Nearly 10 years ago, the Reserve Bank of New Zealand (RBNZ) began a multi-year review of the legislation governing the licensing and operation of insurers – the Insurance (Prudential Supervision) Act (IPSA) – and engaged in several rounds of industry consultation. Cabinet has now approved the RBNZ’s proposed amendments to IPSA.
An exposure draft of the proposed bill is expected to be released early next year for consultation, with the intention to introduce the legislation to Parliament in mid-2026. The target commencement date for the legislation is currently mid-2028.
The draft bill will contain a number of changes that have been the subject of the RBNZ’s prior consultations. However, the RBNZ has also recommended, and Cabinet has approved, new and unexpected changes. Many of these changes are fundamental to how the RBNZ and the industry operate, and the industry’s first chance to comment on those changes will be when the draft bill is released.
Key changes previously consulted on
The majority of the recommended amendments that have been approved by Cabinet were included in RBNZ’s final consultation on potential amendments to IPSA (as discussed in our previous article here). They include the following decisions:
- All New Zealand-incorporated insurers will need to be licensed even if they do not have New Zealand policyholders.
- Licensing requirements for overseas captive insurers and overseas reinsurers will be removed.
- A licensing regime for non-operating holding companies headquartered in New Zealand (even if some entities are overseas) may be introduced, if required.
- RBNZ will have the power to recommend that certain transactions are deemed to be insurance contracts.
- RBNZ will be able to impose restrictions on dividends to mitigate the risk of financial difficulties through intra-group transactions.
- RBNZ will be able to issue standards on governance, risk management, data and disclosure, outsourcing, connected exposures (related party transactions), actuarial advice, and distress management preparedness. The standards will be in secondary legislation, and therefore compliance will be mandatory, unlike the current guidance on some of these matters issued by RBNZ.
- Chief Risk Officers will become subject to the fit and proper persons regime.
- Prior approval from RBNZ will be required before appointing directors and relevant officers.
- Insurers will be required to self-report if they have information that could reasonably lead them to form the opinion that a relevant officer is not a fit and proper person.
- Statutory approval for significant transactions will be consolidated into one process.
- The RBNZ approval threshold for a change of control will be lowered from directly or indirectly obtaining 50% of voting rights to a threshold of 25% of voting rights or the ability to appoint at least 50% of directors.
- RBNZ will be given a range of new supervisory and enforcement powers, including in relation to information gathering, onsite inspections without notice, compelling directors and employees to answer questions under oath in an investigation, infringement notices, an ability to seek civil pecuniary penalties in Court, and increased criminal penalties.
- Insurers will be required to self-report material contraventions of prudential obligations.
- Increased distress management powers, including directing an insurer not to renew existing contracts.
- Wider rights of appeal from decisions by RBNZ.
Key new changes
Cabinet has also approved new changes, which have not yet been the subject of consultation. They include the following:
- RBNZ will be required to take account of new principles when exercising its powers. They include: maintaining the sustainability of the insurance market; protecting the interests of policyholders in dealing with a distressed insurer and ensuring that any failure does not significantly damage the financial system or economy; recognising the purpose of the IPSA is not to eliminate all risk of insurer failure and that the public is responsible for their own insurance decisions; maintaining competition within the sector; and avoiding unnecessary compliance costs.
- Instead of requiring branches of overseas insurers to hold assets in New Zealand, branches will need to be incorporated locally if they meet a specified size and importance threshold.
- RBNZ will be required to publish a framework for how it will take into account proportionality when developing standards for insurers.
- The Minister of Finance will be empowered to expand the scope of matters on which RBNZ can issue standards.
- RBNZ will be required to consult with affected parties before issuing standards.
- RBNZ will be able to recommend regulations be made to treat multi-cell captive insurers (i.e. insurers that cover the risk of multiple corporate groups but keep separate the assets and liabilities of each corporate group) as captive insurers under IPSA.
- Notification, rather than approval, will be required where a party obtains significant influence over an overseas insurer.
- Approval will be required where a licensed insurer acquires business from another insurer (whether licensed or not).
- RBNZ will be required to consult with the Financial Markets Authority before issuing or cancelling a licence, to promote a ’joined up’ approach between the prudential and conduct regulators.
Consultation on the exposure draft
As noted above, an exposure draft of the bill is expected to be released in early 2026 for consultation, with the intention to introduce the legislation in mid-2026. This will mean a relatively short period of time for consultation on the precise details of important changes.
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 adviser.
Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
