In its latest six-monthly Financial Stability Report, the Reserve Bank of New Zealand (
RBNZ) has revealed that general and life insurers’ solvency margins have “stabilised at lower levels.”
According to the regulator, this could mean that insurers are becoming increasingly sophisticated when it comes to managing their capital, or are becoming reliant on “shareholder support to maintain solvency margins in a period of material loss.”
In an
interest.co.nz report, RBNZ said: “In late 2015 and early 2016, aggregate insurer solvency margins in New Zealand fell, due to dividend payouts being in excess of profits. Profits reported in mid-to-late 2016 were stronger and, as a consequence, solvency margins appear to have stabilised at lower levels.”
It cited Sovereign Assurance’s solvency ratio which dropped to 118% in FY16 from the past year’s 129%, and Nib NZ’s which fell from 344% to 202%. In the general insurance space, it made an example of
IAG New Zealand which saw its solvency ratio decline from 282% to 147% in FY16; as well as
Vero Insurance’s from 180% to 157%; and
Tower’s 225% to 210%.
RBNZ noted, however, that the costs of disaster events, including the Kaikoura earthquake, the Port Hills fires, and a number of storms that did not make it in the 2016 reporting period, may have also “significantly reduced profits and lowered solvency margins in the sector.”
“Affected insurers will be under operational pressure due to the high claims volumes from these events, as well as the remaining Canterbury earthquake claims and business as usual claims,” it said.
RBNZ said the string of recent events highlights the need for insurers to “have sufficient capital and reinsurance to cover a single very large catastrophe event, as well as to cover several smaller unexpected… losses occurring in a short period of time.”
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