Featured Product

    RBNZ Consults on Aspects of Insurance Act, Solvency Standards & IFRS17

    November 30, 2020

    RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards. The consultation on IPSA is concerned with the broad scope of the entities and activities that should be covered by the regulatory net of IPSA. This consultation is the first in a series of five consultations that will cover different aspects of insurance regulation in New Zealand, as part of the overall review process. These consultations will take place during 2020-2022, with policy decisions and new legislation expected during 2023-2024. The second consultation, which is on Insurance Solvency Standards, looks at how the standards are structured and applied to insurers as well as seeks views on how these standards can accommodate the new IFRS 17 accounting standard for insurance contracts. The required level of capital will be consulted on at a later stage. Both the consultations are open until February 18, 2021.

    Consultation on Insurance Prudential Supervision Act 

    In 2017, RBNZ had commenced a review of IPSA. The first stage of the review, which comprised identification of issues at a high level and an initial public consultation process, was completed in 2017. This consultation paper marks the beginning of a second stage of the review of IPSA. In this stage, RBNZ will work through each of the 11 modules set out in the 2017 consultation paper, seeking feedback on specific options for reforming the existing legislation. This paper, however, deals with two modules; one module is on the scope of legislation and it discusses whether the legislation applies to the appropriate range of entities; the other module concerns overseas insurers and it details treatment of branches and overseas insurers. The remaining modules will be grouped together pragmatically in ways that ensure, where possible, related and interacting issues are dealt with in the same consultation. RBNZ expects these subsequent papers to be issued during 2021 and 2022.

    This consultation paper on IPSA discusses whether the definition of insurance contracts remains sufficiently broad to cover new forms of business and whether it is clear enough to give industry the guidance it needs. It also invites stakeholders to identify any places in which they think the boundary of "insurance business" is incorrectly drawn by the current framework. The paper also discusses whether IPSA should regulate New Zealand-based insurers and reinsurers that issue all their policies overseas. Additionally, the paper explores how the balance of risks is struck in the current legislation and invites stakeholders to consider whether that balance remains appropriate. The paper goes on to ask whether IPSA needs tighter coverage of reinsurance or whether insurers should be under increased obligations to monitor and report on their risk assessment of reinsurance arrangements. Finally, the paper moves on from the entities captured by IPSA to discuss issues about how entities’ corporate and legal form affects regulations. 

    Consultation on Insurance Solvency Standards 

    The consultation on Insurance Solvency Standards looks at a series of technical issues concerning how insurance companies calculate their solvency capital requirements. In this document RBNZ explores the possibility of having a single framework apply to both life and non-life business. In October 2020, RBNZ announced the start of the Solvency Standards Review alongside the IPSA Review. It is timely to review the standards to ensure that they are robust and fit for purpose. The review will be divided into two stages. The first stage (now underway) will address structural changes and other issues that require immediate attention (including IFRS 17). The second stage will address the determination of individual components of the solvency requirements (asset risks, liability risks, other components). RBNZ will introduce interim standards at the end of the first stage and final standards at the end of the second stage. In conducting the review, RBNZ will take into account efficiency considerations from the industry.

    This consultation paper on Insurance Solvency Standards relates to the first stage of the review. It is concerned with the issues that shape the standard’s fundamental structure and nature. While IPSA provides general purposes and principles to govern regulation and supervisory activity and empowers the solvency standards, it provides no specific purpose for holding regulatory capital. RBNZ proposes that the purpose of holding regulatory capital is to ensure that, in adversity, an insurer’s obligations to policyholders will continue to be met in full as they fall due. This consultation also seeks views on whether:

    • A total balance sheet approach should be adopted to capture second-order effects and balance sheet interactions
    • Certain “sectorally important” insurers are critical to the functioning of financial system of New Zealand and  should be treated differently for capital purposes compared to the “non-sectorally important” insurers

    The consultation paper highlights that RBNX is exploring the possibility of using a “standardized balance sheet” structure as part of its response to IFRS 17. This new accounting standard is expected to have a material impact on an insurer’s balance sheet. In particular, from a New Zealand perspective there is likely to be a number of areas requiring judgment to be exercised, leading to inconsistent results across the industry. As the solvency requirements are based on the accounting balance sheet, it follows that they may be similarly affected. To minimize any unintended consequences,  it is necessary to fully consider and understand the extent to which IFRS 17 will impact the solvency position and the potential avenues available to respond to IFRS 17.

     

    Related Links

    Comment Due Date: February 18, 2021

    Keywords: Asia Pacific, New Zealand, Insurance, IPSA, IFRS 17, Insurance Contracts, Solvency Capital Requirement, Insurance Prudential Supervision, RBNZ

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821