2 Comments 2 Commentsby Susan Edmunds
Richard Dean spoke to insurance company directors on behalf of Peter Brady yesterday.
The Reserve Bank has been responsible for regulating and supervising the New Zealand insurance sector since 2010.
Dean said the Bank’s approach would rest on three pillars: Self-discipline, market discipline and regulatory discipline.
Self-discipline would mean good governance, market discipline would be the influence of the market on insurers to operate prudently and regulatory discipline would come into force when the other two pillars were not sufficient to promote a sound and efficient insurance sector.
“Insurers are an integral part of New Zealand’s financial system and economy but in managing their own commercial imperatives, insurers will not typically consider the full range of implications for the wider financial system and economy," he said.
It was important that insurers had strong boards, Dean said.
“Responsibility and accountability for prudently running an insurance business rests primarily with the insurer’s board and senior management. The Reserve Bank wants to ensure that all insurers’ board arrangements and the collective skills of the directors are up to the task of overseeing the insurer’s activities. We want a board to continuously reflect in its actions and behaviours that it has control over governance, and particularly risk governance of the insurer. We have issued a Governance Guideline, to help insurers understand the Reserve Bank’s minimum expectation around independence. Our minimum expectations are that at least half of the directors will be independent; the board chair is to be independent; the audit committee chair is to be independent and not the same person as the board chair; and a majority of the audit committee is to be independent.”
The Reserve Bank would primarily take a risk-based approach to its supervisory role, he said.
“Risk-based supervision recognises that not all insurers are equally important from a risk perspective and that the supervisor can deliver most value by focussing its resources on the insurers that have the most impact on the economy, and on the risks that pose the greatest threat to the soundness and efficiency of the insurance sector.”
He said the Bank’s limited resources would be focused on insurers that were large or at risk of failure. “Insurers, and particularly directors and senior management, can expect that the Reserve Bank will hold them accountable for full compliance with the requirements of our regulations and the Insurance Prudential Supervision Act.”
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