Reinsurance Legal Framework – Reinsurance Contracts

On May 4, 2011, the Argentine Superintendence of Insurance (the “ASI”) issued Communication No 2,804 (the “Communication”), which set forth criteria to construe the scope of Resolution No 35,615 (please see our Insurance News No. 1 – “Changes in reinsurance regulatory framework”), which amended the reinsurance regulatory framework.

The Communication set forth that reinsurance contracts in force shall expire as originally agreed by the parties, regardless of the coming into force of Resolution No 35,615. However, multi-annual contracts, whether continuous or for an unspecified term, must adjust to Resolution No 35,615 before January 1, 2012. Contracts executed between March 11, 2011 and September 1, 2011, must adjust to Resolution No 35,615 and their lifespan may not exceed one year. Nevertheless, during this term Argentine cedants will be allowed to enter into reinsurance contracts with registered foreign reinsurers.

The Communication adds two more Sections to Article 20 of Resolution No 35,615, which regulates the requirements for foreign reinsurers that shall be allowed to underwrite risks from Argentine cedants from their home office, when there is no local capacity and subject to the ASI’s prior authorization. On the one hand, the ASI shall not authorize foreign reinsurers from jurisdictions where the income tax rate is lower than 20% or whose local legal framework imposes corporate structure secrecy, or which belong to “tax havens” and/or non-cooperative countries or territories. On the other hand, the Communication added a Section –the exact scope of which is not entirely clear–which states that foreign reinsurers must also comply with Article 118 of Law No 19,550, on registration with the Public Registry of Commerce of foreign companies.

The Communication also amended Resolution No 35,481 as regards payment of reinsurance premiums. Cedants must request authorization to make payments abroad from the ASI, by means of a sworn declaration. This sworn declaration must be executed by the president or the legal representative of the cedant, and it must state that the cedant has no funds deposited outside Argentina that may be used to pay reinsurers.