. good supervision is intrusive. supervisors must not stay on the sidelines of regulated financial institutions, relying solely or mainly on offsite analysis. the central bank must be a presence that is felt continuously. 2. good supervision is sceptical but proactive. supervisors must question, even in good times, the industry ’ s direction or actions. supervisors must have the capacity to identify risks, and to act on them. the central bank is most valuable when it is least valued. bis central bankers ’ speeches 3. good supervision is comprehensive. supervisors must be constantly vigilant about happenings on the edge of the regulatory perimeter. the central bank must not confine its interests to risks faced by its regulated entities and must go beyond to risks posed by other parts of the financial system. 4. good supervision is adaptive. supervisors must be in a constant learning mode to respond to new products, new markets, new services, and new risks. the central bank must adapt to changes at the regulatory perimeter, with an eye to new or unregulated areas. 5. good supervision is conclusive. supervisors must follow through conclusively on matters identified as these issues progress through the supervisory process to their final resolution. the central bank must take every identified issue, however, small, to its conclusion. judgement, not rules, is the key here. supervisors would do well to learn the secret to success of julie dickson, head of canada ’ s office of the superintendent of financial institutions, and who supervises the world ’ s strongest banks. ms. dickson ’ s secret to success is to focus on bearish forecasters like nouriel roubini, assume the worst, and avoid complacency. meanwhile, the bank has augmented its supervisory expertise with specialists. some of the more important initiatives included the establishment of an in - house actuarial unit headed by an experienced actuary. this unit allows the bank to closely monitor, analyse and set direct attention to the sufficiency of actuarial reserves held by life insurers, as well as being able to verify the adequacy of outstanding claim reserves for non life companies. going forward, the actuarial unit will be providing needed leadership in the development of an appropriate stress testing regime of the insurance industry. this, in turn, will support the bank ’ s financial stability initiatives. the bank has also increased its credit risk supervisory expertise. over the past four years the bank has been conducting thematic reviews

2. 5 percent in 2011, before falling to a little above 2 percent in march 2012. local banks, however, have little exposure to investment in the distressed euro area. risks to bank stability seem relatively modest due to ample capital buffers, conservative provisioning, and high profitability. stress tests conducted by the central bank confirm the overall strength of banks : credit risks appear limited while market and liquidity risks are generally low. ladies and gentlemen, life insurance companies, excluding clico and british american, have generally strong capital positions and are profitable, despite the financial strains and sluggish economic environment of recent years. capital adequacy indicators for the life insurance sector have been trending downwards since 2009, as the industry builds its actuarial reserves to meet the new capital rules in the proposed insurance bill. the ratio of capital to technical reserves for life insurance companies stood at just over 30 percent in december 2011, well above the international benchmark, which usually ranges between bis central bankers ’ speeches 7 – 10 percent. return on equity in the life insurance sector increased from around 7. 5 percent in 2008 to just below 10 percent in 2011. in the general insurance sector, most large companies are well capitalized, although some are exposed to the occurrence of a major natural disaster such as hurricanes. many general insurance companies have been ceding a significant portion of their insurance business to international re - insurers in order to mitigate very large claims arising from natural disaster risk. some small insurance companies specializing in third party motor insurance appear undercapitalized. in addition to poor market conduct, third party motor insurers engage in non - payment and under - reserving of claims. it is instructive to note that the central bank intervened to close one motor insurer in 2010, after addressing insolvencies in the previous years, and has issued compliance directions to several companies. unless these smaller general insurance companies improve their pricing and capital positions, the central bank is likely to undertake further interventions in this part of the insurance sector. the insurance act requires insurance companies to maintain assets in their statutory fund to cover liabilities for policies owned by residents of trinidad and tobago. with the exception of one life insurance and two general insurance companies, all other insurance companies were compliant with their statutory fund requirements. the central bank is working with the non - compliant insurance companies to correct the deficiencies in their statutory funds. strengthening financial stability and the central bank i now turn to my third and final point