Wrinkles identified by the Reserve Bank in the transitional phases of the Insurance (Prudential Supervision) Act (IPSA) are to be ironed out in an amendment Bill, introduced to the House last month.
We briefly outline the main changes and suggest some issues for submissions.
Changes to reporting requirements
Currently interim audited individual and group financial statements must be provided to the Reserve Bank within five months of the end of the first half of an insurer's accounting period.
The Bill proposes to reduce this timeframe to three months (aligning it with the proposed time limits for year-end reporting in the Financial Reporting Bill) and removes the requirement to prepare interim financial statements for both a group and a parent (instead only group interims are required).
The time limit for year-end financial statements will remain at five months until the Financial Reporting Bill comes into force – which, for insurers, we expect to be in early 2014, at the same time as the Financial Markets Conduct Bill.
The Bill also empowers the Reserve Bank, by notice to an insurer, to allow that insurer's interim financial statements to be prepared in accordance with (for example) its home requirements, rather than NZ GAAP.
In addition, the Bill:
- tweaks financial strength rating rules, so that insurers winding down don't need one and an insurer (generally) won't need to provide its rating to a customer more than yearly
- allows the Reserve Bank to require as a licence condition that an insurer or its directors certify that the insurer complies with IPSA, its regulations and any other enactments. Currently the Reserve Bank can require certification in respect of only the insurer's licence conditions
- extends the availability of the provisional licensing regime for insurers that are subject to an insolvency process
- extends the limitation period in respect of an offence under the Act so that it ends five years after the date the offence was committed, and
- provides for a register of licensed insurers -
Chapman Tripp comments
Apart from the change to the proposed timeframes for preparing interim financial statements (which is an issue with broader implications than just for insurers), the matters covered by the Bill can be regarded as "housekeeping".
However, the Bill may provide the opportunity for insurers to make submissions for changes to other aspects of the Act which warrant revision, and can now be properly assessed based on their experiences of the new legislation. How much so, will depend on the select committee.
These matters could include:
- that insurers not be subject to the shortened timeframes for preparation of their full year financial statements (and have a longer preparation period than other companies under the Financial Reporting Bill) because of the additional need for the appointed actuary to prepare a Financial Condition Report to accompany the full year financial statements
- that directors have broader defences from liability on a winding up for a loss arising from a statutory fund contravention, including reasonable reliance and no fault defences
- that directors have broader defences for breaches by their insurance company of IPSA's administrative requirements, to allow for appropriate delegation of such administrative functions, including clarification that directors can rely on appropriately appointed employees within their control for functional tasks
- that additional exemption powers be granted to the Reserve Bank. Unlike the Securities Act, which allows the FMA to exempt all its operative requirements, IPSA allows for exemptions from only a very limited class of requirements
- that the Reserve Bank not be able to impose a requirement that a substantial proportion (currently 50%) of the insurer's business be New Zealand insurance policies (we consider that this is contrary to the objective of New Zealand becoming a financial services hub), and
- removal of the Reserve Bank's broad power to give directions to other companies within the insurer's group (which is inconsistent with the separate corporate entity principle and discouraging of overseas insurers).
The closing date for submissions has yet to be announced.
If you have any questions about the Bill, or would like any assistance in relation to an insurance supervision issue, please contact one of the lawyers featured.
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.