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Our policy work for insurer oversight

Review of insurance solvency standards

Solvency standards are an integral part of the regulation of insurers. A review of the RBNZ’s solvency standards has been running since 2020, with a view to ensuring that standards are fit for purpose in the modern era. An interim standard is in place. Development of a permanent standard has been paused.

Published:
Updated:

Background to the solvency review 

Principles and purposes

We have 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.


Supporting documentation

Insurance Solvency Standards review paper (PDF 648KB)

 

We have 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 being made in response to the submissions received.

Supporting documentation

Review of Insurance Solvency Standards: Principles and Timeline Consultation feedback statement (PDF 700KB)

Review of Insurance Solvency Standards: Principles and Timeline Consultation Summary of Submissions (PDF 4.5MB)

 

This article explains the changes in solvency measures and guides you on how to interpret the changes.


Supporting documentation

Monitoring Insurer Solvency Bulletin

 

Stage 2 of the review - Final Solvency Standard

Having completed the second amendment to the interim solvency standard in 2024, we have now paused work on stage 2 of the review. We intend to revisit the timeline for the Solvency Standard when the ongoing review of the Insurance Prudential Supervision Act is nearing completion.
 
We will continue to engage with industry on any questions you have about the in-force standard. If you have any questions, or would like to discuss solvency, please feel free to reach out to the Capital and Solvency team at [email protected] or talk your supervisor. 

Stage 1 of the review - Interim Solvency Standard 

Second amendment of the Interim Solvency Standard

12 December 2024 update 

The second amendment of the Interim Solvency Standard 2023 (ISS), the Interim Solvency Standard Amendment Standard 2024, has been published and is effective for all insurers subject to New Zealand solvency standards from 1 March 2025.  

The second amendment does not introduce new policy or require an increase in capital requirements beyond what was intended when the ISS was first issued. Instead, this amendment aims to restore the original policy intent of the ISS. The most significant proposals in this amendment relate to the rebasing of the underwriting risk capital charge, the reinstatement of credit risk capital charges on interest-sensitive assets and a reduction in ambiguity relating to valuation approaches. 

We thank our stakeholders for their valuable input through the two rounds of consultation on the proposals and the exposure draft of the standard. The accompanying feedback statement explains how we have responded to stakeholder feedback from the exposure draft consultation in the revised amendment. The feedback statement also includes broad conclusions from the external review. 

We have also prepared an addendum to the Regulatory Impact Statement in which we set out the expected impacts on insurers from the second amendment of the ISS. Note that this addendum should be read alongside the Regulatory Impact Statement which accompanied the original publication of the ISS in October 2022. 

You can email any general questions to [email protected]

Supporting documents

 

We have published an exposure draft on the second amendment of the ISS for consultation. This consultation will run from 6 August to 17 September 2024 and will give stakeholders an opportunity to review the changes we have made as a result of the feedback received from the first consultation and the external review.  

The second amendment of the ISS does not introduce new policy or require an increase in capital requirements beyond what was intended when the ISS was first issued. Instead, this amendment aims to restore the original policy intent of the ISS. The most significant proposals in this amendment relate to the rebasing of the underwriting risk capital charge, reinstating credit risk capital charges on interest-sensitive assets and reducing ambiguity relating to valuation approaches.


Supporting documents

We have published the following documents as part of the consultation:

The accompanying feedback statement explains how we have responded to stakeholder feedback from the first consultation in the revised exposure draft. The feedback statement also includes broad conclusions from the external review.

Read the submissions we received from the consultation. 

Solvency standards issued by us specify the solvency figures that are required to be disclosed by licensed insurers subject to each standard. The figures must be calculated in accordance with the version of the applicable standard(s) in effect as at the relevant reporting date.


Can solvency figures calculated on a different basis be disclosed alongside the mandatory figures?

Normally, solvency figures calculated on a different basis to the mandatory solvency disclosures should not be included as part of the solvency disclosure.  This is because reporting 2 sets of solvency figures on different bases is likely to create confusion over the regulatory solvency position of the insurer.

