An increase in capital requirements for insurance companies in Australia has caused an upheaval in the sector, causing some banks in particular to offload their life insurance arms.

In New Zealand, a review is currently under way of the Insurance (Prudential Supervision) Act, which includes the capital provisions. It has been predicted that any increase in the requirements could put significant pressure on insurers’ ability to get a good rate of return on their capital.

But Mark Wilson, chief executive of Aviva and former chief executive of AIA, said New Zealand’s insurance market was immature and the capitalisation requirements were “not that strong”. “Consumer protections are not particularly strong as well.”

He said compared to other parts of the world, it was easy to set up an insurance business in New Zealand. This country had some of the weakest capital requirements, he said. “It needs review. There need to be stronger capitalisation standards.”

New Zealand was not giving as much thought to sustainability issues as other parts of the world, he said.

The financial markets in general could be boosted by requiring KiwiSaver providers to invest at least 40% or 50% of their funds under management in the local market, Wilson said.

He said, while the country had a strong economy, there was weakness in the debt and equity markets because they lacked depth.

“KiwiSaver is great and there is quite a bit of money going in but one big weakness is there is no requirement to hold and of those savings onshore.”

He said New Zealand was unusual in that regard. “People would say the equity markets and debt markets aren’t deep enough. That’s sort of the point.”

With more money to invest in public/private partnerships, New Zealand could start work on much-needed infrastructure, he said. “The problem is that all financial markets are about supply and demand and New Zealand hasn’t got enough demand, which is why Australia eats your lunch. The only way I can think of to change that is to invest more KiwiSaver on shore and get KiwiSaver a lot bigger.”

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