Renewal of Reinsurance Contracts

In general terms, the practice of the Argentine market has been that treaties expire on June 30, and have a one-year duration. 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). These foreign reinsurers operated from their head offices outside Argentina.

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 “Admitted Reinsurers”). This new reinsurance framework came 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, by July 1, 2011, cedants had entered into their treaties with foreign reinsurers registered in the SSN for a one-year term.

Therefore, on June 30 these reinsurance contracts expired and their renewals were the first “litter” that insurers had 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 recent months, the SSN has been making certain observations related to arbitration clauses or “Risk Attaching” clauses.

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