The Reserves Regime Provided by the General Regulation on the Insurance Activity Was Amended

Resolution No. 40273/2017 of the Argentine Superintendence of Insurance (“SSN” after its acronym in Spanish) published on January 18, 2017, amended the General Regulation on the Insurance Activity (“RGAA” after its acronym in Spanish) as regards the reserves regime.

According to article 22 of the Law on National Environmental Policy No. 25,675 “all human persons or legal entities, public or private, that perform activities risky for the environment, the ecosystems and their constituent elements, must take out insurance with coverage enough to ensure the financing of the recomposition of the damage that such may produce; likewise, according to the case and possibilities, a fund for environmental restoration enabling the implementation of remediation actions may be integrated”.

Under this standard, the Resolution included in the RGAA provisions on a special reserve for surety insurance for environmental damages of collective impact that must be set up by entities operating in such coverage, to deal with potentially adverse results.

In addition, the Resolution incorporated an alternative procedure to determine the liability for incurred but not reported (“IBNR”) losses in charge of the reinsurance.

The amendments also reached the valuation criteria for judicial proceedings for a determined amount of the civil liability line and those applicable to motor insurance. For civil liability, the amount over which claims must be analysed case-by-case was set at AR$3 million, while in motor insurance such analysis will be necessary for claims exceeding AR$4 million (before it was AR$1 million for both cases). In accordance with the new standard, an actuary must include in his/her report the economic value of human life (if applicable) at the time of the filing of the lawsuit and of its notification to the insurer. The lawyer handling the case must also prepare quarterly reports, and the minimum reserve suggested by the lawyer must be that of the actuary’s report.

As from June 30, 2017, entities must calculate reserves for outstanding claims according to the criteria set forth by the Resolution and, if this results in an increase of outstanding claims reserves and IBNR in motor and/or civil liability lines, this increase may be amortized pursuant to the new standard. If the described amortization system is chosen, dividends may not be distributed until the end of the respective process.