Maintaining financial stability remains a primary mandate of the Central Bank. In response to the constantly changing financial landscape, Bank Negara Malaysia's approach to the regulation and supervision of the insurance and takaful sectors has evolved to achieve a more robust regime that emphasises three key dimensions: first, creating a strong risk management culture that overlays the operations of insurers and takaful operators; second, facilitating market-led adjustments that will allow the industry to evolve in response to market, technological and demographic developments, while maintaining sufficient regulatory oversight to maintain financial stability and public confidence; and third , ensuring mutually consistent policies for the banking and insurance sectors. Two fundamental changes underpinning the Bank's current approach to regulation and supervision are the shift towards "principle-based" regulations and the implementation of a risk-based regulatory and supervisory regime. Increasingly, regulations have focused less on prescriptive rules, and more on establishing the broad parameters for sound financial and business practices that provide substantial flexibility for insurers and takaful operators to apply the principles in the manner most appropriate to their specific circumstances. Under this approach, greater attention is also being given to the creation of appropriate incentives within the system to achieve the desired outcomes. The adoption of "principle-based" regulations is complemented by an increased focus on risk management in the capital and supervisory framework. On this front, I am encouraged by the industry's positive response to the new risk-based supervisory framework implemented for the insurance and takaful industries since August 2004.
On the nominal side, our two countries' links with the euro area differ markedly. Swiss and euro area inflation have a correlation of 39%, which, although low, corresponds to the average correlation of inflation rates within the euro area itself. Israel's inflation shows a weaker link here, displaying a correlation with euro area inflation of only 19%. Comparing again the levels instead of the correlations, Switzerland has a long tradition of monetary stability with an inflation rate that has been clearly lower than those in Israel and the euro area. Over the last five years, the average inflation rates were 0.8% in Switzerland, 2% in Israel and 2.2% in the euro area. While for Switzerland, low and stable inflation is not particularly noteworthy, it is important to remember that price stability in Israel is a recent achievement and that inflation remains relatively volatile here. Overall, this quick look at the data suggests that Israel and Switzerland have different records in terms of stability, that both countries are highly integrated into the euro area, but that, for obvious reasons, Switzerland seems to be more "European" than Israel. If Switzerland is indeed as integrated as any regular euro area member, what advantages do we see in maintaining our monetary independence, while our neighbours have abandoned their national currencies in favour of the euro? Reasons for monetary independence As you well know, the large majority of European countries have come to the conclusion that adopting the euro is beneficial.