Argentina is keen to create bigger reinsurance market, but regulations are a challenge, top lawyer warns IUA meeting, By James Brewer
Much of Latin America including one of its largest markets, Argentina, offers substantial opportunities for the insurance industry, a briefing organised in London by the International Underwriting Association has heard.
Martín Argañaraz Luque, partner and head of the insurance and reinsurance team at the Buenos Aires-based law firm Allende & Brea, told the IUA meeting: “Latin America is an emerging market with different types of government. The important thing is that the region is rich in commodities, and the world needs commodities. The penetration of the insurance market is very low. You must know the risk, but there is a huge potential.”
Mr Argañaraz Luque was giving an update on Argentine reinsurance regulations, and offered a broader perspective on how demand is shaping up. He said that lines of business that particularly interested international reinsurers included energy, alternative energy and physical and transport infrastructure.
He added of the Argentinian authorities: “They want to create a real reinsurance market in the country, ” so their attitude to ‘fronting’ (where a licensed insurer issues a policy on behalf of an unlicensed reinsurer) for example, would vary on a case by case basis. Some of the heavy risks of state-owned companies were reinsured in London, but it was not too common to see people from the London market – “I think it is a challenge also for you, ” he told his audience.
On the broader canvas, Mr Argañaraz Luque said that Latin America accounted for just 3% of worldwide insurance premium, compared with Europe at 41%, North America (excluding Mexico) 33%, and Asia 20%.
In Latin America, Brazil was by far the leader in premium terms, followed by Mexico, Argentina, Venezuela, Chile, and Colombia. Looking at those countries’ economies, at present “everyone wants to do business in Colombia, said Mr Argañaraz. “Nobody thought that Colombia would be such an attractive country, but they are in a peace process with the guerrillas. Colombia has the third largest population in the region.” Global insurer AIG recently moved part of its Latin American back-office service operation to Bogota.
Peru was also booming, and in need of a great deal of new infrastructure. Main insurance hubs for the region were considered to be Bogota, Miami, São Paulo and Santiago de Chile.
Argentina is the third largest economy in Latin America, and the government had sought to restructure its debt with a formula accepted by 96% of creditors, although was continuing its legal battle with hold-out hedge-fund creditors.
A general election was scheduled for October 2015 “so the idea we have down there is that we are starting a new cycle, ” said Mr Argañaraz Luque, and the new administration will probably attract foreign investors.
He said that since February 2011, the Argentine insurance regulator (SSN) has been issuing regulations modifying reinsurance activity. There were two types of reinsurers, those classified as local, and those that were ‘admitted.’
Hannover Re, Munich Re, Partner Re, Scor, Swiss Re, XL were among those registered as admitted. In all, at the most recent count there were 76 admitted reinsurers, compared with 99 in 2012. The Lloyd’s market was deemed to be an admitted reinsurer, and considered as a sole reinsurance entity. Most active foreign reinsurers were the Brazilian operation IRB, and Scor.
Local reinsurers had priority in all reinsurance business arising from the market in Argentina.
The main problem for international reinsurers is the delay in payment of premiums because of foreign exchange controls and regulations. Delays could be many months. Before allowing the transfer of foreign currency the authorities would ask a lot of questions. Meanwhile, the Argentine peso was devaluing, so that more local currency would be needed to buy foreign currency.
A new reinsurance regulation on payment of premiums entailed the appointment of a collecting agent outside Argentina. This was meant to speed up the process, as payment made to the agent would be considered as made to reinsurer.
A new association of reinsurance brokers, the Asociación de Corredores de Reaseguros Argentinos had been created to lobby the insurance regulator; and a group of international insurers and reinsurers had been formed to discuss matters of common interest with the SSN.
Mr Argañaraz Luque cautioned that the claims system could frustrate anyone with limited knowledge of the requirements.
The parties to a reinsurance contract must agree to Argentine law and jurisdiction, but the Allende & Brea partner warned that judges in Latin America tended to be unfamiliar with the reinsurance industry, so it was wise to choose arbitration where possible. The insurance regulator accepted arbitration clauses.
Mr Argañaraz Luque added: “When agreeing an arbitration clause it is very important that the parties waive their rights to appeal the arbitration award before a judicial court.”
Allende & Brea is one of the largest full-service law firms in Argentina, and played a leading role in advising on the country’s privatisation programme. Mr Argañaraz has previously worked with and lectured in connection with some of London’s leading law firms, and assisted with the registration in Argentina of Lloyd’s as a sole reinsurance entity. He is the attorney in fact of Lloyd’s of London in Argentina. At the start of his law career, he was an intern at the International Maritime Organization.