1. 1 Insurance Contracts Bill Richard Clarke QC October 2005

2. 2 Law Commission Report on Life Insurance Law Commission Report of November 2004 Law Commission Report of November 2004 recommended new regulatory regime for life insurance, to replace Life Insurance Act 1908 recommended new regulatory regime for life insurance, to replace Life Insurance Act 1908 discussed application of new regime to all insurance products discussed application of new regime to all insurance products Report being considered by MED as part of new review of Financial Products and Providers Report being considered by MED as part of new review of Financial Products and Providers Results of new review planned for enactment in 2008 Results of new review planned for enactment in 2008

3. 3 Approach of Law Commission Same regulatory regime should apply to all publicly offered financial products, whether of an investment or insurance nature Same regulatory regime should apply to all publicly offered financial products, whether of an investment or insurance nature Investment and insurance are variations within the spectrum of maintaining and enhancing a persons financial circumstances Investment and insurance are variations within the spectrum of maintaining and enhancing a persons financial circumstances

4. 4 Approach of Law Commission NZ regulation of investment and insurance has developed in a very piecemeal way. For example: NZ regulation of investment and insurance has developed in a very piecemeal way. For example: Companies Act prospectus provisions, Protection of Depositors Act and Syndicates Act amalgamated into Securities Act in 1970s Companies Act prospectus provisions, Protection of Depositors Act and Syndicates Act amalgamated into Securities Act in 1970s Extension of Securities Act to banks, superannuation, life insurance, and unit trusts in 1990s Extension of Securities Act to banks, superannuation, life insurance, and unit trusts in 1990s Securities Markets Act created over last 20 years Securities Markets Act created over last 20 years Companies Act financial disclosure provisions moved to Financial Reporting Act in 1990s Companies Act financial disclosure provisions moved to Financial Reporting Act in 1990s Separate Acts still exist for unit trusts, superannuation, life insurance and general insurance Separate Acts still exist for unit trusts, superannuation, life insurance and general insurance

5. 5 Approach of Law Commission Result is a mixture of activity based (e.g. Securities Act) and product based (e.g. Unit Trusts Act) legislation which: Result is a mixture of activity based (e.g. Securities Act) and product based (e.g. Unit Trusts Act) legislation which: is inconsistent in many respects is inconsistent in many respects is often outdated is often outdated strictly regulates some products (e.g. equity and debt securities) but leaves other products largely unregulated (e.g. health insurance) strictly regulates some products (e.g. equity and debt securities) but leaves other products largely unregulated (e.g. health insurance) Law Commission supported MEDs view that a review of the whole financial products market is timely Law Commission supported MEDs view that a review of the whole financial products market is timely

6. 6 Approach of Law Commission Law Commission considered that the following kinds of regulation probably are relevant to all publicly offered financial products: Law Commission considered that the following kinds of regulation probably are relevant to all publicly offered financial products: Disclosure of material information about product and issuer (Securities Act) Disclosure of material information about product and issuer (Securities Act) Publicly disclosed financial reporting (Financial Reporting Act) Publicly disclosed financial reporting (Financial Reporting Act) Accounting and actuarial audits Accounting and actuarial audits Prudential supervision (but not for equity securities) Prudential supervision (but not for equity securities) Financial adviser regulation Financial adviser regulation Support for independent analysts, and education of public Support for independent analysts, and education of public

7. 7 Approach of Law Commission The form which these kinds of regulation take may vary between different products. The form which these kinds of regulation take may vary between different products. Overseas issuers of products should be able to obtain exemptions from the Securities Commission, if they are subject to equivalent regulation imposed by their home jurisdictions Overseas issuers of products should be able to obtain exemptions from the Securities Commission, if they are subject to equivalent regulation imposed by their home jurisdictions

8. 8 Law Commission Recommendations Report has 55 recommendations Report has 55 recommendations The principal recommendations are: The principal recommendations are: the 1908 Act should be repealed the 1908 Act should be repealed all life insurers should be required to incorporate as New Zealand companies, unless exempted by Securities Commission all life insurers should be required to incorporate as New Zealand companies, unless exempted by Securities Commission

