But much of this investment has been in, or backed by property. UK insurance companies only allocate around 2% of their assets to unlisted equity.5 This is a smaller share than many of their European peers. But liability structures are very different between national markets too, which will contribute to differences in asset allocations. The regulator’s concern here is to ensure that any increase in insurers’ asset allocations to long term, productive investments does not endanger policyholder protection, that is to say does not compromise the first , equally important function of life insurance that I set out earlier, namely the provision of security of retirement income.6  Annuities are not a good match for investments with equity-like characteristics. A fundamental principle of the MA is that some of the market risk on the backing assets is neutralized, by virtue of matching. That can never be the case with a long term real asset like common equity, and no amount of clever restructuring will alter that. Much of the new productive investment needed will be financed outside matching portfolios and indeed outside insurance. That said, any reform of the MA that might arise from the Solvency 2 review might nonetheless play a part in unlocking more funding for things like infrastructure. In its current manifestation, the MA was designed and calibrated with simple, fixed, tradable assets in mind.
And we should expect the aggregate impact of individual firms’ decisions in a sector that at the end of 2019 held assets in the region of £ trillion – a figure broadly equivalent to UK GDP in the same year – to be an important influence on speed of recovery and adaptation. But what does the insurance sector do for the economy? If I asked the person on the street about the role of insurance, I’d expect them – once they’d raised the common complaint about insurers putting premiums up every year and telling a story about a particular claim – to speak about the protection it provides to households and businesses against the financial costs resulting  2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  from the occurrence of various risks to their physical property, health, loss of earning power or other unexpected losses. (Though maybe not using quite those words!.) This is a very important function. Efficient transfer and pooling of risk reduces aggregate risk and by freeing individuals from risk allows them to avoid reducing consumption in favour of excess saving. And it allows businesses to put capital to work in their areas of expertise and opportunity, without having to worry about – or reserve for – risks that they are not equipped to manage or diversify, and so will not be adequately rewarded for. It has particularly high value in current circumstances. Excess saving, reduced consumption, and heightened risk aversion would be detrimental to economic recovery.