The Reserve Bank is responsible for the prudential regulation of New Zealand's insurance sector, which includes setting rules and regulations to ensure the country's financial system remains resilient.
A review of the existing insurance solvency standards began in mid-2020, partly in response to the new accounting standard for insurance contracts (NZ IFRS 17), culminating in the release of the Interim Solvency Standard 2023.
As the standard was applied during the course of 2023 we identified some issues and since then have conducted a robust consultation process to restore the original policy intent. The Interim Solvency Standard Amendment Standard 2024 is designed to achieve this, without introducing new policy or increasing capital requirements beyond those originally intended.
"This amendment represents good regulatory stewardship. It ensures that the Interim Solvency Standard is now fit for purpose, balancing the need for clarity, stability, and providing a strong framework for insurers while preserving the original policy intent," Deputy Governor Christian Hawkesby says.
"By addressing key technical areas, we have taken the necessary steps to ensure the solvency standard continues to meet the needs of the industry and remains aligned with the evolving financial landscape."
A feedback statement has been published alongside the amendment, outlining how stakeholder input has shaped the final amendment.
"We are grateful to the industry for its active participation throughout the consultation process. Their valuable feedback has played a pivotal role in refining the amendment and ensuring that it addresses the core needs and concerns of stakeholders," Mr Hawkesby says.
Background notes
What is an insurance solvency standard?
Solvency standards set out a common method for insurers to measure their risks and ensure they have enough capital to absorb significant losses before policyholders are affected.
We set solvency standards tailored to the New Zealand market but also factor in international comparability where appropriate.
Why did the Reserve Bank launch its solvency standard review?
The Reserve Bank initiated the review of the existing suite of insurance solvency standards to address the new accounting standard for insurance contracts (NZ IFRS 17) and to modernise the regime.
What are the key changes that have been made?
The second amendment has addressed remaining issues relating to the structure of the solvency regime and handling of NZ IFRS 17.
Key changes include:
- Ensuring that sufficient capital is set aside against pricing risks.
- Ensuring that capital is set aside against credit risk on bonds.
- Ensuring that pre-paid reinsurance premiums fully count towards solvency capital.
- A series of clarifications of interpretation.
The changes are unlikely to impact premiums, as we believe insurers are already holding adequate capital and have had sufficient time to align with the original policy intent. While the adjustments are aimed at improving market stability, they are not expected to result in higher costs for consumers.
