Kaye Nikki: Insurance (Prudential Supervision) Amendment Bill — First ReadingText is incorporated into the Bound VolumeKaye Nikki: Insurance (Prudential Supervision) Amendment Bill — First Reading[Sitting date: 08 May 2013. Volume:689;Page:9832. Text is incorporated into the Bound Volume.]Hon NIKKI KAYE (Minister for Food Safety) on behalf of theMinister of Finance: I moveThat the Insurance (Prudential Supervision) Amendment Bill be now read a first time. At the appropriate time I intend to move that this bill be referred to the Finance and Expenditure Committee and that the committee present its final report on or before 13 September 2013.The amendment bill contains amendments to the Insurance (Prudential Supervision) Act 2010 in nine areas and one consequential amendment to the Reserve Bank of New Zealand Act 1989. It aims to reduce or eliminate unnecessary compliance costs and address technical issues identified during provisional licensing to ensure a smooth transition to full licensing of insurers.By way of background the Insurance (Prudential Supervision) Act which received the Royal assent on 7 September 2010 establishes a licensing and prudential supervision regime for insurers carrying on insurance business in New Zealand. The Act represents a significant step forward in terms of delivering comprehensive prudential regulation of insurers carrying on insurance business in New Zealand. The Act provides for a transitional period towards full compliance that runs through to 7 September 2013. Most insurers carrying on business during the transitional period are operating under a provisional licence whereby the full effect of the Act is delayed. At the end of the transitional period all provisional licences will have expired.The Reserve Bank has reviewed the operations of the Act during the transitional period. Although the Act has proved to be generally effective and robust it is not unexpected that some provisions have been identified as appropriate for reform. In particular two provisions in the Act could expose insurers or the Reserve Bank to operational complications at the end of the transitional period and for this reason these amendments would ideally come into force before 7 September 2013. The amendment bill proposes to extend the term of provisional licences of insurers who enter into an insolvency procedure before 7 September 2013. At this date insurers that are subject to an insolvency procedure will not qualify for a full licence. The inability to extend a provisional licence will result in the insurer not being subject to distress management provisions prescribed under the Act and the Reserve Bank may wish to continue to have a role for regulatory purposes.The second proposal relates to interim financial reporting requirements. Some overseas insurers are concerned about the cost of complying with half-yearly insurer and group financial statements prepared in accordance with New Zealand generally accepted accounting practice where branches and subsidiaries are operated in a number of countries. The proposed amendment is to allow the Reserve Bank to specify another basis for reporting by overseas insurers. For example in appropriate cases overseas insurers may submit half-yearly insurer and group regulatory financial reports in accordance with home jurisdiction requirements. It is anticipated that the Reserve Bank would receive the same information provided to the insurer’s home regulator.Two other proposals are expected to reduce or eliminate unnecessary compliance costs. Certain provisions under the Act have been identified to be too onerous in circumstances where policy holders are not expected to gain material benefits or additional protection even if the insurer complies with the requirements. The first of these allows the Reserve Bank to exempt an insurer that is running off its liabilities from the requirement to have a current financial strength rating. Often there will be limited public benefit for an insurer to hold a financial strength rating where it is required to cease to enter into new contracts of insurance. The second clarifies that in respect of contracts of insurance that renew more frequently than annually disclosure in writing of the insurer’s financial strength rating to the policy holder will be made on at least an annual basis rather than on every renewal. This proposal would stand in addition to provisions under the Act requiring the insurer to give notice of a rating downgrade to the public or policy holder within a prescribed period and to disclose its current financial strength rating on its internet site.The amendment bill also takes the opportunity to address technical issues—for example providing a limitation period of 5 years within which the Reserve Bank may file a charging document against an insurer that has committed an offence. A limitation period of 5 years for all types of offences against the Act is considered appropriate to improve consistency in the enforcement of the Act to reflect the nature of operation and risks in the insurance sector and to improve consistency with provisions in other statutes administered by the Reserve Bank.The amendment bill also empowers the Reserve Bank to publish and maintain on its website an official register of licensed insurers with additional content to be determined by regulations. This will result in a consequential amendment to the Reserve Bank of New Zealand Act 1989 where the current provision is confined to the determination of form and will set a common standard across the Insurance (Prudential Supervision) Act and the Reserve Bank of New Zealand Act 1989.In conclusion the proposals included in the amendment bill will enhance the effectiveness of the Insurance (Prudential Supervision) Act without the imposition of unnecessary compliance costs on insurers. To date there has been general industry acceptance of the Act. The amendment bill does not involve significant changes to existing policy and is expected to continue to benefit from the industry’s support.