The insurance regulator issued SSN Communiqué 2804 on May 4 2011, in order to clarify certain matters regarding the new reinsurance regime established by Resolution 35.615/2011 (published on February 21 2011). This update examines the main terms of the communiqué and offers a brief overview of the impact of the regulation.
Pursuant to the resolution, the only entities authorised to operate in the reinsurance market in Argentina are:
- corporations whose sole purpose is to operate in the reinsurance market;
- branches of foreign reinsurance companies; and
- corporations that are authorised as insurance companies, in the same lines of the insurance business they operate.
The deadline for enacting changes is September 1 2011, after which reinsurance companies that have not been registered pursuant to the categories above will no longer be able to accept reinsurance operations issued from Argentina.
Section 19 of the regulation also sets forth that the insurance regulator may, for certain discrete reinsurance operations that must be specifically individualised, issue an authorisation for a foreign reinsurer directly to issue a reinsurance contract from the company headquarters. This authorisation will be granted only if (from the amount and characteristics of the ceded risks) the discrete reinsurance operations cannot be covered in the local market. The authorisation request must be filed prior to execution of the reinsurance contract and must be accompanied by all documents that justify the exception. These reinsurance operations will be authorised only if the foreign reinsurer complies with certain requirements set forth in Sections 20 and 21 of the resolution.
This represents a major change from the prior regime, where foreign reinsurers could accept risks directly from their head office as long as they were registered with the insurance regulator.
The resolution has left several questions unanswered, including the following:
- What will happen with reinsurance contracts currently in force before September 1 2011?
- What will happen after September 1 2011?
- What will happen between the issuing of the resolution (or its entry into force) and September 1 2011? Will new reinsurers have to conform to the resolution? Will renewals have to conform to the resolution?
- In which cases will the insurance regulator authorise exceptions to the local reinsurer rule?
The communiqué settles some of the questions posed above, but in the process creates even more questions.
Section 1 of the communiqué states that in the period between the entry into force of the resolution and September 1 2011, the following will apply:
- Reinsurance contracts that have been executed and are in force will expire at their natural expiration date, regardless of the terms of the resolution;
- Contracts that have been in effect for several years, are continuing or do not have a specific term must conform to the new regulation (Resolution 35.615) before January 1 2012; and
- Reinsurance contracts that are entered into between March 11 2011 and September 1 2011 must conform to the resolution and their validity must not exceed one year. For these contracts only, insurance companies may also execute reinsurance contracts with duly registered foreign reinsurers.
This means that contracts currently in force will expire at their natural termination (if the term is for one year) or by January 1 2012 if the foreign reinsurer does not establish a local branch or subsidiary; and new contracts may be signed with foreign reinsurers prior to September 1 2011, for a term not exceeding one year.
The somewhat surprising practical consequence of this is that contracts that were due to be valid for several years (or for an undetermined term) will now expire before a contract which may be entered into between March 11 2011 and September 1 2011.
Section 2 of the communiqué builds on the requirements set forth in Section 20 of the resolution, on registration, filing and information requirements. These requirements must be complied with by foreign reinsurers in order to be allowed to accept local risks from the head office on an exceptional basis.
Section 20 of the resolution, provides in part that no operational authorisation will be granted, even on an exceptional basis, to reinsurers whose head office is located in:
- countries that levy less than 20% income tax (or similar tax);
- countries whose local regulations establish secrecy on company shareholdings;
- jurisdictions, territories or countries with low or no taxation (ie, 'tax havens'); or
- countries or territories that are uncooperative in the global fight against money laundering and terrorist financing in accordance with the criteria defined by the Financial Action Task Force.
This is in line with the requirements for establishing branches of foreign reinsurers and is unsurprising. However, it may have the effect of restricting certain reinsurers from accepting Argentine risks, even on an exceptional basis.
Section 3 of the communiqué also builds on the requirements set forth in Section 20 of the resolution, establishing that in order to be granted authorisation to operate on an exceptional basis, foreign reinsurers must comply with the requirements set forth in Section 118 of the Business Companies Law (Law 19,550). This addition means that it is no longer sufficient to register with the insurance regulator, since Section 118 of the Business Companies Law regulates the establishment of a branch or a representative office and requires its registration with the local Public Registry of Commerce - in this case the Buenos Aires Office of Companies.
The registration process for both representative offices and branches requires the filing of the same documentation. However, a representative office can undertake only certain preparatory tasks and cannot act independently of the head office. The branch has far more autonomy and can conduct business on its own.
It would therefore seem that the main difference between the registration of branches of reinsurers (which will be able to act locally pursuant to the resolution) and the registration of representative offices (which will accept ceded risks from the head office) is the minimum capital requirement for reinsurers that will act locally and the absence of said requirement in the exceptional case.
Registration with the Office of Companies (now compulsory) also entails certain annual filing requirements, which increases the burden of documents to be filed annually.
The communiqué still fails to address the process for obtaining authorisation in exceptional cases. Until this is addressed, this section of the resolution will remain inoperative and unclear.
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]).