These challenges have spawned multi-faceted reforms, involving changes in business models, risk orientations, operating practices and in the interface with customers. It is this modernisation process of the insurance and takaful industries that will take it to new heights, bringing with it widespread and far reaching implications on the overall financial system and the economy. It is my pleasure to welcome you to this year's dialogue session between Bank Negara Malaysia and the insurance and takaful industries to discuss these issues in greater depth within our domestic context, and to consider the necessary actions that need to be taken under increasingly more challenging conditions. The theme for this year's dialogue: "Moving Towards a More Competitive Market", will focus on the challenges of pricing deregulation, product transparency, operating cost efficiencies and commission disclosures. The issues revolving around operating practices and the interface with customers also needs to be viewed in terms of the broader dimensions of public confidence, transparency and risk management. The dialogue this year is also based on a new format focused on issues with long-term strategic implications that need to be addressed in the current environment. It is designed to encourage deliberations from the different perspectives between industry participants and Bank Negara Malaysia. The dialogue will also serve as a platform to reflect on recent economic and financial developments and the major policy initiatives by Bank Negara Malaysia. Allow me to take this opportunity to share some thoughts with you in these areas.

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.