For example, UK life insurers have increased their holdings of higher-yielding assets such as long-term, non-traded real economy exposures like property to back annuities.16  This increased risk taking may continue as insurance companies and pension funds adjust further to low returns. From a financial stability perspective, a key risk is that insurance companies and pension funds encounter higher losses in stressed markets and become forced sellers or bystanders rather than buyers, so amplifying market vulnerabilities. Other non-bank financial firms such as investment funds have also turned increasingly to less liquid and riskier investments. Investment fund flows now account for one third of total portfolio flows to emerging market economies (compared to one tenth before the crisis). 17 Bank analysis suggests that non-banks now hold around 40% of the rapidly growing global leveraged loan market. More than $ 30 trillion of global assets are now held in open-ended funds that offer short-term redemptions while investing in longer-dated and potentially illiquid assets, such as corporate bonds. This liquidity mismatch may lead to more frequent fire-sales of assets if funds are required to meet large investor redemptions. Fund leverage could further exacerbate this, for example due to margin calls on funds’ derivative exposures. In short, the adjustment to a low for long world is likely to lead to upward pressure on financial sector risk taking and downward pressure on resilience. We have started to see evidence of these effects in some sectors. One would expect such pressures to continue.
11 For example, the share of corporate debt owed by listed UK companies with a ratio of net debt to EBITDA  greater than four was 35% in 2018, compared to 28% in 2007. And the share of debt owed by highly leveraged US companies has reached pre-crisis levels of above 40%. 12 Globally, this share was around 60% on average in 2019Q1-Q3, close to record highs. 13 For example, PRA data indicates that the share of new lending with leverage above 7 times would increase from 18% to 28% if add-backs and subsequent borrowing were included. 14 The share of new mortgages issued at LTV ratios of 90% or more was 20% in 2019Q2 compared to 22% in 2006-07. 15 The spread of quoted 2-year fix rates at 90% LTVs over 2-year fix rates at 75% LTVs fell to below 0.5% in 2019H1, compared to a post-crisis average of more than 1.5%. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches  7  For insurance companies and pension funds the impact of low for long on the valuation of their liabilities, combined with the rigidity of returns expected by some claimholders (and specified in defined benefit pension schemes), puts pressure on their balance sheets. This has led to changes in asset allocation, with greater investment in less liquid, lower quality assets.