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Four out of 23 New Zealand life insurers would not now meet new solvency levels designed to come into force by September next year, says a highly placed industry source.
The insurance industry has come under new prudential regulations managed by the Reserve Bank as part of an overhaul of the financial services sector. Last month all companies wanting to offer insurance in New Zealand had to become licensed and are now named on a register of insurers on the RBNZ website.
Existing insurers were able to apply for a provisional licence to enable them to keep operating while they apply for a full licence before the September 7, 2013 cut-off.
So far just four out of 108 have received full licences.
Insurers must also meet new solvency tests to ensure they have the ability to meet any claims made.
Life insurers had to complete a solvency return by March 31 to show how their balance sheets for the second half of last year would meet the new solvency requirements.
One industry source said he had been told that four out of 23 life insurers would not meet the new solvency tests if they were applied today.
But a spokesman for the Reserve Bank said it was still early days and it had not reached any conclusions yet about the industry's position against the standards.
"The Bank has issued Insurance [Prudential Supervision] Act solvency standards and commenced an early exercise with insurers to measure their position against the standards.
"We are currently working with insurers to clarify how to apply the standards and to ensure measurement is accurate.
"We have not reached any conclusions yet about the industry's position against the standards and hence at this stage of the analysis, any assumptions about this position would be purely speculative."
The solvency standard also includes a special provision to ensure New Zealand insurers are covered for natural disasters and that life insurers can cover a potential pandemic.
It is the first time that New Zealand companies have had to ensure they are covered for risks such as a large number of claims in the wake of an earthquake or pandemic like bird flu.
The spokesman said the catastrophe risk capital charge was intended to reflect the exposure of a licensed insurer to large claims or large numbers of claims arising from extreme events.
"It is important that an insurer has the financial strength to withstand not only the day-to-day claims, but also to cover its liabilities in extreme circumstances such as earthquake [for non-life insurers] or pandemic [for life insurers]. The solvency standards recognise this importance and contain a formal requirement that an insurer be appropriately capitalised to cover such risks."
The changes come in the wake of last year's government bail-out of AMI Insurance which was hit hard by Canterbury earthquake claims.
Last month Australian insurer IAG was given the green light to take over AMI in a $380 million deal.