Anyone carrying on insurance business in New Zealand will be under the Reserve Bank's supervision and will need to be licensed and comply with a number of ongoing prudential requirements under the new Insurance (Prudential Supervision) Act.
Insurers have a transitional period of three years to fully comply with the Act's provisions.
This Brief Counsel gives a timeline of key dates for each step of the licensing process.
Are you required to be licensed?
Broadly any person "carrying on business in New Zealand" that directly or indirectly accepts risk for a New Zealand policyholder under a contract of insurance (including a re-insurance contract) must be licensed. The requirement applies to all insurers, including life insurers, professional indemnity insurers, captive insurers, re-insurers and the insurance activities of incorporated societies.
"New Zealand policyholders" are those who are ordinarily resident in New Zealand or incorporated or formed in New Zealand.
Carrying on business in New Zealand
The Act's definition of "carrying on business in New Zealand" imports the meaning of that phrase from the Companies Act 1993. Importantly, however, the Act makes a consequential amendment to the Companies Act to provide that an overseas company does not carry on business in New Zealand merely because it enters into a contract of insurance as an insurer with a New Zealand policyholder.
What will you have to do?
The Act provides for insurers to obtain a provisional licence then a full licence during the three year transition (with indications from the Reserve Bank that the turnaround time for the provisional licences will be short).
Insurers will need to comply with the Act while operating under a provisional licence, to the extent provided for in that licence. Once fully licensed, they will need to comply with a number of ongoing requirements, as well as any conditions imposed on their licence by the Reserve Bank.
Maximum penalties for operating without a licence, when the new regime is fully in effect, will be $1 million for a body corporate and 3 months imprisonment or a fine of $200,000 for an individual.
An indicative compliance timetable is set out below.
|By 31 December 20101||Insurers must notify the Reserve Bank:
|By 7 March 2012||Insurers must apply for a provisional
An insurer will be entitled to a provisional licence if the insurer:
|By 7 September 2013||Insurers must have a full licence or have transitioned
out of the New Zealand market
Leaving the market
The Reserve Bank can issue a provisional licence to facilitate an insurer's exit from the New Zealand market by 7 September 2013 full implementation deadline. Insurers intending to leave the industry will need to work with officials to ensure their exit strategies are commercially sensible and acceptable to the Reserve Bank. We expect there will be an element of collaboration with the regulator in this respect.
Other key dates:
|By 30 November 2010||Approved rating agencies confirmed
|By 31 December 2010 (Reserve Bank notification date)||
A copy of the Act is available here.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.