Typical management actions might include, for example, an insurer assuming that it can replace reinsurance following the default of a reinsurer or at policy renewal, or a life insurer assuming that it could reduce bonus rates on a with-profits fund if it was in financial distress. Solvency II allows insurers to assume management actions provided it would be reasonable to implement them in stressed market conditions. We found that some insurers, however, were inconsistent and insufficiently rigorous in their approach. Good practice is to bring all future management actions together into a single document that, at least at a high level, the board can review. This plan should quantify each management action and show how it is used in the calculation of reserves, capital requirements or otherwise (for example, in stress testing). 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  Model Risk Management  I have focused so far on models used to help calculate regulatory capital and reserves. Insurers use many other models though, notably for pricing. For many of these models, new technology is bringing rapid change. Processing power continues to increase, including from use of the Cloud. This is enabling development of models that employ artificial intelligence techniques, such as machine learning, to analyse so-called Big Data – larger, more complex information from new sources, some of it structured but a lot of it unstructured.
If there is a suspicion – whether or not well founded – that a public sector deficit is inclined to the former category, it will be judged less helpful to the long-term health of the economy and thus tend to weaken  BIS Review 70/2002  1  financial confidence. A sizeable underlying public sector deficit may anyway be regarded as a sign of fundamental weakness in an economy, if it signifies too heavy an involvement of government in the running of the economy. It is these types of consideration which have led to the emergence of various recommendations and rules about fiscal deficits. There is, for example, the "golden rule" of the UK finance minister, Gordon Brown, which he first espoused in 1997, stating that, over the cycle, spending of a current (as opposed to capital) nature should be balanced by revenues, and borrowing should only be countenanced to cover capital expenditure. In Europe there is the supposedly sacrosanct cap on the fiscal deficit of each of the member countries of the euro-zone, at 3% of GDP. And in Hong Kong there is the Basic Law (Article 107), stating that Hong Kong should strive to achieve a fiscal balance and avoid deficits. •  Second, the financing of private sector deficits is subject to market discipline, in that those who provide finance do so on the calculated expectation that the investment will generate sufficient internal returns to repay them in due course.