Insurance premiums in New Zealand face “downward pressure” amid low interest rates worldwide, according to a new report.

Persistent low interest rates are challenging for the industry, but the upside is that reinsurance costs have declined, the Reserve Bank of New Zealand’s (RBNZ) twice-yearly Financial Stability Report says.

“The search for yield stimulated by low interest rates is benefitting the general insurance sector, which reinsures a portion of liabilities with global insurers.

“The New Zealand general insurance sector is benefitting from these global trends.”

However, these benefits may not be reflected in retail premiums, because some insurers have suffered weather-related losses in recent months.

Insurers must remain prudent and set premiums according to risk, according to the RBNZ.

The report says insurers had paid out $NZ24 billion ($22.2 billion) to settle Canterbury earthquake claims as of March 31.

Several insurers have raised their final claims estimates, which the regulator calculates will total $NZ33-$NZ38 billion ($30.6-$35.2 billion).

“Insurers have been funding increased costs through a combination of reinsurance, reductions in existing capital and injections of new capital,” the RBNZ says.

“There remains a risk of negative surprises to individual insurers.”