See all chapters of Encyclopaedia of Prudential Solvency and
A Guide to Solvency II.
Introduction
This chapter of The Encyclopaedia of Prudential Solvency discusses the prudential solvency regimes in Australia and New Zealand. Australia and New Zealand’s insurance sectors offer mature and resilient prudential systems, underpinned by common commitments to risk-based capital adequacy, policyholder protection and due consideration to climate-related risks. This chapter outlines the two prudential solvency frameworks, including their regulatory structures, capital adequacy standards, valuation methodologies and disclosure practices, in addition to the distinctive characteristics that define the Australian and New Zealand regimes.
1. Overview of the Insurance Markets
Australia
The Australian insurance market is one of the largest in the Asia-Pacific region. The market is highly concentrated, with a few large companies dominating both the life and non-life sectors. The life insurance sector in 2025 accounted for approximately AUD26.2 billion (US$17.3 billion at the time)1 in gross written premiums (GWP), whilst the non-life sector in 2024 represented around AUD94.7 billion (US$62.5 billion at the time)2 in GWP. Life insurance products available in Australia include term life insurance and disability income insurance. Australian insurers are distinctive in offering lump sum total and permanent disability insurance, as well as trauma and critical illness insurance. Additionally, life insurers in Australia provide superannuation-linked insurance products.
As evident from the figures above, non-life products hold a particularly prominent market share, representing approximately 70% of life and non-life revenue combined in 2025. Australia’s insurers frequently deal with extreme weather events, yet remain robust and profitable, with FY 2025 being an especially strong year. However, cost-of-living pressures, rising business insolvencies, and accelerating climate and cyber risks may impact Australian insurers going forward. Distribution channels include intermediaries, direct sales and, increasingly, digital platforms. The market is mature, well regulated and characterised by a strong emphasis on consumer protection and ongoing innovation.
New Zealand
The New Zealand insurance market is smaller in scale. The market is reasonably concentrated, with a mix of local and international insurers operating within it. Distribution occurs through intermediaries and direct channels, and digital adoption is steadily increasing (although it is less common than in Australia).
The market is undergoing significant evolution, such as moving towards risk-based pricing for climate and natural hazards, supported by recent regulatory reforms designed to enhance consumer protection and market stability. Property and casualty (P&C) insurance remains the dominant sector, influenced by rising reinsurance costs and increasing climate-related risks.
Earthquake focus: The significant potential for earthquake damage in New Zealand has provided a challenge to the insurance industry over the last century. Following a series of destructive earthquakes beginning in the 1920s, the premiums that needed to adequately insure against such risks became prohibitively expensive for the standard commercial market. In response, the government established the New Zealand Earthquake Commission (EQC) in the early 1940s, originally named the Earthquake and War Damage Commission. Over time, coverage for war damage was deemed unnecessary, and the scheme pivoted to include certain other natural disasters along with earthquake coverage (such as natural landslips, volcanic eruptions and tsunamis) partially in response to climate change physical impacts. Reflecting that expansion, the EQC was recently renamed the Natural Hazards Commission — Toka Tu Ake. Currently earthquake coverage is automatically included when individuals purchase home, contents and fire insurance from private insurers. As a result, up to 80% of the economic losses resulting from an earthquake are insured, ensuring that resources are available for reconstruction efforts.
Consolidated accident compensation: Another unique feature of New Zealand is the no-fault accidental injury compensation scheme administered by the Accident Compensation Corporation (ACC). Since 2000, the ACC has been the sole and compulsory provider of accident insurance in New Zealand for all work and nonwork-related personal injuries,3 primarily funded through a combination of levies and government contributions. As a result, the market for personal injury insurance is limited in New Zealand.
Term life insurance: Life insurance in New Zealand is primarily term life insurance, with only low levels of the types of life insurance, such as investment-based policies, that dominate in other markets (primarily due to the New Zealand tax treatment).
