(3) We are beginning to understand some of the operational consequences. Most obviously, changes in working patterns have increased reliance on technology infrastructure. In response we are 1  See Follow-up note to insurers on the letter from Sam Woods 'Covid-19: IFRS 9, capital requirements and loan covenants' (April 2020). 2 See PRA Statement to insurers on the application of the matching adjustment during Covid-19 (July 2020). 3 See speech by Anna Sweeney 'Ask not what the economy can do for insurers – ask what insurers can do for the economy' (September 2020). 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  increasing the emphasis we place on resilience to cyber threats, reviewing defensive measures and additional controls at firms, and maintaining the priority given to threat led penetration exercises. These and other responses serve to address one of more fronts of risk and uncertainty – whether from regulatory, legal or operational sources. The one big thing the last several months has brought home to our hedgehog brain is the need to be prepared for a world of high risk and high uncertainty on multiple and interacting fronts. The full extent and ramifications of structural changes either brought about or accelerated by the pandemic are unknown, for example the opportunities and threats presented by disruptive trends in FinTech, which has the potential to change economies of scale or to spur competition.
Stress testing is an example of a top-down tool we could consider: does the capital position suggested by the detailed, bottom-up modelling deliver resilience at both firm- and sector level to common, real world shocks that we can reasonably expect them to withstand? Stress testing may not be the only additional tool. The government has an objective of facilitating productive investment to aid recovery and adaptation – not just to the structural changes wrought by the experience of the pandemic, but also to the equally severe, long term threat of climate change. Insurers are embracing the part that they can play in financing the transition to a net zero carbon economy with their long term investment. But many of the projects that take us to net zero will be innovative and lacking an historical track record: there is a legitimate concern that the riskiness of such projects will be overstated by capital modelling that relies heavily on historical data for its inputs and for validation. At the same time the prudential regime has to reflect the economic risks involved. We are interested in the possibility for equally innovative risk measurement tools that have the flexibility to cope with any such bias in existing modelling methods, and deliver a balanced risk assessment: I welcome your thoughts on this directly or in responses to the Solvency II call for evidence. Conclusion In finance, the ‘Greeks’ have become synonymous with the inner workings of models for pricing derivatives – a fox-like activity if ever there was one.