building the right capabilities. some insurers do investment in - house and others outsource. all insurers need people with sufficient market knowledge in all three lines of defence. that includes underwriting, risk management and potentially work out. 3. developing appropriate management information, including for the board. 4. appropriate valuations, internal ratings, and matching adjustment and solvency capital requirement calculations. on this final point, we have provided considerable guidance on our expectations in supervisory statement 3 / 17 ( ss3 / 17 ), particularly in relation to restructured equity release mortgage portfolios. one thing that has become clear to me is the importance of internal ratings. these can drive both asset valuations ( if insurers use the approach of mapping to valuations of similarly - rated traded assets ) and the matching adjustment benefit. we said in ss3 / 17 that : “ an internal credit assessment should consider all possible sources of credit risk, both qualitative ( eg due to strength of the terms and conditions in the loan agreement or a lack of default data ) and quantitative ( eg due to economic stresses ), and how these may interact. an internal credit assessment will then need to be mapped onto a credit quality step ( cqs ). the pra ’ s view is that the cqs to which an internal credit assessment maps should lie within the plausible range of cqss that could have resulted from an issue rating given by an external credit assessment institution ( ecai ). broad consistency between the cqss resulting from firms'internal assessments and ecai issue ratings will help to mitigate the risk of undue bias in the resulting fundamental spreads. ” this does not mean that we want insurers simply to adopt rating agency models across the board. we want firms to develop their own rating models that take into account all possible sources of credit risk. i am mindful here of the financial stability board standard against mechanical reliance on ratings. 7 “ the goal of the fsb principles is to end mechanistic reliance on ratings provided by http : / / www. fsb. org / work - of - the - fsb / policy - development / additional - policy - areas / reducing - reliance - on - credit - ratings / all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx ecais by banks, institutional investors and other market participants by reducing the “ hard wiring

on two conditions : first, that the institutional structures put in place were flawless ; and second, that there was irrefutable evidence of the monetary convergence of the countries invited to merge their currencies. as far as our two countries were concerned, that meant the complete convergence of the deutsche mark and the french franc even before the introduction of the single currency. we had concluded that an essential precondition for the creation of the single currency was that the new currency had to be at least as solid and at least as credible and retain its value at least as well as the national currencies that preceded it. and finally, of course, there was that crisis meeting at a washington hotel in september 1992, at the end of which our two central banks found a way to save the european exchange rate mechanism by preserving the link between our two currencies. several of us here today took part in that particularly tense – and particularly successful – meeting. mr president, you can be sure that the european central bank and its executive board, governing council and staff will – while remaining completely independent – continue to be faithful to the primary objective assigned to us by the treaty. this is what the european democracies that ratified the treaty expect of us. this is what our 320 million fellow citizens of the euro area expect of us. they want price stability. medium - term price stability is a necessary precondition for sustainable growth and strong job creation. and as regards the latter, it should be noted that the euro area has, on a net basis, seen the creation of a remarkable 15. 7 million new jobs in the nine years since 1 january 1999 – more than three times the total for the nine years prior to the euro and considerably more than have been created in the united states over the same nine - year period. now, more than ever, we have numerous challenges to face. the central banks of industrialised countries have to ensure price stability in their individual economies, which are characterised not only by extremely rapid progress in science and technology, but also by both globalisation and significant demographic change, particularly population - aging. but we also face challenges at the european level, having to implement the necessary structural reforms, deepen and strengthen the single market, particularly in the euro area, and pursue, with the utmost rigour and credibility, the enlargement of the euro area. mr president, thank you again for this great honour. the institution over which i preside is very grateful indeed