example, collectively insurers are responsible for paying over £10 billion of annual retirement income, and a similar amount in motor claims. imagine the costs to the wider economy of a disorderly failure of a single large insurer or of multiple failures thanks to a common vulnerability. coming back to the matching adjustment, this makes a contribution of around £70 billion to insurers ’ capital base at the last count. the principle of the ma – that long - term investors that match assets closely to their long - term liabilities are exposed to fewer risks – is sound. but it does represent the bringing forward – and potentially paying away in dividends – of unrealised returns. and its calibration is subject to uncertainty which, combined with its size and the quantity and importance of the services that it underpins – retirement income and long - term investments – mean that we have to maintain a very high confidence that its calibration is suitably prudent. 4 / 5 bis central bankers'speeches the increasing role played by illiquid assets – whilst wholly consistent with the advantage that insurers have as investors in this space – is a growing source of uncertainty and makes it essential that the calibration be set at a level appropriate to the assets that firms actually hold. i am sympathetic to calls to look again at breadth of eligibility and process improvements for the ma to remove barriers to investment – in infrastructure for example. but we should be cautious about calls for the ma to be made any more generous, both for prudential reasons and because the very existence and current level of the ma may already crowd out investment by insurers in anything that is not eligible. another important area is the role of internal models in the regime. my colleague charlotte gerken has spoken recently about our concerns over excessive reliance on internal models and some potential responses to it. i don ’ t want to repeat that speech – i am conscious that you may already have breached your pain thresholds by having to listen to this one, although in these times of remote working it ’ s of course easier for you to just put me on mute and reply to some emails until we get to q & a. instead, i would like to close with some very brief personal reflections on insurance, models, and capital. whole balance sheet modelling is fundamental to understanding the risk profile of large insurers. but as with any modelling process, amidst all the detail and complexity of solvency ii internal models we risk being precisely

requirements, heedless of the wider consequences. history gives the lie to this caricature. take the topical example of the matching adjustment ( ma ), which i read in the trade press last month is to be a ‘ key battleground ’ in the review of solvency ii. the primary effect of the ma is to reinforce the incentives that life insurers have to make longterm investments. it is something that the pra had to fight hard for in eiopa, often with little support from other countries. this matching is prudentially beneficial and may make annuities cheaper than they would otherwise be, but of course it also involves taking more risk because it boosts capital levels and lowers capital requirements. another way to consider the graveyard question is to look at the returns of the insurance firms that we oversee and ask whether or not they resemble tombstones. empirically, returns on equity can be volatile thanks to things like competitive pricing pressures, catastrophe risk losses and asset market volatility, but they have remained healthy in recent years. since the introduction of solvency ii, returns have been in ranges of about 8 to 10 % in general insurance, and 10 % to 15 % in the life sector. our insurance sector is clearly alive and kicking. moreover, the pra does not aspire to a zero failure regime – more than fifty insurers regulated by the pra are currently in some form of run off, for example – and even our primary objective of safety and soundness is in some ways just a means to end. policyholders are not well served by firms that are so safe and cautious that they might apparently be able to live forever, but never grow or change. such firms are more likely to be broken by a storm than to bend with it. on the contrary, policyholders are better protected by firms that : first, are sufficiently profitable and attractive to external capital to be able to change and grow in response to the changing external environment ; and second, are able, if their business models do fail, to exit the market in an orderly fashion, paying their remaining liabilities as they fall due. what we do have a very low appetite for is disorderly failure. i think our track record is good here so far, but there is more to be done. the uk does not yet have a resolution authority for insurers, as recommended in the fsb ’ s key attributes. assessing firms ’ preparedness for exiting the market in