2. Regulatory Frameworks
Australia’s Regulatory Framework
Australia’s insurance sector falls under a “twin peaks” regulatory system that splits financial regulation between Australia’s two largest regulatory authorities: The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
APRA: APRA is Australia’s prudential regulator, responsible for prudential standards and supervision in line with its objective of promoting financial stability — for both general and life insurers (including reinsurance companies) and other financial institutions, including deposit-takers. APRA is a member of the International Association of Insurance Supervisors (IAIS). As a prudential regulator, APRA sets and enforces the prudential standards that insurers must meet. The Australian Federal Register of Legislation contains the authorised versions of all prudential standards and other legislative instruments made by APRA, and APRA’s Prudential Handbook sets out how these standards fit within the wider regulatory framework.4 APRA has investigatory powers, can commence proceedings against firms and may impose conditions or restrictions on individuals and businesses.
ASIC: ASIC is the general corporate and financial services regulator for market conduct. The commission oversees the licensing, disclosure and conduct requirements for financial services firms, including general insurers, life insurers and insurance intermediaries. ASIC also has enforcement powers similar to APRA and cooperates with APRA on investigations. ASIC can intervene in the market to ban defective products or exercise discretionary power to grant businesses relief from certain legislative provisions.
AFCA: The Australian Financial Complaints Authority (AFCA) is an independent external dispute resolution scheme, established to “independently and impartially” deal with consumer and small business disputes involving financial firms.5 The authority provides an alternative resolution forum for insurance claim disputes, instead of going to court. AFCA’s determinations are binding on the financial provider but not on the complainant, who can bring a complaint before AFCA and, if not happy with its determination, then seek redress through the courts. Before considering a complaint, AFCA must confirm that the complaint can be resolved under AFCA’s Complaint Resolution Scheme Rules (AFCA Rules).6 This typically involves a complaint made by an eligible person about a financial firm that is an AFCA-member, with which the person has a specific type of relationship.7 The complaint must be made within the time limit and have a sufficient connection to Australia. Certain claims are excluded, such as complaints about a “general insurance policy” other than specific policy types, or complaints about underwriting or actuarial factors leading to an offer of a life insurance policy on nonstandard terms.
Insurance acts and regulations: The Insurance Act 1973 (Cth) and the Insurance Regulations 2024 provide the framework governing the authorisation and prudential regulation of general insurers and reinsurers. The Life Insurance Act 1995 (Cth), in tandem with the Life Insurance Regulations 2024, provide the regulatory framework for the registration and prudential regulation of life (re)insurers. APRA is responsible for administering these regulatory frameworks. General insurers are required to obtain APRA authorisation under the Insurance Act 1973 to conduct general insurance business (including general reinsurance). Life insurers must be registered by APRA as a life company or friendly society under the Life Insurance Act 1995 (Cth) to conduct life (re)insurance business.
Licensing under the Corporations Act: The Corporations Act 2001 (Cth) and the Corporations Regulations 2001 provide the principal regulatory framework for Australian companies, financial services and markets. The sale of specific general and life insurance products is regulated under Chapter 7 of the Corporations Act 2001 (Cth), which imposes licensing, disclosure and conduct requirements. This legislation does not apply to reinsurance products. ASIC is responsible for overseeing, administering and enforcing these regulatory frameworks. The Corporations Act 2001 (Cth) mandates that entities carrying on a “financial services business” (including, amongst other things, providing financial product advice, dealing in a financial product or providing a claims handling and settling service) must hold an Australian Financial Services Licence (AFSL) in addition to APRA registration or authorisation, unless exceptions apply. The Corporations Act 2001 (Cth) excludes reinsurance as a financial product, so pure reinsurers are exempt from holding an AFSL.
Other regulations: The Insurance Contracts Act 1984 (Cth) and the Insurance Contract Regulations 2017 dictate the interpretation, application and operation of general insurance and life insurance contracts. The act significantly modifies aspects of the previous common law, including modifying the intending insured’s duty of disclosure and in certain circumstances limiting an insurer’s ability to rely on the terms of the insurance contract to limit or deny indemnity.
