Zeti: Significant uncertainties to persist in international financial markets

Written by The Edge FinancialDaily
Tuesday, 20 October 2009 12:37

KUALA LUMPUR: Bank Negara foresees significant uncertainties will persist in the international financial markets and the broader global economic conditions.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said on Tuesday, Oct 20 that these conditions will continue to pose significant challenges to the insurance industry.

"Domestic and external conditions are however expected to remain volatile for some time," she said in her speech at the 21st Federation of Afro-Asian Insurance and Reinsurance Conference.

Zeti said in this environment, maintaining strong capital buffers and sound risk management is even more crucial to ensure the insurance industry remains resilient.

She pointed out the adoption of Solvency II in Europe and its influence on solvency regimes in other jurisdictions, had seen more countries, including Malaysia, moving to adopt more risk-aligned capital regimes.

"This needs to be reinforced by substantive improvements in risk management practices, greater alignment between business strategy and risk, and greater appreciation by boards and senior management of insurers on risk issues given the growing complexity and increasing interconnectedness of financial markets and financial sector players," she said.

On prospects for higher insurance penetration rate in the region, she said it continued to remain positive.

In 2008, insurance premiums accounted for 5.95% of Gross Domestic Product (GDP) in Asia and 3.57% of GDP in Africa compared to 7.29% in America and 7.46% in Europe.

Zeti said the changing priorities of the growing population in the region, largely comprising of a young workforce in the middle income group, enhanced the demand for investment-linked and wealth management products.

These opportunities require strategies to increase the accessibility of insurance products.

She said that worldwide, insurers have successfully leveraged on bancassurance and internet channels to enhance insurance penetration.

As for Malaysia, she said insurers can now freely enter into bancassurance arrangements with banking institutions and extend their branch network based on the liberalisation measures announced in April this year.