The Reserve Bank of New Zealand – Te Pūtea Matua has
today issued the second amendment to the Interim Solvency
Standard 2023, which will take effect for all relevant
insurers from 1 March 2025.
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.”
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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.
What has the feedback
been from the insurance industry on this
consultation?
Overall industry generally
welcomed the proposed redraft. We received eight responses,
including four from industry and professional bodies, and
four from insurers. We thank stakeholders for their valuable
feedback. Our feedback statement summarises the submissions
we received and explains our response in
detail.
How will these changes affect
consumers’ insurance premiums?
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.
More
information
- Review
of the Insurance Solvency
Standards
