The Reserve Bank of New Zealand has pushed back the implementation date for its new Solvency Standard, and insurers will now need to ensure that they hold the minimum amount of capital by January 01, 2023.
The Solvency Standard was originally due to take effect on January 01, 2022, but the Reserve Bank noted that insurers might face some difficultly in being fully prepared by that date, and this was reflected in the comments offered by insurers throughout the consultation process.
The new 2023 date will coincide with insurers adopting the International Financial Reporting Standard (IFRS) 17, and the Reserve Bank said it would also allow it to “address some of the more significant points raised in the consultation”, along with giving insurers more time to prepare their systems and processes.
“During our consultation, we have become aware that many insurers might find it difficult to be ready by the implementation date we consulted on, January 01, 2022,” the Reserve Bank said.
“This date was chosen to permit use by early adopters of IFRS 17, the new accounting standard for insurance contracts. However, there do not seem to be any insurers planning early adoption of the standard, and a later start date was widely preferred by the industry.”
The Solvency Standard review was part of a wider ongoing review of the Insurance Prudential Supervision Act (IPSA), and aims to create more consistency in how insurers are required to calculate their minimum capital.
Commenting on some of the changes being made, senior adviser actuarial, financial system policy & analysis Adrian Allott said that there wouldn’t be a complete lack of individual consideration for insurers - however, consistent standards would be applied “where there are commonalities.”
He also noted that the Reserve Bank has updated its mission statement to highlight policyholder security as the primary goal, as opposed to maintaining insurer balance sheets.
“We’re trying to ensure consistent methods and consistent assumptions, but that doesn’t mean that everything will always be the same and that there’s no place for judgement - there certainly is,” Allott said.
“Each company’s situation is different, they have different experiences and different underwriting standards, and so we’d expect different outcomes due to those factors. But where there are commonalities, we’ll be expecting to apply consistent standards.”
“We want to use common methods where appropriate - for example, we want risk adjustments to be applied to all insurers, and not just non-life insurers,” he explained.
“We have also changed our principles from the earlier version, where we talked about balance sheets, and that’s absolutely the right thing to do. Balance sheets are just a means to an end, and the end is ensuring that insurers can meet their obligations to policyholders with a high degree of confidence.”
The Reserve Bank received feedback from insurers on the proposed Solvency Standard throughout July and August, and Allott noted that many expressed the need for a “graduated” approach to supervision.
He said the Reserve Bank has taken this into account, and will not be taking an “all or nothing” approach to ensuring compliance with the new standard.
“It’s key to recognise that Solvency Standards are a major measure, but just one among a range of measures that we take in order to meet our purposes,” he said.
“There are other things that are going on in the risk management and supervision space, and these will all need to work together to achieve what we want to achieve - and that is to meet our obligations to policyholders.”
“We got very strong feedback that we should be introducing a graduated approach to supervision, and it shouldn’t be all or nothing such that if you have a 101% solvency ratio, it’s all sweet, but if you have a 99% solvency ratio, then you’re in deep trouble,” he said. “We recognise that this shouldn’t be the case, and so we are moving towards a graduated approach.”
The Reserve Bank said it would make use of the additional 12 months by analysing the remaining feedback from insurers, and expects to publish a summary of this feedback soon.
A revised and approved interim standard is now due to be published on October 01, 2022.