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Legal and regulatory update for the life and health insurance sector

Reserve Bank of New Zealand on insurers paying dividends

Jenée Tibshraeny, writing at interest.co.nz says that The Reserve Bank of New Zealand (RBNZ) is advising insurers against paying dividends:

“Our stance in relation to prudential risks to insurers from Covid-19 is that there are many unknowns still to play out in terms of flow-on impacts from what we have already experienced, as well as the potential for new outbreaks,” Bascand said in a speech to the Insurance Council of New Zealand (ICNZ) on Monday.

“This caution is also reflected in our stance on capital retention and dividend payments, which we regard as being imprudent under these conditions.

"We will update insurers on our stance on this at or before publication of the next Financial Stability Report in November.”

Although this is guidance, and tougher instructions were issued to banks, it would be very difficult for an insurer to ignore such advice. It should be hoped that it is temporary. Well-capitalised insurers would be justified in wondering why they were being treated the same as a thinly capitalised business. In the medium term, the absence of a the ability to pay a dividend may make it materially harder for an insurer to raise capital, acting against the intention of the advice. I therefore expect that the suspension will have a limited duration allowing for assessment of the difficulty of transitioning to an environment of negative interest rates. 

 

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