Amendments to the Large Risks Regime

Resolution No 35,648 (the “Resolution”) of the Superintendence of Insurance (the “SI”) was published on March 11, 2011 in the Official Gazette. The Resolution repealed Resolution No 35,496 and amended article 26.3 of the General Rules for the Insurance Activity on Large Risks filings, i.e., filings that the SI requires with respect to those insurance contracts that, due to their magnitude and characteristics, have a simplified authorization process of their terms and conditions.

The Resolution introduced significant changes since it eliminated the obligation set forth by the Resolution No 35,496 of including in the insurance contracts subject to the Large Risks regime a clause establishing that: (i) in case of loss, the payment of the part of the compensation covered by the reinsurance contract would be made to the insured once the reinsurer had paid the amounts due under the reinsurance contract; and (ii) in the event of liquidation of the cedant, the insurer would not have any preferred credit over other creditors with respect to sums owed by the reinsurer to the cedant (except in civil liability insurance).

The Resolution also eliminates the requirement set forth by Resolution No 35,648 with respect to capital required to insurers who underwrite Large Risks. Pursuant to the Resolution No 35,648, insurers must have a minimum capital exceeding to AR$ 20,000,000 (approximately, USD 5,000,000). The Resolution does not expressly provide for a minimum capital that insurers must have.

After the recent amendments, the main characteristics of the Large Risks regime are as follows:

1. Large Risks are those: (i) that involve industrial, commercial or service activities; (ii) that have sums insured exceeding AR$ 40,000,000; and (iii) where the contractual terms and conditions have not been not authorized by the ASI.
    
2. Prior to issuing a Large Risk policy, insurers must comply with the following requirements or have the following documentation:
    

      i -   The consent of the insured to all the terms and conditions of the contract, executed by its legal representative.

      ii -   A lawyer’s opinion, stating that the insurance contract conforms to the applicable regulations or public order regulations.

      iii -   The text of the contractual terms and conditions. .

      iv -   An actuarial certification issued by a professional registered with the ASI, stating that the retention level will not jeopardize its economic-financial capacity. The actuary must also report on the reinsurance terms and conditions and that the insurer complies with applicable retention regulations. The report must contain: (1) information on the insured; (2) business line; (3) total sum insured: (4) type of reinsurance contract; (5) limit; (6) maximum retention; (7) basis of coverage; (8) information on the reinsurers and on the reinsurance intermediary; and (9) if the risk is to be covered by combined reinsurance contracts, how these will operate.

3. As regards the requirements to be followed after the policy is issued:
    

      i -   Insurers must file with the ASI a sworn statement executed by their president within 60 days after the last day of the month in which the policy was issued or within 120 days from the inception of the risk, whatever happens first. The sworn statement must include information on the insurer, characteristics of the risk, information on the policy, the existence of co-insurance (if applicable), information on the actuarial certification and the lawyer’s report, and if any reinsurance intermediary has performed any activity.

      ii -    Insurers must register the transaction as a Large Risks in the company’s records, and have at disposal of the ASI at their domicile the original documentation filed with the ASI (consent of the insured, lawyer’s report, actuarial certification and contractual terms and conditions), copy of the policy with the relevant endorsements, copy of a report by a rating agency of the reinsurers involved if not registered with the ASI -this may be modified due to the recent changes in the reinsurance regulatory framework- and the documentation of the reinsurance contract.