The Insurance Acquisitions and Takeovers Act 1991 (Cth) provides the rules for acquisitions of Australian companies authorised to carry on businesses of insurance under the Insurance Act 1973 (Cth) or the Life Insurance Act 1995 (Cth). Regulation for the shareholding of financial services entities, such as insurance companies, is governed by the Financial Sector (Shareholdings) Act 1998 (Cth) and Financial Sector (Transfer and Restructure) Act 1999 (Cth). Under these regulations, acquiring more than a 20% “stake” in an insurance or reinsurance company is prohibited, without first applying to the Commonwealth Treasurer for approval on national interest grounds or other limited grounds. A “stake” is essentially the percentage of voting power. A person’s stake includes the interests of the person’s associates, which includes companies which the relevant person owns or is owned by (with a stake of 20% or more) and additionally includes associates of associates. Whilst the legislation refers to the Commonwealth Treasurer overseeing the operations of this legislation, the Treasurer’s approval powers are delegated to APRA.8
The Foreign Acquisitions and Takeovers Act 1975 (Cth) sets out the approval process for any investments into, or acquisitions of, an Australian insurance or reinsurance business by a foreign entity. This must be notified to and approved by the Commonwealth Treasurer, although the approval process is managed by the Foreign Investment Review Board.
New Zealand’s Regulatory Framework
New Zealand has implemented a distinct regulatory framework, which differs from the Australian framework to a greater degree than might be anticipated.
The Reserve Bank and the FMA: In New Zealand, the Reserve Bank of New Zealand (Reserve Bank) is both the central bank and the prudential regulator for banks and insurers, responsible for prudential licensing, solvency standards and ongoing supervision. The Financial Markets Authority (FMA) oversees market conduct and disclosure, and conduct licensing under the conduct of financial institutions (CoFI) regime. The Reserve Bank is a member of the IAIS and the FMA is a member of the International Organization of Securities Commissions (IOSCO).
The Reserve Bank of New Zealand Act 2021 establishes the Reserve Bank’s main objectives, one of which involves “protecting and promoting the stability of New Zealand’s financial system.”
IPSA and FMCA legislation: The primary legislation is (i) the Insurance (Prudential Supervision) Act 2010 (IPSA), which the Reserve Bank supervises from a prudential perspective and (ii) the Financial Markets Conduct Act 2013 (FMCA), under which the FMA supervises conduct. The latter was amended by the Financial Markets (Conduct of Institutions) Amendment Act 2022, effective from March 2025, which requires financial institutions and their intermediaries to comply with fair conduct and associated duties, in relation to retail banking and consumer insurance.
The Reserve Bank released its exposure draft of the Insurance (Prudential Supervision) Amendment Bill in late April 2026 to amend various provisions of IPSA. The Reserve Bank is still consulting on this draft and has indicated a six-year timeline for full implementation of the amended act. However, the standards made under IPSA, which include the solvency standard, are likely to extend beyond this timeline.
Other regulations: The FMA also oversees New Zealand’s mandatory climate-related disclosures regime which, since 2023, has been applicable to “large insurers,” namely those licensed insurers with over NZ$250 million annual premium income or over NZ$1 billion in gross assets. Such obligations require in-scope insurers to publish annual climate statements in accordance with the Aotearoa New Zealand Climate Standards, aligning with the Task Force on Climate-Related Financial Disclosures principles. The Financial Markets Conduct (Amendment) Bill 2026, currently before the New Zealand Parliament, is expected to be enacted in late 2026. Amongst other updates, the bill will exclude life and health insurers (which are not otherwise covered as large NZX listed entities in the regime), and change the “large threshold” to refer to “annual total insurance revenue” rather than “annual premium income.”
Another major development underway in New Zealand is the new Contracts of Insurance Act 2024. Whilst this does not come into full force until November 2027, the FMA as regulator expects insurers to be actively preparing for compliance in advance, including by reviewing and updating policy wording.9 Most insurers’ compliance projects are underway. These reforms are anticipated to make once-in-a-generation changes to insurance law, elevating the importance of policyholder protections, fundamentally changing disclosure duties and applying unfair-contract-terms regimes to some policies.
3. Requirements for Foreign Insurers
Australia
In Australia, foreign insurers are generally required to either establish a locally incorporated subsidiary or operate via an Australian branch of a foreign entity, with both options requiring authorisation from APRA. In most cases, the insurer will also need to obtain an AFSL from ASIC.10 These entities must (i) satisfy minimum capital requirements, (ii) maintain robust risk management frameworks and (iii) ensure that key personnel meet APRA’s fit-and-proper standards. A foreign insurer must demonstrate that it is an authorised insurer in its home jurisdiction and has received the requisite consent from its home jurisdiction supervisor to establish insurance operations in Australia. All authorised insurers must comply with APRA’s prudential standards, including a requirement to hold assets in Australia that exceed their liabilities in Australia with an appropriate buffer. A foreign branch must also appoint an agent in Australia, who may be an individual or a corporation.
