The IPN Interview – Colombia’s insurance supervisor

But countries like Colombia and Chile, which usually rank among the best regulated in the region, are not rushing towards meeting the capital requirements to be established by the Solvency II directive in Europe. Gerardo Hernández, Head of Superintendencia Financiera de Colombia (SFC), the Colombian securities and insurance supervisory body, told IPN that most Latin American countries have decided to wait and see how the insurance sector in Europe and other markets will accommodate itself to the Solvency II rules before they considering plunging their countries into the experience too. There are a few exceptions, most notably Brazil and Mexico. But for now, countries like Colombia and Chile have decided to implement their own risk-based supervisory models to guarantee the solvency of the industry sector in the long run.hideIn Colombia, SFC has implemented a number of regulatory changes in the past few years that will culminate in a new supervisory model that should be up and running by the end of next year. "Measures have been launched to improve the capital position of insurance companies, and by the end of 2014, we should be implementing a new set of reserve rules that will be up with the best international practices," Mr Hernández said. Rules regarding the transference of earthquake risks have also been updated, and SFC is now working on the implementation of new supervisory methods that will put the focus of its work not only on the capital position of insurance companies, but also in their corporate governance and enterprise risk management processes. The new model was based on Canada's insurance regulations and is being implemented with the support of the Toronto Centre, a nonprofit think-tank that specialises in financial supervision. The implementation is taking place in three stages, the first of which deals with the training and formation of SFC's staff in order to meet the challenges ahead. "The new supervisory framework will demand that we have a deeper understanding of the way each insurance company operates, and to know how to evaluate their risks," Mr Hernández said. SFC estimates that 80% of the training work is already done. The second stage is linked to the development of new methodologies, of which the entity believes that 70% has been completed. The final leg implies the introduction of the new model to the market and its adoption by insurance companies. In this case, around 80% of the job still needs to be done, although market players have already been involved in the process. "There are two large insurance companies in Colombia, Suramericana and Bolivar, and we have some special programmes underway with them, in which we are working with the new risk-based insurance model," Mr Hernández said. At the same time, Colombia is trying to deal with capacity concerns fuelled by a strong growth of demand for insurance in areas like infrastructure, where billions of dollars of investments have been made of late or are scheduled to take place in the near future. On the one hand, the government has liberalised, in July, the access to global insurance markets, enabling buyers of several insurance products, including a number of commercial lines, to purchase coverages from companies based outside the country. Now, foreign insurers need only to be registered and have a representation in the country to sell insurance in Colombia. Mr Hernández believes that the liberalisation could result in better prices and services for Colombian buyers. "The outcome, I believe, will be that buyers will enjoy more options, and local companies could offer them more beneficial prices," he said. "Customer service and the level of protection provided by our rules will surely be a fundamental competitive tool for Colombian insurers to face the competition from foreign rivals." He also said that several international insurance groups are planning to get into Colombia anyway. One of the latest was credit insurer Coface. On the other hand, Mr Hernández pointed out that insurers are working towards spreading knowledge about the real state of the country in reinsurance markets, in a quest to convince reinsurers to make more capacity available to them. "The work that we have been doing to reinforce the financial position of Colombian insurers should help them to achieve more favourable terms and conditions from reinsurance markets," Mr Hernández said. "The market has been more active in this sense too."

The IPN Interview – Colombia’s insurance supervisor

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