It is notable that the market requires very different levels of return for assets with the same rating – under the current rules all of this difference is deemed to be risk-free and can be recognised as capital up-front, but it is quite plausible that some of it reflects other risks such as operational ones. Third: the assumption that market moves tell us nothing about credit risk. Under the current system, when the market sells off assets there is approximately zero impact on insurers because the sell-off is treated as being driven solely by liquidity concerns. In other words, when the prices of assets drop in the market the assumption is that there is no information in this about the outlook for future losses. Now in broad terms this is in fact a feature of the regime, not a bug – we want insurers to be able to ride out market shocks, and it is safe for them to do so as long as they have the right cash coming in to meet their commitments to pensioners and other policyholders. However, the current construct is at the most generous possible extreme of the assumptions that can be made in this area; contrary to this assumption, it may sometimes be the case that asset prices are falling because new information has arrived in the market that does indicate that future losses are going to be higher than previously expected – or at the very least that uncertainty over future losses has increased.
Appreciating the distinct qualities of FSVC’s assistance and taking into account the enhanced capacities of Albanian institutions to take in this assistance effectively, I deem that this cooperation should be supported and forego the concrete realization of future development objectives. In this context, the assistance may be tailored to support the design of a holistic project; not channeled in certain segments of its development, but focused, especially, on its implementation phase. This would require the FSVC and the Bank of Albania or the ADIA to define respective programs and other necessary requisites so that foreign experts may provide longer term assistance to ensure consistency of the training content and quality. This process would be carried out also by a thorough ex-post assessment of these projects. Finally, I avail myself of this opportunity to thank the US Government and other donors, USAID Mission in Albania, FSVC’s Board of Directors and its staff in Tirana for raising the necessary financial resources to support this cooperation program. I would like to reiterate the commitment of the Bank of Albania for a fruitful and effective cooperation. Thank You! 2  BIS central bankers’ speeches