Solvency trends for New Zealand licensed insurers: 2013 - 2018

Release date
08/03/2019
Reference
AN2019/01
Author
Robert Cole
ISSN
2230-5505

Non-technical summary

This Analytical Note looks at the level and trends in the solvency positions over the five years to 30 September 2018. Solvency position is the capital buffer in excess of minimum requirements, and can be expressed as a $ amount (solvency margin) or a ratio of actual to required capital (solvency ratio).

Approximately 60 New Zealand licensed insurers are subject to the Reserve Bank’s solvency requirements calculated in accordance with solvency standards, which apply generally, and insurer-specific licence conditions. The solvency calculations are based on the size and nature of the key financial risks that insurers face.

The other (approximately 30) insurers are exempted from the Reserve Bank’s solvency requirements and are instead subject to the solvency requirements of their home supervisor. For example, branches of Australian insurers are subject to the solvency requirements of Australian Prudential Regulation Authority (“APRA”).

For insurers subject to Reserve Bank solvency requirements, the aggregate solvency margin was $1.6 billion in excess of licence conditions at 30 September 2018. While this is the same level as 30 September 2013, the aggregate solvency margin was higher during 2016 & 2017.

Larger insurers have lower solvency ratios than smaller insurers. Over the past five years the solvency ratio for larger insurers has reduced while for small insurers it has increased.

During the last five years, there have been some instances of insurers being in breach of solvency requirements. In most cases, solvency breaches were very quickly resolved, usually by injecting additional capital. Insurers that did not quickly resolve a solvency breach were closed to new business.

Compared with common annual movements in solvency ratio, some insurers have a low solvency ratio. This includes some large insurers.

Australian insurers with branches in New Zealand have higher solvency ratios under APRA requirements than the insurers subject to Reserve Bank solvency requirements, and the Australian solvency ratios have increased since 2013.