In addition, there has been an ongoing convergence in the financial sector as traditional boundaries continue to be eroded by changes in institutional structures, shifting legal barriers and product innovations. The proliferation of conglomerate arrangements have also increased the need for more consistent regulatory approaches across industry boundaries to reduce the prospect of regulatory arbitrage and inefficiencies. France and Germany have recently made announcements on the consideration to place the supervisory responsibility of the insurance sector with the Central Bank. This has however, drawn some resistance from insurers on grounds that" the concentration of responsibilities would create new conflicts of interest for the financial sector". Bank Negara Malaysia has been the supervisory authority of the banking industry since its establishment in 1959 and for the insurance industry since 1988. This integrated approach within the Central Bank has enabled us to form a more complete assessment of the risks to financial stability while ensuring consistency in the treatment of risks across the different industries to avert risks to the overall financial stability. The rapid pace of changes in the global economic and financial environment requires industry players to continually upgrade their expertise. Cooperation in this area between industry players can contribute towards bringing the insurance industry to the next frontier. Since its establishment in 1964, the Federation of Afro-Asian Insurers and Reinsurers has fostered a strong cooperation among insurance industry players in Africa and Asia. Such expertise may indeed be tapped through such regional platforms, bringing with it mutual benefit to the insurance industry in both markets.

Of significance is that the global insurance industry on the whole has remained resilient throughout the current financial crisis. The overall aggregate financial position of insurers in the crisis affected countries have continued to be strong, and generally not severely affected by liquidity pressures or exposures in the credit derivatives markets. Earlier losses by insurers in financial market activities had resulted in a shift to "back-to-basics" models, focusing on core underwriting business instead of heavily relying on investments as the main source of earnings. The industry had also benefited from the subsequent upturn in the pricing cycle which has fortified the capital position of insurers and provided the support to maintaining sound underwriting standards. These conditions have placed the industry on a much stronger position to withstand the challenges emanating from this global financial turmoil. BIS Review 131/2009  1  Domestic and external conditions are however expected to remain volatile for some time. Significant uncertainties will persist in the international financial markets and the broader global economic conditions. These conditions will continue to pose significant challenges to the insurance industry. In this environment, maintaining strong capital buffers and sound risk management is even more imperative to ensuring the continued resilience of the insurance industry. With the adoption of Solvency II in Europe and its influence on solvency regimes in other jurisdictions, more countries, including Malaysia, have now moved to adopt more riskaligned capital regimes.