The Reserve Bank of New Zealand is seeking views on an interim Solvency Standard for insurers, which will determine the minimum level of capital that insurers will be required to hold.
This is part of a multi-year review of the Insurance Prudential Supervision Act (IPSA), and consultation on the standard is currently open until October 01, 2021. The Reserve Bank recently held a webinar on the interim Solvency Standard for the insurance sector, and is encouraging industry participants to offer feedback to help understand its impact on insurers.
Senior adviser, actuarial, financial system policy & analysis Adrian Allott said that discussions around the standard would concentrate on several key factors, and it is being designed so that policyholders can be confident that an insurance company has enough funds to meet its contracts, even if the company fails.
“One of the things we’re focused on is that there should be consistent treatment between the sub-sectors of the industry,” Allott said.
“That means looking at why we would have different rules for market risk charges between general and life insurers, for example. We’re also keen on having consistent treatment between insurers, so that if you have two identical insurers, they should come up with the same solvency results.”
“We’ve expanded on the idea of having a purpose statement in the standard, and we thought it was important to set out what we are trying to achieve,” Allott explained.
“It’s also very important that the solvency standards don’t sit in isolation, and so we have a section on the ladder of intervention, and the various capital buffers that we’re seeking to introduce. That’s just so that we can have a graduated approach to the supervision of insurers.”
Allott noted that the Reserve Bank was also looking to introduce a robust definition of “capital” and would be looking to apply a single standard for all insurers. He said the process would also offer an opportunity to apply various smaller fixes as a result of the Reserve Bank’s analysis, and its consultation with the industry.
“We recognise that different risks have different characteristics, however the capital, market and credit risk section is largely identical, no matter what type of insurer you are,” Allott said.
“Discount rates is one area we’ve focused on, because we don’t see a strong argument for allowing a wide discrepancy in discount rates between insurers.
“There are a number of fixes in this standard that we’ve taken the opportunity to apply, and we’ve taken on board recommendations from various recent reviews.”
Deputy governor Geoff Bascand said that industry consultation had provided the Reserve Bank with “insightful feedback” and said the bank would continue its engagement with both the public and industry stakeholders throughout the process.
