£ character selection and Future Forum launch Remarks given by Mark Carney, Governor of the Bank of England  Science Museum, London Friday 2 November 2018  I am grateful to Clare Macallan and Jennifer Nemeth for their assistance in drafting these remarks and to Lizzie Levett, Emma Sinclair and Toby Davies for providing background information. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  It is always a pleasure to visit the Science Museum. Its galleries and exhibitions showcase the rich history of human ingenuity in the sciences, technology, and medicine. You might think that the Bank of England has little in common with such lofty endeavours, but science spans all aspects of life, extending even to central banking. Within this Mathematics Gallery alone, there are multiple examples of where the worlds of central banking and science converge. Take the Moniac machine, which illustrates the circular flow of income around the economy using an assortment of pipes and coloured water. Or Babbage’s Analytical Engine, developed in collaboration with mathematician Ada Lovelace. This precursor to modern computers helped estimate mortality rates, techniques that are still central to underwriting life insurance policies today. The same life insurers that we regulate at the Bank of England. Among those who are supervising, modelling and policymaking, are the Bank’s very own scientists. Almost 10% of colleagues across the Bank have a science or maths degree and 1 in 10 of our graduates starting this year studied chemistry, biology or physics at university.

10 Today, let me focus on the first strategy of developing Singapore’s alternative risk transfer market through insurance-linked securities and public-private partnerships. Insurance-linked securities (ILS) 11 Let me begin with insurance-linked securities, or ILS. 12 We know that alternative capital has been growing more rapidly than traditional capacity over the years, a clear demonstration of greater acceptance of ILS instruments by both investors and issuers. In particular, issuance of catastrophe bonds have grown strongly and total catastrophe bonds outstanding reached a new high of almost USD 30 billion as at the third quarter of this year. This is despite the persistent reinsurance headwinds of excess capacity and depressed rates. 13 Catastrophe bonds present unique benefits to reinsurers: they provide multi-year capacity and pricing certainty; they are more secure due to their fully collateralised nature and ability to be rated; they are a good alternative to traditional reinsurance for risks that are hard to model; and they are capital-efficient. 14 To an investor, catastrophe bonds proffer strong benefits too: their low correlation with the 2/4  BIS central bankers' speeches  financial markets make them an effective asset diversification instrument; they have low volatility and stable returns; they provide liquidity; and they can be issued via private placements or as tradable securities. 15 We are therefore seeing a growing cluster of institutional investors and fund managers like Quantedge exploring allocation into catastrophe bonds, as they venture into niche and specialised strategies to extract better risk-adjusted returns.