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
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
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
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
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 removed. This will mean
insurers will have to disclose their rating in writing direct to
insureds, including corporate insureds.
All amalgamations and transfers of books of business require
the Reserve Bank's prior approval. An actuarial report is also
required. Once approved, the Bill provides a much simpler legal
process for effecting the amalgamation/transfer than the cumbersome
process under the Companies Act 1993.
Whether overseas insurers are subject to the Bill has been made
clearer by a proposed consequential change to the Companies Act
1993. The need to be licensed under the Bill is governed by whether
the company must register under the Companies Act 1993 as an
overseas company doing business in New Zealand. The proposed change
to the Companies Act 1993 makes it clearer that this is the case
for overseas insurers, unless the contract of insurance is governed
by a law other than New Zealand law. However, overseas insurers can
seek an exemption from the Reserve Bank from the requirement to:
Provide fit and proper certificates for directors
Comply with the solvency requirements
Comply with the statutory fund requirements
For the overseas insurer to fit within this exemption, the
Reserve Bank must be satisfied that the insurer satisfactorily
complies with these requirements in their home jurisdiction.
Where to next?
The Bill will be referred to the Select Committee for
submissions by interested parties in the New Year.
We will keep you informed of any further developments.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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