Indeed, with a strong impulse from the G20 and the French Presidency, we have embarked into an ambitious financial reform agenda whose explicit objective is to prevent any recurrence of such intense episodes of financial turbulence and instability. On the other hand, growth cannot occur without efficient and developed financial systems to allocate savings, redistribute risks, and provide liquidity to the economy. There is ample evidence that financially repressed economies are penalized in terms of investment and economic growth. The challenge, therefore, is to find the right balance, as suggested by the title of our session. Looking at our achievements to date, my sense is that we are definitely moving in the right direction. But, of course, this is still work in progress: regulators and policymakers are constantly looking for additional evidence and insights on how to best reconcile stability and efficiency in the developments of our financial systems. The thrust of our efforts has been to increase the robustness of financial institutions and infrastructures. It is not in our power to eliminate financial shocks and volatility. It is our duty to make sure that they can be absorbed without undue consequences for the institutions themselves and the whole economy. Building up appropriate cushions was therefore a priority and a necessity to protect tax payers from the consequences of future turbulences. First and foremost, a robust system needs strongly capitalized banks. Basel 3 will make essential contributions in this regard, by increasing both the quantity and quality of banks’ capital.
The Malaysian Government has also focused its efforts towards strengthening its position as an international takaful and retakaful centre, with particular emphasis on widening and deepening the retakaful sector so as to effectively complement the growth and expansion of the takaful industry. In this regard, I wish to invite strong and qualified applicants to make Malaysia as their centre for retakaful activities. Foreign applicants with strong credentials are certainly welcome to conduct retakaful business in Malaysia. The changing global investment climate continues to pose challenges for life insurers in respect of their life fund investment. The recent sub-prime crisis in the US has induced greater fluctuations of the yield curve as well as higher volatility in the equity markets. Given the increased proliferation of innovative products with investment guarantees, insurers' remain very vulnerable to the movements of the capital markets. As for traditional noninvestment linked business, asset-liability management and duration mismatch continue to pose a challenge, and insurers must seek new long term investment avenues to minimize the risk of mismatches. The occurrence of global warming and climate change is of particular significance to the insurance industry which, has had to bear the brunt of severe losses arising from weatherrelated catastrophes. Between the 1960s and 1990s the number of natural catastrophes has doubled while insured losses increased nearly seven-fold, most of them weather-related.