A decade ago, the NZCIA (the New Zealand Captive Insurance Association) was formed to promote the country as a potential captive domicile for New Zealand and Australian companies.
A decade ago, the NZCIA (the New Zealand Captive Insurance Association) was formed to promote the country as a potential captive domicile for New Zealand and Australian companies.
According to Peter Lowe, CEO of Willis New Zealand and president of the NZCIA, the development was very successful, with all captives formed under the Insurance Companies Deposits Act.
But in 2010 New Zealand passed a new insurance law called the Insurance Prudential Supervision Act 2010. It was considerably more restrictive towards captive insurers than the previous legislation, explains Lowe.
“The NZCIA negotiated a number of exemptions for New Zealand-owned captives. The government did not want to become a captive domicile and restricted captives to New Zealand-owned companies and operated with the majority of policies issued to New Zealand policy holders.”
The change in legislation therefore meant that companies that may have been interested in setting up shop in New Zealand—from nearby locations such as Australia, Japan and Singapore—were denied access.
Lowe highlights the example of Australian companies, which sought out New Zealand as a potential domicile, as the insurance environment in their home country is “very restrictive”.
James Wong, managing principal at Aon Global Risk Consulting, explains that the older captives in New Zealand were established around 20 years ago with growth taking place at a gradual pace.
“The number of captives peaked at around 20 prior to the current regulatory framework that came in to place … currently there are 15 captives in New Zealand. However, a small number of these may be in runoff.”
Wong says that New Zealand is currently home to pure captives and that generally captives are New Zealand-based, or they at least have a significant presence there.
“Whilst the overall regulatory framework is fairly rigid, the Reserve Bank of New Zealand is approachable and willing to listen and collaborate on specific issues.”
“By virtue of being an onshore domicile, New Zealand is conducive of captives being fully or partially self-managed. Historically this has been an advantage in terms of operating efficiency.”
The Reserve Bank of New Zealand strives to take a risk-based approach, says Wong.
He adds: “Given the regime is relatively new, it is a sophisticated framework that also aims to reduce unnecessary compliance costs where possible.”
In a recent speech to the Law and Economics Association of New Zealand, the Reserve Bank of New Zealand’s head of prudential supervision, Toby Fiennes, said: “Our approach places significant emphasis on self discipline and with regulatory requirements we have tried to minimise complexity while ensuring strong capital and liquidity buffers.”
“This approach works well for us in New Zealand. We have a relatively simple financial system, for which a straightforward, conservative approach is well-suited.”
Despite the Reserve Bank of New Zealand’s “well-suited” conservative approach, Lowe feels that the country may have taken the wrong path.
He says: “Australia [has a] very restrictive insurance environment and New Zealand has used the Australian model as its base documents for insurance regulations. The major captive domiciles, [such as] Singapore, Hawaii, Bermuda, and Guernsey, now have superior captive legislation.”
Wong feels that its is New Zealand’s very restrictive landscape that is ultimately stopping companies from domiciling there and consequently making residing captive owners reassess their options.
“Despite considerable efforts in developing captive-related regulations, a number of captive-owners are reconsidering whether to continue operations in New Zealand.”
“Whilst the compliance costs and governance time required are around the same or moderately higher than comparable captives in other domiciles, they reflect a significant increase compared to prior years.”
But despite the regulatory restrictions, Wong is optimistic about the future of New Zealand’s captive insurance market.
“The New Zealand captive market will continue to evolve along with the New Zealand insurance market. Whilst some of the existing captives may close due to increased operating costs and governance requirements, new entries may arise from the increased sophistication around risk financing concepts for New Zealand-based companies.”
The possibility of bow-outs being replaced with new entrants seems slim to some—including Lowe. In his words: “New Zealand missed a great opportunity to become the captive domicile of the Asia Pacific region.”
