Renewal of Reinsurance Treaties

In general terms, the practice of the Argentine market has always been that treaties expire on June 30, and have a one-year duration term. This, of course, with the exceptions that may apply, such as multi-annual contracts in life insurance, where, due to the type of risk ceded, the term of the contracts usually exceeds one year. Insurers used to reinsure with foreign reinsurers registered with the Argentine Superintendence of Insurance (“SSN” after its acronym in Spanish).

However, by means of Resolution No. 35,615, issued on February 2011, the SSN set forth the obligation to reinsure with Argentine reinsurance companies or Argentine subsidiaries or branches of foreign companies (so-called “Local Reinsurers”), with some minor exceptions (cession of risks in some cases to the so-called “Admitted Reinsurers”). This new reinsurance framework entered into force on September 1, 2011.

In April 2011, the SSN issued Resolution No. 35,726, which amended Resolution No. 35,615, setting forth –among other things– that the duration of the reinsurance contracts executed between March 11, 2011 and September 1, 2011, could not exceed one year. Only during that term, cedants were allowed to enter into reinsurance contracts with foreign reinsurers registered with the SSN. This exception resulted in that in most cases, to July 1, 2011, cedants entered into their treaties with foreign reinsurers registered in the SSN, and for a one-year term.

Thus, this June 30 these reinsurance contracts will expire, and their renewals will be the first “litter” that insurers will have to underwrite with Local Reinsurers.

This changing scenario coincides with the higher level of surveillance that the SSN is exercising over the reinsurance contracts in force. For instance, in the last months, the SSN has been making certain observations linked with the arbitration clauses or the “Risk Attaching” clauses.

Historically, days prior to June 30 are intense in the market, when cedants and reinsurers negotiate the clauses of the relevant reinsurance contracts., The new regulatory framework has definitely brought some key elements to the negotiating table.