The Reserve Bank of New Zealand (RBNZ) has released the results of its 2024 General Insurance Industry Stress Test, examining how insurers would respond to a high-impact earthquake and escalating cyber threats.
The exercise showed that while policyholder claims would be paid in full, insurers would require significant financial support to maintain solvency and continue underwriting in the aftermath of such events.
The stress test focused on a hypothetical magnitude 8.7 earthquake along the Hikurangi Subduction Zone, off the North Island’s east coast.
Participating insurers estimated property damage at $62 billion, which increases to about $100 billion when extended to the full market. This event, designed to exceed standard solvency thresholds, also projected a sharp economic downturn.
Kerry Watt, director of financial stability assessment and strategy at RBNZ, said claims would be covered, despite the extreme nature of the scenario.
“This is a sign of the resilience that’s been built into the system since the Canterbury earthquakes, including strengthening of solvency requirements, increased coverage by the Natural Hazards Commission, and improved loss estimation modelling,” he said.
However, the scenario’s intensity meant most insurers would require large capital injections, mainly from offshore parent firms, alongside access to reinsurance markets. These measures would be essential to restoring financial stability and continuing operations. The findings will inform RBNZ’s solvency framework review and broader recovery planning.
The scenario also outlined fiscal exposure for the government, which would bear responsibility for losses involving the Natural Hazards Commission, public infrastructure recovery, and social support measures. The report emphasised the need for robust public-sector financial reserves to cope with such risks.
Watt said this kind of coordinated testing is essential for understanding the readiness of the entire risk ecosystem.
“Ultimately, the scenario highlights the importance of all stakeholders, individually and collectively, understanding the risks and preparing for these types of severe events,” he said.
The stress test further included simulations of cyber-related events, such as widespread ransomware attacks, major cloud outages, and data breaches.
While insurers showed they could handle related claims, profitability would be heavily impacted.
“Cyber risks are growing and evolving quickly. This exercise helped insurers identify where they are most exposed, and where more work is needed to understand and model these risks. We encourage the industry to build on these insights to improve resilience in this rapidly changing space,” Watt said.
According to their Wild Weather Tracker, over 50% of respondents reported anxiety linked to heavy rain and storm conditions. Flooding was cited as a major issue by 43%, and earthquake concerns remained high at 50%.
Recent research revealed that more New Zealanders are taking action to prepare their homes for natural hazards. A survey by NielsenIQ found that 71% of homeowners had made improvements to reduce risk, the highest recorded level and a 15-point jump from the previous year.
