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 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.
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