Reserve Bank relaunches Insurance Act review
Today, the Reserve Bank of New Zealand (Reserve Bank) issued a relaunch paper and is commencing a review of insurer solvency standards. This follows the announcement on 14 September of the Reserve Banks’ intention to recommence the review of the Insurance (Prudential Supervision) Act 2010 (IPSA). The IPSA review will commence in parallel to the review of insurer solvency standards. These documents also come with a promise from the Reserve Bank to interact intensively and seek input with the industry and government agencies through a number of consultation papers to be released over the next twelve months.
Who needs to read it? Why?
New Zealand insurers and anyone offering insurance products in New Zealand should read the relaunch paper and accompanying review of insurer solvency standards.
What does it cover?
IPSA Review relaunch paper
The relaunch paper sets the focus and timeframe for the IPSA review, highlighting the Reserve Banks’ progress to date and issues that have arisen since the review was deferred in 2017. The review will consider recent reviews of the sector, namely the International Monetary Fund’s review of the financial sector (IMF Review), the review of insurance contract law, and the Trowbridge/Scholtens review of the Reserve Bank’s supervision of CBL Corporation (CBL Review).
The main focus points for the review are:
- The scope of legislation and which organisations should be captured: this involves a possible amendment to the definition of “insurance” under IPSA and the “carrying on business” test.
- Overseas insurers: how overseas insurers operating in New Zealand should be treated under IPSA and what kind of supervision they require.
- Statutory funds: to what extent statutory funds should feature in New Zealand regulation and an assessment of whether the current regulation for statutory funds is effective and efficient.
- Solvency: whether the enabling provisions for solvency standards are supportive of good regulations and whether the definitions in IPSA need amending.
Insurance solvency standards review
The Reserve Bank is reviewing the solvency standards issued under section 55 of IPSA. This review will span the next three years, with final standards to be finalised in quarter three of 2023. The review follows other various reviews in recent years containing recommendations for the administration of solvency in New Zealand, such as the IMF review, the CBL review, and the thematic review of appointed actuaries. The review aims to change the structure and level of registered capital requirements which will bring the solvency standards in line with international standards.
We welcome the review and the Reserve Bank’s intention to fill in gaps in the regulatory framework that have become apparent following numerous reviews of the framework.
As mentioned in our previous update, any changes that increase the regulatory burden should be carefully considered as insurers already manage the current economic climate. Any regulation of overseas insurers should be reflective of their vital role in supporting the New Zealand industry, through offers of insurance products or through reinsurance.
The review of the insurer solvency standards will bring New Zealand in line with international standards. As indicated by the many reviews pointing out pitfalls in the current solvency standards, the Reserve Bank’s review of these standards is long overdue and should be strengthened to ensure effective prudential supervision over the insurance industry.
If you have any questions in relation to the IPSA review or the review of insurer solvency standards, or are concerned about how these changes affect your business, please contact one of our experts.