Argentina addresses reinsurance capacity fears and gives guidance on new rules

Insurers and insurance buyers have warned that a resolution approved by the Argentinian government in February will affect reinsurance capacity in the country. The new rules state that all reinsurance transactions for Argentinian risks will have to be placed through companies that have been granted local reinsurer status, the number of which, until now, is nil. The new rules also impose retention criteria and have created fears of further red tape for reinsurance transactions. According to the government the measures will help fight money laundering and develop a domestic reinsurance market. The insurance industry and risk management community has urged the government to clarify and soften the rules.hideIn order to gain local status, reinsurers will have to equip their subsidiaries with a minimum $5m of capital. But they are expected to have to provide them with a much larger war chest in order to meet the needs of an Argentinian market that has been completely open to international reinsurers for over two decades. Analysts and insurance insiders have raised doubts over the willingness of foreign reinsurers or local financial groups to deploy the large amounts of money required to create a domestic reinsurance market. But Superintendencia de Seguros de la Nación (SSN), Argentina’s insurance market supervisor, has announced that an effort to harmonise its country’s regulation with that of Brazil is underway. It will allow reinsurer IRB Brasil Re to operate in Argentina as a local reinsurer, bringing its considerable capacity to the country. The Brazilian government and some of its largest banks own IRB Brasil Re, the company that used to run the reinsurance monopoly in Brazil. But since the gradual opening of Brazil's own reinsurance market in 2007, it has been losing market share to newcomers. The firm has confirmed it is eyeing up the possibility of operating south of the border, as a first step to expanding its businesses abroad and compensating for the loss of its monopolistic position in Brazil. SSN has also announced that negotiations are in an advanced state with Hannover Re to grant local reinsurer status to the firm. It is believed that the German reinsurer owns a considerable share of the Argentinian reinsurance market, thanks to contracts signed with Argentinian insurers via brokers. According to reports, Argentinian authorities are also meeting with several international groups to argue the merits of the planned new regulatory regime. Among their priorities are Spain's Mapfre and Lloyd's. Domestic insurance firms are also believed to be mooting the idea of joining forces to create Argentinian reinsurers, although nothing has happened so far. The government wants at least 10 reinsurers to be operating in Argentina following implementation of the new rules in September. If this comes to fruition, some of the concerns over capacity voiced by the insurance industry could be assuaged. The insurance supervisor has also endeavoured to calm the market by clarifying some issues that were causing confusion in the sector. In a new note dated 19 May, SSN explains how reinsurers that enjoy a local status in other Mercosur countries—Brazil, Uruguay and Paraguay—can also be considered local in Argentina. This will be dependent on them meeting the minimum solvency requirements demanded by Buenos Aires. Brazil is by far the largest market in the Mercosur, and a number of foreign groups like XL, ACE and Mapfre Re have already been granted local status there. The new resolution also set at 15% the ratio of premiums that have to be retained by the local reinsurers. Subsidiaries of international groups will be able to transfer to other units of the same group located outside of Argentina a maximum of 40% of their annual premiums. It also allows case-by-case negotiations that could allow local reinsurers to transfer a higher ratio of their premiums abroad. The authorities have also tried to address concerns related to the placement of large risks, those exceeding $50m, that are the most likely to suffer from the lack of local capacity. The new resolution determines that when an individual risk surpasses that amount, the excess can be placed with reinsurers that have the less stringent ‘admitted’ status in the country. Local reinsurers will also be allowed to sign retrocession contracts with other local reinsurers or firms with ‘admitted’ status.

Argentina addresses reinsurance capacity fears and gives guidance on new rules

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