New Zealand Life Insurance Outlook Stable

AM Best Maintains Stable Outlook for New Zealand Life Insurance Market

        AM Best has reaffirmed its stable outlook on the New Zealand life insurance market, supported by a gradual economic recovery, strengthening regulatory frameworks, and solid capital adequacy across insurers. Despite ongoing macroeconomic challenges, the sector continues to demonstrate resilience, underpinned by disciplined risk management, digital transformation initiatives, and improving governance standards.

        The rating agency highlights that insurers operating in New Zealand remain well-capitalized, with balance sheets capable of absorbing near-term volatility. This financial strength is particularly critical as the life insurance industry navigates regulatory reform, evolving consumer expectations, and rising operational costs.

Economic Recovery Supports Stability, but Growth Remains Cautious

        Although New Zealand’s economy is showing early signs of stabilization, AM Best expects life insurance premium growth to remain subdued in the short to medium term. Persistent cost-of-living pressures, elevated household debt levels, and modest real wage growth continue to limit discretionary spending on protection products, including term life insurance and income protection policies.

        Consumers remain cautious, prioritizing essential expenses over long-term financial protection. As a result, insurers are facing a slower pace of new policy acquisition, particularly in middle-income segments that are most sensitive to inflation and interest rate fluctuations.

Competitive Pressure Drives Discounts and Margin Compression

        According to AM Best, prolonged competition within the life insurance sector is encouraging product optimization, heavier discounting, and aggressive incentives aimed at attracting new customers. While these strategies can support policy volumes, they also pose risks to profitability.

        “These competitive dynamics can weaken new business margins and increase lapse risk, which has remained elevated in the post-pandemic period,” said Yi Ding, Associate Director at AM Best. Higher lapse rates directly affect insurers’ earnings stability, particularly for companies with large legacy portfolios and long-duration liabilities.

Regulatory Compliance Adds Cost Burden for Insurers

        Regulatory reform continues to shape the operating environment for New Zealand insurers. The Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act), which came into effect on 31 March 2025, requires insurers to operate under a fair conduct principle. This framework mandates ethical treatment of policyholders and transparency throughout the entire product lifecycle.

        While the CoFI Act is designed to strengthen consumer trust and market discipline, it also increases compliance costs. Insurers must invest in governance frameworks, internal controls, staff training, and compliance monitoring systems to meet regulatory expectations.

IFRS 17 and Technology Investments Weigh on Profitability

        In addition to CoFI requirements, insurers have already absorbed substantial costs related to IFRS 17, which became effective in January 2023. The accounting standard significantly changed how insurance liabilities, revenue recognition, and profitability are reported, requiring extensive system upgrades and actuarial model enhancements.

        With CoFI implementation now underway, insurers face further technology investments to align operational systems with conduct regulations. These combined regulatory and accounting changes continue to pressure short-term profitability, particularly for smaller insurers with limited economies of scale.

Smaller Insurers Face Higher Modernization Pressure

        AM Best notes that smaller insurers and those managing large legacy policy portfolios are under disproportionate pressure. These companies must modernize outdated systems, strengthen oversight mechanisms, and maintain regulatory compliance while preserving profitability.

        Balancing investment in digital infrastructure with cost control is becoming increasingly challenging. However, failure to modernize could expose insurers to regulatory risk, operational inefficiencies, and declining competitiveness in an increasingly digital insurance market.

Digital Transformation and Capital Strength Remain Key Positives

        Despite these headwinds, AM Best emphasizes that digitalization efforts across the sector are delivering long-term benefits. Insurers are leveraging automation, data analytics, and customer-centric platforms to improve underwriting efficiency, reduce operating costs, and enhance policyholder engagement.

        Strong capital adequacy remains a cornerstone of market stability. Most New Zealand life insurers maintain capital buffers above regulatory minimums, providing resilience against economic shocks, claims volatility, and regulatory transitions.

Market Outlook: Stable but Selective Opportunities Ahead

        Looking ahead, AM Best expects the New Zealand life insurance market to remain stable, supported by robust capital positions and regulatory discipline. However, growth opportunities are likely to be selective rather than broad-based, favoring insurers with scalable technology platforms, efficient cost structures, and diversified product offerings.

        Insurers that successfully balance regulatory compliance, digital investment, and disciplined pricing are better positioned to sustain profitability and protect long-term shareholder value in a challenging economic environment.