On 6 May 2025, the Reserve Bank of New Zealand (RBNZ) published the results from its 2024 General Insurance industry stress test. The purpose of the stress tests was to assess the insurance industry’s ability to respond in the situation of a major earthquake and severe, but plausible, cyber-risk incidents.
The test used the specific scenario of an 8.7 magnitude earthquake rupturing the central and adjacent sections of the Hikurangi subduction zone. According to the RBNZ, this scenario would result in widespread damage and a sharp decline in the nation’s gross domestic product. Participating insurers modelled property losses of $62 billion, which rose to around $100 billion if extrapolated out to cover the whole market.
According to the Director of Financial Stability Assessment and Strategy, Kerry Watt, despite the severity of the scenario, the claims of policyholders would have been met. The modelling showed that of all losses, approximately half were covered by the government-guaranteed Natural Hazards Commission, 39% were covered by reinsurance arrangements, 8% were retained by policyholders, and the remainder was covered by the insurers.
The testing also included the scenarios of a major data security breach, an outage of an important cloud service provider, and a ransomware attack. These three scenarios were developed in collaboration with Lloyd’s of London, the Bank of England Prudential Regulatory Authority and New Zealand's Computer Emergency Response Team.
According to the results, the participating insurers showed resilience to claims arising from large cyber events, although these could have a significant impact on their profitability.
RBNZ now intends to begin providing participating insurers with recommendations and peer group comparisons to support the development of their risk management and modelling capability in relation to significant seismic and cyber events.
Dentons reports that this will affect all New Zealanders, but will not change the status quo.
A copy of the results can be found at www.rbnz.govt.nz
Article courtesy of Dentons www.dentons.com
