This could generate material benefits to society – and to insurers – provided they maintain discipline in their leverage, that is, the extent to which they deploy debt capital and use reinsurance to back their promises to policyholders. Taking on new BPA business in volume, over a relatively short period, will also involve significant hedging programmes via interest rate, cross currency and inflation swaps, more complex investment arrangements, and will increase interconnectivity with the wider financial market. Insurers therefore need to understand, as they take on these vast sums of assets and liabilities, how they may become greater sources or amplifiers of liquidity risk. In this context, insurers need to focus on the feasibility of their own management actions under stress. Our 2022 Life Insurance Stress Test feedback[16] noted that concurrent reactions in stress can reduce the effectiveness of any assumed management actions. Better and more frequent information, improved modelling capabilities and enhanced liquidity management will inform this, but firms cannot fully resolve these uncertainties via these methods. Senior management therefore need to limit their need to rely on trading and rebalancing in stress, as such activities may destabilise financial markets further, which would be to their own detriment. Additional supervisory measures And so, to dessert, which consists of the additional supervisory measures announced in the Government’s Solvency II reform package, to create Solvency UK. The PRA has accepted the Government’s final view on the key elements of the Solvency II review and is focused on implementation, subject to legislation in Parliament.

And a lot is happening in the Bulk Purchase Annuities (BPA) market: pension scheme funding levels have greatly benefited from the rise in interest rates[2], and the UK insurance industry is preparing itself for record levels of bulk purchase annuity transfers[3]. De-risking corporates of their legacy defined benefit schemes brings substantial benefits to UK plc, and the additional capital insurers inject contributes to the security of pension scheme members. This structural shift in the provision of retirement income also gives insurers an increasingly important role as long term investors in the UK real economy. Insurers therefore need to balance the short term financial and reputational incentives to grow rapidly, with long term and enduring financial strength, to meet the long term needs of policyholders and the economy. I spoke to you last year about the conditions for long-term sustainable growth in the annuity sector. This year, in the face of considerable temptation to capture business opportunities, I will argue that  Page 3  BPA writers need to exercise moderation. In that vein, let me invite you to a not quite Epicurean three course feast. By way of starter, I will first reflect on recent BPA market developments and then move to our main course, which focuses on three areas: an expansion of risk appetites; a reliance on third party capacity; and greater interconnectivity with the wider financial system. These clearly call for effective governance, business and risk management.