The Reserve Bank has released details of an independent regulatory review into its supervision of CBL Insurance, which was commissioned following the insurer’s liquidation in November 2018.
The review was carried out by John Trowbridge and Mary Scholtens QC, who described the development as a “major regulatory event in New Zealand” – an assessment echoed by Reserve Bank Deputy Governor, Geoff Bascand.
The review concluded that the Bank should have acted more urgently and decisively in the early stages of CBL’s troubles, saying it gave “the benefit of the doubt” to CBL throughout 2014 – 2016. If it had acted more forcefully, the inadequacy of CBL’s solvency would have become apparent as early as 2014.
Its key recommendations were that the Reserve Bank act decisively as soon as it has doubts around a company’s financial soundness, strengthen governance obligations of insurers, increase resources to the supervisory and policy team, and modify the Solvency Standard. If necessary, it should also seek to modify the Insurance (Prudential Supervision) Act 2010.
The review acknowledged that the Bank was operating in particularly trying circumstances at the time; “it was comprised of a small team of people operating a new regime, with significant other work arising, in particular, out of the Canterbury earthquakes.” Therefore, resources were tight and competing against greater priorities.
Bascand says the Reserve Bank accepts all the findings of the review, and will take each recommendation on board to create a stronger framework of prudential supervision.
"We are reviewing key regulatory requirements to boost the resilience of our banking and insurance sectors, and we are intensifying our supervision of financial institutions,” Bascand said. “In short, we are recalibrating the rules and our enforcement of them.”
“We wanted an independent and expert perspective to examine our supervision and advise on how best to strengthen the regulatory and supervisory framework and the Bank’s performance. We are encouraged that our licensing decision and process were found to be sound, and that our actions leading to CBL being placed into liquidation were assessed to be appropriate. We acknowledge the review’s finding that our supervision was overly-lenient towards CBL and should have addressed concerns about its reserving and management more urgently.”