New Zealand’s life insurance market is being tested by regulatory developments and a pandemic fuelled economic downturn, with the uncertainty surrounding the COVID-19 fallout potentially challenging premium growth opportunities in the near term, according to a new AM Best report.
The Best’s Market Segment Report, “New Zealand Life Insurers Resilient Despite Regulatory Changes and Economic Headwinds,” states that the life insurance industry in New Zealand has a track record of robust operating performance, driven by generally favourable underwriting results.
The report also notes that while the industry is capitalised sufficiently, solvency levels vary widely among insurance companies and that some life insurers have experienced a high degree of volatility in their solvency positions in recent years, largely driven by new business strain.
Recently, the regulatory spotlight has fallen on the life insurance market in New Zealand, and in-depth conduct and culture reviews of the banking and insurance sectors have resulted in a rise in life insurers’ costs due to the increased focus and resources needed to respond to and comply with the additional regulatory burden.
AM Best expects continued regulatory focus in this area, with insurers continuing to devote time and resources to deliver consistently good outcomes and product value for customers, while the risk presented by conduct failings has increased significantly.
The economic outlook for New Zealand remains uncertain. The country saw economic growth of 14% in the quarter to September 2020 with the lifting of pandemic containment restrictions, and new life insurance sales for the September 2020 quarter showed signs of recovery. However, in AM Best’s view, the economic fallout from the pandemic and the uncertainty associated with it has the potential to affect life insurance sales and customer retention adversely over the near term.
The report also notes the direct mortality impact of the COVID-19 pandemic on life insurers’ underwriting performance in New Zealand is unlikely to be material. This is largely due to the successful containment of the COVID-19 pandemic in the country to date, and as a result, the likelihood of significantly increased mortality and other claim exposures is considered low.
Notwithstanding expected reductions in investment returns over the near term, and the potential for a slowdown in sales due to the pandemic, AM Best expects life insurers in New Zealand to continue to generate robust underwriting returns, ultimately supporting operating earnings for the segment over the coming years.