Certain offshore insurers are, however, permitted to provide insurance in Australia without APRA authorisation in limited circumstances, such as when providing reinsurance or insuring high-value or unusual risks, provided those insurers meet specific criteria.
New Zealand
In New Zealand, foreign insurers are required to obtain an IPSA licence from the Reserve Bank, either by establishing a locally incorporated entity or by operating as a branch of an overseas insurer. Recent reforms now require nonoperating holding companies of insurers to also be approved, enabling the Reserve Bank to effectively supervise entire insurance groups. Certain overseas reinsurers and covered insurers may be exempt from licensing if they operate solely as reinsurers.
All licensed insurers must meet minimum solvency and risk management requirements. The Reserve Bank evaluates the financial strength and regulatory standing of the parent entity as part of the licensing process. Insurers are also subject to additional disclosure and reporting obligations to promote transparency and protect policyholders.
An insurer seeking a licence must show that it (i) has sound governance and ownership arrangements in place, (ii) uses an effective risk management framework, (iii) maintains an approved financial strength rating and (iv) meets the prescribed solvency requirements, ensuring the insurer can operate its business responsibly. Additionally, the insurer is responsible for evaluating the suitability and integrity of all directors and senior management, including the appointed actuary. If the insurer is established or headquartered overseas, the Reserve Bank will also consider the regulatory and legal environment of the insurer’s country of origin as part of the licensing assessment.
The potential obligation to obtain a financial institution licence from the FMA also needs to be considered carefully for both branches and subsidiaries. Any licensed insurer that provides certain relevant services to consumers in New Zealand needs to hold a financial institution licence to continue operating.11 Financial institutions in New Zealand only providing relevant services or associated products to consumers outside of New Zealand will not need to hold or operate under a financial institution licence.12
4. Prudential Capital Standards
Australia’s Prudential Capital Standard
Non-life insurers in Australia must maintain a Minimum Capital Requirement (MCR) to cover a range of risks, including insurance claims, investment risks, counterparty defaults, asset-liability mismatches, catastrophic events and operational errors. The absolute minimum capital for most insurers is AUD5 million (~US$3.5 million).13 APRA expects insurers to maintain a reasonable buffer amount above the MCR. Under Section 28 of the Insurance Act 1973 (Cth), general insurers are required to maintain assets in Australia that equal or exceed their total amount of liabilities in Australia. A foreign general insurer operating as a foreign branch in Australia must maintain assets in Australia that exceed its liabilities in Australia by an amount that is greater than its MCR.
There are three approaches to calculating the MCR:
- The Prescribed Method. Insurers may employ a risk-based, factor-driven approach to capital charges for insurance, investment and concentration risks, with additional capital for high exposures.
- The Internal Model Based (IMB) Method. Insurers may use APRA-approved internal models to estimate required capital, provided the model is robust, well governed and covers all material risks.
- A combination method. Insurers can use the IMB Method for some risks or business segments and the Prescribed Method for others, with APRA’s approval.
Insurers must always hold eligible capital above the MCR.
Insurers must comply with all governance, risk management and reporting requirements. General insurers or life companies (including reinsurers) must (i) undergo an Internal Capital Adequacy Assessment Process (ICAAP), (ii) comply with supervisory adjustments imposed by APRA, (iii) make certain public disclosures about their capital adequacy position and (iv) seek consent for certain planned capital reductions. Insurers must also inform APRA of any significant adverse changes in their capital position, in addition to any material changes to their risk management strategies or internal models (with significant changes potentially requiring approval).
Note that life insurers in Australia are subject to a different regulatory system and are not covered by the same requirements as general insurers. Whilst both life and general insurers are dual-regulated by APRA and ASIC, the business types operate under separate, specialised legislation and licensing regimes. From APRA’s perspective, life insurers are governed primarily by the Life Insurance Act 1995 (Cth), whereas general insurers are primarily governed by the Insurance Act 1973 (Cth). APRA sets different capital requirements based on the business risk profile, with higher minimum capital requirements for life insurers (AUD10 million, or US$6.9 million) compared to general insurers (AUD5 million, or ~US$3.5 million) and a solvency standard that requires the capital base of the life insurer’s statutory funds to exceed 90% of the fund’s prescribed capital amount.
