The Reserve Bank of New Zealand (RBNZ) is aiming for 2028 to bring in substantial reforms of the Insurance (Prudential Supervision) Act (IPSA), with additional standards on more than seven matters issued between 2028 and 2032.
On 15 April this year, the RBNZ issued its Exposure Draft for the IPSA as the latest step in its long running consultation, with responses closing 28 August 2026.
It is likely no accident that timing will come amidst the next Financial Stability Assessment Programme (FSAP) assessment in New Zealand (with our last FSAP, in 2016, triggering many of the topics for reform).
Summary of key changes
The IPSA reforms aim to transform our ‘light-touch’ insurance regulatory regime into a more intensive, risk-based approach more closely comparable to the United Kingdom, European Union and Australian regimes.
1. New proportionality principle:
When developing its proportionality framework, the RBNZ will be required to have regard to the size, nature, and systemic importance of the insurer.
2. Amendments to licensing perimeter:
Exempting offshore captive insurers and reinsurers who are already subject to equivalent regulatory oversight in their home jurisdictions. This proposal would enable New Zealand to better secure reinsurance capital, which is a policy priority for prudential regulation.
3. RBNZ has the power to issue Standards on more than seven matters:
- Governance: Board composition and responsibilities, and whether an insurer must be incorporated in New Zealand. The Standards are yet to clarify how this interacts with APRA’s CPS 320, which will be a point of contention for many New Zealand licensed insurers.
- Solvency standard: A new ‘Ladder of Intervention Framework’ involving a graduated approach to solvency assessment, with the intensity of regulatory scrutiny increasing as capital levels decrease.
- Risk management: Outline of policies and processes for specific risks the Standards will enumerate. The Exposure Draft provides no indication of whether the RBNZ will require insurers to complete an internal capital adequacy assessment process.
- Disclosure of information.
- Contingency and recovery plans: Covers regulations during recovery and resolution.
- Actuarial advice.
- Other matters, including outsourcing and related party exposures.
- Any matters prescribed in regulations.
4. Enhance enforcement powers:
The RBNZ will have the power to conduct onsite inspections without notice. The proposed wording in the Exposure Draft diverts from standard international practice. For example, Australia’s Insurance Act 1973 requires APRA to serve a written show-cause notice giving the insurer an opportunity within a confined 14-day window to explain why an investigation should not proceed. The enhanced enforcement powers align with the RBNZ’s intention to impose greater regulatory scrutiny over licensed insurers.
5. New declaratory power:
A significant change to IPSA is the proposed declaratory power allowing the RBNZ to declare borderline products of insurance a ‘contract of insurance’ under s 7. In its current wording, the power is broad and discretionary in scope. If the declaratory power proceeds as currently drafted, regulated entities will need to review their current product offerings and assess any implications of a declaration that a product is a contract of insurance.
6. Pre-approvals regime:
The Exposure Draft proposes a requirement for insurers to gain the RBNZ’s prior approval for relevant appointments. The Exposure Draft includes the introduction of a role not previously required under IPSA: the Chief Risk Officer (CRO). As drafted, the proposal sets CRO appointments as a minimum requirement.
7. Distress management:
The ‘Contingency and Recovery Plans’ Standard does not define the ‘Recovery Plan’ obligation. The definitional architecture in IPSA does not specify regulatory triggers or prescribed thresholds for when an insurer moves from ‘Recovery’ to ‘Resolution'. The ‘Remedial Plan’ and ‘Remedial Notice’ introduce novel concepts, creating a new obligation for insurers to give the RBNZ a plan setting out actions it will take to minimise contraventions of licence conditions, Standards, or IPSA requirements.
New solvency margins
The Exposure Draft introduces significant changes to distress management and reporting processes. The proposed definitions for ‘failing to maintain a solvency margin’ and ‘failing to maintain a prudential margin’ do not clarify the position for insurers operating above the Minimum Capital Requirement but below the Prudential Capital Requirement (PCR).
Insurers should be aware that the definitional architecture in the Exposure Draft diverges from generic ladder of intervention frameworks. The RBNZ has not adopted labels with which appointed actuaries will be familiar. For example, APRA sets the PCR as a regulatory minimum, with any breach engaging supervisory intervention. The current Cabinet proposal sets the ‘solvency margin’ as the early warning trigger, with the PCR operating below that.
It will be important for insurers to engage closely with their appointed actuaries to understand potential changes to their reporting obligations.
What’s next?
The RBNZ has not yet finalised the detailed timeline and transition arrangements for implementing the changes to IPSA. The first step would be enacting the reform legislation in 2027 to come into force in 2028. Long-term implementation timeframes will depend on how much Cabinet under the next Government prioritises IPSA reform and the outcome of the consultation.
Remaining cognisant of the RBNZ’s reform proposals, and any timelines for IPSA reform, is imperative to adapting and adjusting to the new regulatory regime.
Insurers should take note of any adjustments to the Draft following the Consultation process, and then monitor progression of the reform Bill resulting from it. The Parliament Select Committee will effectively be the last opportunity to correct any unintended impacts.
This article was co-authored by Sarah Waller, a solicitor in our Financial Services team.
