In the paper, RBNZ proposes to introduce breach reporting requirements for material breaches, as well as significant changes to its powers to investigate and respond to potential offences under IPSA, and the thresholds for intervention in distressed insurers. The paper notes that RBNZ has not formed a fixed policy position on the issues discussed, and that the purpose of the paper is to raise issues, explore ideas, and seek input. It will therefore be important for stakeholders to make their voices heard. RBNZ seeks submissions by 20 May 2022.
IPSA imposes a number of prudential obligations on insurers, and creates a wide range of criminal offences for breach of those obligations. Directors of the insurer may be liable for offences committed by the insurer if (in broad terms) the offence took place with the director’s knowledge or consent. The offences are punishable by potentially significant fines and/or imprisonment for individuals, without any express power under IPSA to adopt less serious enforcement options.
While RBNZ has broad information gathering powers to investigate potential breaches of IPSA, including the power to obtain information or documents and to search premises, the only breach reporting requirements in IPSA relate to likely failures to maintain a solvency margin. Where RBNZ has reasonable grounds to suspect an insurer is in distress, for example where it is likely to fail to maintain a solvency margin, RBNZ has a wide range of powers to step in and manage the situation. Those powers include requiring an insurer to produce a report prepared by a person approved by RBNZ on the relevant matter, giving the insurer compulsory directions, removing or replacing a director, auditor, or appointed actuary, and directing an insurer to prepare and implement a recovery plan.
Issues raised by the paper
The paper asks more than 40 questions across a range of topics relating to enforcement powers and distress management. The key themes include:
- Introducing a breach reporting regime for material breaches.
- Broadening RBNZ’s information gathering powers, including a new power to conduct unannounced inspections, and making those powers apply to a broader range of entities than only licensed insurers (e.g. firms falsely holding themselves out as insurers).
- Considering whether the current penalty levels for offences are appropriate.
- Introducing a wider and more proportionate set of penalties for offences under IPSA, such as written warnings, infringement notices, and civil pecuniary penalties.
- Amending IPSA to expressly include distress management as one of its purposes.
- Requiring insurers proactively to plan for recovery in case they get into difficulties.
- Empowering RBNZ to direct insurers that are in distress not to renew existing policies.
- Potentially lowering the threshold for statutory management of an insurer.
- Whether RBNZ should have greater powers of management of an insurer under statutory management.
- Identifying concrete proposals for how RBNZ’s powers of intervention should increase as the solvency levels of an insurer decline, adopting a more graduated approach than the current triggers based on the solvency margin.
RBNZ seeks submissions by 20 May 2022. Bell Gully will be making a submission, and welcomes feedback from clients and other interested parties on the issues covered. We are also happy to help clients with their submissions.
RBNZ says that it will take account of the submissions it receives on this and the remaining aspects of its review of IPSA, which are expected to conclude in 2023. RBNZ will then publish an ‘omnibus’ consultation setting out its recommended reforms of IPSA, and seek Cabinet approval after that. Ultimately, RBNZ does not expect new primary legislation to be in place before the end of 2024.
If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully advisor.