Life insurers under threat – or are they?

Adrian Orr, RBNZ

The RBNZ warned that some life insurers were operating with low solvency levels and buffers. It had conducted preliminary stress testing of insurers' exposure to a range of channels through which Covid-19 could affect them.

“We are continuing to work with insurers to see them build better resilience and maintain a strong focus on long-term customer outcomes.”

“Insurers are exposed to economic conditions through the value of their investment portfolios. Most insurers operate conservative investment portfolios, and solvency stresses at insurers do not primarily arise from losses on their investments.

“However, life insurers with higher-risk investment portfolios including large equity investments that are not part of investment-linked insurance products are exposed to further declines in equity prices. Corporate bond defaults and increased credit spreads on a scale larger than observed during the GFC would see stresses spread to several insurers.”