individual institutions needs to be supplemented by a risk premium based on their contribution to systemic risk using some measure of size and complexity. 5. an issue that has been widely discussed in the context of the manner of charging premium for deposit insurance is the mitigation of moral hazard. core principles for deposit insurance systems prescribe that moral hazard should be mitigated by ensuring, inter - alia, that the deposit insurance system contains appropriate design features. in india, we have not moved over to risk based premium but moral hazard is sought to be minimised through other design features, such as placing limits on the amount insured, excluding certain categories of depositors from coverage etc. the main reason for not moving over to the risk based premium system is the assessment of trade off between minimising moral hazard and placing additional burden on banks that are already weak. the banking system covered by insurance is extremely heterogeneous – ranging from large and strong commercial banks to small regional rural banks, urban cooperative banks serving local communities and rural cooperative banks. these banks serve the very important objective of financial inclusion and meet the requirements of sectors and communities not usually targeted by the larger commercial banks. amongst these there are entities that are weak and the sector is in the process of being strengthened. the stability and soundness of this sector is being enhanced by weeding out unviable banks through non - disruptive measures. till majority of these banks meet the minimum standard prudential norms, we may have to continue with a uniform premium system which has an element of cross subsidisation. moral hazard is also sought to be minimised by operating, through the supervisory mechanism, appropriate disincentives and penalties where there is discomfort on account of governance and risk management standards. 6. some deposit insurers provide for refund of insurance premium when their target reserve ratios exceed a particular level 1. this practice could cut both ways inasmuch as the insurer may have to resort to collection of extra premium at the time of crisis when the system is already under strain. whether some countercyclicality aspects could be introduced in the premium contribution is something which could also be discussed. income from investments 7. the second important source of funding deposit insurance systems is income from investments. this income will obviously depend upon the size of the funds and the yield on relatively risk free investments. as such, older systems have an advantage inasmuch as they have accumulated a sizable level of corpus over a period of

insurers and industry groups will work towards an industry standard in this area, perhaps drawing on what they report to us. https : / / www. bankofengland. co. uk / prudential - regulation / publication / 2017 / solvency - 2 - solvency - and - financial - condition - reportroundtables all speeches are available online at www. bankofengland. co. uk / speeches another key area where investors and analysts want better and more consistent disclosure is the drivers of the change in insurer ’ s scr coverage ratio from one reporting date to another. i think of this as the ‘ solvency ii p & l ’. but solvency ii itself does not address measurement of changes in capital position over time. there is a reporting gap and insurers are closing it with their own content, leading to a mixed picture across the sector. again, this is an area where insurers and industry groups could usefully develop some template approaches. as supervisors, we are also keenly interested in understanding how insurers generate capital, now and in the future. this is at the core of our analysis of the sustainability of an insurer ’ s business model. in particular, we want see the change in the scr coverage ratio due to the risks and returns in the business split out from the effects of changes in broader market and economic variables and changes in modelling approach or assumptions or management actions. i have set out more detail in the appendix. i have mentioned two areas – market risk sensitivities and a solvency ii ‘ p & l ’ – where insurers could improve the quality and consistency of disclosures. it is a concern that we still see evidence of analysts and investors not fully understanding insurers ’ solvency ii balance sheets. in more stressed market conditions complexity and lack of transparency might lead investors to turn away from regulatory measures of risk and rely on simpler but cruder approaches. progress towards an international capital standard should help. more generally, it is vital that insurers maintain discipline in underwriting, reserving and capital management, notwithstanding tough trading conditions in some parts of global insurance markets. all speeches are available online at www. bankofengland. co. uk / speeches appendix : breakdown of insurer capital generation used for pra business model analysis this appendix sets out a generic break - down of the change in an insurer ’ s capital surplus over the solvency capital requirement ( scr