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Reserve Bank to licence all insurers

17 December 2007 Media Statement

Reserve Bank to licence all insurers

All insurance providers – including life, health and general insurance – will have to be licensed by the Reserve Bank under a new prudential regulatory framework announced today by Finance Minister Michael Cullen.

“This is a major step forward in the regulation of the insurance sector and the result of a thorough review of regulations spanning two years. The proposals will encourage the maintenance of a sound and efficient insurance sector that promotes confidence among policyholders,” said Dr Cullen.

“The purpose of licensing is to ensure that insurers are ‘fit for business’ by demonstrating their capacity to manage the business they undertake, identify and manage their risks effectively, and have sufficient financial strength.

“The new legislation and associated details of the new regulatory framework will take time to implement. Legislation will be introduced in 2008, and is expected to be brought into force at some point in 2010.”

As the prudential regulator and supervisor of insurance providers, the Reserve Bank will be the authority that:

• licenses and de-licenses insurers, subject to appropriate checks and balances;
• prescribes and enforces compliance with the regulatory prudential requirements;
• applies fit and proper requirements to directors and senior managers;
• can intervene in the event of a situation of distress or the potential failure of a licensed insurer.

Financial strength ratings, from an approved ratings agency, will be mandatory for insurers. The costs of mandatory ratings are expected to be modest for most insurers relative to their size. However, as the costs could be more significant for very small providers, insurers with annual gross premium income under $5 million will be exempt from the rating requirements, except for property and disaster insurers who are already required to obtain a rating.

“Ratings provide a powerful tool to assist policyholders, brokers and analysts to distinguish between lower and higher risk insurers and they reduce the need for a more intrusive form of regulation and supervision,” said Dr Cullen.

Detailed information on key features of the new arrangements is available on the Reserve Bank’s website (www.rbnz.govt.nz).

ENDS

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