greater reduction of around 60 % is possible – but only if the fs is also reformed to better reflect credit risk retained by life insurers. simultaneous reform of both risk margin and ma can also correct a potential distortion in the current framework that has become apparent over time. namely that, broadly speaking, under the solvency ii regulatory regime, some long term insurance risks – in particular, longevity risk – appears to have been highly - capitalised, relative to credit risk. this has created an environment where life insurers have been retaining less and less insurance risk, but acquiring additional credit risk, including counterparty credit risk. this trend has become more evident since solvency ii came into force, and raises questions about the effectiveness of the regime, in terms of both competitiveness and in mitigating risks to our statutory objectives. any firm making large - scale use of reinsurance needs to consider their capacity to recapture that risk in the event of the failure of one of their counterparties. we note that some firms are reliant on an action to re - cede offshored risk to another reinsurer, should the original reinsurer default. this would only be possible if the reinsurance market can operate continually and without interruption. there could be myriad drivers of reinsurer counterparty default, but some of these could point to market issues, and potentially temporary market tightening or even closure. firms should consider this risk in their counterparty assessments, and we will look to protect uk policyholders, who are ultimately dependent on the reinsurance payments being made [ 10 ]. process improvements the three main areas of process improvements that i want to highlight, all noted in the government ’ s april consultation document, are : the internal model application process ; reporting ; and the matching adjustment ( ma ) application process. on internal models, we are seeking ways to improve and streamline the application process as well as achieving a more flexible approach to the modelling of complex and emerging risks. this may allow models that are adequate but suffer from some non - fatal shortcomings to nonetheless be used whilst those shortcomings are addressed over a realistic timetable. potentially, this approach could also make use of safeguards where appropriate. we will not allow the best, in modelling, to become the enemy of good enough. these reforms are also intended to help address the tension between innovation in investments and underwriting, and the strong reliance on historic data in internal models. on reporting, we have already made some changes that significantly reduce

competitiveness and productive investment : what parts do they play in the reform of insurance regulation? – speech by charlotte gerken given at jp morgan european insurance conference published on 14 june 2022 charlotte gerken talks about the goals of competitiveness and productive investment, and the impact these are having on the review of solvency ii. she says that changes to regulations for uk insurers could help to achieve these goals. then she focuses on : investment flexibility the valuation of liabilities process improvements speech thank you for your introduction and for inviting me to this conference. since the government announced the solvency ii review, there has been much emphasis on the desirability of reform to enhance the insurance sector ’ s competitiveness and its capacity to make productive investment. today i would like to outline how competitiveness and productive investment relate to the prudential regulation authority ’ s ( pra ) approach to the review by focussing on three areas : 1. investment flexibility 2. the valuation of liabilities 3. process improvements to put the review in context, though : the core framework underlying the solvency ii regime and its principles are broadly fit for purpose, and are in line with existing and emerging international standards. the review does not involve tearing it up and starting again – not least because of the substantial sums invested by industry in the last decade in adopting it. industry responses to hm treasury ’ s call for evidence [ 1 ] were largely in agreement with this approach. however, the review does give an opportunity we are seizing, to deal with those areas of solvency ii that we know are not working as well as they could. sam woods and i have both previously discussed the pra ’ s concerns relating to the current regime [ 2 ] [ 3 ]. taken together, the improvements we want to make represent an important set of reforms and can achieve the objectives of the review. objectives for the solvency ii review the government set three high level objectives for regulatory reforms, namely : 1. to spur a vibrant, innovative, and internationally competitive insurance sector ; 2. to protect policyholders and ensure the safety and soundness of firms ; and 3. to support insurance firms to provide long - term capital to underpin growth, including investment in infrastructure, venture capital and growth equity, and other long - term productive assets, as well as investment consistent with the government ’ s climate change objective. these government objectives are aligned with the pra ’ s two primary statutory objectives of safety and soundness of regulated