RBNZ says insurance sector has improved under its watch

The Reserve Bank says New Zealand's insurance sector is healthier since it took responsibility for monitoring the industry five years ago and the central bank plans to have a look at the law to make sure it's still working. 

The RBNZ will review the Insurance (Prudential Supervision) Act 2010 (IPSA), which added insurers to its oversight of supervising banks and non-bank lenders. The review won't cover the act's purposes, which is to promote a sound and efficient insurance sector and promote public confidence. Instead, it will look to ensure the legislation allows for a cost effective regime that promotes the sector's soundness and effectiveness. 

"We believe that IPSA has had a positive effect on the soundness of the insurance industry in New Zealand and that the legislation has generally worked well," said Toby Fiennes, head of prudential supervision. "However, it is over five years since IPSA came into force and this review will examine whether the legislation and associated regulations are working as intended."

Last year, the Reserve Bank took stock of prudential regulations and its expansion into non-bank deposit taking, which ultimately found ways to achieve the intended outcomes at a cheaper cost. The bank is operating under a tight-five year funding agreement of about a 1.2 percent annual increase and had to cut 18 staff last year. 

The Reserve Bank spent $12 million on prudential supervision in the 2015 financial year, unchanged from a year earlier, according to its annual report. While that wasn't broken down, the Reserve Bank estimated an annual cost of between $2.5 million and $4 million to run the insurance regime in its regulatory impact statement when the law was introduced. 

The review's terms of reference say the legislation has led to a more sound sector as insurers operate to minimum prudential standards and face ongoing supervision, there are more independent board members of insurers, certain firms run better risk management, and some companies hold a greater amount of capital against their insurance and asset risks. 

The review will consider whether there's scope to align regulatory requirements across different instruments, whether more tools are needed to recognise the diversity of business models, and whether foreign insurers are subject to appropriate balance of requirements. 

The Reserve Bank also wants to know whether there's scope to use generic rules rather than tailored ones, and if regulatory responses were proportionate. 

The bank intends to release an issues paper in the fourth quarter of this year seeking feedback, before reporting to Cabinet. An options paper is likely to be put out for consultation next year, and any legislation changes would enter Parliament in 2018 at the earliest. 

(BusinessDesk)