However, for some insurers the anticipated impacts of the proposed second amendment to the ISS may be sufficiently material that the solvency position being reported in the mandatory solvency disclosures is significantly different to the solvency position as if the second amendment of the ISS was already in effect.  That is, the mandatory solvency disclosures may not be a good guide to the future solvency position of some insurers if the second amendment comes into effect.

In light of this, we are comfortable for insurers to disclose, alongside the mandatory solvency disclosures, additional solvency figures calculated as if the second amendment to the ISS was already in effect, provided:

  • the mandatory solvency figures are clearly labelled as the regulatory solvency position required under the applicable version of the ISS or earlier solvency standard(s)
  • the additional solvency figures use the second amendment to the ISS, as issued (if it has been issued) or as proposed on our website (if not) – no other basis can be used
  • the additional solvency figures are for the latest as at date reported in the mandatory solvency disclosure, in other words are not a projection
  • the additional solvency figures are clearly labelled as incorporating the second amendment to the ISS, which is not yet finalised (if this is the case as at the reporting date)
  • there is a statement that the additional solvency figures do not represent the regulatory solvency position
  • the insurer’s Appointed Actuary has calculated or reviewed the additional solvency figures, and there is a statement to this effect, and
  • there is a link to the proposed or issued (as applicable) second amendment to the ISS on our website. 

Can solvency disclosures include commentary on the proposed second amendment of the ISS?

Insurers are able to make commentary as part of solvency disclosures, as long as it is accurate and not misleading.

For some insurers the anticipated impacts of the proposed second amendment to the ISS may be sufficiently material that it may be reasonable for insurers to provide some explanation of the implications for the future solvency position.

Any such commentary should be clear:

  • that the second amendment to the ISS does not affect the regulatory solvency position unless and until it comes into effect
  • if the second amendment is not yet issued, that this is only a proposed amendment
  • if the second amendment is issued, that this is the case and state the effective date of the amendment
  • avoid technical jargon where possible
  • be relatively short (for example, no more than a few paragraphs), and
  • if figures are provided, they should be limited and follow the above guidance (“can solvency figures on a different basis be disclosed alongside the mandatory figures”).

Purpose

A proposed second amendment to the ISS may have material impacts on reported solvency figures for some insurers.  Some insurers may wish to provide supplementary solvency figures and explanations, in addition to mandatory solvency disclosures, in order to communicate anticipated impacts of the second amendment to the ISS.

This guidance is intended to assist insurers in ensuring any supplementary solvency figures and explanations are clear and not misleading. Compliance with this guidance is optional and nothing in this guidance overrides any legislative or regulatory requirements. This guidance is not legal advice, and we encourage insurers to seek their own professional advice.

We have published a consultation paper with proposals to address parts of the ISS that need clarification or are not working as intended. The consultation paper also covers other minor issues which fall within the scope of stage 1 of the Review of the Solvency Standards. This scope relates to addressing NZ IFRS 17 and improving the structure of the solvency regime.

The most significant proposals relate to:

  • re-basing the underwriting risk capital charge to appropriately reflect pricing risks rather than NZ IFRS 17 accounting outcomes;
  • reinstating credit risk capital charges on interest-sensitive assets;
  • explicitly excluding reinsurance cash-flows related to future primary contracts from “insurance items” to allow their recognition in solvency capital as a non-insurance item;
  • clarifying that contract clauses allowing early cancellation should not establish a boundary; and
  • clarifying how to handle tax, acquisition expenses and risk adjustments in the “modified PAA” method.

As well as the consultation paper, we are publishing a draft of the Amendment Standard, a Consolidated Standard and a Guide to the Standard. We are looking for feedback on all of these documents. You can email any consultation questions to [email protected]. 


Supporting documents

Submissions received

Read the submissions we received on this consultation.

