The insurance and takaful industry has grown at a healthy annual rate of 10.47% in the 20 years prior to 2016, and the sector now accounts for 6% of the Malaysian financial system assets. The industry is on a strong financial footing, with excess capital above regulatory requirements of RM37.9 billion. Risk management and corporate governance practices have also been significantly strengthened. Insurance penetration, which is the ratio of life insurance policies and family takaful contracts to total population, increased from 25.3% in 1996 to 56% in 2016. Liberalisation in the insurance sector shareholding was also undertaken with a view to further improve the insurance sector. Unfortunately, this is where the good news ends. Despite stronger and better managed insurers, and an increase in foreign insurers’ market share from 60% in 2009 to 76% in 2016, many of the issues raised 30 years ago remain with us today. There are a few areas in particular that I would like to highlight: First, the failure to make insurance and takaful attractive enough to large segments of our population who are still devoid of any form of protection; Second, underinvestment in talent and the continued dependency on group resources to support core functions, and Third, the low commitment to domestic arrangements for reinsurance optimisation. From the perspective of the population that remains underserved, the existing business models 1/5  BIS central bankers' speeches  are essentially broken.
Consequently, during 2005–2008 the NBR did not refrain from making discreet forex market interventions by purchasing considerable amounts of foreign currency so as to preclude the fast overappreciation of the leu, which was likely to cause a dangerous erosion of the Romanian economy’s external competitiveness and to lead to a fall in inflation, yet in an unsustainable manner. At this juncture, I should bring to the fore other arguments in favour of a managed float policy for the Romanian currency. The major reason underlying the NBR’s purchases of foreign  10  BIS Review 5/2010  currency consisted in the fact that the leu strengthened in both nominal and real terms, concurrently with an extremely loose wage policy in 2006 and especially in 2007. During those years, pay rises overtook productivity gains, thus reducing the previously accumulated competitiveness gains and contributing definitely to the worsening of the balance of payments current account. Another argument I would like to point out is of a precautionary nature. As it has been noticed in practice, the end of cycles of synchronous large capital inflows coincide with somewhat abrupt depreciation episodes, which can be avoided provided sufficient reserves are available. The pro-cyclical conduct of fiscal policy that added to the vulnerabilities associated with the widening of the current account deficit during 2004–2008 also underpinned the NBR’s purchases of foreign currency. In principle, fiscal policy may either cushion or magnify the undesired effects of large capital inflows.