English Bill: Insurance (Prudential Supervision) Bill — Second Reading 
English Bill: Insurance (Prudential Supervision) Bill — Second Reading 
[Volume:665;Page:12857] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Insurance (Prudential Supervision) Bill be now read a second time 
. I want to begin by thanking the members of the Finance and Expenditure Committee for their prompt but rigorous handling of the bill. This is fairly complex legislation that brings prudential regulation to an industry that has not previously been legally subject to such requirements. The bill has been widely consulted on with stakeholders prior to the select committee which received and considered 57 submissions and heard 31. Not unexpectedly the submissions covered a broad range of issues. The committee is to be congratulated on the depth of its analysis and its unanimous recommendations. I think that unanimity may well have come from the fact that this Parliament has spent a good deal of time in the last 3 or 4 years under the previous Government and this one updating the regulation of the whole financial sector. 
The key purposes of the bill are to promote the maintenance of a sound and efficient insurance sector and to promote public confidence in that sector. It will achieve this through the establishment of a framework for the prudential regulation of insurers including the licensing of insurers; imposing prudential requirements on them; providing for the supervision by the Reserve Bank of insurers’ compliance; and conferring certain powers on the Reserve Bank to act in respect of insurers in financial distress or other difficulties. The bill focuses on the licensing and prudential regulation of insurers carrying out business in New Zealand. It does not offer New Zealand licensing to insurers that do not carry on or propose to carry on business in New Zealand or that do not have New Zealand policyholders. 
Overall the provisions and requirements of the bill are generally aligned with established worldwide insurance regulatory practice and despite imposing new requirements on insurers they are not radical in comparison with other measures internationally. The industry has generally acknowledged this approach and as a result is in general support of the regulatory model in the bill. Compliance costs associated with this bill are not considered to be high with a largely self-administering approach being applicable to compliant insurers. 
The bill contains a strong emphasis on the obligations and accountability of directors and senior officers. The committee has recommended a number of practical refinements to clarify the scope and application of the bill. Refinements are recommended to the key definitions of “contract of insurance” and “carrying on insurance business” in order to avoid the unintentional capture of certain activities that are outside the scope of the bill such as discretionary mutual providers and trade associations and union groups that provide limited insurance coverage that is incidental to the primary purpose of those organisations. In addition and as a means of ensuring that compliance costs are not disproportionate for very small insurers limited exemptions from certain compliance requirements are recommended for existing very small insurers with premium levels below a specified level and for friendly society insurers. 
Considerable thought has been applied to the treatment under the bill of overseas insurers carrying on insurance business in New Zealand. The bill will continue to allow overseas insurers to operate New Zealand branches. The Reserve Bank will publish a listing of overseas regulatory jurisdictions approved as satisfactory for overseas insurers seeking the home host exemptions potentially available to them in respect of the fit and proper requirements the solvency standards and the statutory fund requirements. The approval of an overseas regulatory jurisdiction as satisfactory will be conditional upon the regulatory standards in the home overseas jurisdiction being comparable with the New Zealand standards. 
In respect of the solvency standards that will attach to the bill the committee has recommended that the Reserve Bank must have regard to similar standards in relevant offshore jurisdictions for the purpose of ensuring that solvency standards do not apply in an unreasonable manner as a result of an insurer’s country of incorporation whether that is here or overseas. 
In addition the bill now provides for matters relating to minimum capital requirements for insurers. Recommended changes to the licensing requirements within the bill include a requirement that all licensed insurers must meet the qualified person criteria contained in section 13(a) of the Financial Service Providers (Registration and Dispute Resolution) Act regardless of whether or not the licensed insurer is required to register under that Act. 
With regard to the financial strength ratings of overseas insurers the bill now requires rating agencies to refer to any overseas policyholder preference that may apply. In addition the disclosure requirements relating to ratings have been amended slightly to make them more practicable and cost efficient. In areas such as fit and proper requirements and statutory funds requirements a reasonable amount of technical detail has been transferred from the bill to regulations. This will make the bill less complex as well as enabling more flexibility if future changes are required which is entirely possible with a new regulatory regime. 
A number of changes are recommended that are intended to improve the practicality and efficiency of the bill. These relate mainly to requirements in areas such as solvency standards statutory funds transfers and amalgamations and disclosure and confidentiality of information. 
There have also been a number of minor drafting changes. I will take this opportunity to signal my intention to introduce at an appropriate later stage a Supplementary Order Paper to deal with some minor technical drafting issues discovered since the bill was reported back and also to clarify the commencement provisions of the various sections of the bill. 
The enactment of this legislation will repeal a number of existing and outdated pieces of insurance legislation in New Zealand and it will remove inconsistent legislative application between different insurance sectors. It will bring New Zealand more into line with international standards and benchmarks and with expectations around the financial services sector. Although the New Zealand insurance industry is not considered to be an industry in distress this legislation is intended to ensure that the industry collectively and its insurers individually will be well positioned to manage such distress should such a situation arise in the future. It is pleasing to be part of a process that is regulating the sector ahead of a time of crisis or a time of distress by getting the Reserve Bank in place as a regulator and putting in a new framework for the individual insurers. 
I must pay a compliment to the industry. It has taken a constructive role in this process going back a number of years including under the previous Government which has helped to improve this legislation. I commend the bill to the House.