New Zealand’s Prudential Capital Standard
New Zealand uses a risk-based capital approach, with solvency standards set by the Reserve Bank. Insurers must maintain a minimum solvency margin, calculated based on the nature and scale of their business. The standards cover insurance risk, asset risk and other relevant risks. There are significantly different approaches taken in relation to general insurers and life insurers.
The Reserve Bank can intervene if an insurer’s solvency margin falls below the required level, including requiring remedial action or, in extreme cases, restricting business operations.
Notably, New Zealand has the highest risk-based capital standard in the world in relation to seismic risk for general insurers. The Reserve Bank imposes a high catastrophe-risk charge on New Zealand licensed insurers, which must hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-1000-year seismic event. Other risks are calibrated to a 1-in-200-year basis. By contrast, insurers globally would usually be expected to hold sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-200-year or 1-in-250-year catastrophic event.
Therefore, whilst both countries prioritise the financial stability of insurers, New Zealand’s regulations demand greater capital reserves to address the elevated risk of seismic events.
5. Corporate Governance Requirements
Australia
APRA imposes strict governance and risk management standards, charging a company’s board of directors with ultimate responsibility for sound management. By statute, each insurer is required to have an appointed auditor and an appointed actuary, who must be independent of each other.
Key governance requirements include: (i) specific rules on board size and composition; (ii) appointment of an independent chairperson; (iii) establishment of a board audit committee and a dedicated internal audit function; and (iv) implementation of policies for board renewal and performance assessment. All APRA-regulated entities are required to maintain a fit-and-proper policy to assess responsible individuals prior to appointment and on an annual basis and to provide certain fitness and propriety information to APRA.
Risk management standards require that all APRA-regulated entities maintain a risk management framework, including a board-approved risk management strategy, risk appetite statement and business plan. A regulated entity must notify APRA when it becomes aware of a significant breach of or material deviation from the risk management framework, or where the risk management framework does not adequately address a material risk. A board-approved business continuity management policy and associated plan are also required, with the plan subject to annual review. Insurers must also notify APRA of certain disruptions to business continuity.
As part of a general insurer’s reinsurance management framework, the insurer must have a documented reinsurance management strategy, sound reinsurance management policies and procedures, and must clearly define managerial responsibilities and controls. The company must resubmit this reinsurance management strategy to APRA upon any material change, and must submit an annual reinsurance arrangements statement. General insurers are required to make an annual reinsurance declaration based on the “two-month rule” and “six-month rule,” described in greater detail below. Life insurance companies are also required to report on prescribed matters relating to reinsurance arrangements on an annual basis and to comply with any conditions imposed by APRA in relation to approved reinsurance or financing arrangements.
New Zealand
In New Zealand, insurers must have effective governance arrangements, including a fit and proper board and senior management, clearly defined accountability and appropriate risk management systems under both (i) IPSA and (ii) if applicable, CoFI regimes.
Every insurer is required under IPSA to have a fit-and-proper policy to determine the appropriateness of its directors and relevant officers, which forms part of the insurer’s risk management programme. There are similar fit-and-proper requirements for the directors and senior managers of insurers with financial institution licences under the CoFI regime.
Whilst the New Zealand insurance regime features less prescription on board composition than the Australian regime does, the Reserve Bank expects the governing body of the insurers to demonstrate independence and expertise, particularly for key roles such as the chief executive officer, chief financial officer and the appointed actuary (which is a statutorily designated role). These requirements include, for New Zealand incorporated insurers, that (i) at least two directors ordinarily reside in New Zealand, (ii) the board chair is independent and a nonexecutive director, and (iii) at least half of the board directors are independent. Other requirements apply to insurers operating in New Zealand as branches of an overseas incorporated entity.
IPSA requires insurers to have a risk management programme that sets out the insurer’s procedures, documentation and record-keeping to ensure effective identification and management of all types of risks. The Reserve Bank must approve material amendments to risk management programmes.
6. Disclosure Obligations
Australia
Under the Corporations Act 2001 (Cth), AFSL holders are subject to a range of specific disclosure obligations related to “retail clients,” which rules generally apply to individuals and occasionally small businesses. These obligations include (i) ensuring that Product Disclosure Statements (PDSs), Financial Services Guides (FSGs) and general advice warnings are provided to retail clients when required, (ii) providing a Statement of Advice to retail clients when personal advice is given and (iii) providing prescribed information to retail clients where a Statement of Advice is not required.
