Supervision of insurers

The Insurance Oversight team within the Prudential Supervision Department at the Reserve Bank is responsible for implementing the Reserve Bank's oversight and supervision of insurers. The new prudential supervision framework recognises that the Reserve Bank has an important role to play in ensuring a well functioning insurance sector in New Zealand.

Approach to supervision

Supervising insurance firms will be underpinned by a supervision regime that:

  • is consistent in its approach and philosophy to the Reserve Bank's other prudential supervision activities;
  • is outcomes focused;
  • avoids imposing unnecessary compliance costs on insurers; and
  • is risk based.

The Reserve Bank has given the following speeches on its approach to prudential supervision:

Insurers must be familiar with, and comply with, all their obligations under the Insurance (Prudential Supervision) Act 2010. These are monitored by the Reserve Bank, and situations of non-compliance will be investigated and enforced as appropriate.

Read the Insurance (Prudential Supervision) Act 2010 (The Act).

All licensed insurers are subject to supervisory oversight. The regulatory framework set out in the Act places responsibility and accountability for an insurance business primarily with the insurer’s board and senior management. Put differently, effective self-discipline and market-discipline are central to meeting the objectives of the Act. Supervisory activities will reinforce these disciplines. For example, in the context of self-discipline, directors and senior management of licensed insurers can expect that the Reserve Bank will hold them accountable for full compliance with regulatory requirements.

Risk based supervision

Supervisory resources are finite, and consistent with international best practice the Reserve Bank’s supervisory framework for financial institutions is risk based. In practical terms, this means that those licensed insurers of greatest significance to the purposes of the Act are to be subject to a greater intensity of supervision. A licensed insurer’s significance has been determined by gross policy & premium revenue and the absolute value of total insurance liabilities. A risk overlay is applied, with supervisory attention being concentrated on those licensed insurers having both the greatest risk of failure and significance to financial stability.

Licensed insurers have been divided into two groups.

Designated insurers

Licensed insurers requiring a greater intensity of supervision are assigned a designated supervisor. Supervision of these insurers is designed to enable early identification and resolution of prudential issues. In addition to compliance monitoring, supervisors build an understanding of the business model, strategy, governance and risks. Analysis and review of information provided to the Reserve Bank and regular and structured engagement will facilitate this including at least one annual prudential consultation meeting following end-of-year returns.

Portfolio managed insurers

A specialised team of supervisors within the Insurance Oversight team supervise all other licensed insurers on a portfolio basis. Prudential oversight is oriented towards ensuring requirements are met and that supervisory matters are resolved promptly. Our objective is to understand risk across the portfolio and to identify, at a high-level, risks or issues affecting groups of licensed insurers or market segments. Engagement is prioritised by need and in response to events and issues. Regular newsletters and industry engagement provide an opportunity for portfolio-managed insurers to maintain regular contact with the Reserve Bank.

Guidelines and other approval forms
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Please refer to the following guidelines produced by the Reserve Bank to assist licensed insurers in understanding the supervision requirements of the Act and requirements for licensing.
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These forms are to be completed by licensed insurers when applying for Section 6 relevant officers approvals or material change approvals for a Fit and Proper Policy or a Risk Management Programme. These forms should be submitted to the Reserve Bank in readable PDF format.

Catastrophe risk survey 2016

The Reserve Bank conducted a brief survey of licensed insurers on their processes and governance of assessing their catastrophe exposures. Insurers that were issued with a section 121 notice for the survey were required to complete the Catastrophe Risk Survey 2016 form.

Download the Catastrophe Risk Survey 2016 form (XLS 182KB).

Catastrophe claims return

The experience of the Canterbury earthquakes has highlighted the importance of regularly monitoring claims and reinsurance positions for significant catastrophe events as part of prudential supervision.

The Reserve Bank has modified existing reporting for the Canterbury earthquakes to add the Kaikoura earthquake to its monitoring of relevant insurers. Property insurers will be issued with a section 121 notice for the updated reporting requirements for this return.

The frequency of reporting is tailored based on the stability of claims estimates and the actual or potential significance of each event. For example initial reporting of Kaikoura earthquake will generally be monthly and revert to quarterly as claims estimates become more reliable. There is provision for resubmission if a valuation results in a material movement in estimates after the original submission. We think this provides a balance between compliance costs and our prudential monitoring needs.

If there are further significant catastrophe events in future, the reporting requirements will be updated. This includes updates to which insurers are required to report based on the relevancy of each event.

Download the Catastrophe claims return 2016 (XLS 165KB)