The Reserve Bank of New Zealand (RBNZ) has released the results of its consultation on the Insurance Solvency Standards Principles and Timeline held late last year.
The review of solvency standards was launched alongside the review of the Insurance (Prudential Supervision) Act 2010 in October 2020, according to a statement by RBNZ.
Solvency standards set out the minimum amount of capital that insurers must have to be allowed to operate. Among the issues the consultation tackled were international comparability, the role of capital in absorbing an insurer’s losses, balance sheet risks, and practicality.
“We appreciate all the feedback received in response to the consultation,” said Geoff Bascand, RBNZ deputy governor and general manager of financial stability. “This has helped us to modify the Insurance Solvency Standards principles to make them more fit for purpose for both the industry, and the Reserve Bank as regulator.”
According to Bascand, the submissions touched on the need for insurers to meet financial obligations to policyholders; balancing consistency and flexibility in regulation; and that the Reserve Bank should be explicit about its risk appetite in order to communicate its desired level of conservatism rather than through reference to international peers.
The final set of principles has been set out in a Principles and Timeline Consultation feedback statement on RBNZ’s website. These principles will guide the regulator’s ongoing policy work on the review of solvency standards.
“As a regulator, the Reserve Bank needs to balance soundness with efficiency and support confidence in the sustainability of the sector. Our approach is risk based and does not intend to provide for a zero-failure regime,” Bascand said.
“We acknowledge the current strain on resources in the insurance industry in balancing various regulatory reforms with its COVID-19 response. We have worked to factor these demands into the review implementation timelines.”