Suffice to say that in the last two years in which I have been involved with insurance supervision, some of the most difficult issues that I have faced have been in the area of With Profits. For that reason, I think it is appropriate that the PRA should have a policyholder protection objective because I think we have to recognise explicitly the contractual complexity that we inherit and the solvency risks this can generate. I should also add finally that it is not a coincidence that we have found this area to be the most challenging in terms of creating the “twin peaks” model in which the FCA will have responsibility for reaching judgements, through a formal determination process on fairness to policyholders and the PRA will be responsible for ensuring that those judgements are compatible with the prudential soundness of firms. We have reached a satisfactory conclusion, with specific language in the legislation, and a special With Profits MoU between the FCA and PRA; but it has required very careful consideration to ensure that each regulator’s role and responsibilities has been appropriately defined to avoid any “under-laps” and that the correct balance has been struck between them. Let me now move on to the second subject – what style of supervision will the PRA adopt and how will it affect insurers? Let me start by drawing the distinction between regulation and supervision in our world. Regulation is about the framework of rules and policies against which we operate.
We are focussed on the impact of very low interest rates staying with us for a protracted time, and when I say this I am offering no view whatsoever on the likely course of monetary policy. Likewise, we want to know that the prudential position of firms also captures the possible impact of an unexpected upward shift in the slope of the yield curve, and again I am offering no view on monetary policy. My third example is different: we are watching the range of possible outcomes on flood insurance in this country for their prudential implications. Judgment in supervision is not, however, without its challenges when it comes to the practice of supervision. There are two large challenges I see. First, we have to balance the use of  4  BIS central bankers’ speeches  sensible judgement against the risk of creating undue uncertainty in our behaviour which damages your ability to do business. This is not easy I accept. It requires us almost constantly to check and test our judgements against a framework of reasonable predictability. Also, it requires a greater degree of transparency from us to you, and I think from both of us to the public and investors. This is important to ensure that we can both be held to account for applying judgement in a way that is consistent with the pursuit of our objectives. I am conscious that achieving accountability in insurance supervision in the current environment is challenging because all the focus is on the banks.