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.

The Government has already started negotiations on a number of free trade agreements that will open doors to greater market access in the growth economies within the region. These negotiations are currently now at various stages. We remain confident of achieving a positive outcome that will be balanced and mutually beneficial. Specific opportunities for expansion abroad by Islamic financial institutions, in particular, are also being further enhanced through various bilateral and multilateral arrangements. This includes the signing of a memorandum of understanding between Malaysia and the Islamic Development Bank in 2004 to enhance cooperation among member countries of the Organisation of Islamic Conference, or OIC, in the areas of trade, investment, islamic finance and ICT development. These initiatives will pave the way for Malaysian takaful operators to promote and expand takaful and retakaful business to key target markets abroad, in particular, within the OIC. The net benefits that will ultimately accrue to Malaysia will depend on the ability of Malaysian institutions to develop targeted globalisation strategies that will position them to gain from the firstmover advantages where they arise. This needs to be reinforced with research into the new growth markets, and exploring opportunities for strategic alliances or joint ventures in these markets. At the same time, the growth strategies must also accord an equal inward focus on reinforcing financial strength and resilience, human capital development, a strong business reputation and high standards of service and professionalism all of which are the critical success factors for effective strategies abroad.