Burns Brendon: Insurance (Prudential Supervision) Bill — Second Reading 
Burns Brendon: Insurance (Prudential Supervision) Bill — Second Reading 
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BRENDON BURNS (Labour—Christchurch Central) 
:  
I acknowledge first the role that Craig Foss as chair of the Finance and Expenditure Committee played in this Insurance (Prudential Supervision) Bill. He did indeed steer it through the select committee well. 
Hon Member 
: Don’t go too far. 
BRENDON BURNS 
: I do not want to go too far. I will comment on the background to the bill and about a particular aspect of it that as my colleague David Cunliffe has indicated the Labour members on the committee will be watching to ensure that it works in the way that the Reserve Bank has assured us it will work. I will also look at a missed opportunity in respect of this bill. 
The background to this bill was the collapse of financial markets 2 years ago in the United States which spread across the rest of the world. We have seen moves in this country to reinforce regulation of the way in which banks and financial institutions operate and that left the question of where the insurance industry was. Although the insurance industry in New Zealand was not in any distress the global financial crisis illustrated very clearly the vulnerability of the financial sector as a whole; hence the emergence of this bill through that process. The bill requires all insurers operating in the New Zealand market to be licensed and supervised by the Reserve Bank and to comply with minimum prudential requirements. Compliance will largely be self-administered under the bill but the Reserve Bank has an important supervisory role. 
The Labour Party supports the bill. But one comment Labour members would make is that it does not go far enough in dealing with one of the key economic issues that we face as a nation—that is the need to put exporters at the centre of monetary policy. If we needed a further illustration of that today I guess it came in the announcement not unexpected from the Reserve Bank governor that the official cash rate will rise by another 0.25 basis points to 3 percent. This is not an unexpected decision but one that reflects on our current monetary policy settings. Indeed the Reserve Bank governor has little choice. Given the focus of the current Act he must reflect his concerns for the future rise of inflation. That is the only policy setting he has to pay any real regard to. 
We note that in the last 3 weeks the Prime Minister was in my electorate of Christchurch Central to address a forum of exporters. He stood up and said—with some audacity I have to say—that the monetary policies of this country were “the best in the world”. If the best in the world means that our exporters continue to get stick because of the settings of monetary policies— 
Hon Dr Jonathan Coleman 
: So what changes are you making Burnsey? 
BRENDON BURNS 
: We have indicated very clearly. Phil Goff has given a speech which the Prime Minister chose to pan in which he said that we should be looking at monetary policy settings. We can be bipartisan. We have indicated a wish to be bipartisan on many measures within this bill but we cannot let it go without any commentary suggesting that if we are to be bipartisan on the future of the insurance industry then why can we not be bipartisan on monetary policy? 
Hon Dr Jonathan Coleman 
: You guys can’t even be bipartisan within your own party at the moment. 
BRENDON BURNS 
: The exporters of this nation are telling MPs like Jonathan Coleman every day in his electorate that it is screwing the scrum in respect of their capacity to export and earn for this nation. There is no one magic bullet on monetary policy but there is a need to review the settings as Australia has done. 
We hear often from members on the other side of the House that New Zealand wants to catch up with Australia. It has been indicated in the last couple of days of course how well or not we are doing in that respect. The Australian Reserve Bank looks at a number of factors including the inflation rate. It looks at the whole issue of the state of the economy. It looks at employment it looks at the dollar and it looks at the health of the economy. Those are important factors when we are considering the role of the Reserve Bank in monetary policy settings. 
Therefore we say that this was another opportunity that the Government has missed. The Government could have widened; it could have looked at the issue of monetary policy and made a decision to review the current obsession with inflation. It is not that this is not a crucial factor in economic settings but we cannot play the whole game on one ruling. That is why we say we had an opportunity here. The opportunities are still before the Government and it is disappointing to see that when Phil Goff gives a speech that says we could consider a review of monetary policy there is an instinctive response to bag it. The Prime Minister had the audacity to stand up and tell a Canterbury exporting audience that our monetary policy settings are the best in the world. We see the results today with presumably a rising dollar and rising interest rates. 
Let us return to the substance of the bill which concerns the prudential supervision of our insurance industry. One of the key elements of the bill is the impact on the New Zealand insurers and overseas insurers that are covered by the extension of prudential frameworks. Most particularly there are questions around whether this bill would disadvantage New Zealand - based insurers that are subject to the regimes whereas an insurance company based in another country that meets the agreed requirements of the Reserve Bank can operate under the prudential regime of that host country. 
I disagree in part at least with the Minister of Finance who affirmed in his commentary on the bill earlier that no real cost was involved for our insurance companies to meet in this bill. We had a submission from AMI Insurance which is New Zealand’s largest New Zealand - based insurance company that suggested meeting the cost of the new prudential regime—meeting the cost of the new capital adequacy ratios—was in the order of $35 million. That is not a sum to be sneezed at even for a relatively large corporate like AMI Insurance. I think most New Zealanders would acknowledge that AMI Insurance is a very good insurance company wisely based in the Christchurch Central electorate. 
We were assured however by the Reserve Bank officials—and the select committee spent considerable time on these issues—that the regime as proposed in the bill would not disadvantage New Zealand insurers. There are exemptions in the bill in relation to a number of clauses for overseas-based insurance companies. But those would be granted only if the insurance company operating from overseas was subject to a home jurisdiction that met the standards of the Reserve Bank. The regime of those foreign-based companies taken as a whole would actually meet the standards of the Reserve Bank’s prudential regime. 
The select committee as I mentioned did hear some concerns still expressed by entities including AMI Insurance which noted the difference in capital adequacy ratios between Australia specifically and New Zealand—quite a difference—on various aspects of investment but we will monitor how this works. We will see whether the Reserve Bank’s assurances are borne out as the legislation takes effect and the industry makes its changes. 
Obviously one of the great concerns we have at the moment is that a great bleed of capital goes on. Our current account balance has never been in the black since I was a schoolboy which is a wee while ago. We will watch to see whether overseas-based insurance companies come back and use the legislation in respect of whether they can take further insurance moneys back out of the country. That should be a concern to members opposite given that our current account balance has been in the red and is heading further into the red. That is an issue that “New Zealand Inc.” needs to take note of. 
We know that we need to have regulation of financial markets; Labour has never been shy of regulating financial markets or any markets. Some members opposite do not believe in regulation. They say the market will always rule— 
Hon Steve Chadwick 
: I raise a point of order Mr Speaker. I am sorry to interrupt my colleague but because of the interjections coming from the other side I cannot hear him. 
Mr DEPUTY SPEAKER 
: That is a fair comment. I have raised this point before. Members should be listening to the speech. If they want to interject against the speaker that is fine but the cross-barraging of other points that bear no relationship to the debate is unacceptable. 
BRENDON BURNS 
: As I was saying regulation needs to be judicious and it needs to make sure that it works in the interests of New Zealand so we will watch to ensure that the exemptions that have been provided by this legislation to overseas insurers do not do so at any disadvantage relative to New Zealand insurers which have to meet the New Zealand Reserve Bank’s requirements. On balance that was the decision the select committee took. 
The exemptions in the law before us are there because a strong argument emerged about not duplicating regimes in one country and another. We were advised that duplication of the Australian prudential regime for example for New Zealand would be inappropriate. We have accepted that advice on the basis that the Reserve Bank’s assurances are that this is the best way to go forward but we will watch very very carefully to ensure the judgments that the Reserve Bank makes as it sees this law come into effect do not create any particular disadvantage to New Zealand - based companies such as AMI Insurance.