assets are not publicly rated. around 40 % of the credit risky assets in insurers ’ ma portfolios are only internally rated as at ye2020 [ see chart 5 ]. for annuity writers, the ma is a material regulatory benefit that allows future investment profits to be booked upfront, thereby increasing capital resources. the ma further reduces capital requirements which are calculated under stressed conditions. under the current rules, the asset ’ s rating is the only measure of risk used to determine the ma, for a given currency, sector, and term. there is, therefore, an implicit reliance on the rating in capturing all of the retained risks of any asset – another form of concentration risk. whilst supervisory statement ss3 / 17 [ 13 ] sets out our supervisory expectations in the use of internal credit assessments for illiquid unrated assets for ma purposes, ratings are by no means the only credit risk indicator in our view. this is an area where we view the ma reform as an opportunity to improve the risk sensitivity of the regime. how best to do that is something we are continuing to review in the light of feedback received to dp2 / 22. in terms of concentration to specific illiquid asset classes, earlier this year [ 14 ] i raised the question of whether firms ’ investment choices might be excessively influenced by the regulatory construct, by seeking the most ma - efficient assets. chart 6 shows that ground rent loans, student accommodation and equity release mortgages have the highest ma benefit relative to their market values. chart 7 shows that, at industry level, there's no apparent over - reliance on any single illiquid asset class, but at the individual firm level we are closely monitoring exposures to any group of assets with similar risk characteristics. given the growing concentration to private assets and the associated material ma benefit, we see a risk of insurers becoming over - reliant on models to drive investment and capital decisions, models that are inherently reliant on public market performance as proxies and limited history. supervisory expectations and the prudent person principle both trends i have outlined demand strong governance and risk management in insurers to evaluate why they are undertaking particular transactions, and how they align with their business purpose and risk appetite. for example, a fundamental consideration for the pra is whether asset origination activities are suitably aligned with the restrictions on business rules. following the question on the business purpose, boards also need to evaluate the capabilities in the firm to

who ’ s concentrating? trends in the life insurance sector and the need for strong reinsurance and investment risk management − speech by charlotte gerken given at the bank of america 27th annual financials ceo conference published on 20 september 2022 charlotte gerken speaks about concentration risks in life insurance, coming from : increasing longevity reinsurance ; use of funded reinsurance ; and growth of illiquid assets. charlotte says the prudent person principle ( ppp ) is important to address these risks. but regulatory requirements need to support good risk management. the pra is thinking about how to address concentration risk. this includes how to manage risk from reinsurance, and the matching adjustment ( ma ) review. speech good afternoon and thank you to bank of america for inviting me today. the role of insurance is to protect individuals and businesses from uncertainty : to diversify and manage risks that participants in the wider economy cannot diversify and manage themselves. the subject of risk diversification and concentration will be well - understood by this institutional investor audience. i will take a prudential regulatory lens to this subject, focussing on developments in the uk life insurance sector and our supervisory response. core to every insurer ’ s business model are the ideas of risk pooling from a large population, leveraging their specialist expertise as long - term investors, making insurance safe and affordable for policyholders and returns attractive to capital providers. through the provision of long - term finance that is naturally enabled by the long - term liabilities taken on, insurers also play a vital role in supporting risk - taking and growth in the real economy. there are two trends within the uk life insurance sector that i ’ d like to cover today, their benefits but also the risks arising from them : the first trend – in two parts – relates to reinsurance : ( a ) the continued high level of longevity reinsurance ; and ( b ) the emergence of more complex so - called ‘ funded reinsurance ’. the second trend concerns the continued growth of untraded or illiquid assets in life insurers ’ portfolios. there are good business and risk management arguments for both of these strategies, which can also lead to improved pricing for customers. however, over - indulgence in either – or indeed both – could actually result in concentration risks increasing at individual firm - level and in the system as a whole. i ’ ll look first at why and how these trends have developed, and then set out what the pr