The Bank is mindful that developments internationally on this front remain extremely fluid. Work is still in progress on the International Financial Reporting Standard for Insurance Contracts, the Solvency II initiative in the European Union, and the development of cornerstones for solvency assessments by the International Association of Insurance Supervisors. The Bank will therefore continue to maintain an open consultative approach in proceeding with this initiative to preserve our ability to respond appropriately and to ensure its smooth implementation. Going forward, greater attention will be given to market conduct issues, which recent experience in other markets has shown to be an increasingly important factor in promoting confidence in the insurance and takaful industries. Financial markets cannot operate efficiently and effectively unless market participants act with integrity. This needs to be reinforced with adequate information to consumers and investors to make informed decisions. In today's information era, the business environment has changed dramatically, and with it, the expectations of consumers and investors have also increased. The industry needs to adapt accordingly. Policy initiatives by Bank Negara Malaysia in the area of market conduct will continue to focus on achieving complete, true and plain disclosures to consumers, thereby equipping consumers to make informed decisions essentially through consumer education initiatives, and ultimately, promoting the fair treatment of policyholders. In this connection, I am pleased to announce that after more than two years of extensive discussions with the industry, the revised Guidelines on Medical and Health Insurance Business have now been finalized.

As the scope for differentiation between institutions increases under the risk-based regime, it will become more critical for insurers to attract, develop and retain the right human capital resources. With the liberalisation of financial markets and the rapid pace of financial convergence, the investment management function within insurers needs to be flexible, risk-focused, and equipped with professionals who are able to respond to the exigencies of the marketplace. An important component of the new risk-based capital and supervisory framework is the notion of supervisory target capital levels which insurers will be required to maintain under the risk-based framework. This is new to our environment, and has been a matter of some concern to insurers which may view it as an additional capital burden. Although the risk-based capital regime will more closely align economic capital with regulatory capital, it is important to recognize that it necessarily derives its application from industry-wide tests which cannot fully address risks that are specific to an individual institution. The supervisory capital target therefore serves to provide an early signal of emerging difficulties so that appropriate intervention measures can be taken to prevent a further deterioration of conditions which would warrant more drastic and costly actions. For insurers that already adopt robust internal approaches to capital management, the introduction of the supervisory target level in itself should not significantly alter existing capital management strategies. Insurers that do not yet have such systems in place, will be encouraged to develop them, and thereby enhance their own resilience to adverse changes in business conditions.