On 5 August, the Venezuelan National Assembly passed the Venezuelan Law of Insurance Activity, which paves the way for enhanced State regulation of insurance/ reinsurance in Venezuela. This legislation was closely followed by the nationalisation of Venezuelan insurer Seguros La Previsora on 18 August.
Under the Act, the new Superintendence of Insurance Activity (SIA) is granted broad regulatory powers to control, supervise and inspect insurance activity in Venezuela. The Act also imposes new claims handling obligations, regulates the payment of premium, and imposes new penalties where (re)insurers fall foul of the new rules.
The passing of the Act and nationalisation of La Previsora mark the latest round of intervention by President Chavez's government in the financial services industry and are expected to set the agenda for further reforms towards a "socialist system of insurance activity", depending upon the outcome of forthcoming Venezuelan elections.
Prior to these events, reinsurers may have taken comfort from having English/non-Venezuelan law and jurisdiction and rights of claims control/co-operation written into the reinsurance. Such terms may still be included but are unlikely to fully protect reinsurers, who will be subject to many of the rules outlined below.
Practical implications – examples
Underwriting and regulatory issues
- Insurers and reinsurers that are incorporated in "taxhavens", including Bermuda, cannot be registered with the SIA so will not be authorised to conduct insurance activity in Venezuela. However, this does not prohibit insurers with Bermudian holding companies from writing Venezuelan business through alternative platforms, such as Lloyd's of London. Existing contracts caught by the prohibition will continue until expiry but cannot be renewed
- All public workers' insurance currently provided by private insurers must be transferred to State-owned insurers within five years
- The Act introduces minimum solvency requirements and mandatory premium reserves, for catastrophic risks
- Pre-existing condition exclusions are no longer permitted in health insurance
- (Re)insurers must provide full reasons when declining claims – "generic arguments" are prohibited
- Insurers have 30 days to pay/reject a claim from the time that all appropriate information has been provided, after which interest will accrue
- The adjustment of premium during the policy period to reflect the incurred loss or claims ratio is prohibited. This assumes cover will be renewed annually and that insurers will be able to charge a higher premium but does not contemplate one-off covers (eg long-term construction projects), contracts written on an swing basis (eg BI cover written on a declaration basis), or treaty reinsurance which provides for additional premium
- The Act restricts insurers' right to cancel a contract of insurance in circumstances where a premium financing company has failed to pay premium to insurers
Penalties and fines
A failure to adhere to the rules may result in fines which might not be recoverable under a contract of reinsurance, depending upon the terms of the follow settlements/UNL clause.
The Market will watch with interest to see whether further reforms are introduced following the forthcoming legislative elections.