3  https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/new-insurer/new-insurer-start-up-unitguide.pdf?la=en&hash=310E7B09C241113F97CDDCC36F339DAF90911057 4 https://www.bankofengland.co.uk/prudential-regulation/letter/2018/market-conditions-facing-specialist-general-insurers-feedback-fromrecent-pra-review-work  5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Chart 3: Progression of claims by accident or underwriting year  Responses to Anna’s letter have acknowledged almost universally the concerns raised about the wider market. The quality of insurer’s individual responses has, however, been more variable. Where we have concerns over a firm’s response to our Dear CEO letter, we will follow these up, including with the Board where appropriate. Insurers must have effective controls to assess and monitor pricing and reserving adequacy. We also expect boards to consider seriously the sustainability of their business plans. Capital management, market risk sensitivities and disclosure  A further concern for prudential regulators is that insurers will take more risks with capital, seeking to improve ‘return on equity’ by lowering equity if they cannot boost returns. Of course, that can be perfectly legitimate if insurers genuinely reduce risks. But amber lights flash when I read stories about brokers setting up teams to help insurers ‘optimise’ capital, including through ‘innovative’ use of reinsurance. We will also be alert to insurers seeking to reduce capital requirements through aggressive changes to internal models or over-optimistic business plans. This includes using our internal model output data to compare across insurers and monitoring model ‘drift’ indicators, such as the ratio of internal model to standard formula capital requirements.

In this context, Islamic finance has become a new vehicle contributing to increasing the financial linkages within Asia thereby facilitating cross-border allocation of capital in the region. However, it not only has a potential role in strengthening integration and linkages within Asia, but also more importantly in forging linkages with other dynamic emerging regions such as the Middle East. Several economies within Asia are now beginning to participate in these trends thus strengthening further economic and financial linkages between these two dynamic growth regions. This enhanced inter regional linkages between Asian and the Middle East has created an environment of activity reminiscent of the Old Silk Road. This suggests that a New Silk Road has emerged in which financial services providers across continents now operate on this new route. While the New Silk Road reflects the linkages between Asia and the Middle East, the Silk Road has always been extended to the rest of the world. There is thus the potential for greater participation by global investors and the international financial community. BIS Review 121/2007  3  Islamic finance essentially presents value propositions for both investors and issuers in the respective markets, in particular, the sukuk market. For investors, Islamic financial products offer portfolio diversification and new investment opportunities in the form of new asset classes. For issuers, Islamic finance allows access to a new source of funds and liquidity besides providing, new risk management options and new mechanisms for price discovery.