RBNZ plans to life company on-site inspections
The Reserve Bank is looking at introducing a compulsory on-site inspection power as part of its prudential regulation of insurance companies, a major departure from the light-handed regulatory regime governing the insurance industry since 2011.
Saturday, March 12th 2022, 2:18PM
by BusinessDesk
The central bank wants "the power to carry out on-site inspections at insurers' premises, including, where necessary, without prior notice", the central bank said in a consultation paper.
The RBNZ became the prudential regulator of insurance companies when the Insurance (Prudential Supervision) Act (IPSA) was passed in 2011 but that law only allows it to physically inspect an insurance company with that company's consent.
The ability to demand information from businesses that aren't licensed insurers is also being sought, to make it easier to ensure that insurance isn't being provided inappropriately.
Cabinet has already approved giving the prudential regulator the power of compulsory on-site inspections of banks, which will be included in the proposed Deposit Takers Act. Consultation on the first draft of that bill closed last month ahead of its introduction into parliament.
The RBNZ has now started consultation on gaining similar hands-on powers for the insurance sector and said this is the third of five consultations it plans as part of its review of the IPSA.
Such changes have been on the cards since a 2017 review by the International Monetary Fund recommended more intensive supervision and enforcement and other changes to RBNZ's regulatory approach.
SOLVENCY STANDARDS
Meanwhile, the central bank says interim solvency standards will come into force from January 1, 2023. It expects to have a final solvency standard in force from 2025.
The interim standard, which determines the minimum amounts of capital that insurers must hold, is needed to take account of changes to accounting standards on measuring insurance contracts.
The International Financial Reporting Standard (IFRS) 17 requires that insurance contracts must be measured using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts.
The new standard aims to provide transparent reporting about a company's financial position and risk.
Deputy governor and head of financial stability, Christian Hawkesby, says the standard has been refined and incorporates feedback from submissions. It is designed so policyholders can be comfortable an insurance company has enough funds to meet its promises to policyholders, he said.
"The interim solvency standard is part of a multi-year review of solvency requirements under the Insurance (Prudential Supervision) Act 2010," Hawkesby said.
"We received a large number of written submissions in response to the exposure draft from insurers, industry organisations and other interested parties. As well as the written submissions, we received a lot of verbal feedback through bilateral meetings and webinars. These comments were greatly appreciated and have helped to refine the interim standard."
RBNZ expects the interim standard to be in force for about three years and it has decided to consult further on it with industry bodies, and to conduct external legal and actuarial review, before finalising it in the third quarter of this year.
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