New laws urged to keep captive insurance firms

A lobby group for the captive insurance industry claims New Zealand could miss out on millions of dollars of economic benefits if it does not regulate foreign-owned companies.

New Zealand Captive Insurance Association president Peter Lowe said new legislation designed to regulate the insurance industry would create two tiers of companies and drive foreign-owned businesses away.

"By New Zealand being active in the captive market it brings in capital through those companies paying taxes and employing people. From an international point of view [the legislation] will damage the standing of New Zealand's insurance market."

Captive insurance companies are set up by large companies such as Fonterra, Air New Zealand and Carter Holt Harvey as a way of self-insuring an individual business rather than paying an outside provider to manage the risk.

Lowe said that it was a common way to save money, administration and time.

New Zealand was attractive to international companies to set up captive insurance businesses because of the cheap cost of doing business here.

But he said companies wanted to be regulated in order to meet governance guidelines set up to protect shareholders.

Lowe said captive insurance was a competitive market with Singapore, Ireland and America also vying for the business.

New Zealand had the potential to attract hundreds of businesses from throughout the Asia Pacific region, helping to establish it as a financial centre.

The legislation is part of the Insurance Prudential Supervision Bill which had its first reading in Parliament yesterday.

The new laws are designed to ensure all insurance companies are licensed by the Reserve Bank and meet minimum standards.

Richard Dean, who is in charge of the consultation at the Reserve Bank for the new licensing, said he could not comment on the issue because it was before Parliament.

Lowe said that he had questioned the Reserve Bank on why foreign-owned captive insurers were excluded but he had yet to receive a clear answer.