The Reserve Bank of New Zealand (RBNZ) has concluded its first reverse stress test with life and health insurers, revealing that multiple severe shocks would be required to breach solvency requirements. The test, which involved five life insurers and three health insurers representing over 70% of premiums in each sector, asked participants to identify scenarios that could break their business models and outline their response strategies.
The hypothetical scenarios included pandemics, reinsurance disruptions, investment losses, and rising medical claims costs. Some insurers also considered cyberattacks and operational failures. The RBNZ emphasized that these scenarios are not forecasts but rather tools to assess vulnerabilities.
Angus McGregor, RBNZ’s assistant governor for financial stability, noted that the exercise prompted some insurers to strengthen their risk management. Actions taken include enhancing capital triggers, reviewing reinsurance arrangements, increasing cyber cover, and improving recovery plans.
The central bank also identified areas for improvement in stress testing practices, such as data and modeling, governance, and independent review. It plans to provide individual feedback to participants and incorporate findings into future supervision and policy decisions. The next test, involving general insurers, is scheduled to begin in 2027.