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. Page 7  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 assess the complex interaction of risks where concentrations may arise. They also need to ensure that the right combination of skills and expertise are available and utilised. One of the most powerful and flexible tools that firms and the regulator have to mitigate these concentration risks is the Prudent Person Principle or the ‘PPP’.
Page 1  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  Page 2  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.