Amendment to the Regime of Minimum Capital for Insurance and Reinsurance Companies

Maintaining the criteria of the previous reform, insurers must maintain a minimum capital arising from the greatest of the following three parameters: (i) by lines of business, (ii) amount according to premiums and (iii) amount depending on the claims.

Regarding capital by lines of business, the requirements were tripled in almost all lines. For example, for entities already operating in motor insurance, the minimum capital will be AR$ 30 million (previously AR$ 10 million). For operating in personal insurance (individual and collective), the minimum capital will be AR$ 9 million (previously AR$ 3 million).

Furthermore, those entities incorporated from August 1, 2016 onwards, will not be able to operate jointly in life and non-life insurance.

In addition, these new entities will face significantly higher minimum capital requirements. To operate in property insurance (which includes automotive, civil liability, air navigation, surety, etc.) a minimum equity of AR$ 45 million will be required. Furthermore, and depending on each line, entities must prove an additional minimum capital. For instance, in motor insurance, said additional capital will be AR$ 15 million.

To operate in life insurance (including individual and group life insurance, providing or not, for the constitution of technical reserves, funeral, personal accident and health), the required amount will be AR$ 45 million.

Local reinsurers must prove a minimum capital arising from the greater of the following two parameters: 1) a minimum capital not less than AR$ 300 million (previously AR$ 30 million); and 2) an amount arising from premiums and surcharges (section 30.1.2). The Resolution provides an adaptation scheme for local reinsurers, which entails proving AR$ 60 million by December 2016 and reaching AR$ 300 million by September 2017.

On the other hand, section 30.4 of Resolution remains in force. Consequently, these new entities, in addition to the higher equity requirements, initially must prove twice the minimum capital required. The entities may subsequently reduce said capital in four stages:

a) 25% a year from the date of the resolution granting the corresponding authorization;

b) 50% after two years;

c) 75% after three years;

d) 100% after four years.

The Resolution does away with subsection c) of the Annex to paragraph 2.1.1 (Reinsurance Framework) which allowed "corporations, cooperatives and national mutual societies, branches of foreign companies, official agencies or entities, national, provincial or municipal authorities, which are authorized to practice direct insurance in Argentina" to act as local reinsurers. Notwithstanding, these insurers may continue making active reinsurance operations, but only up to 10% of total direct insurance premiums, calculated at the end of each fiscal year (section 30.1.4).

Finally, for the computation of minimum capital requirements, for incorporated and licensed insurance companies as of July 31, 2016 (and those that are pending authorization and have already integrated the minimum capital required by the Resolution) that do not reach the new minimum capital requirements, the Resolution provides for a progressive adaptation scheme, by which they must prove 2/3 of the required capital as of December 31, 2016 and the total capital by September 30, 2017.