one might argue then that, even if the scr may not be a better tool to prevent failures than the simple and robust solvency margin of solvency i with its accompanying prudent reserving principle and compulsory asset diversification, the scr favours the proper capital management of an insurance undertaking. but we know that the mathematics of normal distributions, on which solvency ii is based, bring a veneer of science that ill fits reality. yes, normal distributions are easy, or easier to handle, than other probability distributions, but they do not reflect what happens in market crises, nor do they accommodate non - proportional reinsurance. the bis central bankers ’ speeches quirks of the scr calculation make this requirement an unlikely, unreliable tool to manage capital. credit rating agencies, large brokers, reinsurers and counterparties are unlikely to rely on the scr, or on the scr alone, to assess the risk they take when dealing with insurance companies, and certainly the supervisor will not be using it for more than it is worth. the complicated inadequacy of capital based regulation would be less severe had solvency ii not dispensed with the cornerstone of solvency i reserving, i. e. the principle of prudence. in its place we find an ideological construct, where technical reserves are supposed to be valued at exit prices, even though these exit prices aren ’ t observable. the worst of solvency ii would be the distortion of investment incentives coming from the zero credit risk charge that solvency ii assigns to sovereign bonds, if pride of place wasn ’ t of course reserved to the solvency ii valuation of long dated life insurance liabilities. there, one achieves a seemingly impossible feat, namely to state that they are to be market consistent, and at the same time to use interest rates that are several hundred basis points over market rates. the end result is a massive prudential understatement of these liabilities and a gross misrepresentation of the solvency position of the firms that sell these contracts. fortunately irish firms are not among the european firms that have to contend with such a failing of regulation, due to the structure of their insurance liabilities. in ireland our challenge will be to use the good that solvency ii offers to bring non - life insurance management and supervision better tools and one hopes better outcomes than the experience of the past decade. the opportunity to share my thoughts with you on solvency ii was too

good to pass, even under the guise of these welcome remarks. who better to tell you what solvency ii will mean for the whole of europe than gabriel bernardino, chair of eiopa, the european regulator in charge of developing level 2 rules on foot of the solvency ii directive, together with the european commission? gabriel bernardino has had an extended and distinguished career in insurance regulation in the portuguese insurance authority ( instituto de seguros de portugal ), where he was director for development and international affairs before he came to frankfurt as chair of ceiops, and then elected to chair its successor organisation, eiopa. he has kindly agreed to come to dublin to address you in that capacity, and it is with great pleasure and gratitude that i now hand over to him. bis central bankers ’ speeches