Argentina: Further Changes To Reinsurance Regulations

Originally published in MARVAL, O'FARRELL & MAIRAL Insurance News No 4.

Since February 2011 the Argentine Superintendence of Insurance has been enacting regulations that are significantly reshaping the reinsurance regulatory framework.

Traditionally, Argentine cedants could reinsure with: (i) foreign reinsurers registered with the Argentine Superintendence of Insurance ("ASI") ; (ii) unregistered foreign reinsurers, when a reinsurance broker registered with the ASI intermediated in the reinsurance contract; or (iii) other Argentine insurance companies, up to certain small limits. As a consequence of resolution 35,615 enacted in February, from September 1, 2011 most cross-border reinsurance operations will be prohibited (see "Changes in reinsurance regulatory framework" in our Insurance News # 1).

Some clarifications to these regulations were enacted on April 26 (by resolution 35,726), allowing for some reinsurance protections placed with foreign reinsurers to be kept in force beyond September 1 (see "Reinsurance Legal Framework – Reinsurance Contracts" in our Insurance News # 3).

On May 26 new regulations were officially published (resolution 35,794), which have introduced some degree of relaxation to these new measures. We will comment in this article some of the main aspects of the regulations recently introduced by resolution 35,794.

Local and Admitted Reinsurers

Pursuant to the new regulations, from September 1, 2011, cedants would only be allowed to enter into reinsurance contracts with Local Reinsurers, i.e., with Argentine reinsurance companies or Argentine subsidiaries or branches of foreign companies, with a local capital of at least AR$ 20,000,000 (i.e., approximately US$ 5,000,000), subsequently increased on the basis of the volume of written premiums.

Argentine cedants would still be able to reinsure with some foreign reinsurers 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, to be granted case by case. Such foreign reinsurers, which must be registered with the ASI and must have a local representative registered with the Public Registry of Commerce in Argentina –with an established local domicile–, are now referred to by the regulations as "Admitted Reinsurers" (as opposed to Local Reinsurers).

Resolution 35,794 has now established that where an individual risk exceeds US$ 50 million, the excess may be reinsured with Admitted Reinsurers, without the need to obtain the ASI's prior approval.

Reinsurers from other Mercosur Countries

The Superintendent of Insurance had anticipated that it was his intention to allow reinsurers from other Mercosur countries (i.e., from Brazil, Paraguay or Uruguay) to qualify as Local Reinsurers. Unfortunately this is not clearly reflected in the text of resolution 35,794.

Resolution 35,794 mentions Argentine branches of companies incorporated in other Mercosur countries to establish how to calculate the maximum retention per individual risk, but it does not clearly allow reinsurers from other Mercosur countries to qualify as Local Reinsurers. Some clarification on this is to be expected.

Retentions

Resolution 35,794 has introduced some provisions on minimum and maximum retentions by Local Reinsurers.

Local Reinsurers will not be allowed to retain for an individual or for an accumulation of risks more than 10% of their capital, calculated as of the closing date of their latest financial statements.

Local Reinsurers will retain at least 15% of written premiums, calculated annually on the basis of their total portfolio.

Retrocessions

Before resolution 35,794 was passed it was unclear whether or not retrocession contracts fall within the scope of the new regulations and, thus, whether Local Reinsurers could retrocede abroad and how.

Resolution 35,794 has confirmed that Local Reinsurers may retrocede, but only to Local Reinsurers or Admitted Reinsurers.

Nevertheless, Local Reinsurers may not cede to affiliated companies or companies belonging to the same group more than 40% of the premiums of each fiscal year. This limit may be exceptionally exceeded, with the prior approval of the ASI, with evidence that it is not possible to obtain cover through other market players.

No retrocession will be admitted for group life or burial coverages.

Books of Account

Local and Admitted Reinsurers will keep certain books in Argentina to register the reinsurance they write and place.

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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