More generally, insurers or reinsurers listed on the Australian Securities Exchange (ASX) or otherwise classified as disclosing entities are subject to continuous disclosure rules. ASX Listing Rule 3.1 and Part 6CA of the Corporations Act 2001 (Cth) require that material price-sensitive information be disclosed to the market immediately once a company becomes aware of it.
New Zealand
New Zealand does not currently impose comparable disclosure requirements applicable to insurers under IPSA. However, insurers with financial institution licences under the CoFI regime are required to treat consumers fairly, which includes acting ethically, transparently and in good faith to enable consumers make informed decisions. The Contracts of Insurance Act 2024 will also elevate the importance of consumer protection, making transparency and accurate disclosures key.
Further, insurers are subject to the fair dealing provisions under Part 2 of the FMCA, which prohibits misleading or deceptive conduct, the making of false or misleading representations and the making of unsubstantiated representations related to the provision of financial products and financial services (including contracts of insurance). Insurers should consider whether they are providing other financial services, such as financial advice, that may trigger different licensing and associated disclosure obligations.
Disclosures requirements are likely to change with the proposed IPSA reforms.
7. Reporting Requirements
Australia
In Australia, insurers must submit comprehensive financial and risk management reports to APRA, including annual and quarterly statutory returns based on modified IFRS, and a certificate from the appointed auditor confirming the accuracy of yearly statutory accounts. The appointed auditor also needs to provide a detailed report on the effectiveness of the insurer’s systems, procedures and controls, as well as any noncompliance or issues that could impact policyholders. The appointed actuary must produce an annual report on the insurer’s financial condition and an Insurance Liability Valuation Report (ILVR), both of which the insurer must submit to APRA. Life insurance companies are also required to report annually on prescribed reinsurance arrangement matters.
ASIC also imposes mandatory reporting obligations under the Corporations Act 2001 (Cth). AFSL holders, or their representatives, must notify ASIC within 30 calendar days of first knowing (or being reckless regarding whether) there are reasonable grounds to believe a “reportable situation has arisen” under Section 912DAA of the Corporations Act 2001 (Cth). These situations include circumstances such as (i) significant breaches or likely significant breaches of “core obligations” (as defined in Section 913D(3) of the Corporations Act 2001 (Cth)) or (ii) investigations into such significant breaches, where these last longer than 30 days. Failure to report breaches to ASIC can attract civil and criminal penalties in the form of fines. ASIC’s maximum civil penalty for companies is the greater of (i) 50,000 penalty units (currently AUD16.5 million, or ~$US11.4 million), (ii) three times the benefit paid or detriment avoided, or (iii) 10% of annual turnover (capped at 2.5 million penalty units, currently AUD825 million, or ~US$569 million). The value of a single penalty unit is currently AUD330 (~US$227 million) for offences committed on or after 7 November 2024, but is scheduled to be indexed on 1 July 2026 based on the formula in Section 4AA of the Crimes Act 1914 (Cth).
New Zealand
In New Zealand, insurers must provide annual and half-yearly financial statements in accordance with generally accepted accounting practice and quarterly solvency returns to the Reserve Bank. Annual attestations to an insurer’s compliance with IPSA and any other applicable legislation signed by two directors (or the New Zealand CEO in the case of overseas insurers) may also be required to be provided to the Reserve Bank as a condition of licence.
Importantly, IPSA requires an insurer to provide annual reports to the Reserve Bank from the insurer’s appointed actuary. The actuarial report must include an assessment of the insurer’s financial condition and solvency, and the appointed actuary’s opinion on whether the insurer is maintaining the applicable solvency margin.
Under IPSA, insurers must notify the Reserve Bank upon the occurrence of a range of material events, including changes to directors, senior managers or the appointed actuary; changes of control; or changes in a company’s financial strength rating.
Insurers with financial institution licences have reporting obligations under the FMCA, including to report to the FMA if the insurer has reasonable grounds to believe that it has contravened, or is likely to contravene, any of its licensee obligations in a material respect under Section 412 of the FMCA.