9. 9 Law Commission Recommendations Disclosure Securities Act disclosure regime should be extended to cover risk only policies (as well as savings policies) Securities Act disclosure regime should be extended to cover risk only policies (as well as savings policies) Actuarial aspects of life insurers financial statements should be audited by an independent actuary Actuarial aspects of life insurers financial statements should be audited by an independent actuary Financial Reporting Act should apply to issuers of risk only policies (as well as savings policies) Financial Reporting Act should apply to issuers of risk only policies (as well as savings policies)

10. 10 Law Commission Recommendations Disclosure (contd) The financial standard for life insurers should be reviewed to increase the disclosure on solvency matters The financial standard for life insurers should be reviewed to increase the disclosure on solvency matters The Financial Reporting Act should provide for the approval of actuarial standards The Financial Reporting Act should provide for the approval of actuarial standards

11. 11 Law Commission Recommendations Prudential Supervision There should be a prudential supervisor for every life insurer, who could be either a private sector policyholder agent or a government monitor There should be a prudential supervisor for every life insurer, who could be either a private sector policyholder agent or a government monitor

12. 12 Law Commission Recommendations Advisers and Analysts A new regulatory framework for financial advisers is a top priority A new regulatory framework for financial advisers is a top priority The Government and the industry should support the establishment of a number of independent life insurance analysts to provide public comparative information on life insurers operating in NZ The Government and the industry should support the establishment of a number of independent life insurance analysts to provide public comparative information on life insurers operating in NZ

13. 13 Law Commission Recommendations Reinsurance Overseas life reinsurers carrying on business in New Zealand should continue to register as overseas companies under Companies Act Overseas life reinsurers carrying on business in New Zealand should continue to register as overseas companies under Companies Act Financial Reporting Act should apply to life reinsurers carrying on business in NZ, and actuarial information should be actuarially audited Financial Reporting Act should apply to life reinsurers carrying on business in NZ, and actuarial information should be actuarially audited

14. 14 Law Commission Recommendations Reinsurance (contd) Life insurers should be required to disclose the names of their reinsurers, and a brief description of any reinsurance that constitutes a material asset of the insurer Life insurers should be required to disclose the names of their reinsurers, and a brief description of any reinsurance that constitutes a material asset of the insurer

15. 15 Law Commission Recommendations Exemptions for overseas insurers Securities Commission should have power to exempt overseas life insurers and reinsurers from various NZ requirements, if those insurers are subject to equivalent requirements imposed by their home jurisdictions Securities Commission should have power to exempt overseas life insurers and reinsurers from various NZ requirements, if those insurers are subject to equivalent requirements imposed by their home jurisdictions

16. 16 Law Commission Recommendations Insurance Contracts Bill There should be a new Insurance Contracts Act which: There should be a new Insurance Contracts Act which: re-enacts Part 2 of the 1908 Act and various existing insurance law reform Acts; and re-enacts Part 2 of the 1908 Act and various existing insurance law reform Acts; and gives effect to recommendations made in the 1998 Law Commission Report Some Insurance Law Problems gives effect to recommendations made in the 1998 Law Commission Report Some Insurance Law Problems includes provisions relating to transfers of life policies between life insurers, and a power for the High Court to amend policy terms for administrative reasons includes provisions relating to transfers of life policies between life insurers, and a power for the High Court to amend policy terms for administrative reasons

17. 17 Law Commission Recommendations Insurance Contracts Bill (contd) A draft Insurance Contracts Bill is set out in Appendix C of the Report A draft Insurance Contracts Bill is set out in Appendix C of the Report The outcome of the 2004 review of the Australian Insurance Contracts Act should be considered when finalising the Bill The outcome of the 2004 review of the Australian Insurance Contracts Act should be considered when finalising the Bill