  Finally, cyber criminals’ activity continued throughout the lockdown, whereas firms’ IT and cyber risk management staff had to adapt to the new way of working. Two principal methods used by criminals, phishing emails and malware, continue to rise. Many authorities have highlighted an increase in cyber risk7. We encourage firms to consider these risks carefully when starting to think about the transition out of the lockdown phase. The last priority I’ll touch on today is climate change. Addressing the financial risks from climate change is one of the Bank’s strategic priorities and last year we published expectations for firms to manage the financial risks from climate change8, which included expectations around governance, risk management, scenario analysis and disclosure. As well as having a named Senior Manager responsible for climate risks, Boards collectively need to understand the impact of climate change on their firm’s business strategy. Scenario analysis is a key tool that firms can use as part of their assessments of the impact of climate risks on their balance sheet and broader business strategy. It helps report relevant management information that will enable firm’s boards to discuss, challenge and take decisions relating to the firm’s management of the financial risks from climate change. Last year – for the first time – we included an exploratory climate stress test as part of the overall insurance stress test exercise.
Early in the crisis, the PRA recognised that the significant change in the operating environment as a result of Covid-19, would cause some firms to experience a material change in risk profile. The UK market is particularly exposed to low interest rates which result in large increases in the risk margin for annuities. Recognising this, as well as the risks posed by the advent of Covid-19, the PRA invited firms to apply to recalculate their TMTP in light of significant changes in interest rates that occurred in March 2020. In any application for permission to recalculate  3  https://www.bankofengland.co.uk/prudential-regulation/letter/2020/letter-from-sam-woods-to-insurers-on-distribution-of-profits 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  TMTP, the PRA expects firms to be able to demonstrate how the current environment has caused a material change in their own individual risk profile. The symmetric adjustment is explicitly aimed at mitigating undue pro-cyclical effects as a result of temporary movements in financial markets. It increases capital requirements when markets are buoyant relative to their historical average and reduces them when markets are relatively depressed. The chart plots the symmetric adjustment over time. As you can see from Chart 2, the symmetric adjustment was trending upward, while conditions were relatively benign and markets were rising. When the Covid-19 outbreak began, it decreased sharply. In this way, it led to insurers building capital buffers when markets were rising, and then allowed them to be released when markets fell.