And a lot is happening in the Bulk Purchase Annuities (BPA) market: pension scheme funding levels have greatly benefited from the rise in interest rates[2], and the UK insurance industry is preparing itself for record levels of bulk purchase annuity transfers[3]. De-risking corporates of their legacy defined benefit schemes brings substantial benefits to UK plc, and the additional capital insurers inject contributes to the security of pension scheme members. This structural shift in the provision of retirement income also gives insurers an increasingly important role as long term investors in the UK real economy. Insurers therefore need to balance the short term financial and reputational incentives to grow rapidly, with long term and enduring financial strength, to meet the long term needs of policyholders and the economy. I spoke to you last year about the conditions for long-term sustainable growth in the annuity sector. This year, in the face of considerable temptation to capture business opportunities, I will argue that  Page 3  BPA writers need to exercise moderation. In that vein, let me invite you to a not quite Epicurean three course feast. By way of starter, I will first reflect on recent BPA market developments and then move to our main course, which focuses on three areas: an expansion of risk appetites; a reliance on third party capacity; and greater interconnectivity with the wider financial system. These clearly call for effective governance, business and risk management.
Philipp Hildebrand: Financial stability Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Institut des Hautes Etudes Commerciales de Lausanne, Lausanne, 16 September 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  During the period of financial market turbulence, central banks have gone far with their interventions to stabilize the financial system, taking into account the high costs that can be imposed by a banking crisis onto the real economy. Central banks by themselves, however, cannot guarantee financial stability in the long term. In particular, we cannot exclude that their interventions create incentives for banks to be less cautious in the future. The first line of defence therefore consists of banks having sound risk management practices and holding appropriate levels of capital and liquidity. The Financial Stability Forum has made a series of recommendations in this respect. Given the size of the big Swiss banks in relation to our national economy, we should be especially prudent. For this reason, the Swiss National Bank supports the project undertaken by the Swiss Federal Banking Commission (SFBC) to strengthen capital adequacy requirements and to revise the liquidity requirements for the big banks. As the SFBC has pointed out on several occasions, these measures have to be implemented gradually – to ensure that banks have sufficient time to adapt. These measures will contribute to the solidity and credibility of the Swiss financial centre.