8. Asset and Liability Valuation
Australia
Australia, under the supervision of APRA, applies a predominantly principles-based prudential framework. Insurers are required to value assets and liabilities largely on a fair-value basis in line with accounting standards, technical provisions determined using actuarial best estimates plus a risk margin. Rather than imposing rigid quantitative asset limits, APRA relies on strong governance requirements, board-approved investment frameworks and risk-based capital charges to discourage excessive concentration or inappropriate risk-taking. Asset liability management (ALM) is explicitly embedded within the framework, with capital requirements sensitive to market, credit, liquidity and mismatch risks.
New Zealand
New Zealand, under the supervision of the Reserve Bank, also adopts fair-value accounting for assets and applies prescribed solvency standards to determine liability valuation and capital requirements. The regime combines actuarial certification, solvency formulae and supervisory oversight to constrain investment risk. The approach is somewhat more structured and formula-driven than Australia’s, particularly regarding asset eligibility and solvency margin calculations. ALM considerations are incorporated through liability valuation methods, discount rate prescriptions and solvency stress calculations, though the framework is generally less granular and less capital-sensitive to mismatch risk than Australia’s system is.
9. Reinsurance and Risk Transfer
Australia
Australia has detailed prudential standards for reinsurance, requiring genuine risk transfer and counterparty creditworthiness. Insurers must report reinsurance arrangements to APRA and may only receive capital relief if risk transfer is demonstrably effective. There are also requirements for reinsurance recoverables and exposure limits regarding single reinsurers.
In order for a general insurer to have its reinsurance arrangements recognised for the purposes of prudential regulation, the insurer must enter into legally binding reinsurance arrangements, following the “two-month rule” and “six-month rule” for signing and stamping placing slips and formal reinsurance contracts. Reinsurance contracts must also be governed by Australian law and subject to Australian courts for disputes. A general insurer must maintain (i) a documented reinsurance management strategy as part of the insurer’s reinsurance management framework, (ii) sound reinsurance management policies and procedures and (iii) clearly defined managerial responsibilities and controls. Life insurance companies are also required to report annually on prescribed matters relating to reinsurance arrangements and comply with any conditions imposed by APRA related to approved reinsurance or financing arrangements.
In Australia, the content of reinsurance agreements is subject to minimal regulatory oversight, with those agreements governed by their terms and by the common law.
New Zealand
The reinsurance requirements are largely similar to those in Australia. In particular, the regulator requires insurers to have effective reinsurance programs, with the Reserve Bank assessing the adequacy and effectiveness of risk transfer. There are requirements for the financial strength of reinsurers and disclosure of reinsurance arrangements. Capital relief is available where risk transfer is genuine, and the Reserve Bank monitors reinsurance recoverables and counterparty exposures.
When a New Zealand insurer’s reinsurance is arranged via an overseas parent, the Reserve Bank will consider how the arrangement will protect the interests of New Zealand policyholders in the event of stress at the parent level.
Trends and Similarities in Australian and New Zealand Insurance Markets
Underwriters at Lloyd’s are able to underwrite Australian insurance business pursuant to local Australian insurance legislation.14 They are also able to underwrite non-life insurance and reinsurance throughout New Zealand.15 In 2024 a dedicated “syndicate in a box” was established to focus on Australia and New Zealand, specifically entities providing insurance for accidents and health, aviation, casualty, construction, financial lines and property businesses.
More broadly, both the Australian and New Zealand markets are shaped by global insurance trends and the impacts of climate change. Although separated by distance and differing foreign policy alignments, Australia and New Zealand have maintained enduring connections with the wider world through global trade and cultural networks, all whilst preserving a strong sense of independence. Recently, a notable shift has developed in the external economic orientation of the two countries, featuring increased focus on North and Southeast Asia as well as Europe and the United States.
Both Australia and New Zealand possess abundant natural resources, but the countries have different physical environments. Whilst both face material risks from natural disasters, those risks manifest differently in the two jurisdictions.
In Australia, extreme weather has been responsible for $4.5 billion in claims annually on average since 2019.16 Between 2020 and 2025, the insurance market has paid out roughly $22.5 billion in insurance claims for extreme weather events, including cyclones, bush fires and floods.17 This was a 67% increase over the preceding five years.18 Perhaps more concerning for the Australian insurance market is that annual costs for extreme weather events are projected to reach $35.2 billion per year by 2050. The ongoing capacity of both nations and their respective insurance sectors to develop effective responses to such challenges will reflect institutional and market resilience.
