What we have learned will, as you would expect, inform our considerations of potential Solvency II reform. 1  https://www.bankofengland.co.uk/speech/2018/david-rule-2018-conference-on-bulk-annuities-and-longevity-risk-transfer and https://www.bankofengland.co.uk/speech/2019/david-rule-westminster-and-city-programmes-2019-bulk-annuities-conference 2 https://www.gov.uk/government/publications/solvency-ii-review-call-for-evidence 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  1. Market developments since 2019  The annuity market largely bifurcates into bulk purchase annuities and the purchase of annuities from personal and occupational pensions. Since David spoke to you in 2019 the growth in the bulk annuity market has continued, and is expected to continue [Chart 1 in the Appendix]. From our perspective, the additional capital that annuity firms bring to back these pension obligations provides increased security for scheme members, and gives pension scheme sponsors the opportunity to benefit from de-risking. For some insurers, annuities are part of a wider product set, diversifying with for example term assurance or general insurance products. But for specialist annuity firms the increase in annuity sales leads to concentration in both longevity and credit risk. Chart 2 shows the composition of the solvency capital requirement (SCR) across a range of specialist and mixed-line annuity firms: What this chart does not convey is that the longevity component would be notably larger were annuity writers retaining all of this risk. We are aware that the design of the risk margin has had a number of unwelcome effects such as adding excessive balance sheet volatility which has contributed to longevity risk being something many annuity writers continue to look to cede.

Furthermore, the CET is foregone in the case of all those non-EU countries which benefit from preferential access of the EU market, especially in the case of raw materials. This means that imports can be purchased from alternative sources, possibly from the enlarged EU market, or from non-EU countries which enjoy access to the EU market. Finally, the CET is also suspended when the imported raw material is re-exported outside the EU as a finished 19 product . So while the costs of production for some sectors of the economy may increase, and this in turn could have implications for inflation, at least in the short-run, this impact is likely to be minimal in practice. As a member Malta would also assume the EU’s commitments under the non-reciprocal agreements with developing countries. Whereas this could have negative implications for specific sectors, for the economy as a whole these effects are unlikely to be significant or enduring. This is because the proportion of imports from these countries in Malta’s import bill is marginal. Second, the Cotonou Agreement, which is the EU’s most relevant agreement in this regard, will expire in 2008, by which 20 time it is expected to be superseded by Economic Partnership Agreements based on reciprocity. If anything, therefore, the EU network of reciprocal trade agreements will increase. Within a few years importers and consumers should thus have more and not less access to duty-free imports, and any short-run increases in inflation should be more than neutralised.