Argentine Reinsurance Business - International Underwriting

ARGENTINE REINSURANCE BUSINESS
An update
Martín G. Argañaraz Luque
mgal@allendebrea.com.ar
+ 54 11 4318-9975
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LATIN AMERICA
 LatAm: Emerging market along with Asia capable to grow and develop new
markets
 Financial Markets looking for new opportunities: infrastructure, energy and
insurance (low penetration)
 Process of opening up markets started in ’90s is still evolving in different ways
 Commodities: historic record price between 2000 and 2011
 Slow down of the economy based upon the fall of the external demand for
commodities and a much less favourable worldwide context
 IMF: Emerging Markets must find new growth tools
Brazil – Chile – Colombia – Peru – Mexico
 Investors: Two blocks of countries
Argentina – Venezuela (Bolivia – Ecuador)
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LATIN AMERICA (Continued)
 Brazil: Largest economy – slow down of the economy. Complaint of investors:
regulatory restrictions and protectionism
 Mexico: Second largest economy. Process of State reforms (education, fiscal/tax
and energy)
 Colombia: Stability. Open up its economy. Recent elections
 Chile: Stability
 Peru: Booming
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LATIN AMERICA (Continue)
 Allocation of the worldwide insurance premium
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Europe:
41%
North America (without Mexico): 33%
Asia: 20%
Latin America: 3%
Oceania: 2%
Africa: 1%
 Ranking - Insurance Premium - LatAm
 Brazil
 Mexico
 Argentina
 Venezuela
 Chile
 Colombia
Hubs for the region: Bogota, Miami, San Pablo and Santiago de Chile
* Excluding Puerto Rico
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ARGENTINA
 Different cycles (1990, 2001, 2003)
 Third largest economy in LatAm
 Crisis of 2001
 Settle claims brought against Argentina by International Investors (ICSID)
 Paid out debt to Repsol
 Paid out debt to the Paris Club
 “Hold out” claim
 October 2015: general election
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REINSURANCE
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REINSURANCE REGULATIONS
 Since February 2011, the Argentine insurance regulator
(SSN) has been issuing reinsurance regulations that
modify reinsurance activity in Argentina
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TWO TYPES OF REINSURERS
LOCAL
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ADMITTED
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FIRST CATEGORY: LOCAL REINSURERS
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Have priority in all reinsurance business arising from the Argentine
insurance market
 Requirement: minimum capital equal to the highest of AR$ 30,000,000
(approximately US$ 3,600,000) or 16% of the net premium
 New registrations started after 1 July 2012 have to credit twice the
minimum capital (i.e. AR$60,000,000) to be authorised to operate and
this amount shall be reduced in quarters to reach AR$ 30,000,000
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SECOND CATEGORY: FOREIGN REINSURERS
(“ADMITTED REINSURERS”)
 No capital is required
 Under the new regulations, foreign reinsurers will only be able to
operate directly from their head office in exceptional cases if there
is no capacity to reinsure the risk locally or in risks in excess of
US$ 50,000,000
 Will be also able to operate in retrocession
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SECOND CATEGORY: FOREIGN REINSURERS
(“ADMITTED REINSURERS”) (Cont.)
 Entities seeking registration will have to prove that head office is located in:
 Jurisdictions considered cooperative by the Argentine Tax Authority or that the
head office is subject to control similar to the control of an entity similar to the
SSN and with which a memorandum of information exchange has been signed;
and
 Countries or territories that are considered cooperative in the framework of the
world fight against money laundering and terrorist financing in accordance with
the criteria defined by the Financial Action Task Force (FATF)
 The tax regulation changed from a list of “non-cooperative” jurisdictions (a
“black list”) to a list of “cooperative jurisdictions” (“white list”) that the tax
authority has issued and should update periodically - Bermudas
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INTERNATIONAL
REINSURERS’ POSITION
 Hannover Re, Munich Re, Partner Re, Scor, Swiss Re, XL are
registered as admitted reinsurers (some of them provisionally)
 Lloyd’s of London is (i) an admitted reinsurer, (ii) considered
as a sole reinsurance entity, and (iii) not obliged to register
with the Companies House (Rep. Office)
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UNDERWRITING (RESOLUTION 35.794/11)
 Local Reinsurers may retain up to 10% of the their Computable
Capital per risk and must also retain up to 15% of the total
reinsurance premiums issued (by fiscal year)
 Branches of Local Reinsurers with head offices (“Casa Matriz”) in
Mercosur may compute their consolidated balance sheets for the
calculation of the Computable Capital (Brazil)
 Up to US$ 50,000,000 per insured risk must be reinsured with Local
Reinsurers. Any amount in excess of this limit may be reinsured with
foreign reinsurance companies (“Admitted Reinsurers”)
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UNDERWRITING (RESOLUTION 35.794/11) (Cont.)
 Retrocession transactions may be made either with Local
Reinsurers or with Admitted Reinsurers
 Local Reinsurers shall not be authorised to transfer more than
40% of the premiums to any related company or to companies
belonging to the same financial conglomerate located abroad;
such situation may only be exceeded, on an exceptional basis,
with prior authorisation
 Group Life Insurance and Group Burial Insurance must be
reinsured in Argentina
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CURRENT REINSURANCE SCENARIO: LOCAL REINSURERS
GROUP 1: INSURANCE COMPANIES (5)*
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Ace Seguros S.A.
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Binaria Seguros S.A.
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Instituto de Seguros S.A.
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Prudential Seguros S.A.
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Testimonio Compañía de Seguros S.A.
* In 2012 there were 12
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CURRENT REINSURANCE SCENARIO: LOCAL REINSURERS (Cont.)
GROUP 2: REINSURERS OF INTERNATIONAL INSURANCE GROUPS (12)*
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Ace American Insurance Company (Sucursal Argentina)
Allianz Re Argentina S.A.
American Home Assurance Company (Sucursal Argentina)
Assicurazioni Generali (S.p.A.) (Sucursal Argentina)
Berkley Argentina de Reaseguros S.A.
Liberty Compañía Argentina de Reaseguros S.A.
Mapfre Re Compañía de Reaseguro S.A.
QBE Compañía Argentina de Seguros S.A.
Royal & Sun Alliance Insurance Plc (Sucursal Argentina)
Starr Indemnity & Liability Company (Sucursal Argentina)
Virginia Surety Company Inc. (Sucursal Argentina)
Zurich Argentina Compañía de Reaseguro S.A.
In 2012 there were 9
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CURRENT REINSURANCE SCENARIO: LOCAL REINSURERS (Cont.)
GROUP 3: REINSURERS OF LOCAL INSURANCE GROUPS (11)*
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Compañía Reaseguradora del Sur S.A.
Federación Patronal Reaseguros S.A.
Nación Reaseguros S.A.
Nova Re Compañía Argentina de Reaseguros S.A.
NRE Compañía de Reaseguros S.A.
Punto Sur Sociedad Argentina de Reaseguros S.A.
Reaseguradora del Río de la Plata S.A.
Reaseguradores Argentinos S.A.
Reunión Re Compañía de Reaseguros S.A.
Segurcoop Cooperativa de Reaseguros Limitada
SMG Re Argentina S.A.
* In 2012 there were 9
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CURRENT REINSURANCE SCENARIO: LOCAL REINSURERS (Cont.)
GROUP 4: NEW INVESTORS (3)*
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Aseguradores Argentinos Compañía de Reaseguros S.A.
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Colina IRM Compañía de Reaseguros S.A.

