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2024 General Insurance Industry Stress Test (GIIST)

The purpose of the 2024 GIIST is to assess the resilience of insurers to severe but plausible scenarios involving seismic and cyber-related risks.

What is the purpose of the GIIST?

The purpose of the 2024 GIIST is to:

  • Assess the resilience of insurers to severe but plausible scenarios involving seismic and cyber-related risks (affecting policyholders).
  • Identify management actions available to insurers to mitigate the impact.
  • Build industry capability.
  • Feed into supervisors’ risk assessment.

Stress test results are not used for setting solvency requirements.

The scenarios 

Seismic stress test scenario

The seismic stress test scenario involves a main event earthquake of approximate magnitude 8.7 rupturing the central and adjacent sections of the Hikurangi Margin generating approximately 1-in-1200 year industry losses. The event causes a tsunami immediately after the main event, a major aftershock of approximate magnitude 7.7 one month later, and smaller seismic shocks up to one year after the main event.

It is timely to study seismic risks given the 2022 update to the National Seismic Hazard Model, the first since 2010. The update shows a significant average increase in the likelihood of future earthquake shaking hazard, which is expected to materially increase the impact of earthquake scenarios on insurers. We would also like to examine the liability of insurers under the new EQC policy regime and following the high building cost inflation observed in the past few years.

Cyber-related scenarios

Cyber risk is an increasing concern for the financial sector and one of the most visible to our regulated entities’ customers. Whilst losses have not been substantial to date, we feel the risks may be building. There has been growing concern following geopolitical tension around the world. This has prompted the United Kingdom’s Prudential Regulation Authority (RPA) to complete a cyber stress test in 2023 and the European Central Bank to conduct a cyber thematic stress test in 2024. New Zealand is not immune from these global threats.  

There are three separate scenarios testing different cyber breaches which take the form of a:

  • major data breach
  • disruption to a major cloud service provider e.g. Microsoft, Google or Amazon
  • ransomware attack.

How were the scenarios designed?

The seismic scenario design has been informed from discussions with GNS Science, Victoria University of Wellington, East Coast LAB, NZ National Emergency Management Agency, EQC, participating insurers, and two catastrophe model providers — Verisk and RMS.

The cyber-risk scenarios in our stress test program draw from Lloyd’s and PRA stress test scenarios. These have been refined after consultation with insurers and after discussing with cyber experts within the Reserve Bank and CERT NZ.

Which insurers are involved?

The 2024 GIIST participants include six locally incorporated insurers:

  • AA Insurance Limited
  • AIG Insurance New Zealand Limited
  • IAG New Zealand Limited
  • Tower Insurance Limited
  • Vero Insurance New Zealand Limited
  • Chubb Insurance New Zealand Limited

There is also one international branch: QBE Insurance (New Zealand).

Participating entities were selected based on their size, and hence potential for financial stability risk, and/or their expected exposure to either seismic or cyber risks. The seven insurers cover approximately 80% of New Zealand’s general insurance market (based on annual gross written premiums).

When will the results become available?

A report on the overall results will be published on our website in the first quarter of 2025. This will have findings on the aggregate results. Individual insurers’ results will not be identified.

To find our more, read the full 2024 General Insurance Industry Stress Test Scenarios and Instructions (PDF, 448KB)