I don’t want to repeat that speech – I am conscious that you may already have breached your pain thresholds by having to listen to this one, although in these times of remote working it’s of course easier for you to just put me on mute and reply to some emails until we get to Q&A. Instead, I would like to close with some very brief personal reflections on insurance, models, and capital. Whole balance sheet modelling is fundamental to understanding the risk profile of large insurers. But as with any modelling process, amidst all the detail and complexity of Solvency II internal models we risk being precisely wrong. We need more explicit sanity checks and a conversation about resilience to big, plausible risks – the kind of conversation that should be a cornerstone of the relationship between the PRA and regulated firms at board level. And we need ways to ensure that we recognise that while some areas are relatively easily modelled, others are not. I suspect that these basic, common sense points have got somewhat lost in the wake of the detailed, bottom-up model development and approval processes prescribed by Solvency II. Supervisory stress tests are one way into this. Judging from the ABI agenda following Charlotte’s speech she managed to get some insurers’ attention on this point. But there is no need for alarm – we do not intend some radical departure from the current ways of setting capital requirements.
Initially this appeared to be related to the impact of the global slowdown on some of the larger Eurozone economies, which seemed likely to cause them to run further below capacity than had earlier been expected. But the more recent signs are that the Eurozone economy is now picking up relatively strongly, and it is harder to understand the euro’s continuing weakness in the present context: it may just be a matter of time - for there is no doubt that the euro has considerable scope for appreciation. Taken together, Mr President, these various international developments since I was last here in Belfast have greatly complicated the task of monetary management here in the UK - in fact it has been just about the most difficult external environment that I can recall. At that time monetary policy was still aimed at moderating the pace of domestic demand growth to prevent the re-emergence of inflationary pressure - including wage pressures in the labour market. We actually raised rates by ¼% to 7½% shortly after my visit - but I promise you that was not a direct result of my visit here. But we reversed engines fairly aggressively when evidence of the effect of global slowdown on our own economy began to appear in the autumn - cutting interest rates from 7½% to 5% between October 1998 and last summer.