In May 2025, the Reserve Bank of New Zealand (RBNZ) published the results of its 2024 General Insurance Industry Stress Test (GIIST). This was not just a technical exercise for actuaries and regulators. The findings hold real implications for businesses, households, and policymakers who all rely on the stability of the insurance system. For companies reviewing cover or working with insurance brokers in NZ, the report provides timely insights into how the market could respond under pressure.
What the stress test set out to do
The RBNZ stress test examined how seven of New Zealand’s largest general insurers — together representing roughly 75 per cent of the market — would cope with severe shocks over a three-year horizon. The two chosen stress types were both highly relevant to New Zealand’s risk landscape:
- Seismic shock: a magnitude 8.7 earthquake on the Hikurangi Subduction Zone, followed by a powerful aftershock and tsunami.
- Cyber shock: three scenarios including a mass data breach, a systemic cloud outage, and a widespread ransomware attack.
By pushing insurers through extreme but plausible scenarios, the RBNZ aimed to reveal vulnerabilities, test recovery planning, and build sector capability.
Earthquake scenario: scale of potential losses
The seismic scenario dominated the results. Participating insurers estimated NZD 62 billion in insured property losses, which the RBNZ extrapolated to NZD 80–100 billion for the whole market. To put this in perspective, that is several times the annual government budget for health or education.
How would these losses be shared? Around half would fall on the government-backed Natural Hazards Commission, nearly 40 per cent on global reinsurers, and about 8 per cent on households and businesses through deductibles or underinsurance. The remainder — close to NZD 1 billion — would still rest with New Zealand insurers.
The solvency impact was dramatic. Aggregate solvency ratios dropped from 168 per cent to just 11 per cent in the first year. While recovery actions such as capital injections, repricing, and restructuring reinsurance would help, the scenario highlights just how dependent the sector is on external support.
Cyber scenarios: smaller numbers, big implications
While the cyber scenarios involved smaller dollar amounts than the earthquake model, they exposed different vulnerabilities. A 48-hour outage at a major cloud provider, for example, cut insurer profits by a third. Silent cyber — where policies not explicitly covering cyber still face exposure — emerged as a grey area requiring urgent clarification.
For businesses, the message is clear: cyber risk is no longer a niche concern. Insurers are grappling with modelling challenges, gaps in data, and uncertainty around coverage. Organisations should not assume their existing policies will respond as expected in the event of a systemic cyber incident. This is particularly relevant for those relying on public liability insurance, where clarity on exclusions and limits is vital.
Broader lessons
Several themes stand out from the 2024 results:
- Resilience is layered. New Zealand’s insurance system leans heavily on the Natural Hazards Commission and international reinsurance markets. These backstops are essential to keep claims payable.
- Recovery requires capital. Insurers’ ability to bounce back depends on their access to capital markets and the willingness of overseas parents to provide financial support.
- Affordability tensions remain. As insurers move toward more risk-based pricing, premiums will rise in hazard-exposed areas. This creates difficult questions about insurance affordability and availability.
- Governance and modelling must improve. The exercise revealed data gaps, modelling inconsistencies, and governance challenges, particularly in the emerging area of cyber.
Why it matters for business
For New Zealand businesses, these findings are more than regulatory box-ticking. They underline the importance of understanding insurance as part of wider risk management. Coverage may be available, but affordability, exclusions, and systemic vulnerabilities need to be considered in business continuity planning.
The RBNZ’s stress test demonstrates both the fragility and the strength of the system. It shows that while policyholders are likely to be protected even under extreme events, the sector’s stability depends on strong reinsurers, supportive parent companies, and government backing. For business leaders, the lesson is to stay engaged, read the fine print, and view insurance not just as a cost, but as a strategic safeguard in an uncertain future.
You can download the 2024 General Insurance Industry Stress Test (GIIST) here.