. the pra is therefore considering how well the resulting risks are managed and mitigated, including risks on recapture. a recapture event requires the insurer to reassume the transferred risk on reinsurer default or if legal conditions are breached [ 5 ]. recapture thus necessitates taking control of any collateral assets and separately, putting aside sufficient capital to back the reassumed risk. firms may argue that they could reinsure the risk to a different reinsurer but with a market dominated by a small number of counterparties whose financial position may be positively correlated, this assumption may be unrealistic. beyond the risk to individual firms, there is the potential for systemic risk to arise where a large proportion of the uk insurance and pension [ 6 ] industry ’ s exposure to longevity risk is ceded to a small number of reinsurers. funded reinsurance the second development in the annuities market is an emerging appetite for funded reinsurance. in its most extreme form, this is a fully funded transaction that involves the insurer paying a single, upfront premium which will be invested by the reinsurer to make the annuity payments. hence risk transfer includes both the longevity and investment risk. substantial collateral from day 1 is required from the reinsurer, backing its promises to make the annuity payments in the reinsured portfolio [ 7 ], [ 8 ]. the impact of funded reinsurance is illustrated in chart 2. while far from being common, a business model predominantly built upon funded reinsurance can be likened to an ‘ originate - to - distribute ’ model with upfront gains and a perception of limited retained risk. funded reinsurance also appears to be a long way from the traditional purpose of reinsurance, which is to access wider diversification of liabilities. nevertheless, funded reinsurance is able to unlock value from an annuity book and materially reduce the on balancesheet capital costs for the insurer, since there is no need for any investment and longevity risk capital, nor related risk margin. given the presence of significant collateral from day 1, the recapture process this time adds the material additional risk that there are insufficient or inadequate assets in the collateral pool to meet liabilities, should a recapture event occur. the pra is particularly focussed on the following recapture risks : 1. the recaptured assets may not always be matching adjustment ( ma ) [ 9 ] eligible or meet the cash - flow matching requirements of solvency ii. firms may face large and uncertain costs reesta

is estimated to be around 0. 5 percent or lower ( chart 10 ). bis central bankers ’ speeches ii. japan ’ s price developments and monetary policy i will next talk about the bank ’ s conduct of monetary policy and the price situation in japan. as i mentioned at the outset, the bank, in order to achieve the price stability target of 2 percent at the earliest possible time, with a time horizon of about 2 years, introduced qqe in april 2013 and expanded it at the end of october 2014. aim of quantitative and qualitative monetary easing let me summarize the transmission mechanism of qqe. the starting point of the mechanism is converting people ’ s deflationary mindset and thereby raising inflation expectations through the strong commitment by the bank to achieve the 2 percent target. at the same time, the bank has been exerting downward pressure on nominal interest rates through its massive purchases of jgbs in order to encourage a decline in real interest rates and stimulate private demand such as business fixed investment. the idea is that, together with the increase in inflation expectations, this will lead to an increase in inflation rates. this might give rise to the question why it is necessary not only to stimulate aggregate demand but also to raise inflation expectations. the reason is that the price stability that the bank ultimately aims at is not one that is achieved temporarily but one that is achieved on a sustainable basis. if aggregate demand is stimulated, inflation may rise to temporarily reach 2 percent, but will not be sustained in a stable manner as long as people make decisions or engage in economic activity on the basis of low inflation. by contrast, if medium - to long - term inflation expectations rise to 2 percent, that is, people make decisions and engage in economic activity based on the assumption of 2 percent inflation, the inflation rate will gravitate to 2 percent even if it fluctuates due to business cycles and changes in commodity prices. that is, over the cycle, prices will hover at around 2 percent on average. to this end, in order to sustain the price stability target of 2 percent in a stable manner, it is necessary for inflation expectations to rise to 2 percent and be anchored at that level. expansion of quantitative and qualitative monetary easing based on this aim, qqe has been producing its intended effects and the year - on - year rate of change in the cpi ( excluding fresh food ) increased from minus 0. 5 percent immediately before the introduction of q