This will enable a more accurate assessment of an insurer’s financial and capital strength, even in times of stress. However, this can increase volatility in an insurers’ balance sheet, and raise overall risk charges and capital requirements on long-term assets. In order not to disincentivise insurers from investing in longer maturity instruments, it is therefore critical for regulators to continue to calibrate their solvency regimes carefully. We do note however, that some regulators have or are introducing into their capital frameworks, mechanisms to smooth out the effects of market volatility, such as the illiquidity premium in Australia and the matching adjustment & volatility balancer in Europe. These mechanisms recognize the long term and illiquid nature of insurance liabilities, where insurers are able to hold assets to maturity. Increasing Importance of Risk Management 13. So let me now move on to talk about the increasing importance of risk management in these challenging times. The forces I have mentioned earlier, have triggered an investment mindset shift, particularly in the last 6 to 12 months amongst insurers – from conservative asset allocation strategies and matching of liabilities – to reaching for yield. 14. In their search for returns, many Asian insurers are investing more tactically across asset classes and diversifying their fixed income portfolios. In addition, many are thinking outside the low yield box and considering an extension of the investment universe parameter. This would encompass non-traditional asset classes, such as emerging markets, infrastructure, trade finance, structured credit, and alternatives such as hedge funds, real estate and private equity.

Thomas Jordan: No end to the debt society without a culture of stability Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, held at an “NZZ Podium” event, Zurich, 28 February 2012. *  *  *  The complete speech can be found in German on the Swiss National Bank’s website. The most recent financial and economic crisis has resulted in an unprecedented rise in public debt. However, a chronic tendency towards deficits and higher indebtedness has already been observed in a number of countries for the past few decades. Excessive public debt has a negative impact on long-term economic growth, and deprives a country of its freedom of action during a crisis. Sound state finances are thus essential for ensuring an economy's competitiveness and maintaining its social security system, and hence also for social solidarity. Last but not least, excessive public debt also poses a serious threat to price stability and monetary policy independence. Yet how can state budgets be consolidated over the long term? There are limitations on how far fiscal policy powers can be delegated to independent groups of experts. Because fundamental decisions on taxation or expenditure – unlike monetary policy – are aimed at redistribution, they have to be taken at the political level. Even fiscal rules such as a deficit cap or debt ceiling can only achieve a lasting improvement of budgetary discipline if they are supported by a broad political consensus on the advantages of sound finances.