The Reserve Bank of New Zealand (RBNZ) has recently released a suite of Cabinet papers through which Cabinet has agreed to a set of policy recommendations to amend the Insurance (Prudential Supervision) Act 2010 (IPSA). These Cabinet decisions move forward the IPSA review, which commenced in 2016, with RBNZ now proposing to release an exposure draft of the IPSA amendment bill for public consultation in the first quarter of 2026, with a view to the amendments coming into force in mid-2028.
While not a complete overhaul of insurance prudential supervision, the amendments will introduce significant new requirements. Insurers should carefully review the changes to understand how they will be impacted, including by the major changes to licensing requirements, local incorporation requirements, new standards (including governance, outsourcing, etc.) and the implications of the proposed changes to the RBNZ's supervision and enforcement powers – as well as considering resource allocation during a busy period of regulatory change.
Scope of reforms
The principal Cabinet Paper, "Modernising the Insurance (Prudential Supervision) Act 2010", sets out a number of policy proposals that will guide the drafting of the IPSA bill, which we summarise below, with the Minister specifically balancing policy considerations of promoting resilience, promoting efficiency and ensuring greater consistency with international best practice. These policy proposals in the Cabinet Paper are supplemented by additional detailed discussion in the Appendix: Proposal for amendments to IPSA.
Purpose and principles
The purpose of the regime is intended to remain the same, in promoting a sound and efficient insurance sector and promoting public confidence in the insurance sector. However, Cabinet has decided that two additional principles that RBNZ must have regard to in administering the regime should be introduced: taking a proportionate approach to regulation and supervision; and maintaining awareness of international guidance and standards. In addition, Cabinet has recommended RBNZ should be required to prepare and publish a proportionality framework for standards under IPSA, similar to the equivalent requirement under the Deposit Takers Act 2023 (DTA).
Adjusting the regulatory scope
Cabinet has determined to implement a range of changes to the regulatory perimeter of the IPSA regime. These proposals include:
- Requiring all New Zealand-incorporated insurers to be licensed, whether or not they have New Zealand policyholders
- Removing licensing requirements for overseas captive insurers and overseas entities that only act as reinsurers
- Introducing a new power for RBNZ to recommend regulations to be made deeming certain transactions as insurance contracts, or treating multi-cell captive insurers (ie, insurers that cover the risk of multiple corporate groups) to be captive insurers under IPSA
- Requiring overseas insurers operating through branches to locally incorporate if they meet specified size and importance thresholds
- Introducing a licensing regime for non-operating holding companies of insurers that are headquartered in New Zealand, to enable 'group supervision' by RBNZ.
Solvency
Cabinet has approved a more graduated approach to solvency standards than is currently the case under IPSA, including:
- Allowing for more than one control level under IPSA with RBNZ powers to be activated at different levels with levels set by solvency standards
- Introducing powers for the RBNZ to impose dividend restrictions on licensed insurers
- Introducing a default solvency margin into IPSA (rather than retaining it within individual licence conditions).
New standards
The Cabinet has approved RBNZ to be able to issue new standards, in addition to the current solvency and fit and proper standards, covering a broader range of prudential requirements. It is proposed that these new standards will relate to:
- Governance, including board composition and responsibilities
- Risk management, including policies and processes for specific risks
- Data and disclosure of information
- Licensed insurers’ outsourcing arrangements
- Connected exposures (related party transactions)
- Actuarial advice
- Distress management preparedness
- Other matters as considered necessary or desirable to achieve the purposes of IPSA (if approved by regulation).
Standards will be developed after relevant empowering amendments are made to IPSA, through a separate process of consultation with stakeholders.
Fit and proper requirements
Cabinet has proposed to extend fit and proper requirements to chief risk officers, and to require RBNZ approval of directors and relevant officers (CEO, CFO, CRO and appointed actuaries), which must be decided within 20 business days. Licensed insurers will also be required to notify the RBNZ of any fit and proper concerns.
Simplifying regulatory approvals
Cabinet has proposed to simplify and streamline the regulatory approvals process under IPSA for transactions involving insurance businesses and to align more closely with similar regulatory frameworks. This includes replacing existing separate approvals processes for specific transaction types with one set of provisions to apply to all significant transactions. Amongst other proposed changes, overseas insurers will only need to notify RBNZ in respect of certain changes to voting rights or ability to appoint directors; the RBNZ threshold for approval or notification of change of control will also be lowered from 50% to 25% of voting rights (or ability to appoint at least 50% of directors); approval will also be required where a licensed insurer acquires a business from a non-licensed insurer.
Graduated supervisory powers
Cabinet have agreed to provide RBNZ with a broader set of tools for monitoring the financial health of insurers, including extending RBNZ's information-gathering powers and introducing warrantless without-notice onsite inspection powers. In addition, the proposals include enabling investigations under oath, introducing a breach reporting regime for licensed insurers to monitor compliance and report material contraventions, introducing a power to require licensed insurers to publish RBNZ warnings and clarification of RBNZ's powers to issue directions to associated persons of failed insurers.
Enforcement powers
Cabinet also proposes to introduce additional enforcement powers to provide the RBNZ with the ability to respond proportionately to varying degrees of non-compliance: RBNZ is set to receive powers to issue remediation notices and infringement notices (for lower-level breaches) and accept enforceable undertakings from licensed insurers and other persons. Civil pecuniary penalties are set to be introduced to replace lower tier criminal penalties, and maximum penalties for criminal offences under IPSA will be updated.
Adjusting distress management regime
Cabinet has proposed to change aspects of the IPSA distress management regime to improve the RBNZ's powers and to align with similar regimes such as the DTA and the Financial Market Infrastructures Act 2021. These changes would add additional distress management provisions to IPSA and designate the RBNZ as the resolution authority under IPSA, replicating provisions in the DTA. The changes will also allow the RBNZ to direct a licensed insurer not to renew policies (having regard to policyholder interests), modify current moratorium provisions (in relation to counterparty termination/close-out rights for service providers and derivatives counterparties) and broaden the statutory management trigger conditions to include where the failure of the insurer may cause significant damage to the availability of insurance or the interests of policyholders in a geographical area or to a particular group of persons. The proposals also include the introduction of a Ministerial direction power to direct use of public funds in the event of an entity failure.
Other amendments
Other amendments include requiring RBNZ to consult with the Financial Markets Authority before cancelling a licence or making approvals under IPSA, as well as aligning appeal rights under IPSA with those in the DTA.
Our thoughts
The IPSA review will now be another closely watched regulatory development for insurers, coming as it is during the commencement period of the Contracts of Insurance Act changes. Insurers will need to understand the impact of these proposed changes on their businesses in order to effectively plan and resource to respond during an increasingly busy period of regulatory change.
If you would like to discuss any aspects of the IPSA reforms, or related reforms such as for the Contracts of Insurance Act, please get in touch with our financial services team.
This article was prepared by Andrew Suggate (senior associate) and Janet Liu (senior solicitor).
