Norges Bank operates a flexible inflation targeting regime so that weight is given to both variability in inflation and variability in output and employment when setting interest rates. The Norwegian economy has in general exhibited solid growth since the beginning of the 1990s, although with a mild setback in 2002 and 2003. Over the past four years, the mainland economy has been in a sharp upturn, with annual growth averaging well over 4 per cent and particularly vigorous growth in 2007. Growth is now slowing markedly in the Norwegian economy. Household consumption has stagnated and house prices are falling. Growth in the Norwegian economy has slowed, while inflation has accelerated. In October, the year-on-year rise in the consumer price index (CPI) was 5.5 per cent. Electricity prices rose sharply through summer after unusually low prices last year. Underlying inflation has also picked up. Inflation adjusted for tax changes and excluding temporary changes in energy prices (CPIXE) was 3½ per cent in October. Wage growth is markedly higher and productivity growth has slowed considerably. The high rate of cost inflation has led to a faster rise in prices for domestically produced goods and services. Prices for imported consumer goods are no longer falling and are now on the rise. The slowdown in the real economy is expected to start pushing down inflation towards next  BIS Review 143/2008  3  summer. Higher unemployment and weaker corporate profitability will probably lead to low pay increases in the wage negotiations next spring.

But we assessed that maintaining capital buffers to cushion against potential losses was relevant to insurance companies as it was to banks. So, we proceeded to put in place capital requirements for insurers operating in Singapore, even when most other jurisdictions did not. At the same time, we were conscious of the need to apply the capital framework in a manner commensurate with the risks posed by different types of insurance activities. •  For example, Lloyd’s Asia syndicates are not subject to the RBC framework. This is because the Lloyd’s market is approved and regulated by the UK regulator, and premiums are booked in the UK and protected by Lloyd’s central fund. •  Likewise, captives and marine mutuals are not subject to RBC. They are restricted to writing business principally for their parent and related corporations, and of their own members respectively. The risk they pose to the broader financial system is low. Complementing regulation with supervision Close, and if necessary intrusive, supervision of financial institutions is an important complement to industry-wide regulation. Frequent and in-depth monitoring of the institutions we supervise helps us calibrate our supervisory approach to the particular circumstances of each institution. An important aspect of supervision is surveillance, which seeks to identify and assess risks and vulnerabilities that may affect the financial system, including insurance companies. A critical component of surveillance is stress testing. •  Since 2005, MAS has been conducting annual stress tests to assess the insurance industry’s preparedness against both macroeconomic stress scenarios and more insurance-specific scenarios.