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.
The interest rate level which has now been established should, in addition to directly contributing to stabilising the krone exchange rate, dampen price expectations.”  32  Svein Gedrem (1999) “Utfordringer i pengepolitikken” [Monetary policy challenges], Aftenposten, 4 May. 33  Kydland, Finn E. and Prescott, Edward C. (1977): “Rules Rather than Discretion: The Inconsistency of Optimal Plans.” Journal of Political Economy No. 87, pp 473–492. 34  Barro, Robert J. and David B. Gordon (1983): “A Positive Theory of Monetary Policy in a Natural Rate Model”, Journal of Political Economy No. 12 pp. 101–121. BIS Review 154/2010  9  long-term cost can be considerable and the short-term gains limited. Norway and other countries learned this in the 1970s and 1980s. The British prime minister Harold Wilson once remarked, “A week is a long time in politics”. This attitude also influenced economic policy in our country. The result was economic instability, with both high inflation and high unemployment. Just as Ulysses had himself tied to the mast to resist the Sirens’ 35 temptations, the government authorities can prevent themselves from pursuing a policy that is harmful in the long run by setting objectives and delegating tasks. A central bank should be independent in its use of policy instruments, though the objective of monetary policy should naturally be set out by the government and the Storting. 36 The division of responsibility was clearly defined when the government presented its guidelines in 2001.