Update on the Insurance (Prudential Supervision) Bill

The Government introduced the Insurance (Prudential Supervision) Bill (Bill) into Parliament in late October 2009. The Bill contained numerous changes arising out of the Reserve Bank consultation process. In this article we look at the key changes, many of which have seen an improvement to the proposed legislation.

The Reserve Bank of New Zealand released a consultation draft of the Bill earlier this year. We summarised the main features of the draft Bill in our May 2009 NZ Update, which you can find by clicking here.

The key changes to the Bill arising out of the Reserve Bank's consultation process are as follows:

The Bill inserts a definition of 'contract of insurance'. This is welcome, as the present law could be clearer as to what amounts to a contract of insurance. The Bill substantially changes the definition of 'life insurance'. Again, this is welcome as it is now clear that the limited death by accident (injury) cover found in some traditional general insurance products is excluded from the definition. Thus, the need for general insurers to have a statutory fund just because of this limited cover is eliminated. The Bill provides for a three-year phase-in period for insurers to qualify for a full licence. Provisional licences will be available for those that are unable to meet all the requirements of a full licence at the time of the Act's commencement. If an insurer is a subsidiary, its directors are not permitted to act in the interests of the parent company. This overrides the permissive provision to the contrary in the Companies Act 1993. The Reserve Bank must now publish its policies relating to how it acts, or proposes to act, in relation to its powers under the Bill. This is in line with what it does for retail banks. Licensed insurers will be 'issuers' and therefore must comply with the Financial Reporting Act 1993. The Bill now expressly states that deposits lodged under the Insurance Companies Deposits Act 1953 and Life Insurance Act 1908 will be returned once an insurer is fully licensed. Some other features of the Bill that will be of interest include:

Credit ratings (called 'Insurer Financial Strength Ratings') are now required by all insurers except for those that are friendly societies or credit unions with income below a yet to be specified threshold. The provision in the current Insurance Companies (Ratings and Inspections) Act 1994 allowing intermediaries to disclose a rating on the insurer's behalf has been...