approach to supervision – which will inevitably mean that conflicts with firms sometimes arise. this is inherent in a system in which a regulator is charged with pursuing the public interest through the activities of privately - owned firms. in that spirit, let me say a few words about the matching adjustment ( ma ). allowing insurers to capitalise an illiquidity premium has long been a feature of the uk regime. it makes sense and we fought hard to get it included in solvency ii. it delivers a massive benefit to those insurers that use it – £66 billion in capital which is the difference between those firms being at 155 % of their capital requirement and 65 % of it. given the size of the benefit, we should all want to handle this part of the regime very carefully. we are applying particular scrutiny to two areas : first, the internal ratings and spreads on direct investments in illiquid assets, particularly the senior tranches of internal securitisations ; and second, the use of financial restructuring to bring new assets within the ma. we have accepted internal securitisations as a means to achieve fixed cash flows. but that does not alter the requirement that the underlying assets must match the maturities of the annuity liabilities. we will of course take a careful and prudent approach to all such activity. we have made a series of proposals to give firms greater confidence about which assets can attract ma, and how we will deal with any breaches. but my message to the firms is : if we ended up in a position where the ma ’ s fundamental credibility was undermined for the sake of a few marginal items, we would all regret it immensely. collectively, we need to remain on a sensible path. conclusion i began by making the claim, which might sound somewhat outlandish to the uninitiated, that insurance regulation is fun. it is! but it is also a deeply serious business, precisely because the insurance industry plays such a vital role in society. i hope you will see from our response to the tsc that we at the pra – right up to and including the prudential regulation committee – have been putting a lot of effort into this package of reforms, which are needed in order to make solvency ii work better in the uk. but we haven ’ t done this in a regulatory ivory tower. we have always engaged closely with industry – through our membership on various abi working groups, our frequent meetings with firms and

before a claim either arises or is fully settled. even if they do have the right information, it would be unreasonable to expect individuals to be able to exert a strong disciplining effect on insurers. even the best - informed retail policyholder would not be able to make sure that an insurer holds adequate reserves to pay claims, that it does not grow excessively by taking on too much risk, or that it does not under - price in an unsustainable manner to attract new business. we have seen the significant human cost that can be associated with insurance failures. a prominent example is the fate of over a million policyholders when equitable life came to the brink of collapse in 2000. equitable was forced to close to new business, after it found it could no longer honour its promises on offering guaranteed annuity rates on its products. many of its customers, aged 75 and over, had invested their life savings into these products but were left with significantly reduced retirement income. ten years later, the government agreed to pay compensation amounting to £1. 5 billion. but many policyholders and their families suffered over the decade when their fate remained uncertain, and some of those affected were no longer alive to benefit personally from the compensation. another way to think about this is to consider the importance, at a human level, of what insurance companies do – and therefore, how we would feel about it if an insurer couldn ’ t make good on its promises. much of this is about the everyday business of work, family and home, and i have spent some time this year with policyholders to remind myself of this. the most striking thing about talking to a group of policyholders is simply the vast range of insurance needs people have, from burst pipes to with - profits funds. one is also based on abi data, as at end 2016. all speeches are available online at www. bankofengland. co. uk / speeches struck by how complex people find insurance, and some of the different experiences that can arise. one person i spoke to had a really excellent experience with a uk home insurer. another ’ s family had been injured in a motorway pile - up, and was having terrible difficulty trying to find out if the non - uk insurer of the driver who had hit them is or is not solvent. i also spoke to a group of small business owners, and was struck by how reliant many of them are on insurance for running their businesses.