Charlotte Gerken: Four R - creating the conditions for long-term sustainable growth in the life annuity sector

Speech by Ms Charlotte Gerken, Executive Director of Insurance Supervision of the Bank of England, at the 19th Annual Conference on Bulk Annuities, London, 26 May 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for your introduction, and for inviting me back to the Bulk Purchase Annuities Conference. There is never a shortage of material to cover at this event given the challenges and, of course, opportunities that annuity business creates for the management of very long-term assets and liabilities. This year I am going to focus on the conditions for sustainable growth in the Bulk Purchase Annuity (BPA) sector – the Four Rs referred to in the title – Responsibility of the Board, Risk Management, Resilience and Regulation. Like last year, I will share insights we have gained from our supervisory analysis of the asset-related risks that annuity writers face. As you will be aware credit risk and its effective management continues to be one of the Prudential Regulation Authority's (PRA's) top priorities for the sector and – through the Matching Adjustment (MA) - it is also a topic of focus of the Solvency II reform work. Today, I will also share some of our developing views on the form that regulation and supervision may take in light of our work on Solvency II reform. This reform is expected to have implications for all insurers but is particularly important for annuity writers given the areas under consideration.

I would like to start by thanking those of you here today who have been providing both input and feedback on the areas for Solvency II reform. The UK life insurance sector is vital to the security of millions of policyholders' income, and important to the wider economy via its long-term investment; so the direction that the industry and its regulation takes matters.

Your engagement is an essential part of making the right choices as we reform the regulation of the UK life sector. Regulation is unsurprisingly one of my Rs today; but first I'll recap on the growth of the BPA sector in recent years and its potential trajectory. Then I will talk about the foundations for sustainable growth on which regulation needs to be based. So let me begin with what the BPA market looks like today and how we got here.