The Reserve Bank of New Zealand (RBNZ) has introduced a number of regulatory changes to the insurance industry to improve financial performance, public accountability and most important of all redefine solvency standards of insurance providers.
Many of these changes preceded public consultation and came into effect on January 1.
The Bank had issued revised versions of solvency standards covering Life Insurance Business, Non-Life Business, Non-Life Insurance Business in Run-off, Captive Insurers Transacting Non-life Insurance Business and Solvency Standard for Civic Assurance.
According to an Industry Update issued on December 17, 2014, the main substantive changes relate to the solvency treatment of reinsurance; revisions to the definition of capital; and the solvency treatment of guarantees.
The revised standards also incorporate a number of amendments aimed at clarifying the application of the solvency standards, updating the solvency standards to take account of other legislative changes and enhancing disclosure requirements.
“The new standards commence on January 1, 2015, except for certain provisions relating to reinsurance. Conditions of licence will be amended throughout 2015 so that individual insurers will be required to calculate a solvency margin under the revised solvency standards as at and from their 2015 balance date. Insurers will continue to be subject to the existing standards until that time,” the Industry Update said.
“The Solvency Standards for Non-life Insurance Business – AMI Insurance Limited and Captive Insurers Transacting Life Insurance Business have been revoked,” it added.
The Bank has released a summary of submissions in response to the feedback it had received through the consultation process. The summary of submissions, which include a new set of requirements, will be incorporated into the RBNZ Solvency Capital requirements in the first quarter of the New Year.
The reissued solvency standards will be applied to individual insurers by modifying conditions of licence for insurers subject to RBNZ solvency standards. In addition, changes are being made to reporting and disclosure timeframes, which will affect all insurers.
“As a result of this and as signalled in our June and September Industry Updates, we will be undertaking a process throughout 2015 to make any necessary changes to licences and notices, in advance of each insurer’s 2015 balance date. Where we propose to modify a condition of licence, this is subject to consultation with the insurer in accordance with Section 22 of the Insurance (Prudential Supervision) Act 2010,” the Bank said.
The Bank has also signalled changes to exemption notices that contain out-of-date legislative references, or that require adjustments in respect of disclosure requirements.
According to RBNZ, its review of the quality of Risk Governance within a sample of insurers is nearing completion.
It said that the exercise has provided ‘valuable insight’ into Risk Governance frameworks and behaviours and that an email alert will be issued in due course.
“In general, we are pleased with the progress being made in relation to risk governance, taking into account the changes many insurers have made to governance structures and risk management frameworks during the recent licensing process. Most insurers regard themselves as being part way through a journey of implementation and improvement towards full implementation of their risk framework,” the Bank said.
According to the Industry Update, the Bank’s public feedback will focus on key themes, which differentiate quality of Risk Governance, including themes arising between different corporate forms and governance structures.
“Our conclusions note that we observed a variety of governance and risk management frameworks and quality is more dependent on the behaviours relating to implementation of the frameworks rather than the structure of the frameworks themselves. Better quality risk governance tends to exist within insurers that channel risk information from all areas of the business and not just from a risk function,” it said.