The Reserve Bank of New Zealand wants to treat financial reinsurance as a loan when calculating an insurer’s minimum solvency capital.

“Based on information to date the Reserve Bank considers that a small number of reinsurance agreements held by New Zealand insurers contain obligations that are more debt-like than insurance-like in nature,” a consultation paper says.

The regulator has released an exposure draft for life insurer standards but not given a date for consideration of non-life standards.

Insurers are divided in their responses to the consultation, which began last year.

Some say financial reinsurance allows risks to be spread and might be a cheaper source of capital, while several agree with the bank that it may not absorb losses effectively.

Financial reinsurance can be more like debt than insurance, which has raised questions over whether it will be available to absorb losses or is properly accounted for in calculating solvency.

The 2003 royal commission on the collapse of HIH found financial reinsurance was used to bolster the insurer’s balance sheet rather than its intended purpose of transferring risk. The issue was also raised in the US following the government bailout of AIG.

Submissions to the consultation paper can be made until December 9.