Reinsurance Contracts to be subject to Argentine Law and Jurisdiction

The Argentine Superintendent of Insurance announced yesterday that it has issued Resolution No 33,320, which establishes that both facultative and obligatory reinsurance contracts entered into by Argentine cedents must be subject to Argentine law and jurisdiction.

This new regulation has not been published in the Official Gazette yet —a step necessary for laws and regulations to enter into force under Argentine law— and, therefore, the grounds taken into account to issue this regulation have not been made available. It is a very brief resolution, only consisting of two short sections, one of which is merely formal.

The Superintendent’s powers are set out by the Insurance Companies Law of 1973 (Law No 20,091, as amended, ICL). Under section 1 of the ICL, insurance and reinsurance business activities in Argentina are governed by the ICL and subject to supervision by the Superintendent of Insurance. Section 67 of the ICL includes among the Superintendent’s duties and powers: (a) performing the functions entrusted to him by means of the ICL; and (b) issuing the regulations as may be necessary to carry out and enforce the provisions of the ICL.

Clearly, the authority vested in the Superintendence of Insurance to regulate insurance and reinsurance activities is broad. Nonetheless, it remains to be evaluated whether the provisions of Resolution No 33,320 fall within the scope of powers of the Superintendent.

This is not the first time that the Superintendent conditions the wording of reinsurance contracts. Under section 15 of the Reinsurance Contracts Regulatory Framework, established by Resolution No 24,805 of 1996, reinsurance agreements must specify that, in the event of liquidation of the cedent, reinsurers shall pay directly to the receiver all reinsurance proceeds, after having set off mutual credits and debts and regardless of whether the cedent has complied with its payment obligations to the insured or of the status of the liquidation.

Pursuant to section 16 of Resolution No 24,805, reinsurance contracts shall not: (a) allow for amendments to their conditions that may retroactively affect the reserve levels of a cedent; or (b) condition their effects to any lack of payment covenant. Moreover, under section 17 of Resolution No 24,805, reinsurance contracts executed with the intermediation of a reinsurance broker shall not include any clause that limits or that does not allow a direct relationship between the cedent and the reinsurer nor may such broker be granted powers or functions other than those necessary and appropriate to fulfill an independent intermediation role.

It should be noted that Resolution No 33,320 does not establish any sanctions to those in breach. By contrast, Resolution No 24,805 provides that reinsurance contracts in breach of its provisions shall not be taken into account by the Superintendent of Insurance when assessing whether a company does not comply with the applicable insurance laws and regulations, nor shall they be taken into account for technical ratios of a cedent. The Superintendent may possibly apply this sanction to those in breach of Resolution No 33,320. The Superintendence may also deem applicable section 58 of the ICL, which sets forth sanctions ranging from a mere warning to the cancellation of the license to operate.

The new resolution of the Superintendent of Insurance should be published shortly in the Official Gazette.