In the market-consistent framework on which prudential standards are based, (risk-free) interest-rate increases act on both sides of insurers' balance sheet. The fair value of assets decreases, but so does also the present value of technical provisions, the main liability in their balance sheet.
Financial stability exists when the various parts of the financial system such as payments and settlements systems, financial markets and financial intermediaries such as banks can operate smoothly and without interruption and with each part resilient to shocks. A stable financial system is able to absorb adverse shocks. The maintenance of a stable financial system is fundamentally important to the operation of the economy.