More broadly, the long-term implications for the UK economy of these arrangements bear examination. Within the objectives of the Solvency II reforms, it is not clear that the incentives of third-party capital providers are aligned with UK insurers’ role in making investments in UK based long-term infrastructure and productive assets. Both the PRA and insurers need to think about the opportunity cost of funded reinsurance – in terms of UK direct investments foregone – as well as the benefits and risks. Greater interconnectivity with wider financial markets Related to that point, the third area I would like to touch on is a key aspect of the changing  Page 6  pensions and insurance landscape. One industry estimate, suggests that the UK life insurance industry could onboard more than £ of pension liabilities – and associated assets – over the coming decade[13] [14]. This is a big structural change in the control of long-term investments in the UK, and the decisions that insurers make now will have long term consequences for the performance and development of the broader economy. In line with the Government’s objectives for Solvency II reform, insurers’ investment strategies have an important role in supporting sectors that require certainty of funding over the long term, including education, social housing and infrastructure, and where financing the transition to net zero such as via renewable energy infrastructure and technologies requires patient and deliberate commitment. Making such investments can also generate a competitive advantage in a market where ESG credentials are increasingly valued by trustees[15].
To counteract this, there is discussion of alternatives such as using stress tests to a greater extent, making dynamic reservations and reducing the possibility to utilise an overly rapid increase in the value of an asset as collateral for a loan. The connections between a central bank's two objectives are thus many and complex. There is a pressing need to increase our knowledge of these mechanisms. Interest in financial stability has also increased in recent years. The Riksbank has published regular reports on the financial stability of the banking system for several years now. Many have followed our example, which shows that a large number of us realise the importance of maintaining stability in the financial system. Other economic policy implications In most of the financial crises that have occurred, the shaping of economic policy has played an important role both for the build-up of financial imbalances prior to the crisis and in triggering the crisis. The bank crisis in Sweden at the beginning of the 1990s can be seen as an example. It was preceded by deregulation of the financial markets, a tax system that favoured borrowers, an overly expansionary fiscal policy given the fixed exchange rate regime, and a monetary policy that could not be utilised to reduce overheating, credit booms or the rise in property prices. At the same time, the banks were unused to managing credit risk and the supervisory authorities were not prepared for operating on deregulated financial markets.