New Zealand legislative change: unregulated captive threat

07/12/2009

New insurance legislation that has been introduced to New Zealand’s parliament could create a market for unregulated captive insurance, according to the New Zealand Captive Insurance Association (NZCIA).

In a statement issued today, the NZCIA said the Insurance (Prudential Supervision) Bill regulates domestically owned captives, but does not provide for foreign-owned captives to be licensed.

The Bill, which was drafted by New Zealand’s Reserve Bank, also means that foreign-owned captives will not be subject to offences under the Bill.

NZCIA president Peter Lowe pointed out there are currently six Australian-owned captives set up in New Zealand.

“Foreign owned captives are forming in New Zealand and want to be regulated,” he said.

“The Reserve Bank is, by default, encouraging an unregulated foreign insurance industry in this country. This will be extremely harmful for New Zealand’s international financial services reputation.”

Lowe said the policy decision by the Reserve Bank contrasts with the views of both the Organisation for Economic Co-Operation and Development and the International Association of Insurance Supervisors.

“Captive insurance isn’t a new, high-risk industry; there are thousands of these companies set up in the USA, Singapore, Ireland and 40 other regulated countries,” he said.

“There is simply no logic behind this move, nor has any rationale been given to us by either the Reserve Bank or Finance Minister Bill English.”

New Zealand currently has 22 captive insurance companies in operation, writing $80m in gross annual premium and paying $7m a year in New Zealand income tax.

“With the right regulation, within ten years we believe the industry could grow to 150 captives paying $50m a year in tax to the Government,” said Lowe.