1. PROPOSED CHANGES TO LIFE INSURANCE LAW A Presentation For LADUCA 24 May 2005 Michael Burrowes Principal Burrowes and Company Barristers and Solicitors Wellington

2. THE PROCESS Law Commission discussion paper in December 2003 Submissions closed March 2004. Draft report in August 2004. Further submissions closed September 2004. Final report November 2004. Government’s response March 2005.

3. RECOMMENDATIONS R1 Repeal of Life Insurance Act 1908 R2 Life insurers to incorporate as companies

4. DISCLOSURE R3 – R15 Securities Act extended to risk only policies. Investment statement —> product disclosure statement. Exemptions for renewals and variations. Prospectus required. Request disclosure regime. Periodic disclosure regime

5. FINANCIAL REPORTING R16 – R26 Financial Reporting Act 1993 requirements extended to cover all issuers of risk only life insurance policies. Financial standard applicable to life insurers should be reviewed. In particular, level of disclosure for reinsurance arrangements should be increased.

6. FINANCIAL REPORTING (continued) Approval of actuarial standards. New Zealand Society of Actuaries Guidance Note 5 should be reviewed. Independent actuarial audit.

7. FINANCIAL REPORTING (continued) Principles upon which the valuation and distribution of profits among shareholders and policyholders to be disclosed. Ongoing reporting requirements to the prudential supervisor. Audit actuary should have a “whistle-blowing” role.

8. PRUDENTIAL SUPERVISION R27 – R35 “Prudential supervisor” for every life insurer. Government monitor – –either the Securities Commission or the Reserve Bank; or –private sector entity (a policyholder agent).

9. PRUDENTIAL SUPERVISION (continued) Powers of prudential supervisor. Preference for private sector policyholder agents.

10. FINANCIAL ADVISERS, ANALYSTS AND RATINGS R36 – 39 Regulatory framework for financial advisers. Life insurance analysts. Financial strength rating. Ongoing public educational role.

11. INSURANCE CONTRACTS ACT R40 – R42 A new Insurance Contracts Act based on the Bill provided in appendix C. Transfers by life insurers of life policies. Process for life insurers to have policy terms amended by the High Court for administrative reasons. New rules for non-disclosures.

12. NEW NON-DISCLOSURE RULES Clause 14 – avoidance because of failure to disclose may only be exercised within 10 working days. Clause 15 – 3 exceptions: 1.Knowledge of undisclosed fact and its materiality. 2.Specific simple question answered incorrectly. 3.Reinsurance contracts.

13. REINSURANCE R44 – R49 Requirements of the Companies Act 1993. Financial Reporting Act 1993. New Zealand-established reinsurers. Actuarial solvency standard for life insurers should be reviewed for reinsurance arrangements. Disclosure of name of reinsurer and any reinsurance arrangement.

14. CROSS BORDER ISSUES R48 – R55 Overseas life insurers required to incorporate in New Zealand. Financial Reporting Act 1993. Required to appoint a policyholder agent.

15. CROSS BORDER ISSUES (continued) Insurer to abide by decisions of High Court of New Zealand and policy will be governed by New Zealand law. Internet offers of life insurance from offshore entities.

16. PRACTICAL IMPLICATIONS 2008 Commencement? Increased disclosure – direct marketing harder? Opportunities for intermediaries? Compliance costs. Greater regulation/supervision. Harder to avoid policies for non-disclosure?