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Inland Revenue

Tax Policy

General insurance claims reserves and events that occurred before July 1993

(Clauses 2(3) and (4), 8, 25, 101 and 104)

Summary of proposed amendment

A technical change is proposed to the rules in the Income Tax Act 2007 that calculate a general insurer’s outstanding claims reserve – sections CR 4 and DW 4.

The change explicitly excludes from the calculation certain insurance events that occurred before 1 July 1993.

Application date

The changes will apply from 1 April 2008, the date the tax and financial reporting treatment of general insurance outstanding claims reserve calculation were aligned.

Consequential changes are also being made to the 2004 Income Tax Act for earlier income years starting from 2006.

Key features

The change clarifies the interaction between the:

  • rules for calculating an insurer’s outstanding claims reserve; and
  • taxation of offshore insurance business carried on by New Zealand-resident insurers before July 1993.


Before July 1993, general insurance business carried on outside New Zealand was not subject to New Zealand income tax. As a result, New Zealand insurers were unable to claim deductions in respect of any claims that were connected with this offshore business. From 1 July 1993 insurance business carried on outside New Zealand by New Zealand residents was brought to tax. Specific transitional rules were included in the Income Tax Act 1976 to deal with the change.

The transitional rules deny insurers a deduction for any pre-1993 claims – see section DZ 10.

The rules for calculating the outstanding claims reserve do not explicitly exclude amounts relating to pre-1993 events and arguably track claims when an entitlement to a tax deduction for the claim does not exist under DZ 10. This outcome was not contemplated and appears to impose an unnecessary requirement on taxpayers to track insurance events when under the transitional rules no deduction would be allowed for a claim that is connected with a pre-July 1993 event.