by companies and can result in a net benefit for them. sudden hikes on both fronts may instead be dangerous, and smis may be the most affected. that's a further reason for consolidation. but these are market forces. we as regulators must ask ourselves whether regulation itself is such as to induce consolidation, without any explicit prudential reasons to do that. an excessive number of m & as may result in a reduction of market competition, in lack of diversity in insurance coverage, and may eventually feed the never dormant “ too big to fail ” issue. esrb, macroprudential policy issues arising from low interest rates and structural changes in the eu financial system. november 2016. is proportionality a solution? proportionality in the application of solvency ii could be a way out of these doldrums. it will be interesting to hear from you on this point. i think that proportionality is a good principle, and its application to the second and third pillar of solvency ii – that is governance and reporting – is certainly worth being discussed. for instance, in ivass we have been working a lot on the national implementation of the governance requirements set by solvency ii, and we have spent quite some time in thinking on how best to ensure their proportionate application, taking into account the needs of smis. following previous fruitful experiences, we see merits in an early involvement of the industry in this process. we shall be launching a public consultation soon. applying the proportionality principle to the first pillar – the capital requirement – is instead a more thorny affair. the forthcoming scr review led by eiopa and by the european commission might be an occasion to examine this issue. insurance companies could take advantage of the public consultation that eiopa is running. for sure, in the meantime we could make a better use of the existing prudential framework. for instance, the own risk and solvency assessment ( orsa ), on top of being used internally, can serve the purpose of improving the intensity and quality of the dialogue with supervisors. * * * to conclude, i very much hope that this conference could be of inspiration to the reflections and works that both regulators and insurers will conduct on this delicate issue. i wish everybody an interesting and fruitful discussion. thank you for your attention. designed and printed by the printing and publishing division of the bank of italy

become much more stringent than before. if just one small firm fails, then there may be a loss of confidence in the system. so it is certainly wise for supervisors to be worried ; it is not only a matter of market efficiency. let me concentrate on capital requirements. the main goal of solvency ii is that of linking each company ’ s capital requirement to the actual risks that it faces. such risks are self - measured by the company through methods controlled or even validated by the national supervisory authority. ordering these tools by increasing complexity, we have the so - called " standard formula ", then the " undertaking - specific parameters " ( usps ), and finally the " internal models ". inevitably, when you go from basic – solvency i – to sophisticated – solvency ii – you have to accept an increase in the level of complexity. so, no surprise, not only are internal models very complex, but also usps and even the standard formula. the latter is the method chosen by most smis to calculate their capital requirements. though it is the simplest of the three methods, it is much more complex than the one in use under solvency i. many smis lament that solvency ii was conceived and developed having the big market players in mind. is this true? i don't know, but in any case trying to answer such a question would be sterile. a more subtle and useful question is whether the increased complexity of regulation just reflects that of the business, or whether it adds a further, and unnecessary, layer of sophistication to the picture, especially for smis. fmi, “ global financial stability report ”, april 2016. are small insurers too small? we may argue that the modern world is " no country for midgets " to paraphrase the title of a famous movie. the two big challenges that the world insurance industry is facing nowadays – digitalization and persistently low interest rates – seem to be even bigger for smis, so that many foresee a consolidation of the insurance services supply, with more and more m & as taking place that will significantly increase the average size of companies. let's consider technological innovation first. on the one hand, digitalization is a unique opportunity for smis. internet of things and big data are revolutionary trends that have the power to induce a deep transformation also in the insurance sector. technological innovation connects people, integrates and manages data, automates processes, stimulate