With that in mind I’d like to take the opportunity today to look ahead, at the challenges and opportunities of what is waiting for us on the other side of the bridge –different, perhaps very different from the world we used to live in. Because we face a lot of uncertainty. Not only about the speed of recovery from recession. But about the extent and depth of permanent structural changes to the functioning of our economy brought about by adaptation to Covid-19 – and as I say, with a crucial role for the insurance industry to play in our economic recovery. I want to focus today not on the specific risks that this brings to the insurance sector – though those are real and large – but on the role of the insurance sector and its regulatory framework in supporting broader economic rebuilding in a changed landscape. Not on what the economy might do to insurers, but on what insurers can do for the economy. Of course managing your own risks and supporting the wider economy is not an either/or choice. A virtuous circle operates between the provision of financial services, and the strength of the economy, and hence the strength of the balance sheets of the providers of financial services themselves. In the case of insurance it seems likely that continued provision of new risk pooling and investment by insurers strengthens the economy and hence existing exposures on insurers’ own balance sheets.
This, by the way, is another example of how providing financial services to the wider economy – in this case financing low carbon alternative technologies, has a positive feedback to balance sheet strength by reducing risks on both the asset and liability sides.2  2  See speech by Anna Sweeney (2020): Paving the way forward: Managing climate risk in the insurance sector 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  Following the crisis some companies will enter the recovery phase with more highly leveraged balance sheets, some from a starting point that was arguably itself over-leveraged. And structural change will create opportunities for new enterprises, often better financed with equity than debt. In his June remit letter to the Chancellor, the Governor made the case for introducing more equity, or more equity-like finance to the mix.3 Equity issuance by public listed companies is already strong and at its highest level so far this year compared to the same point in any year in the past decade.4  With their long-term liabilities, insurance companies and pension funds are well suited investors in growth capital. For some time now, insurers have been increasingly turning to illiquid assets for a good return on their investments at a time of historically and enduringly low yields. This trend has been most noticeable for annuity providers, incentivised by the matching adjustment (MA) to invest in assets that, perhaps with some restructuring, mirror the illiquid nature and fixed cashflows of their liabilities.