In New Zealand, there are no comparable published industrywide statistics. But a weather tracker produced by New Zealand’s largest general insurer group indicated that the country experienced 46 storms in the 12 months prior to the end of February 2026, generating 33,174 storm-related claims for the three insurance brands and marking a 256% increase in storm claims compared with the previous year.19
Comparison With International Regimes
Australia’s risk-based capital regime is broadly aligned with international standards such as Solvency II and the IAIS’ Insurance Core Principles (ICPs). The framework emphasises market-consistent valuation, comprehensive risk coverage and strong governance, positioning Australia amongst the leading jurisdictions for the insurance sector globally.
New Zealand’s solvency standards are also moving towards greater alignment with international best practices, though the current regime is less prescriptive than Solvency II is. As discussed above, the regime is undergoing significant reform, with the New Zealand government agreeing to the Reserve Bank’s recommendations for reform in September 2025, and the Reserve Bank currently consulting on the exposure draft of the IPSA Amendment Bill.
These IPSA reforms aim to move from the current relatively “light touch” model to a more proactive, intensive and risk-based model, more closely aligning New Zealand with international practice in selected jurisdictions, including Europe. The proposals are grouped into nine high-level areas of legislative change and are designed to ensure the maintenance of a sound and efficient insurance sector and to promote public confidence in the sector.
International insurance groups are therefore likely to find many of the concepts discussed within this chapter to be familiar.
Conclusion
The Australian prudential solvency regime is notable for its twin peaks regulatory framework, specific capital standards, and detailed governance and disclosure requirements administered by APRA and ASIC.
New Zealand’s regulatory regimes are in the process of being strengthened. The prudential regime, overseen by the Reserve Bank, imposes stringent capital requirements for seismic catastrophe risk and is subject to enhancement, with upcoming and ongoing reforms to IPSA. The conduct regimes overseen primarily by the FMA are also being bolstered with the introduction of CoFI for consumer insurance in 2025 and the Contracts of Insurance Act 2024, which is intended to make major changes over the coming years.
Both jurisdictions continue to adapt their regulatory frameworks in response to evolving challenges, and together they offer international insurance groups a broadly familiar, even if distinctly calibrated, regulatory environment within the Asia-Pacific region.
With special thanks to MinterEllison in Australia and MinterEllisonRuddWatts in New Zealand for their assistance with research for this publication.
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1 GlobalData, “Australia Life Insurance Market to Grow at CAGR of 3.9% During 2025-29, Forecasts GlobalData” (July 2025).
2 GlobalData, “Australia General Insurance Industry to Reach $93.9 Billion by 2029, Forecasts GlobalData” (June 2025).
3 Accident Compensation Corporation website.
4 APRA, Prudential Handbook.
5 ASIC, What to Do if You Are Dissatisfied With a Decision by the Australian Financial Complaints Authority.
6 Ibid.
7 AFCA Rules, p. 4.
8 Ministerial Powers (APRA) Instrument 2020.
9 Financial Markets Authority, FMA Letter to Insurers Outlining Expectations Regarding Contracts of Insurance Act (May 2026).
10 An exemption from the requirement to have an AFSL applies under Section 9111A(2) of the Corporations Act 2001 (Cth), if the person is a body regulated by APRA, the service is one in relation to which APRA has regulatory or supervisory responsibilities and the service is provided only to wholesale clients.
11 Financial Markets Authority, Conduct of Financial Institutions (CoFI) Legislation (March 2026).
12 Ibid.
13 Australian Federal Register of Legislation, “Financial Sector (Collection of Data) (reporting standard) determination No. 59 of 2023.”
14 APRA, “Underwriting – Lloyd’s in Australia.”
15 Lloyd’s, New Zealand.
16 The Guardian, “At $4.5bn Each Year, Extreme Weather Is Costing Australia Three Times as Much Compared With 1990s, Insurers Say” (Oct. 2025).
17 Insurance Council of Australia, “Insurance Catastrophe Resilience Report 2024-25.”
18 Ibid.
19 Insurance Business, “Storm Frequency Rises as Claims Climb 256% in New Zealand” (April 2026).
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