New insurance legislation could create an unregulated captive insurance industry in New Zealand, the New Zealand Captive Insurance Association says

The Insurance (Prudential Supervision) Bill, due for its first hearing in Parliament today, would allow foreign companies setting up insurance subsidiaries in New Zealand to go unregulated.

A captive insurance company is designed to underwrite the risks of its parent corporation only.

Association President Peter Lowe said the bill, drafted by the Reserve Bank, would regulate domestically owned captives, but would not provide for the licensing and therefore regulation of foreign-owned captives.

There are six Australian-owned captives set up in New Zealand.

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

While the industry was still fledgling in New Zealand, Mr Lowe said there were 22 captive insurance companies currently operating which collectively underwrote $80 million in gross premiums annually and paid New Zealand $7 million in income taxes per year.

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

But when NBR spoke with Reserve Bank head of prudential supervision Toby Feinnes last month he said there was no guarantee the captive finance industry would be a big money spinner for New Zealand.

He said the legislation had been designed to stop overseas companies cultivating the view of New Zealand as a soft touch country, and questioned the long-term loyalty of overseas captive insurance companies currently operating here.

“They are footloose,” he said. “They want to incorporate here…and they could incorporate elsewhere and they don’t have a large staff in New Zealand.”