The availability of  longevity reinsurance has limited any drag on growth in the bulk purchase annuity market. Although one possible effect has been to make it more expensive for pension schemes with a high 5  The Chancellor’s letter to the Governor of 8 March 2017 setting out recommendations to the Prudential Regulation Committee (PRC) about aspects of the economic policy of the government to which the PRC should have regard when considering how to advance its statutory objectives includes “The government wishes to ensure financial services markets make a positive contribution to sustainable economic growth in the UK economy in the medium and long term, through the facilitation of finance for productive investment and as a productive sector of the UK economy.” 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  proportion of younger members to achieve an insurer buy out. This is because reinsurers have had a lower appetite for deferred than in-payment annuities. Although I hear that this might have changed recently. As Sam Woods wrote to Nicky Morgan in June of last year6, the PRA does not currently see a durable way to implement a change in the risk margin with sufficient certainty for insurers to be able to rely on it for pricing, capital planning and use of reinsurance. We continue to keep this position under review. Current issues Despite the diversification into direct investments, corporate bonds are likely to remain the largest category of assets backing U.K. insurers’ annuity liabilities.

Unscrupulous owners and managers might therefore have an opportunity to take excessive risks or misuse policyholder funds: for example, by using them to finance their other business ventures. They might also seek to mask the true financial position of an insurer using opaque models, optimistic assumptions and impenetrable mumbo jumbo. The misalignment of incentives might be particularly extreme when an insurer is close to insolvency, with owners and managers tempted to take more risk in a ‘gamble for resurrection’. In my view, these risks are common to any profit-seeking financial institution in the business of investment in order to pay annuities. That is why, for example, our response to the recent Department of Work and Pensions consultation on superfunds said: “The risks faced by DB consolidators are similar to those managed by insurance companies providing annuities. And insurance companies may want to enter the defined benefit consolidation market. There may be unintended consequences if the two types of business are regulated differently.”4 4  https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/pra-response-to-dwp-consultation-paper-definedbenefit-pension-scheme-consolidation  3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  Overall, I think the PRA’s implementation of the Solvency II regime addresses these risks well. I would emphasise in particular the following features of the regime: 1. It strongly encourages UK insurers to invest in assets with fixed cashflows that closely match those of their annuity liabilities. This limits exposure to market risk. 2.