A significant part comes from the US economy, which is currently near or above full employment and inflation pressures that could trigger a more forceful reaction from the Fed. Special mention deserves the fiscal stimulus package recently approved by the US Congress, which will put pressure on an economy where, as I just pointed out, gaps are already tight.3 It is worth stressing that the deterioration that this would cause in the global financial conditions could have particularly severe consequences for those emerging economies with weaker fiscal or financial positions or that are highly indebted. China's situation is worrisome, as there are still several imbalances in its markets yet to be 2  / This Report includes a box analyzing the magnitude of the pass-through coefficient of exchange rate variations to inflation, identifying the origin of the variation and establishing that its effects on inflation change depending on the type of shock faced. In particular, it reviews how the inflationary effects of exchange rate fluctuations change depending on where they originate, e.g. in a movement of the global value of the dollar as opposed to an idiosyncratic shock hitting the Chilean economy. The analysis finds that the inflationary impact of exchange rate movements associated with deviations of the interest rate parity is stronger and more persistent than if stemming from changes in foreign inflation. Thus, the implications for monetary policy are obvious: not all exchange rate variations have the same inflationary consequences and, therefore, the policy rate response must factor in their origin.

Similarly, the investment decision is not an isolated one, but one that has to be made in view of the firm’s overall business goals, business strategies, capital needs, liabilities structure and risk appetite. Insurers would gain from establishing a robust Enterprise Risk Management (ERM) framework to manage these factors holistically. Good execution on this front will entail close coordination and communication between the investment function and other key functions, including actuarial, risk and finance, to ensure that dynamic trends on both investment assets and insurance liabilities, as well as the resulting impact on earnings and balance sheet volatility, continues to be monitored and managed dynamically. Asia driving global insurance growth 18. The ability to manage investment risks skillfully is even more essential in the Asian context, due to its rapidly growing share of insurance business and attendant risk exposures. 19. Over the next decade, Asia will continue to rise in importance in the global insurance arena. Munich Re for example, estimates that Asian premiums can register healthy growth of about 8% per annum, and account for almost 40%6 of global premiums by 2020. This is underpinned by positive structural factors such as a growing middle-class and rising affluence, aging demographics, and the continued industrialisation, trade and infrastructure development in emerging Asia. 20. In particular, I would like to focus now on how insurers can play a long-term role in Asian society and economies in two pertinent areas: one, financing Asia’s retirement funding gap; and two, financing Asia’s long-term investment needs. Financing Asia’s retirement funding gap 21.