Latin America Re S.A.
* In 2013 there were 2
GROUP 5: PURE REINSURERS (2)

IRB – Brasil Resseguros S.A. (Sucursal Argentina)

Scor Global P&C S.E. (Sucursal Argentina)
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CURRENT REINSURANCE SCENARIO: ADMITTED REINSURERS
 Admitted reinsurers = 76*
 They must adapt to the new regime by registering with the
Companies House and the insurance regulator
 Delays in the process of registration since the Companies House
understands that said registration is not needed
* In 2012 there were 99
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CURRENT REINSURANCE SCENARIO: REINSURANCE BROKERS
 Reinsurance Brokers = 20
 AON Benfield, Cooper Gay, Guy Carpenter, JLT, Willis
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CURRENT REGULATORY AND MARKET ISSUES
 Issues with the transfer of premiums abroad. Devaluation? New
reinsurance regulation on payment of premiums (appointment of collecting
agent). Speed up process of payments. Payment made to collecting agent
would be considered as made to reinsurer. What happens in case of
payment of claims?
 Do cedants need authorisation from the SSN to reinsure with “admitted
reinsurers” in excess of US$ 50M?
 Retrocession of 100% of the risk by “local reinsurer”. No retention of risk by
local market contested by regulator. Retention of 15% of the risk. 40%?
 Who were the winners during the last renewal?
 Heavy risks reinsured in the London market (state-owned companies)
 There are conflicts between the different regulatory entities regarding the
registration of admitted reinsurers
 Problem with sanction limitation and exclusion clauses. OFAC
 Sanctions imposed by regulator on local reinsurers. More control
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CURRENT REGULATORY AND MARKET ISSUES (Cont.)
 List of “cooperative jurisdictions” (a “white” list) that the tax authority has
issued and should update periodically
 Association of “local reinsurers”
 New association of “reinsurance brokers”. Asociación de corredores de
Reaseguros Argentinos (“ACREA”)
 A&B created a group of “international insurers and reinsurers” doing
reinsurance business in Argentina
 Discuss common matters with the SSN without exposing any particular
reinsurer
 Space for open talks to the SSN
 Cut-Through Clause
 Tax on debits and credits (0.6% on the transaction amount). Commercial
matter. Foreign reinsurers are not formally liable for paying the tax to
Argentine tax authorities
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CURRENT CLAIMS ISSUES
 Make sure to include in the reinsurance slip the right address and person
for notification of claims
 The parties to a reinsurance contract must agree to Argentine law and
jurisdiction
 30 day-period to accept or reject claims. This is also applicable to
reinsurance. It is advisable to draft a clause to interrupt this period or
extend it. Adjusting a claim
 The insurance regulator accepts arbitration clauses but it is currently
requesting a compulsory review of an arbitration award in a judicial court.
This cannot be accepted by the market
 When agreeing an arbitration clause it is very important that the parties
waive their rights to appeal the arbitration award before a judicial court
 Under Argentine law the defence costs are in addition to the amount
insured. This principle is also applicable to reinsurance
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CONCLUSIONS / RECOMMENDATIONS
 The Economy at LatAm is still growing
 Current political situation
 Local Reinsurers: new intermediaries?
 Reinsurance group
 Admitted Reinsurers extremely important for the local market
 The future
 Make sure to fulfill local regulations
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Maipú 1300, Piso 10
(C1006ACT) Buenos Aires, Argentina
Tel: (54-11) 4318-9900 - Fax: (54-11) 4318-9999
mgal@allendebrea.com.ar