Against the backdrop of storms battering New Zealand, the Reserve Bank released for consultation last week the exposure draft of the Insurance (Prudential Supervision) Amendment Bill.
The timing is apt: the materials accompanying that release emphasise the significant benefits for individuals, society and the Crown of a sound insurance sector in transferring the cost of sudden and unexpected losses across the population, over time and across borders (via re-insurance). This risk transfer, the Reserve Bank reminds us, helps support a strong and resilient New Zealand economy and a stable financial system.
If enacted as is, the Bill will be a significant overhaul of insurance prudential regulation and will more closely align the insurance framework with the Deposit Takers Act (DTA) regime now being implemented for banks and other non-bank deposit takers.
The IPSA review began in 2016, paused between 2018 and 2020 while the Reserve Bank developed the DTA framework, and has now culminated in this exposure draft. Much of the content has been consulted on previously - with Cabinet materials released identifying which proposals industry has and has not supported.
Submissions close at 5pm on 7 July 2026. The Bill is expected to be introduced to Parliament in 2027, with a target commencement date of 1 July 2028. Reserve Bank standards which play a greater role under the new regime will then be developed progressively through to 2032.
The fundamentals within the Bill
Insurers would continue to need Reserve Bank licences. Existing licensed insurers would not need to re-license, but the licensing requirement is removed some entities and certain entities not currently required to hold a licence would be brought within scope.
All NZ-incorporated insurers would need to be licensed regardless of policyholder location, while overseas captive insurers and reinsurers would be exempt. Regulation for multi-cell captive insurers has been paused pending further policy work outside of the IPSA review. A new power would allow certain transactions to be declared insurance contracts by regulation - future-proofing IPSA for innovation.
A key change proposed by the Bill is the significant expansion of the Reserve Bank’s standard-making powers. New standards would cover governance, risk management, disclosure, outsourcing, related party exposures, actuarial advice, and resolution planning. The solvency standard would recognise both a prudential margin and a solvency margin, enabling more graduated intervention. The Bill will also allow standards to apply to New Zealand holding entities of licensed insurers.
If the Bill proceeds as drafted, it is not expected that standards would be made before Q4 2028. Insurers can, meanwhile, monitor the DTA standards being developed via the Reserve Bank’s website for an indication of the approach to expect.
Fit and proper requirements
The draft Bill proposes pre-approval for directors, CEOs, CFOs, CROs and appointed actuaries. Under the proposal, the Reserve Bank would be required to decide within 20 working days of receiving all relevant information. Insurers would also need to notify the Reserve Bank of fit and proper concerns about existing officers.
Notably, the draft Bill does not propose the same due diligence obligations on directors as within the DTA. However, individual liability could arise for personal involvement in contraventions.
Detailed fit and proper requirements will sit within standards. See, by way of illustration, the draft DTA Governance standard which is currently under consultation: Governance Standard draft Guidance.
The RBNZ's role
The Reserve Bank continues as the prudential regulator but with some increased coordination requirements. For example, it would need to consult the FMA before issuing or cancelling licences and on significant transactions.
Two new principles are proposed to guide Reserve Bank decision-making: proportionality in regulation, and awareness of international standards. Both would mirror the DTA. The Reserve Bank would be required to publish a proportionality framework explaining how it will apply these principles when developing standards. This is expected to be particularly important for smaller and specialist insurers. Again, existing DTA artefacts will be relevant here. For example, Proportionality Framework for developing standards under the Deposit Takers Act.
Enhanced supervisory and enforcement toolkit
Under the draft Bill, the Reserve Bank would gain a significantly expanded supervisory toolkit, aligned with the DTA and international practice, including:
- On-site inspections without notice (subject to some reasonableness safeguards).
- Breach reporting mechanisms requiring insurers to monitor compliance and report material contraventions.
- Extended information powers reaching unlicensed entities, plus power to require directors and employees to answer questions under oath in investigations.
- Power to require insurers to publish Reserve Bank warnings to policyholders
- Clarified direction powers over associated persons (such as parent companies) of failed insurers addressing issues that arose in the CBL case.
New enforcement tools would also provide a graduated response to non-compliance:
- Remediation notices requiring specific action to remedy breaches or a remediation plan.
- Infringement notices for low-level breaches (fees of $10,000 for bodies corporate, $1,000 for individuals) designed to deter without overburdening courts.
- Enforceable undertakings allowing binding commitments to remedial action a flexible middle ground between warnings and Court enforcement action.
- Civil pecuniary penalties (up to $2.5m for bodies corporate, $300,000 for individuals) replacing lower-tier criminal penalties.
- Updated criminal penalties for serious offences (up to $2.5m for bodies corporate and up to $300,000 or 18 months’ imprisonment for individuals). Mens rea requirements added for the most serious offences.
Appeals from Reserve Bank decisions
Appeal rights would be aligned with the DTA, allowing appeals to the High Court on questions of law.
Solvency
The draft Bill proposes multiple solvency control levels (to be set by standards), to enable a more graduated and risk-based approach to supervision. This was a key International Monetary Fund (2016) and Trowbridge-Scholtens (2019) recommendation.
The Reserve Bank's existing direction powers under IPSA would be bolstered to add an express power to impose dividend restrictions in distress or breach situations to mitigate the risk of financial difficulties through intra-group transactions. A default solvency margin of $0 would apply under IPSA, rather than that default position being specified in individual licence conditions as is the present position.
Regulatory approvals
The regulatory approvals framework would be streamlined and aligned with the DTA and Financial Markets Conduct Amendment Bill:
- A single ‘significant transaction’ regime would replace separate processes for change of control, corporate form changes, portfolio transfers and amalgamations.
- Approval thresholds would be lowered from 50% to 25% of voting rights (or ability to appoint 50% of directors).
- Overseas insurers would need only notify (not obtain approval) where another person obtains significant influence, recognising home jurisdiction regulation.
- Approval would be required where a licensed insurer acquires business from a non-licensed insurer.
Refined distress management provisions
The distress management regime would be substantially remodelled to align with the DTA and Financial Market Infrastructure Act frameworks:
- New statutory purposes would focus on policyholder protection, financial system stability, orderly resolution, and avoiding reliance on public money.
- The Reserve Bank would become resolution authority, accountable for outcomes. It could appoint a resolution manager (or act as one itself) and would need to supervise the process.
- Resolution thresholds would be broadened to include significant damage to insurance availability or policyholder interests in a geographical area or to a particular group. This recognises that insurer failures can have significant localised impact without systemic consequences.
- Direction powers would be extended to allow the Reserve Bank to direct insurers not to renew existing contracts which addresses a limitation exposed in prior distress situations.
- Resolution protections would include restrictions on exercising contractual termination rights solely due to resolution (ensuring critical services continue) and a short-term stay on derivatives close-out.
- The Minister of Finance will gain power to direct the Reserve Bank on managing risks to public funds if public money supports a resolution.
What insurers should do now
As above, submissions close 5pm, 7 July 2026. Please contact us if you would like to discuss any aspect of these proposed reforms or assistance with preparing a submission.