First RBNZ life insurance stress test shows industry well placed to withstand severe shocks

The 2022/23 LIIST demonstrates the largest insurers in the sector are well placed to withstand severe economic and insurance shocks, while continuing to pay out on policy claims.

Deputy Governor Christian Hawkesby says stress tests assess how the finance sector can cope with hypothetical scenarios that are severe, but plausible.

Previous stress tests have involved banks or general insurance providers, but this is our inaugural stress test for life insurers. Stress tests assess entities’ resilience by demonstrating whether they have enough capital to withstand extreme shocks. They also indicate potential impacts on the broader financial system.

“This is the first time we have run a stress test with New Zealand’s life insurance industry and the results were reassuring. Participating insurers were able to pay out substantial claims from policy holders and remain solvent during a hypothetical three-year scenario which included long Covid, a new pandemic and a period of severe economic stress.”