Insurance regulator the Reserve Bank of New Zealand (RBNZ) may ask insurers and their actuaries to provide information on how they classify life insurance business, specifically in terms of how products are grouped for the purpose of calculating profit and solvency.

The RBNZ is looking at how the classification of business into related product groups can have a very material effect on required capital requirements.

The bank notes “there appears to be a wide range of interpretations throughout the industry of the wording of the definition of a related product group”.

The RBNZ has also been working with the auditing profession to clarify audit requirements for annual solvency returns and is still developing its position. Arrangements have been made for insurers that require returns to be audited in the near future.

It is also considering its position on reinsurance agreements that have, or could be considered to have, a financing element.

The bank has warned insurers that since “financial reinsurance can have the effect of undermining the objectives of solvency capital requirements”, there is a question around what the correct treatment is for solvency purposes.

According to the RBNZ, the industry needs to be aware that accounting treatment for such contracts “will not necessarily meet the bank’s requirements in this respect”.

A public consultation on these issues may be developed to examine possible changes to solvency standards.