning-by-insurers-ss https://www.bankofengland.co.uk/prudential-regulation/publication/2017/solvency-2-data-collection-of-market-risk-sensitivities-ss 7 The aggregate solvency ratio (defined as aggregate Own Funds of the firms in this survey as a percentage of aggregate SCR) was 150% as at YE2016 and 156% as at YE2017. For definitions of the market variables, see https://www.bankofengland.co.uk//media/boe/files/prudential-regulation/regulatory-reporting/insurance/market-risk-sensitivities-instructions.pdf. 8 More specifically, the impact of 20% of assets by market value downgrading from the current Credit Quality Step (CQS) to the next CQS. A CQS refers to rating agency ratings. 6  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  typically hedge the risk margin. For insurance liabilities written before the introduction of Solvency II, the risk margin can however be offset by Transitional Measures on Technical Provisions (TMTP), which allow any increases in reserves due to the introduction of new Solvency II requirements, such as the risk margin, to be phased in over sixteen years.

The main policy measures under the programme included the following: •  Privatisation;  •  Decontrol of prices;  •  Decontrol of interest rates;  •  Abolition of exchange controls and a movement to a market-determined exchange rate regime;  •  A shift to the use of indirect instruments of monetary policy;  •  Introduction of Government securities auctions;  •  Establishment of an inter-bank money market;  •  Modernisation of the national payments system;  2  BIS Review 5/2005  •  Strengthening of the legal framework; and  •  Establishment of a stock exchange. Ladies and Gentlemen After a new Government came to power in 1991, its priorities were to restore economic growth through market-based stabilisation policies and promotion of the private sector as a prime-mover of the economy. Consequently, the economy was liberalised, giving market forces a greater role in the allocation of resources. Prices were decontrolled, while subsidies on all consumer items were removed. In addition, the Government embarked on a privatisation programme, whose objectives were to: (a)  Improve efficiency and service delivery in the economy;  (b)  Inject fresh capital and entrepreneurial skills given the ailing nature of the state owned enterprises (SOEs);  (c)  Secure, on a sustainable basis, employment in the privatized companies;  (d)  Enhance the companies’ revenue contribution to the Government budget; and  (e)  Overall, increase the private sector’s contribution to economic growth and, ultimately, poverty reduction.