a floor at some proportion of the mcr derived under solvency ii, when agreeing the scr output from an internal model. pending active development at a european level of an agreed approach to ensure a level playing field, the central bank ’ s message to irish firms is to take a conservative approach to the recognition of diversification and to think very hard about how well this will hold up in extreme tail event stress scenarios. while the interim guidelines covering models, system of governance and reporting are at the top of eiopa ’ s agenda in terms of standard - setting, the key supervisory issue at the top of the eiopa list of concerns is the impact of long - term low interest rates on the insurance sector. one of the principal instruments deployed by monetary policy authorities in combating the current financial crisis has, of course, been the policy of maintaining low interest rates for a sustained period of time in light of price stability and in order to address economic weakness. however, this has the potential to have adverse side - effects for insurers. of greatest concern to eiopa, and indeed the central bank, is the potential adverse impact on life insurers with long - term guarantees to policyholders which exceed the available yield on assets in current market conditions. we need only look back to the japanese experience of the 1990s to see the severe damage that this can do. however, general insurers are not immune from the side - effects : low yielding investment portfolios expose uncompetitive combined ratios, and therefore put extreme pressure on underwriting performance at the time of continuing soft markets. these considerations have led eiopa to recently publish an opinion setting out its concerns on the prudential implications of a sustained period of low interest rates. this encourages supervisors to take a range of measures to monitor and tackle the potential risks that are bis central bankers ’ speeches building up. this issue is relevant to the irish market, especially because of the concentration of variable annuity writers that are based in ireland and operate internationally. to my mind, the issues for this particular business can be conceptually divided between a front book and a back book problem. for newly written business, it is important that firms are adjusting their product design and improving their risk management capabilities. we are largely seeing this happening already for the irish based va writers. and our regulatory actions in the past few years have had this in mind. for example, the central bank tightened solvency requirements on newly written variable annuity business at

gabriel makhlouf : has europe moved beyond financial fragility? opening remarks by mr gabriel makhlouf, governor of the central bank of ireland, at an public event at the hertie school, " has europe moved beyond financial fragility? ", berlin, 14 february 2023. * * * good afternoon. i am delighted to be at the hertie school today to speak at this event. the valentine's day question let me start by giving you the most straightforward answer to the question that we have been asked to address. my response is the same as the ones available to the traditional valentine's day question ('will you be my valentine?') : yes and no. building resilience over the past decade yes, because the fragility that we saw in the last decade or so has been addressed by the many changes we are now familiar with, in particular new institutional frameworks operating on a pan - european basis ( such as the esrb, ssm, srm, esm as well as the eba, esma and eiopa ) ; a comprehensive overhaul of the regulatory framework, most recently the mica legislation but also upgrades in the form of higher risk based capital requirements, better quality of capital instruments as well new liquidity standards and a capital buffer regime that provides a macroprudential system - wide overlay to microprudential requirements. ; similar changes at a global level – which have a direct impact on us in europe – including the creation of the financial stability board ( fsb ) and the standard setting by the basel committee on banking supervision and at iosco. the resilience built - up in recent years has put the european financial system in a stronger and less fragile position. and the evidence to back that up is undoubtedly the response to the pandemic when, put simply, the financial system absorbed the closure of the european economy without a crisis. no because there is work still to do and the financial system does not stand still. in particular : banking union is still incomplete1 ; the capital markets union is still more of a concept than a reality ; the recommendations of the basel committee are not being implemented in full2 ; european legislative processes struggle to keep up with the pace of change. and perhaps most important of all from my perspective is that we have allowed marketbased finance to grow significantly without developing an appropriate macroprudential framework for it. in ireland alone by end of 2021 the