Argentina suffered huge economic difficulties during 2001 and 2002, following several years of recession in the late 1990s. These problems led to financial instability and many Argentine insurers entering liquidation.

As a result, reinsurance contracts of Argentine insurers come under the Pesification Regulations. Reinsurers should be aware of the implications of these regulations and other issues that form part of the commutation process. This is particularly important in the light of the recent efforts of the Superintendency, the Argentine regulator, to pursue recoveries on behalf of those Argentine cedants in liquidation.

Background and the Argentine financial crisis

In December 2001, Argentina verged on economic collapse and, at the beginning of 2002, abandoned its longstanding policy of maintain parity between the Argentine peso and the US dollar. The Argentine peso subsequently devalued significantly, leading the banking industry into crisis and plunging companies into bankruptcy. Millions of Argentineans were affected.

To counteract this, the Argentine government issued Decree 214 and the Pesification Regulations. With certain exceptions, the regulations provided that if a contract was subject to Argentine law and was executed prior to January 6 2002, then any denominations in foreign currencies were subject to pesification. Accordingly, financial obligations arising under such contracts are to be converted from US dollars to Argentine pesos at a rate of US $1:AR$1. They are then further adjusted by applying the reference stability ratio, which seeks to impose an element of indexation in respect of pesified debts.

The practical effect of this is that elements of insurance contracts denominated in foreign currency, such as the limits and deductibles, will be subject to conversion from US dollars to Argentine pesos and indexation. The deductible will, therefore, be reached and the limit exhausted earlier than may have been anticipated when the contract was written.

It is unclear whether this principle applies in respect of reinsurance contracts written by foreign reinsurers of Argentine cedants. Reinsurers should, however, be aware of the implications of the Pesification Regulations, which the Argentine courts may rule should apply at the reinsurance level. Such a decision would potentially expose reinsurers to greater losses; a $1m deductible, for example, will only be ‘worth’ $600k once pesified. Likewise, the contractual limits may be exhausted more quickly. This is particularly relevant in the light of the Superintendency’s recent efforts to pursue recoveries on behalf of those Argentine cedants in liquidation.

Argentine cedants in liquidation proceedings

After years of recession, aggravated by the financial crisis in 2001 and the subsequent Pesification Regulations, a high number of Argentine ceding companies have found themselves in the liquidation process. These companies include: Visión, Omega Cooperativa y Omega SA, Garantía, La Ibero Platense, Reliance, Suizo Argentina, Touring, La Accion, Cuspide, Anta, India, Inca and Lua.

In the last two years, the Superintendency has started to approach foreign reinsurers for recoveries under reinsurances of insolvent Argentine insurers, including those where the contracts in question were written pre 2002.

Argentine regulations provided that reinsurance policies with Argentine cedants must include an insolvency clause in the event the ceding company enters into compulsory or voluntary liquidation. This establishes the obligations for the reinsurer to pay directly to the liquidator any balances due, taking into account offset of reciprocal debts, independently of whether or not the ceding company has complied with its obligations with the insured.

Commutation issues

Where the contracts are subject to Argentine law and jurisdiction, reinsurers should be aware of the Pesification Regulations, which are likely to affect the commutation negotiations. In addition, a number of other considerations will form part of the commutation strategy.

These include the following:

  • In pursuing recoveries on behalf of cedants in liquidation, the Superintendency has appointed consulting companies and law firms to will deal with foreign reinsurers and to facilitate commutation negotiations. These agents often demand a percentage of the final commutation value. To reduce the costs associated with commutation, reinsurers may be able to deal with Argentine lawyers, who can approach the Superintendency directly.
  • The terms of the offer to commute are often based upon the ceding company’s most recent bordereau and will include an amount for the “recognised credits”, ie, creditors in the liquidation, plus the incurred but not reported claims, which concern claims that are pending or subject to litigation proceedings. There is scope for debate as to whether those claims in litigation should only be paid when the cedant’s liability has crystallised.
  • If reinsurers accept the commutation proposal, the Argentine courts have to approve the terms of the offer. This process is time consuming and it is not guaranteed that the courts will accept the terms of the commutation, including the proposed consideration.
  • Another issue relates to limitation. It is not always clear (in the absence of settled Argentine law) whether claims against reinsurers which arise under contracts written five, ten or more years ago are time barred.


Reinsurers that have written reinsurances of Argentine cedants should be aware of the Superintendency’s proactive approach towards pursuing recoveries on behalf of cedants in liquidation. In commuting contracts, reinsurers may have to address pesification as part of the commutation strategy, as well as other issues such as noncrystallised liabilities and limitation.

Furthermore, part of the commutation strategy will often be to decide whether to negotiate through the Superintendency appointed agents, who may charge a commission for facilitating the commutation, or whether it is possible to instruct independent Argentine lawyers for this purpose.