by Russell Hutchinson
September 7 was important for life insurers: it was the date by which any insurer wishing to continue operating must have been issued a licence by the Reserve Bank in accordance with the Insurance Prudential Supervision Act (IPSA). As part of the post-GFC package of laws overhauling almost the entire financial sector this rarely gets any attention. Yet it has been the cause of a great deal of work within insurers over the past couple of years.
Insurers have had tougher standards to meet, and while most of them were already met – especially by those who had already targeted meeting Australian standards, usually because of an Australian parent or prescient head of finance – they have not had to demonstrate compliance with an active, engaged, local regulator.
In the past some insurers did not obtain a financial stability rating, and as a part of the relicensing process had to get one. That entailed visits from rating houses and providing lots of reports and answering questions. In some cases it meant obtaining additional capital in order to achieve a desired rating, often from within a corporate structure, or raising it from investors.
Then there was the RBNZ process.
That required a lot of interaction between insurers and the supervisor. Not all of it one way traffic either: this is a new role for the RBNZ and it has had to learn about its new charges, their business models, and structures in a lot of detail. Having heard people from RBNZ talk about the process, and heard insurers talk about it as well, and seen the guidance notes and discussion documents from the Bank, I believe the process has been rigorous and detailed.
So what has happened?
To the outsider, not much. There have been no big surprises in who has been granted a licence and who has not. All the mainstream suppliers have received licences. But what we do know is that some inactive businesses withdrew from the process of seeking a licence and the status of a number of businesses that were, in fact, in run-off mode (or managed close-down), has been clarified.
To those that know about the new supervision regime it is now clear that New Zealand is far more serious about ensuring good practice in supervising insurers than it has ever been.
That is a comforting thought to advisers who have to recommend product without claiming to be experts in assessing the financial stability of individual insurers. On the other hand, we did spot a website claiming that there was a ‘government guarantee’ of insurers – which is completely wrong – and that prompted the RBNZ to underline that even after all this effort, insurers can still fail.
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