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Review of the Insurance Solvency Standards

The Reserve Bank of New Zealand – Te Pūtea Matua is responsible for the prudential regulation of New Zealand’s insurance sector, and started a review of the existing suite of insurance solvency standards in mid-2020, in part to address the new accounting standard for insurance contracts (NZ IFRS 17).

The solvency standards are being reviewed alongside the Insurance (Prudential Supervision) Act 2010 (IPSA) - the primary legislation that empowers regulation and supervision.

A Final Solvency Standard will be consulted on in a second stage of the review of the Solvency Standards.

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Status

The Interim Solvency Standard 2023 has been issued by the Board of the Reserve Bank and will apply to non-exempt insurers according to their conditions of licence.  For the purposes of projecting solvency margins, non-exempt insurers should assume that the standard will apply to them from the start of their first NZ IFRS 17 reporting period.

Planning for stage 2 of the review, which will look at methods and calibrations, has begun.

3 October 2022

In its 20 September 2022 meeting the Board of the Reserve Bank issued the Interim Solvency Standard 2023.  The standard is the culmination of more than two years of work and consultation and is designed to streamline solvency calculations and facilitate continued sound solvency management once NZ IFRS 17 (the new accounting standard for insurance contracts) becomes mandatory.  It is accompanied by a regulatory impact statement.

While the standard comes into force on 1 January 2023, it will be applied to individual non-exempt insurers by changes to the condition of licence. These changes will be provided to affected insurers in coming months.  Our intention is that the new standard will apply from the date that each non-exempt insurer begins its first annual reporting period under NZ IFRS 17 (the incoming accounting standard for insurance contracts)

Non-exempt insurers should now assume that the Interim Solvency Standard 2023 will apply at relevant future dates for the purposes of projecting solvency margins. Such projections need to be made in solvency returns, in financial condition reports and for the purposes of sections 24 and 127 of IPSA.

Questions about the new standard can be addressed to [email protected].

31 May 2022

We have published a ‘review version’ of the insurance interim solvency standard, which determines the minimum amounts of capital that insurers must hold.

Following two initial consultation cycles, an exposure draft of an interim solvency standard was published in July 2021. A quantitative impact assessment was run in parallel to the consultation on the standard and the results of both were published in a feedback statement in March 2022.

The review version of the Interim Solvency Standard contains a number of amendments over the July 2021 version. Although we are not conducting a full consultation on this version of the standard, we invite interested parties to comment on any technical or workability issues not previously identified.

We will also be conducting a second quantitative impact assessment on a largely voluntary basis. Insurers that would like to participate are invited to download the template provided below and submit it to: [email protected] by Friday 15 July 2022.

1 March 2022

A feedback statement has been released in respect of the consultation on a Draft Interim Solvency Standard that was initiated on 22 July 2021. This statement contains a summary of the feedback received, indicative Reserve Bank responses and an overview of impacts on capital measures. A file containing the full the full text of all non-confidential submissions has also been provided.

If you have any questions on the feedback statement, please write to [email protected]. A webinar to discuss the standard will be held at on 22 May 2022. Please subscribe to the ‘Insurers’ updates on our mailing list if you would like to attend.

5 October 2021

A draft Interim Solvency Standard was exposed for consultation on 22 July 2021, with the intention of coming into force on 1 January 2022.  This date was chosen to permit use by early adopters of IFRS 17, the new accounting standard for insurance contracts.

During the consultation period, however, we have become aware that:

  • there do not seem to be any insurers planning to early-adopt IFRS 17;
  • many insurers might find it difficult to be ready by this date; and
  • consultation feedback is likely to require some changes to the standard as drafted.

For these reasons, we have decided to change the date of implementation of the Interim Solvency Standard to 1 January 2023.  This date aligns with the date on which insurers must adopt IFRS 17. The Reserve Bank will have time to address some of the more significant points raised in the consultation and insurers will have sufficient time to prepare their systems and processes.

We are currently in the process of analysing remaining feedback from the consultation and will be publishing a summary of this material in due course. The Reserve Bank intends to make use of the additional time and engage with industry and stakeholders further over the coming weeks and months. We will aim for the final interim standard to be published by 01 October 2022. 

If you have any questions on the change of implementation date, please write to [email protected]

13 September 2021

Over September we will be conducting a quantitative impact assessment exercise with selected insurers, to help us understand the capital impacts of the draft interim solvency standard. In order to assist other insurers and their advisers with their analyses, we are publishing the template that will be used for this exercise. It is likely that this template will form the basis for the Insurer Solvency Return once the standard is implemented.

Readers of the instructions document should note the following:

  • These instructions were designed for use in the quantitative impact assessment and were not intended for other uses. We are releasing them to maximise transparency around the process.
  • The instructions include certain treatments which may or may not become part of the enforced standard and the RBNZ has no obligation to adhere to these treatments in later versions of the standard.
  • Submissions on the draft interim solvency standard should make reference to the document as published on July 22, not to these instructions.

22 July 2021

We are publishing three documents relating to the Review of the Insurance Solvency Standards:

Feedback is invited on the standard and can be provided:

  • Online, at a webinar to be held at 10am on Thursday 5 August. To express your interest in attending the webinar, please subscribe to our mailing list. An invite will be sent to our Insurance mailing list closer to the date.
  • In writing, to [email protected] (early submissions relating to substantive issues are particularly welcome and will not preclude a more comprehensive later submission)

The consultation will run until 5pm on October 1 2021.

4 March 2021

We have today released a feedback statement relating to the consultation undertaken in the last quarter of 2020 on the principles guiding the Review. The statement describes several modifications to the principles that are being made in response to the submissions received.

The consultation on the structure of the solvency standards and our approach to IFRS 17 closed on 18 February 2021. We are considering submissions received and developing a feedback statement. This work will inform the development of draft interim standards, due for exposure during the third quarter of 2021.

30 November 2020

The Reserve Bank has released a consultation paper about the structure of our solvency standards and our approach to IFRS 17. This paper is a precursor to the interim standard(s) that will be exposed later in 2021. It raises a number of issues relating to how solvency standards are applied and proposes certain options for their resolution.

1 October 2020

The Reserve Bank has commenced a review of the Insurance Solvency Standards. An initial paper sets out the anticipated timeline for the review and exposes for consultation several principles intended to guide the review. A substantive consultation paper – responding to IFRS 17 and dealing with the structure of solvency standards - is expected to be issued in November 2020.