pulling more than its weight in the current solvency ii construct – the resulting incentive being for insurers to reduce the insurance risk they are taking. however, the ma as currently formulated rewards taking certain non - insurance risks, potentially in significant quantum, and with a set of incentives that may be misaligned. we therefore see quantitative reform of both the risk margin and matching adjustment, as integral to any package. the pra seeks a calibration package that is better able to capture how liability transfer values are likely to be impacted by the assets held to back the business. such a package should also take account of different financial and economic conditions that might pertain at the point that a transfer became necessary, including times of stress. these properties would provide supporting evidence of the economic reasonableness of the calibration. and it would provide assurance that the package is serving its policyholder protection purpose. in particular, as ma portfolios become more diverse then a question arises as to whether the assets currently backing a book of business are assets that another party would be able and willing to take as funding. to achieve a material reduction in the level and sensitivity of the current risk margin, the pra considers it necessary for the design of the ma to appropriately reflect uncertainty around future credit risk experience that would likely be reflected in any transfer price. the fs is the key determinant as to the amount of any expected future investment profit firms can recognise upfront. a calibration of the fs that is too low exposes firms to risk that this future investment profit does not emerge in practice and the associated implications this would have on their ability to meet their liabilities as they fall due. a successful outcome of the solvency ii review will be db scheme members, trustees and insurance policyholders having long - term confidence in the resilience of the insurance sector, and in the security of their benefits. conclusions and next steps solvency ii has only been in force for around six years, but we have already learnt a lot. particularly in respect of the relationship between the regulatory framework and firms ’ business models. this makes approaching reform both complex and sensitive at the industry level, and for the various and varied individual players. but reform is necessary, to put in place a regime for the uk that provides the right level of resilience and investment incentives into the long - term. this regime will build on the experience and unexpected shocks we have seen in recent years, and create the capacity to deal

benoit cœure : the importance of euro interest rate benchmark reforms welcome address by mr benoit cœure, member of the executive board of the european central bank, at the first meeting of the working group on euro risk - free rates, at the ecb, frankfurt am main, 26 february 2018. * * * on behalf of colleagues from the european commission, the european securities and markets authority, belgium ’ s financial services and markets authority and the european central bank ( ecb ), welcome to this first meeting of the working group on euro risk - free rates. thank you for dedicating your time and resources to supporting the working group in successfully delivering on its mandate. i would particularly like to thank koos timmermans, chief financial officer of ing group and vice - chairman of ing bank, for agreeing to chair the working group. i am convinced that the group will benefit from his extensive experience in european banking and financial markets. the task at hand is of utmost importance. first and foremost, the working group has a mandate to identify and develop an adoption plan for a risk - free overnight rate that can serve as a basis for an alternative to the benchmarks currently used in the euro area. as a second step, the working group should explore ways to ensure a smooth transition to the preferred new rate. both the financial and public sectors have a keen interest in a smooth and successful reform of the reference interest rate. for the financial sector, reference rates play a pivotal role because they are widely used in a broad range of financial products and contracts. in the past, we have seen banks become increasingly reluctant to participate voluntarily in benchmark panels, mainly due to potential litigation and compliance risks as well as increasing contribution costs. together with the declining activity in the underlying market, this has undermined confidence in the reliability and robustness of existing benchmarks. for the public sector, a smooth and successful reform is needed to underpin the good functioning of euro area money markets and trust in the related products. for the ecb in particular it is vital as monetary policy is initially transmitted through financial markets. a more reliable and robust reference interest rate may also enhance financial stability, for three main reasons : first, without robust fallback arrangements, a loss of confidence in reference rates may lead to market functioning being disrupted. second, poorly designed reference rates, given their underlying role in many financial contracts, may transfer risks and pricing errors across financial markets, or create greater and unnecessary basis risk. ultimately,