Entities acting as local reinsurers
Foreign reinsurers
Timeframe to enact changes
Authorised jurisdictions
Reinsurance brokers
Comment
The Insurance Regulator recently enacted a new regulation for reinsurance companies (Resolution 35.615/2011), which will have a significant impact on the reinsurance industry. This update looks at the key elements of the new regulatory framework and draws comparisions with the previous regulation.
Entities acting as local reinsurers
Section 1 of the resolution states that the following entities may be authorised to act as reinsurers:
- corporations whose sole purpose is to operate in the reinsurance market;
- branches of foreign reinsurance companies; and
- corporations that are authorised to act as insurance companies.
This section does not vary greatly from the previous regulation; however, it is the interplay between this section and Sections 19 and 20 that will have the greatest impact on the reinsurance business.
The effect of the resolution is that in order to conduct reinsurance business in Argentina, foreign reinsurers will have to establish local branches or subsidiaries, which will limit the reinsurance operations that can be conducted from head offices.
Under the previous regulation, foreign reinsurers could be authorised to issue reinsurance contracts from their jurisdictions of origin, provided that they complied with certain requirements and were registered as such with the Insurance Regulator. This will no longer be possible under the new resolution, since foreign reinsurers will have to establish a local branch or subsidiary.
However, Section 19 sets forth that for certain specific reinsurance operations that must be specifically individualised, the Insurance Regulator may issue authorisation for a foreign reinsurer to issue a reinsurance contract directly from the company's head office. This authorisation will be granted only if - taking into account the amount and characteristics of the ceded risks - the specific reinsurance operations cannot be covered in the local market. The authorisation request must be filed before execution of the reinsurance contract and must be accompanied by relevant documents to justify the exemption.
Such reinsurance operations will be authorised only if the foreign reinsurer complies with certain requirements set forth in Sections 20 and 21, which are identical to those requirements for the registration of foreign reinsurers. This drafting is unclear, since it would seem that on the one hand, the registration of foreign reinsurers is unnecessary, since they will be able to operate only on an exceptional basis, pursuant to specific authorisation from the Insurance Regulator. However, it would seem from the wording of these three sections that the Insurance Regulator will still maintain the existing register of foreign reinsurers, with its respective annual reporting requirements. This apparent contradiction will have to be clarified in due course.
Pursuant to Section 4 of the resolution, foreign reinsurers that are registered and operate under the existing regulations will have until September 1 2011 to adapt to the resolution. Any reinsurer that has not adapted to the resolution will no longer be able to accept reinsurance contracts from Argentine sources. In order to do so, foreign reinsurers must establish an Argentine branch or subsidiary.
In addition, the Insurance Regulator requires that all foreign reinsurers:
- file financial statements for the last five years;
- file copies of their articles of incorporation and bylaws duly registered in their jurisdiction of origin;
- identify their board members and other officers;
- identify their shareholders and the shareholders that attended the last two shareholders' meetings; and
- assign a minimum capital to the local entity (in accordance with existing regulations, this is R20 million).
All foreign documents must be duly legalised and affixed with the Hague apostille (or consular legalisation if the apostille is not available in the jurisdiction). Foreign language documents must then be translated by a translator registered in Argentina.
Section 18 of the resolution addresses matters related to 'suspect' jurisdictions, which are not addressed in the existing regulations:
"18. No authorization shall be granted to branches of foreign companies whose head office is located in countries that levy less than 20% Income Tax (or similar tax) or those where their local regulations establish secrecy on shareholding of corporations or in those jurisdictions, territories or Countries with low or no taxation called 'tax shelters' and/or countries or territories that are non-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."
In addition, in accordance with Financial Action Task Force regulations and requirements, the Argentine government, through the Financial Information Unit of Argentina, has issued several resolutions in the past few weeks regarding processes with which certain sectors must comply in relation to the fight against money laundering and terrorist financing. Some of these resolutions will have an impact on the insurance sector - with regard to both the Insurance Regulator and individual insurance companies.
Under the previous regulation, foreign reinsurance companies could conduct business through locally registered reinsurance brokers. These brokers could be national or foreign individuals or corporations.
Pursuant to Section 5 of the resolution, only national corporations or branches of foreign companies can act as reinsurance brokers, thus limiting the options for foreign reinsurance companies when deciding how to conduct their business. Individuals who are currently authorised will still be authorised, provided that they comply with all other requirements for reinsurance brokers under the resolution.
The resolution will have a significant impact on the reinsurance market, particularly with regard to foreign reinsurers and reinsurance contracts that are directly issued from head offices.
For further information on this topic please contact Martín Argañaraz Luque at Allende & Brea by telephone (+54 11 4318 9900), fax (+54 11 4318 9999) or email ([email protected]).