matthew elderfield : solvency ii – the impact in europe and bermuda address by mr matthew elderfield, deputy governor of the central bank of ireland, at the insurance day summit, hamilton, 12 june 2012. * * * thank you to insurance day for the kind invitation to join you at this event. it ’ s a great pleasure to be back in bermuda to have this opportunity to speak and also to spend a bit of time meeting the bermuda firms and my former colleagues at the bermuda monetary authority. in addition to my obvious personal interest in bermuda, there are clearly close ties between bermuda and the irish insurance market. a number of bermuda insurance companies have a significant presence in ireland which they use as their base for pan european activity. and more broadly, wearing my hat as a member of the european insurance regulators or eiopa management board, there are very close ties between bermuda and the eu. bermuda is an important source of risk capital and insurance services into the european union, and as such it is an important source of diversification of risk and provides benefits to wholesale and ultimately retail consumers across the european union. for example, 37 % of emea property cat risk was placed with bermuda companies according to the most recent aon benfield data. france, germany, spain and benelux each place between 18 – 25 % of their total premiums with bermuda companies. it is therefore encouraging to see that in spite of difficult operating conditions last year the bermuda insurance market is continuing to play an important role internationally and that the bermuda monetary authority is continuing to make good progress in its drive to enhance its regulatory regime. what i propose to do today is to start with a brief update on solvency ii implementation. secondly, i want to choose 3 particular aspects of solvency ii to consider in a bit of detail. and, finally, i would like to take an opportunity to say a word about the equivalence process and what it means for bermuda. by this time almost everyone in the insurance industry from chairmen to secretaries, underwriters to loss adjusters and indeed not just in europe but in bermuda, the us and elsewhere, will have heard about solvency ii. it is the new regulatory framework for setting risk based solvency requirements for insurance and reinsurance companies operating within the european union. it is organised around three pillars : a first pillar setting quantitative solvency requirements covering all aspects of insurance business, including asset risks and prescribing eligible forms of capital. the second pillar is aimed at qu

u. s. outlook emanating from abroad are worthy of notice, they are not the biggest thing on my mind. for me, the biggest and costliest downside risk is that in our haste to get back to “ business as usual ” monetary policy, we could stall progress and backtrack to the economic circumstances of recent years – an economy mired in the zlb. to say the least, conducting monetary policy at the zlb has been a difficult experience that we all want to avoid repeating unnecessarily. in the winter of 2009, with the unemployment rate soaring to double digits, the fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points ; but we couldn ’ t because the rate was already at zero. faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. these policies have been extremely helpful. but there is no denying that they were second - best options ; the zlb had made lowering the fed funds rate, which is our first - best interest rate tool, infeasible. everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. but the decision about when to begin to raise rates shouldn ’ t be made prematurely. rather, the decision for policy liftoff has to be made for the right reasons – that is, it should be dictated by economic conditions. like my colleague minneapolis fed president narayana kocherlakota. 2 i think that policy at all times must be goal - oriented. our experiences since the crisis began and current economic conditions are highly unusual. the fomc should not simply set its policy instruments by mechanically aligning them with historical norms if those norms are not currently relevant for the conditions needed to attain both of our dual mandate goals. rather, our policy instruments should be set to achieve our ultimate goals as efficaciously as see, for example, kocherlakota ( 2013 ). bis central bankers ’ speeches possible given current and prospective economic conditions, all the while with an eye on managing against important risks to the outlook. i believe that the biggest risk we face today is prematurely engineering restrictive monetary conditions. in this scenario, the fomc could misjudge the presence and magnitude of economic impediments and misread the recent progress we have made as evidence of sounder economic trends. if we were to presume