On 30 December 2015, before the newly elected opposition-led Congress took office, the Venezuelan government issued a Law-Decree amending several provisions of the Insurance Activity Act of 2010. Below, we discuss the two most relevant amendments to the Act.
The most important change brought about by the Law-Decree is the repeal of the entire Insurance Contract Act. The Law-Decree states that the Superintendence of Insurance will issue the provisions that will rule insurance contracts, but this has not happened yet. Whether these new rules would be in accordance with the Constitution seems questionable, because by having the Superintendence issuing these regulations, the Superintendence would be, in practice, taking on the Congress’ role.
From an insurance perspective, the general principles of contract law stated in the Civil Code should apply until there is a new Insurance Contract Act. From the reinsurance perspective, the repeal does not seem to be significant because the provisions contained in the now abolished Insurance Contract Act were very limited and, in Venezuela, reinsurance issues are ruled by the provisions contained in the reinsurance contract.
Powers of the Superintendence of Insurance
Article 8 of the new Insurance Activity Act grants two new powers to the Superintendence of Insurance. The Superintendence can now order the payment of claims, and calculate the “monetary correction” (a mix of interest and inflation adjustment) to which the payment will be subject. Also, it must authorize the sale or encumbrance by an insurance companies of any property considered to be salvage. More regulation of these new powers granted to the Superintendence is expected.
The new Act creates two — Argentina-like — obligatory contributions for insurance companies: a Social Development tax, which is an annual contribution ranging from 1% to 3% of the premium income, and, the Investigation and Development of the Insurance Activity tax, which is an annual contribution of up to 5% of the carrier’s profit. More regulation on these new taxes is expected, as there are too many uncertainties as to how these contributions will work in practice.
Exchange control system
As indicated by the Venezuelan government’s recent announcements, the country now has only two exchange rates instead of the previous three. The official rate, which was Bs. 6,30/USD, is now Bs.10/USD. The SIMADI rate which fluctuates daily and it is around Bs. 203/USD. The SICAD rate will no longer exist.
The official exchange rate will only be available for essential public needs and the SIMADI rate will apply to everything else.
Many questions still remain since the recent announcements as to how the SIMADI rate will be determined. It is expected that the government will soon issue regulations on this.
From the insurance perspective, given that the SICAD rate was eliminated, subject to the contractual terms in relation to exchange rates, it seems that the applicable rate for conversion purposes will be the SIMADI rate.