The Reserve Bank of New Zealand has warned Quest Insurance over failures to comply with prudential rules including maintaining a minimum solvency margin for non-life business.

Quest also failed to have a statutory fund in place for its life business, RBNZ says.

The regulator launched an investigation after Quest self-reported the issues in 2021 and 2022.

“The findings ... demonstrate the importance of effective risk management and the need for sound governance to ensure the New Zealand public has trust and confidence in the insurance sector,” the bank’s deputy governor and GM of financial stability Christian Hawkesby said.

Quest offers motor insurance, guaranteed asset protection for vehicles, mechanical breakdown cover, credit contract indemnity insurance and lifestyle protection.

RBNZ says the insurer must have a minimum solvency margin of $NZ0 or above for its non-life business as a condition of its licence. But actuarial analysis shows it “appears to have breached” the condition from June to October in 2022, with margins of minus $NZ1.3 million ($1.18 million) to minus $NZ1.5 million ($1.36 million).

Quest’s internal solvency model showed a margin of minus $NZ1.3 million only in October 2022, and its regulatory filing for the September 2022 half-year showed positive $NZ1.8 million ($1.63 million).

RBNZ says its analysis showed negative $NZ1.7 million ($1.54 million) in September 2022.

“This finding suggests that Quest did not have prudent controls in place, which appears to have resulted in a breach of its non-life solvency margin and therefore a breach of a condition of its licence and offence under the Insurance (Prudential Supervision) Act,” the regulator said.

“The Reserve Bank acknowledges that, fortunately, in these particular circumstances, no actual harm was caused to policyholders as the overall solvency margin was maintained during the period.”

RBNZ says Quest has acknowledged and fixed its breaches, including setting up a statutory fund for its life business. Click here for the warning.