First Amendment of the Interim Solvency Standard

We identified a small number of minor errors in the Interim Solvency Standard 2023 (the Standard). We issued an ‘Amendment Standard’ to correct them. We also took the opportunity to ease sign-off requirements for solvency returns so you can specify signatories by the conditions of an insurer’s licence.

Stakeholders made us aware of a number of additional issues with the Standard, and we thank them for raising these. We intend to address these issues over the coming months by consulting on and issuing a further amendment. We will prioritise this work over stage 2 of the Solvency Review (the detailed review of methods and parameters). We will advise the schedule for work on this further amendment in due course.

References in conditions of licence to the ‘Interim Solvency Standard 2023’, from 1 August 2023, refer to the Standard as amended by the Amendment Standard.

Supporting documents

Interim Solvency Standard Amendment Standard 2023 (PDF 247 KB)

Interim Solvency Standard 2023 (as amended) (PDF 1.75 MB)

Paragraph Proposed amendment Rationale
Title Interim Solvency Standard 2023 (technical update) Distinguish from existing standard without losing references in licence conditions
Contents Repaginate Possible consequence of other changes
17 Final solvency standard means a future solvency standard, designed to replace this Interim Solvency Standard 2023. Capitalisation
17 Variable fee approach means the general measurement model modified in accordance with NZ IFRS 17 paragraph 45. Incorrect reference
28(iv) Adjustments for non-financial risk must be included in standardised insurance items and must be calibrated to a 75 percent probability of sufficiency for solvency entities open to new business and a 90 percent probability of sufficiency for solvency entities in run-off. Calibrations must be performed at a level no higher than the product class and relate to the net-of-reinsurance cash-flows. Approximate methods may be used to determine the adjustments. Italicisation of defined terms
43 Where the fair values of contingent assets and liabilities have been disclosed in the most recent set of audited accounts, they should be included in solvency capital at fair value. Grammar
86 (table) Listed trusts (unless looked through in accordance with paragraphs 77 and 78, excluding listed property trusts) Disambiguation. Listed property trusts could be considered as equity or property assets. This change ensures they are treated as property.
90 The net open foreign exchange position is the absolute value of the difference between the value of assets and the value of liabilities (taking into account applicable derivative positions and including any contingent liabilities) that are denominated in the relevant currency. Clarity. Previous formulation didn’t make sense.
101(i)(f) any outwards reinsurance component of the standardised liability for remaining coverage in respect of portfolio reinsurance, where this is an asset to the solvency entity, Italicisation of defined terms
103 A component of the reinsurance recovery asset is in dispute if one or more of the following conditions applies: The reinsurance recovery asset is made up of amounts due from various reinsurers, and not all will be in dispute.
112 The stressed value of a contingent item must be determined by considering the range of possible capital outcomes (excluding market risk effects) for the present value of the cash-flows referable to the item, and estimating the outcome at the 99.5th percentile after one year, where the 100th percentile is the worst outcome of all. The basis of estimation must be described in the licensed insurer’s financial condition report. Clarity
120 The excess exposures must then be allocated to market and credit risk subcategories such that a unique capital factor can be identified for each allocated excess exposure. For interest rate risk, the implied capital factor must be determined by dividing the interest rate risk capital charge by the standardised value of assets subject to the charge.  Where an exposure can be allocated to multiple subcategories, the one with the highest capital factor must be employed. Disambiguation
138 Interim solvency returns must be
i. supplied within the timeframes specified in the conditions of licence issued to the licensed insurer;
ii. presented in the form specified by the Reserve Bank on its website; and
iii. certified in the manner specified in the conditions of licence issued to the licensed insurer.		 Empowering issued licence conditions
144 A licensed insurer must disclose the information in respect of the solvency entity set out in paragraph 147 in its financial statements or group financial statements. This disclosure must be as at the balance date to which the financial statements or group financial statements relate, and include comparative information for the immediately preceding financial year. Correct term is solvency entity
Appendix Clause Proposed change   Rationale
4 18 Subject to clause 20, an amount will be a repayable amount if the licensed insurer will, on the occurrence of an event specified in the reinsurance agreement, be under an obligation to pay that amount to the reinsurer otherwise than from out of the future profits arising from the reinsured portfolio.
 Incorrect reference
5 11, Table: Health
 Standardised liability for incurred claims
 111% of standardised liability for incurred claims 
 Table rows inadvertently mixed up; current table doesn’t make sense.
Standardised liability for remaining coverage, claims incidence
 115% of best estimate assumptions in year 1, 105% thereafter
Standardised liability for remaining coverage, claims inflation
 1% per annum in addition to the best estimate assumptions for medical expense inflation

