On May 19 2011 the insurance regulator issued SSN Resolution 35.794. The new resolution aims to clarify further certain matters regarding the new reinsurance regime established by Resolution 35.615/2011 as published on February 21 2011 (for further details please see "New reinsurance regulation leaves questions unanswered"). However, while the resolution settles some of the outstanding questions arising from the main resolution, it creates even more. The main points are summarised below.

'Local reinsurers' (ie, reinsurers authorised to do business under Item 1 of Exhibit I to Resolution 35.615) may retain risks up to 10% of the computable capital (eg, if computable capital is $5 million, a reinsurer will be entitled to reinsure up to $500,000) and must retain at least 15% of the total reinsurance premiums issued. In turn, the branches of Mercosur reinsurers (ie, those in Argentina, Brazil, Paraguay and Uruguay) may consolidate their balance sheets with those of their home office, although the resolution is unclear as to what is considered a home office.

For insured risks, up to $50 million must be reinsured with local companies and any amount in excess of that limit may be reinsured with foreign registered reinsurance companies referred to in Item 20 of Resolution 35.615 ('admitted reinsurers').

Retrocession transactions may be concluded with either local or admitted reinsurers.

Local reinsurers will 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 limitations may be exceeded only on an exceptional basis, with the prior authorisation of the insurance superintendence‚ upon conclusively proving that it would be impossible to obtain coverage through other market operators.

Reinsurance contracts such as group life insurance and group burial insurance must be retained in their entirety by the local reinsurers.

It is established that minimum capital of a local reinsurer should be the highest amount of either Ps20 million or 16% of the net premiums retained for active reinsurance and retrocession, plus an additional administrative amount, issued during the 12 months before the relevant fiscal year. This may not be less than 40% of the total premiums issued (after cancellations).

To calculate the minimum capital to be proved, insurance companies that cede reinsurance premiums to local reinsurers by a percentage equal to or less than 15% may compute the amount of insurance premiums plus additional administrative amount, after any cancellations and premiums ceded to local reinsurers.

Registered reinsurance companies (local and admitted reinsurers) must keep a sealed and certified register for active and passive reinsurance, where the automatic and facultative reinsurance contracts entered into, alongside their respective endorsements, are recorded.

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]).