The Reserve Bank of New Zealand (RBNZ) has for the first time compiled a list of insurers it considers too important to fail – but won’t say who they are.

The group will receive extra supervision from the bank.

Identifying “high-impact” insurers is a requirement of the Insurance (Prudential Supervision) Act 2010, which since September 2013 requires all insurers in New Zealand to be licensed.

The existence of the list is flagged without fanfare in the RBNZ’s half-yearly Financial Stability Report.

“The Reserve Bank has recently identified those insurers whose failure would likely have a high impact in terms of soundness, stability or confidence in the sector, and will dedicate more resources to supervising this group,” it says.

A bank spokesman says insurers are categorised according to the likely impact of their failure, but he declined to name the “high-impact” groups or reveal their number.

“There are 96 licensed insurers in New Zealand, comprising a diverse sector in terms of size and lines of business,” the spokesman told insuranceNEWS.com.au.

“The failure of some of these 96 insurers could have a very significant impact, while the failure of others would have a much smaller impact. 

“What differs between insurers is the level of resources that we apply to supervising them.”

The impact of a licensed insurer’s failure will depend on “among other things, its size and the type of insurance it provides”.

The half-year report is upbeat on New Zealand’s insurance sector, noting its “significant” net asset growth since the introduction of licensing.

“Over this period, net assets grew at an annual rate of 9%, increasing policyholder security,” the report says.

“Much of this increase for New Zealand insurers was driven by the Reserve Bank’s introduction of insurer capital and solvency requirements, which resulted in significant capital injections.”

However, the report notes the insurance sector continues to be affected by low interest rates.

“Low long-term interest rates drive down investment returns and squeeze insurers’ profitability. This environment is particularly difficult for life insurers, which need to generate sufficient returns to cover expected claims extending many years into the future.”

Low reinsurance costs have helped offset the negative effects of low interest rates.

“The cost of traditional reinsurance capital has stabilised over the past six months (in US dollar terms). However, overall reinsurance costs have generally continued to decline, partly due to further growth in reinsurance provided through capital markets.

“Alongside strong competitive pressures, including from new entrants, this has placed further downward pressure on domestic insurance premiums.

“It remains important in this competitive environment that insurers do not lower underwriting standards in an attempt to increase returns or market share.”