On 11 September 2025, then Reserve Bank Governor, Christian Hawkesby, announced at the Financial Services Council Annual Conference that Cabinet had agreed to a set of recommendations to progress an amendment bill to make changes to Insurance (Prudential Supervision) Act 2010 (IPSA). These documents were released two weeks later on the Reserve Bank’s website, available here. 

The Reserve Bank has proposed a comprehensive package of reforms following a multi-year review that began in 2016. These proposals were outlined in the Omnibus Consultation launched in September 2023 and are intended to modernise and strengthen the regulatory framework for insurers in New Zealand.

Summary of reform proposal

The IPSA reforms aim to move from the current relatively “light touch” model to a more proactive, intensive, and risk-based one, more closely aligning New Zealand with international practice in selected jurisdictions. The proposals are grouped into nine high-level areas of legislative change and are designed to ensure the maintenance of a sound and efficient insurance sector and promote public confidence in the sector.

1. Purposes and principles: The proposal includes adding two principles to IPSA: a commitment to proportionality in regulation and the need to consider international guidance. This is coupled with a requirement for the Reserve Bank to publish a proportionality framework to guide the tailoring of standards to different insurers, ensuring regulatory burden is appropriate for the scale and nature of the business.

2. Adjusting regulatory scope: The regulatory perimeter is being adjusted to require all New Zealand-incorporated insurers to be licensed, regardless of policyholders' location. Licensing requirements are proposed to be removed for overseas captives and overseas entities acting only as reinsurers. Other key proposals require overseas insurers operating through branches to incorporate locally where they meet a specified size and importance threshold, and non-operating holding companies of insurers will be subject to a licensing regime – facilitating a "group supervision" approach to insurers.

3. Solvency framework and ladder of intervention: The current regime will transition to a graduated, risk-based solvency framework featuring a Prescribed Capital Requirement (PCR) and a Minimum Capital Requirement (MCR). This structure forms the basis of a "ladder of intervention" which enables the RBNZ to take proportional action as an insurer's capital level declines.

4. New prudential standards power: To facilitate a more intensive supervisory approach, the Reserve Bank will gain the power to issue enforceable "standards". These standards will set clearer rules across key prudential areas, including governance, risk management, data and disclosure, outsourcing, connected exposures, actuarial advice, and distress management preparedness.

5. Fit and proper requirements: The regime is being strengthened by extending fit and proper requirements to the Chief Risk Officer (CRO). Pre-approval by the Reserve Bank will be required for the appointment of directors and all key "relevant officers" (CEO, CFO, CRO, and appointed actuaries). Insurers must also notify the Reserve Bank of any concerns regarding a relevant officer's fitness or propriety.

6. Regulatory approvals regime: The process for approving transactions involving insurance businesses will be simplified and align more closely with similar regulatory frameworks. The existing separate approval processes for specific types of transactions will be managed by one set of provisions applying to all those transactions. 

7. Graduated supervisory powers: The Reserve Bank is seeking an expanded and graduated toolkit for proactive oversight. This includes new powers for on-site inspections and a wider range of enforcement measures, such as imposing pecuniary penalties, issuing remediation notices, and requiring the publication of Reserve Bank warnings. A new duty of due diligence for directors and branch CEOs on prudential compliance is also proposed.

8. Refined distress management: The proposals include modernising distress management provisions to prioritise policyholder and public interest during statutory management. 

9. Miscellaneous changes: Other proposed changes include introducing an obligation for the Reserve Bank to consult with the Financial Markets Authority when making decisions on significant transactions and issuing or cancelling insurer licences. 

Alignment with international standards

The Reserve Bank's proposals represent a clear move towards aligning the New Zealand regime with international best practice, especially the principles embedded in the European Union's Solvency II directive . The United Kingdom also applies a Solvency II inspired approach. There is also expected to be an alignment with the Australian Prudential Regulation Authority’s Prudential Standards and solvency approach. 

This alignment is most evident in the shift to a more risk-based, intensive, and proactive supervisory model. Specifically, the introduction of the two-tiered solvency control levels (PCR and MCR) and the corresponding "ladder of intervention" closely mirrors Solvency II's system of solvency capital requirement (SCR) and MCR thresholds. Furthermore, the emphasis on strengthening governance and risk management through new Reserve Bank-issued Standards – which will cover areas like outsourcing and corporate structure – directly corresponds to the crucial Pillar 2 (on governance and supervisory review) requirements of the European framework, ensuring a stronger focus on internal controls and a clear accountability regime for senior management.

The ladder of interventions

In our view, some of the key changes to highlight relate to the proposed “ladder of intervention” measures, the Reserve Bank’s new powers for on-site inspections without notice, and the Reserve Bank’s power to issue enforceable standards.

The ladder of intervention changes provide the Reserve Bank with a range of potential interventions moving from the current single solvency margin, to a graduated, risk-based solvency framework within IPSA. We are looking forward to seeing more details on PCR and MCR levels and how the Reserve Bank will tie regulatory actions to specific levels of solvency – how many levels there will be on the "ladder", and the degree of severity incurred within each one. The specific thresholds that trigger the Reserve Bank to shift from monitoring to intervention will be a key focus point.

Enabling the Reserve Bank to conduct on-site inspections without notice would be a significant shift in the supervision of licensed insurers. How the Reserve Bank would use its new onsite power in practice will be indicative of its new approach to supervision. We are looking forward to guidelines detailing when and how the power will be exercised to ensure it is targeted and does not impose an undue or unnecessary burden on compliant insurers. We will be interested to see if its supervisory approach will be more aggressive in how it enforces expectations, and how the Reserve Bank’s relationship charter will be adapted to incorporate the new more robust powers. 

Finally, we are interested to see how the Reserve Bank’s proposed new extended power to issue enforceable standards, will impact operations and compliance costs – particularly for the governance, risk management, actuarial advice, and distress management preparedness areas. The proposals potentially allow the Reserve Bank to impose a lot of change on insurers, which would require significant and expensive uplift for many insurers. These standards will more clearly allow the Reserve Bank to focus their influence on how insurers are run, covering areas like Group dynamics, actuarial assessment, distress management and board composition. We look forward to the Reserve Bank’s proportionality framework being applied in practice, ensuring that smaller insurers are not burdened with the same level of compliance complexity as large, systemically important institutions. The specific details of these standards, which constitute a significant part of the new prudential regime, will ultimately define the new minimum expectations for corporate conduct and operational resilience across the entire sector.

What next – and likely timeline?

The next step is expected to be a consultation on an Exposure Draft on the IPSA Amendment Bill, likely in the first quarter of 2026. The timing of steps after that will depend on the response to the consultation. 

An Amendment Bill is currently proposed by Government to be introduced in the Parliament in June or July 2026. That is an ambitious timetable which does not leave much time to take into account the responses to the consultation. 

Even if that is achieved, it is not clear whether there would be time to complete the usual legislative timetable before the next election. We think it more likely the Bill needs to be carried over into the next Parliament as usually the House rises by August in an election year. We would expect a full Select Committee process which implies enactment in late 2027. We would also expect a transition period to follow for some but not all of the Bill. However, it is always possible for the Government to accelerate the usual timetable. 

Get in touch with one of our experts if you would like to discuss the IPSA recommendations and how they might impact your business. 

This article was co-authored by Saskia Besier, Consultant and Darlene Hu, a Solicitor from our Financial Services team.