During recent episodes of market volatility which saw substantial capital outflows by foreign portfolio investors, insurance companies were among the large domestic institutional investors that provided stability to the market. Indeed, the insurance has become an important component in the Malaysian market in contributing towards the growth of bond and sukuk markets. Low penetration signals opportunities for insurers There is no doubt that the industry has come a long way. This journey has been made possible with the commitment of many in this room today who have led their various institutions to greater heights, and who understood and supported the reforms introduced in the industry over the last two and half decades were critical to take the industry to a new  BIS central bankers’ speeches  1  level of maturity. It was painful but necessary. The fruits of the various reforms we made are for all to see. The industry is now more resilient and robust. Over the last 4 decades together, we had laid a strong foundation for the insurance industry to grow even larger. Therefore, our aspirations for the industry ought to be more ambitious. Under the Government’s Economic Transformation Programme (ETP), a penetration level of 75% by 2020 has been set as a goal for the industry. After two decades of steady growth, the current level of insurance and takaful penetration, at 54%, still remains below targeted level. While this ratio is in no way flattering, it also reflects the enormous untapped potential in the Malaysian insurance sector.
6  BIS central bankers’ speeches  Changes in market prices can, of course, affect the value of the collateral the Bank has taken in its operations. As a result, the Bank calls margin on any shortfall.8 In its sterling operations, the Bank calls margin daily and is moving to that standard for all other transactions. Limits The Bank also manages the risk on its balance sheet using concentration limits. Those serve two purposes. First, they help the Bank diversify across institutions – for example, counterparties can only bid for a maximum of 30% of the funds on offer in the Bank’s ILTRs. That helps ensure that any single counterparty doesn’t corner the market for reserves (intentionally or by accident). Second, they help diversify across instruments in the wider collateral pool – for example, the Bank requires that the adjusted market value (AMV) of securities that any single issuer delivers to the Bank as wider collateral in OMOs is less than the greater of £ million or 25% of its total OMO collateral delivered. Other recent policy initiatives The Bank has, for a number of years, been refining and improving its collateral policy. In November 2010, the Bank announced that it would allow counterparties to use “raw” (i.e. unsecuritised) loans as collateral in the DWF. By removing the need to securitise assets, that initiative expands the range of collateral that banks would be able to use in times of stress.