as iasb chairman hans hoogervorst puts it, “ proper accounting shines light on risks that might otherwise go unnoticed ”. the financial reporting changes brought about by ifrs 17 will support profitability analyses at the level of individual business units and products, thereby increasing the visibility of risks and performance associated with specific business strategies and operational models. governance considerations ifrs 17 will also have important implications for governance. one of the most problematic issues with the adoption of ifrs has been around the more extensive use of management judgement and discretion in financial reporting. for example, in the context of ifrs 17, calculating the contractual service margin component, an insurer ’ s choice of assumptions can have a significant impact on its forecast of future profits. while this is consistent with the view that financial reporting should reflect management decisions, the scope for abuse is also higher. this has also been a particular concern for regulators, resulting in dual reporting standards for general purpose and regulatory compliance which continue to be maintained in some jurisdictions today. such concerns are not entirely unfounded. past studies have suggested that strong associations exist between accounting discretion and opportunistic behaviour by firm managers where governance is weak. in other words, in the absence of strong governance, managers have strong incentives to exploit accounting latitude in order to achieve certain short - run performance goals that are linked to rewards. this raises a number of important issues for governance. for one, insurers will need to consider the adequacy of existing internal controls and accountability frameworks to ensure the integrity of financial reporting. for example, where actuarial models are used, to what extent are these models and the assumptions underpinning them subject to sufficiently robust validations? insurers will also need to consider the depth of knowledge and expertise required at the audit committee level to enable the effective oversight and monitoring of management discretion. part of this oversight includes the rigor applied by boards and audit committees in the appointment of external auditors to ensure their ability to act as an independent check on management discretion. it is also essential for insurers to develop strategies for improving communications with users of financial statements. a key risk will be that users fail to make sense of reported results which can lead to irrational behavior and unintended consequences. equipping board members and senior management to communicate results effectively will be particularly important. these are also the issues that supervisors will be concerned with. given the potential for heightened risks and uncertainty, the bank will examine the need for

the longest interruption of a rising trend since the beginning of 2004. this decline will weaken inflation in most countries in the year ahead. however, the economic impact of the reduced oil prices is likely to be low, if we bear in mind that the oil price is still approximately three times higher than it was five years ago. at least the oil price has not put any additional damper on the economy since the last monetary policy assessment. another significant factor for switzerland is the marked improvement of the economic situation in europe, in particular in germany. for 2006, growth forecasts in our neighbouring countries have been gradually revised upward ; for 2007, development is expected to be more muted. economic activity in the united states, however, has slowed at a somewhat faster pace than anticipated. in 2007, the us economy is set to expand in the area of potential growth again. asia will continue its dynamic growth pattern. economic situation what does the situation look like in switzerland? as anticipated at the last monetary policy assessment, the economic situation has continued to improve. it is both balanced and broadly based. as the latest employment figures reveal, the momentum in the economy has spilled over into the labour market. a great many new jobs were created in the third quarter, and unemployment continued to decline. the number of gainfully employed persons rose by approximately 100, 000 from q3 2005 to q3 2006. the unemployment rate is likely to fall below the 3 % mark at the beginning of 2007. the brighter outlook on the labour market has improved job security and strengthened consumer confidence. expenditure by private households is soaring. companies appear upbeat as well. many industries, such as manufacturing, construction and the hotel trade, report full employment. according to our assessment, this translates into unchanged growth in real gross domestic product ( gdp ) of just under 3 % in 2006. for 2007, we predict a decline in economic momentum. almost all components of demand continue to grow, albeit at a more moderate pace. private consumption will benefit from the healthy improvement in disposable income. equipment investment is being stimulated by the high rate of utilisation of production capacity and the favourable business outlook in many industries. residential construction is likely to see a measure of calm. yet increased investment in commercial and industrial building may offset this development to some extent. the somewhat weaker global economic development – though still favourable overall - will probably continue to have a positive impact on exports. for 2007, we expect overall gdp growth of about 2 %. monetary developments allow me to