News Regulations21 Jun 2018

New Zealand:Insurers' ratings are costly yet unhelpful to customers

21 Jun 2018

Requiring insurers to have financial strength ratings adds cost to the industry but does little to help consumers, industry commentators say. The law requires licensed insurers to have a current rating from an independent ratings agency. It can cost about NZ$100,000 to get a rating, reports the online financial services news site Good Returns.

Insurance law specialist Crossley Gates said that a rating was of little use to the companies' customers. He said the issue had been highlighted again by the failure of CBL.

"If insurer failure is the problem we are trying to avoid I don't think the ratings thing is working at all. It's just a hugely expensive exercise."

Mr David Whyte, former managing director of AIG Life in Australia and general manager of AIA in New Zealand, agreed the ratings were a waste of money. AIG nearly folded in the global financial crisis, despite having an AA+ rating.

CBL Insurance has been in interim liquidation since 23 February and the Reserve Bank of New Zealand (RBNZ) has applied to liquidate the insurer, with a court hearing scheduled in July.

The central bank applied to place CBL Insurance, the main subsidiary of CBL Corp, in interim liquidation in February after the company paid NZ$55 million ($38 million) to overseas companies, breaching the RBNZ's orders. The Bank had been reviewing the adequacy of the company’s reserves in its French construction insurance business.


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