As the scope for differentiation between institutions increases under the risk-based regime, it will become more critical for insurers to attract, develop and retain the right human capital resources. With the liberalisation of financial markets and the rapid pace of financial convergence, the investment management function within insurers needs to be flexible, risk-focused, and equipped with professionals who are able to respond to the exigencies of the marketplace. An important component of the new risk-based capital and supervisory framework is the notion of supervisory target capital levels which insurers will be required to maintain under the risk-based framework. This is new to our environment, and has been a matter of some concern to insurers which may view it as an additional capital burden. Although the risk-based capital regime will more closely align economic capital with regulatory capital, it is important to recognize that it necessarily derives its application from industry-wide tests which cannot fully address risks that are specific to an individual institution. The supervisory capital target therefore serves to provide an early signal of emerging difficulties so that appropriate intervention measures can be taken to prevent a further deterioration of conditions which would warrant more drastic and costly actions. For insurers that already adopt robust internal approaches to capital management, the introduction of the supervisory target level in itself should not significantly alter existing capital management strategies. Insurers that do not yet have such systems in place, will be encouraged to develop them, and thereby enhance their own resilience to adverse changes in business conditions.

Neither is it possible to say whether funded pension wealth mitigates the negative effects of expansionary monetary policy and elevated asset prices on wealth distribution. However, it is clear that no such mitigating effect can reasonably exist in most euro countries, as there is no funded pension wealth in these countries. Negative effects alleviated in Sweden The reasoning in this speech is not about three things. First, the introduction of the national supplementary pension system with associated National Pension Funds was controversial at the time.8 However, the National Pension Funds are now with us. Second, opinion is divided as to whether funded pension systems are to be preferred to paying pensions from day-to-day tax revenue. But, as I said, the pension funds are now with us. Third, the global downward trend in real interest rates has made it more difficult to receive return on wealth, especially if investors want to hold safe financial assets like government securities. The assets whose prices have increased are riskier. But this is not what the reasoning in this speech is about. This is what the speech is about: In Sweden, there is a comparatively large share of wealth in collective pension funds that has been built up with the help of mandatory contributions based on the labour income of individuals. This wealth is therefore more evenly distributed than other wealth. When asset prices rise, more people therefore benefit from the increase in wealth than if there had been no collective pension funds.