NZ News - 25 November 1999

IRD casts eyes over life companies

The Inland Revenue Department (IRD) is auditing several life companies as its review of the life insurance taxation regime steps up a gear.

IRD casts eyes over life companies

The Inland Revenue Department (IRD) is auditing several life companies as its review of the life insurance taxation regime steps up a gear.

As previously reported in Money Management (September 30 1999), the IRD actuarial reserving project is revisiting the assumptions life companies make when declaring tax liabilities.

National manager of corporates at the IRD, Max Carr, says issues raised by the actuarial reserving project are being reviewed in conjunction with audits of several life companies.

“The audits will follow their own timeframes and disputes arising will be addressed through the disputes resolution process,” Carr says.

Some life companies are reportedly anxious the IRD move will lead to higher tax levels for the industry.

However, head of the Investment Savings and Insurance Association (ISI), Vance Arkin-stall, says it is premature to draw any conclusions from the IRD investigation.

“The review is in the initial stages and it is too early to identify any particular issues or whether amendments to the legislation may be necessary,” Arkinstall says.

“It is our understanding of the IRD timetable that the review will be completed towards the end of 2000.”

Carr says the project has completed its initial consultation stage and is now set for further discussions with relevant bodies with the likely outcome of a standard practice statement on the application of the life rules.

He says the project is looking at issues such as current reserving practices and the impli-cations of new financial reporting standards for life companies.

“The overall aim of the project is to determine, with external consultation, the appropriate reserving basis and to inform the industry accordingly,” Carr says.

Arkinstall says the ISI is working with the IRD to clarify the basis of the complex actu-arial valuations employed by life companies.

“The industry supports the IRD objective of voluntary compliance and consistency of ap-plication of tax legislation,” Arkinstall says.

“The industry is a substantial contributor of revenue with ISI statistics showing that for the year ended 30 June 1999, life insurance and superannuation products contributed over $243 million in taxation, an increase of 57 per cent over the previous year.”

He says the current legislation governing taxation of life insurance companies has not been reviewed since it came into effect in 1991.

“It is a surprise to the industry that it has taken nearly eight years for IRD to get around to conducting this review.”

Doubts over Labour plan

The Labour Party’s scheme to finance New Zealand pension payments with a privately managed fund offers great opportunities for the investment industry, according to BT Funds Management chief investment officer, Craig Stobo.

However, Stobo says that while institutions may profit from the Labour plan, it may not be the most efficient way to fund future New Zealand superannuation payments.

Labour has promised to ring-fence 8 per cent of tax revenue to fund New Zealand Super, creating a fund that would be put up to tender to the private investment industry to man-age.

Many pundits and polls are predicting Labour will control parliament following the elec-tion at the end of November.

Stobo says that if the Labour plan is implemented, competition to run the superannuation fund would be fierce, possibly attracting more overseas managers into the country.

“Of course BT would be interested in tendering for the fund. We know how to do it as we’ve done it before under the old National Provident Fund model,” Stobo says.

He says, though, that even if Labour wins the election the scheme may prove difficult to implement with the outcome hingeing on how much control it has in what promises to be a fragmented parliament.

AMPAM rolling on

New Zealanders’ growing appetite for overseas investment has paid dividends for AMP Asset Management (AMPAM) as its listed international investment vehicle topped $1 billion.

The World Index New Zealand (WiNZ) fund, AMPAM’s passive international share fund, is now the largest listed investment fund in the country after only two years on the market.

AMPAM managing director, Murray Gribben, says the WiNZ fund has surpassed expec-tations, growing four times faster than initially projected.

“The driving point for it is that New Zealanders are investing a lot more offshore, simply because they have gone for diversification,” Gribben says.

WiNZ has benefited both from the strongly performing US markets and the fall in the New Zealand dollar over the past two years.

AMPAM has also launched a new private capital fund hoping to raise $100 million from wholesale and retail investors with at least $30,000 loose change.

The fund, AMP Private Capital, will complement AMPAM’s other inhouse private capi-tal fund and the two funds will co-invest in seven or eight projects.

AMP private capital head, Martin Turner, says the fund aims to offer returns at least 5 per cent above listed markets. AMP Private Capital is described as a 10 year, closed end fund but investors should see their first returns after five years.