Interim Solvency Standard

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].

Supporting documentation

Interim Solvency Standard 2023 (PDF 2MB)

Regulatory impact statement (PDF 1MB)

Non-technical summary (PDF 600KB)

 

We have published a ‘review version’ of the insurance Interim Solvency Standard, determining the minimum amounts of capital insurers must hold.

Following 2 initial consultation cycles, we published an exposure draft of an Interim Solvency Standard in July 2021. We ran a quantitative impact assessment in parallel to the consultation on the standard, and we published both results in a feedback statement in March 2022.

The review version of the Interim Solvency Standard contains several amendments over the July 2021 version. Although we are conducting a partial 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 conduct a second quantitative impact assessment on a largely voluntary basis. We invite insurers that would like to participate to download the template provided below and submit it to: [email protected] by Friday 15 July 2022. 

Supporting documentation

Interim Solvency Standard (review version – May 2022) (PDF 1.8MB) 

Quantitative impact assessment template May 2022 (XLSX 478KB)

We exposed a draft Interim Solvency Standard for consultation on 22 July 2021, with the intention of coming into force on 1 January 2022. We chose this date to permit the 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. We 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 analysing the remaining feedback from the consultation and will publish a summary of this material in due course. We intend to use the additional time and further engage with industry and stakeholders over the coming weeks and months. We will aim for the final interim standard to be published by 1 October 2022. 

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

In Q4 2021, we are conducting a quantitative impact assessment with selected insurers to help us understand the capital impacts of the draft interim solvency standard.

To help other insurers and their advisers with their analyses, we have published our assessment template, together with supporting instructions. This template will likely form the basis for the insurer solvency return once we implement the new standard.

Supporting documentation

Template for quantitative impact assessment

Instructions for quantitative impact assessment 

 

Publication of 3 consultation documents and webinar update

We are publishing 3 documents relating to the Review of the Insurance Solvency Standard.

Feedback is invited on the standard and can be provided:

  • Online, at a webinar at 10am on Thursday 5 August 2021. Please subscribe to our mailing list to express your interest in attending the webinar. 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 1 October 2021.


 

Supporting documentation 

A feedback statement from the earlier consultation on IFRS 17 and the structure of the solvency standards (PDF 860KB)

A draft of an Interim Solvency Standard intended to apply to almost all insurers from early 2022 for approximately three years (PDF 1.9MB)

An explanatory note to document the thinking behind the Standard and provide clarification to readers (PDF 1MB)

Consultation paper released - 30 November 2020

We have 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 several issues relating to how solvency standards are applied and proposes certain options for their resolution.


Supporting documentation

Consultation paper on the structure of solvency standards (PDF 2MB)

Non-technical summary on the structure of solvency standards (PDF 302KB)

Draft Interim Solvency Standard Feedback Statement - 1 March 2022

We have released a feedback statement regarding the consultation on a Draft Interim Solvency Standard 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. We have provided a file containing the full text of all non-confidential submissions.

If you have any questions about the feedback statement, please write to [email protected]. We will hold a webinar to discuss the standard on 22 May 2022. Please subscribe to the ‘Insurers’ updates on our mailing list if you want to attend.

Supporting documentation

Draft Interim Solvency Standard Public feedback statement (PDF 1.1MB)

Full submissions (PDF 6.5MB)