Argentina: Changes In Reinsurance Framework In Argentina

Since early this year the Argentinean Superintendence of Insurance (the "ASI") has been preparing regulations, which took everyone by surprise, and which will change Argentinean business for non-Argentinean reinsurers.

For almost 20 years Argentinean cedants have reinsured with (i) foreign reinsurers registered with the ASI; (ii) unregistered foreign reinsurers, via a reinsurance broker registered with the ASI; or (iii) other Argentinean insurance companies, up to certain small limits.

According to the new regulations passed by the ASI, from September 1, 2011 cross-border reinsurance operations will not be permitted, with a few exceptions. From that date Argentinean cedants will only be allowed to enter into reinsurance contracts with Argentinean reinsurance companies or Argentinean subsidiaries or branches of foreign companies, with a local capital of at least AR$ 20,000,000 (i.e., approximately USD 5,000,000). At present there are no such reinsurers, although the ASI has already let the market know that two new government-owned companies (Nación Re and Provincia Re) will apply for an authorisation to become local reinsurers and that at least two private companies are soon to follow.

A foreign reinsurer that has not set up a local reinsurance subsidiary or branch will only be able to underwrite risks from Argentinean cedants when due to the importance and type of risk to be ceded there is no local capacity, but subject to

  • the approval of the ASI - which will be granted case by case,
  • the registration of the foreign reinsurer with the ASI, and
  • the appointment of a representative who must establish a local domicile and register with the Public Registry of Commerce in Argentina.

It would also seem that this local representation will need to have its own books of account and register with the Argentinean tax revenue office, although the regulations are still not clear on this point.

Current annual reinsurance contracts can run their course as originally agreed by the parties. However, multi-year contracts, whether continuous or for an unspecified term, must be adjusted to the new regulations (i.e., must be underwritten by Argentinean reinsurers) by January 1, 2012. Reinsurance contracts may still be entered into with foreign reinsurers registered with the ASI until September 1, 2011, although their duration may not exceed one year.

The Argentinean insurance market is concerned about the solvency of the system when these changes are finally implemented and on how the applications for exceptions to Argentinean reinsurance will be handled to avoid discretionary decisions by ASI officials. In view of the likely insufficiency in local capacity and also of the need to regulate retrocessions, the ASI is considering how to grant automatic authorisation to reinsure abroad in certain specific lines of business (e.g., maritime, aviation, big surety bonds). Also the ASI is coordinating with the Brazilian insurance authorities to allow reinsurers present in the Brazilian market to qualify as "Argentinean reinsurers", at least in certain cases or up to certain limits, and to have a coordinated state supervision. It is also being rumoured that IRB-Brasil Re will set up an Argentinean business. The Argentinean authorities hope that these measures will be the foundation to the creation of strong reinsurance companies based in Latin America. The regulations have also introduced requirements aimed at preventing money laundering and the financing of terrorism in the reinsurance activity.

New regulations on wire transfers by Argentinean cedants may also result in difficulties that affect the payment of reinsurance premiums under current reinsurance contracts. Until now, upon applying for the authorisation to transfer money out of Argentina, cedants had to declare to the ASI that there were no monies to set off with the pertinent reinsurer. From now on, cedants will have to declare to the ASI that they have no other funds deposited outside Argentina that may be used to pay reinsurance premiums.

The exact scope of the changes outlined above and what business will still be allowed out of the country are being defined by the Argentinean authorities. New regulations are to be expected in the next few months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Nigel Brook
 
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