The Reserve Bank of New Zealand (RBNZ) published findings from its 2025/26 reverse stress test, showing that participating life and health insurers needed to model combinations of severe shocks to breach minimum solvency requirements. Additional recovery actions restored every participant above the regulatory minimum in the modelling, but their effectiveness depended on customer retention and access to funding and reinsurance.
Five life insurers and three health insurers participated, representing more than 70% of premiums in their respective sectors. Each developed its own severe but plausible scenario by working backward from a solvency breach. Life insurers were vulnerable to sudden increases in death and critical illness claims combined with reinsurance disruption or investment losses. Health insurers faced pressures accumulating over several years as medical claims costs rose faster than expected. Across the eight scenarios, combined projected solvency margins fell by almost NZD 1.7 billion, leaving a NZD 200 million shortfall before additional mitigating actions. These totals combine different scenarios and timeframes, rather than measuring a single industry event, and are not forecasts.
The findings call for insurers to test interacting risks and whether critical recovery measures would remain effective if delayed or constrained during stress. Recovery plans should link warning indicators and capital thresholds to escalating actions and aim to restore appropriate capital levels, not merely meet regulatory minimums. A separate review identified gaps in evidence supporting assumptions, independent review and the use of stress test results in business decisions. The exercise prompted some insurers to strengthen capital triggers, review reinsurance arrangements and improve cyber cover or recovery plans. RBNZ will provide individual feedback and monitor progress on its recommendations.