The statute’s definition of non-financial resources specifically mentions human resources – that will likely include many of you here today – and we have reflected this emphasis in our Senior Managers Regime to give specific responsibilities to key individuals in firms for the implementation of the prudential framework. Whilst we, as supervisors, may identify issues that warrant further investigation, we will not spot everything. Ultimately, it remains the responsibility of senior managers and Boards of Directors to identify and mitigate the risk that firms are not complying with the spirit of the regulation. Indeed, we hold industry to account for its compliance with the Fundamental Rules and Senior (Insurance) Managers Regime, just as much as we hold it to account for its compliance with the detail of our regulations. Solvency II contract boundary. Turning to an insurance example, Solvency II has introduced some changes to the way insurance companies calculate the reserves for their insurance products. In particular, the rules defining the ‘boundary’ of an insurance contract means that firms cannot recognise future premiums on 49 50  Individual Capital Adequacy Assessment 2.1 and Individual Liquidity Adequacy Assessment 2.1 Financial Services and Markets Act 2000, http://www.legislation.gov.uk/uksi/2013/555/article/2/made 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  unit-linked savings policies that do not include any insurance cover or financial guarantee of benefits.
That should not be a problem if lenders can be confident about the availability of such retirement income, or about the scope for the borrower to downsize and use the sale proceeds to pay off the balance of the loan. But if lenders become too narrowly pre-occupied with the profile of the loan in the first 5 years (in line with MMR affordability rules), this could store up a problem for the future. Since this type of lending seems to be on the up, we have included expectations on lending into retirement in the updated version of the Sourcebook and the information we have been receiving as a result demonstrates the extent to which societies, over a short period, now engage in such lending. There is also evidence that some societies are searching for yield by creeping up the risk curve in prime residential mortgages. High LTV lending (over 90%) has increased to 4.5% of new lending in Q4 2016, from 2.8% in Q4 2015. High/high lending  48  was 3.1% of new lending in Q4 2016, up from 1.8% in Q4 2015. Most  medium/small societies have mortgage indemnity insurance, so are partially protected against this risk. 47  http://www.bankofengland.co.uk/pra/Pages/publications/statement040717.aspx See chart 1. High/high lending is over 90% LTV and over 3.50 LTI for single income or 2.75 LTI for joint income. Small societies fall below the FPC threshold for controlling high LTI lending.