New regulatory initiatives
Solvency Return: response to feedback
Following the earlier communication relating to Solvency Returns, the Bank has received feedback on some aspects of the initial return, which is required to be submitted by 31 March 2012.
We required that the return be signed out by two directors (or the New Zealand Chief Executive Officer in the case of an overseas insurer). We also specified that this return be calculated for the year-end or half-year balance date falling between 1 July 2011 and 31 December 2011.
Some insurers have expressed the view that the requirement for director sign-off is unduly onerous for this first return, when insurers may have been working on the basis that this would not be needed as early as 31 March. Similarly, if the required balance date is a half-year one, some insurers’ half-year accounts are not prepared in such a way as to be suitable for supporting the preparation of a Solvency Return. To get 2011 half-year accounts into a suitable form might involve considerable cost.
The Bank has some sympathy for these views, and in response to the feedback, has amended the requirements as follows:
Our strong preference is to get insurers’ Boards involved in solvency monitoring at an early stage. However, if an insurer believes that this is not practical for the initial 31 March return, we are prepared to accept sign-off from the CEO instead.
Similarly, we have a strong preference for the 31 March return to be based on reasonably up-to-date information. However, if the balance date in the second half of 2011 is a half-year date for a given insurer, and the half-year accounts are not in an appropriate format for use in the Solvency Return, then we can accept the return based on the year-end balance date in the first half of 2011. If this option is chosen, the signatories to the 31 March return (CEO or Directors) will need to supply the Bank with either a statement that the solvency margin would not have materially changed in the six months following the balance date used, or an estimate of what the solvency margin would be at that date, if materially different to the figure supplied.
Solvency Return
As part of the licensing process a Solvency Return (XLS 334KB) is provided for completion by insurers. All insurers are required to complete this return, except those whose business will run-off before 7 September 2013. New Zealand branches of overseas insurers are requested to prepare this first return using New Zealand solvency standards on a one-off basis (supplemented by separate evidence of the compliance of the company as a whole with the home country’s solvency/capital adequacy regime).
Timing: Please complete the first return by 31 March 2012. The return, together with the supporting information, should be signed out by two directors (or the New Zealand Chief Executive Officer in the case of an overseas insurer) and delivered using the secure facility on our website (refer to the ‘Instructions’ page within the return). Subsequent returns should be submitted half-yearly.
Balance date: Use the insurer’s latest year-end or half-year balance date between 1 July 2011 and 31 December 2011.
Format of Solvency Return: The return requests the key balances within the solvency calculation and provides space for explanations and summary workings to support the key balances. Comments are welcome on any aspect of the return including this flexible format (as distinct from a more prescriptive template). The format of the ongoing return will be refined going forward.
Supporting information: We are seeking sufficient supporting information, but without too much detail. Please send us the financial statements used, together with any summary information which will assist the Bank in understanding the key balances. This first return does not need to be audited.
Further instructions are included throughout the return.
Statutory fund regulations
The Insurance (Prudential Supervision) Act 2010 (“IPSA”), at Subpart 3 of Part 2, outlines the requirement for life insurers to establish and maintain statutory funds. At section 237(l) to 237(s) IPSA empowers the issue of regulations in respect of statutory funds for life insurers.
The draft statutory fund regulations (PDF 207KB) (or, in certain cases, a discussion relevant to certain regulations) are released for stakeholder consultation. Comments are invited in respect of legal, drafting and operational issues relating to this consultation. Please note that the final wording of the regulations will be established following completion of the consultation and may vary from what is shown here.
If you wish to submit comment on these draft statutory fund regulations and the matters that are discussed please send your responses to Richard.Dean@rbnz.govt.nz or Victoria.Learmonth@rbnz.govt.nz. The closing date for responses to this consultation will be Friday, 10 February 2012. As it is our intention to consider consultation responses and release the statutory fund regulations by Wednesday, 7 March 2012, the closing date for this consultation will not be extended.
Solvency standards
Solvency Standard for Non-life Insurer in Run-off:
In February 2012 the Reserve Bank released a consultation draft of the Solvency Standard for Non-life Insurance Business in Run-off.
Following consultation the Bank has issued the Solvency Standard for Non-life Insurance Business in Run-off (PDF 246KB). This Standard was notified in the New Zealand Gazette on Thursday, 12 April 2012.
Solvency standards:
The solvency standards are located on the `Regulation’ page.
