Reserve Bank of New Zealand issued new licences to 99 insurers, according to an official announcement made on September 9, 2013.
Most of the licenced companies were registered earlier but a law change in September 2010 obliged all insurers keen to continue their business in New Zealand to apply for a licence within three years.
The Insurance (Prudential Supervision) Act is designed to ensure a sound and efficient insurance sector, and to promote public confidence in the insurance sector. New insurers entering the New Zealand market must apply for a licence.
RBNZ Head of Prudential Supervision Toby Fiennes said that the law recognised the importance of adequately protecting policyholder interests, and public interest, while ensuring that any failure of an insurer did not significantly damage New Zealand’s financial system or economy.
“The Reserve Bank achieves this through a system of licensing insurers, prudential requirements, supervising compliance and acting when an insurer is in financial distress or other difficulties. The purpose of the legislation is not to eliminate all risk of insurer failure, but to reduce the likelihood of failure,” he said in a statement.
Since March 2012, insurers have been operating under provisional licences, while being assessed for a full licence.
Three insurers that are no longer writing new policies in New Zealand continue to retain provisional licences.
The need to enable the insurance sector to perform better, fulfil its obligations and most important of all, insure itself against insolvency are among the finer aspects of a new regime mulled by the Reserve Bank of New Zealand (RBI).
The stress placed on insurers and reinsurers worldwide by the global financial crisis of 2008 and after years in general and the claims arising out of the Christchurch earthquakes and aftershocks since 2011 in particular, had made it imperative for the RBNZ to revisit the insurance sector.
The Insurance Prudential Supervision Act 2010, although initiated before the earthquakes, was an essential tool to augment the financial strength of the insurance sector in New Zealand and improve its ability to protect the interests of the insured.
Mr Fiennes said that regulation of the insurance sector is consistent with the Bank’s approach to regulation and supervision in other sectors.
“As with the banking and non-bank deposit taking sector, there is no Government or Bank guarantee against the failure of a licensed insurer. The prudential requirements of the Act significantly reduce the likelihood of failure and provide the Bank with appropriate tools to manage financial distress of an insurer,” he said.
He however cautioned that there was no such thing as a ‘zero failure regime, or a ‘Reserve Bank or Government Guarantee’ against failure.’
According to Mr Fiennes, the Act is comparatively non-intrusive in its application and places strong emphasis on director and senior officer obligations, as well as on accountability and market discipline.
“Our purpose is to promote the maintenance of a sound and efficient insurance sector; and promote public confidence in the insurance sector establishing a system for licensing insurers; imposing prudential requirements on insurers; providing for the supervision by the Bank of compliance with those requirements; and conferring certain powers on the Bank to act in respect of insurers in financial distress or other difficulties,” he said.
Stating that insurers are an integral part of the financial system, he said that insurers do not often consider the potential implications that their solvency position would have on the wider financial system.
The failure of a major insurer could potentially damage the soundness of the rest of the New Zealand insurance sector and possibly the wider financial system, he said.
Photo: Toby Fiennes