Minimum Capital for Insurance and Reinsurance Companies: Amendments to General Regulation of Insurance Activity

Minimum Capital Required to Insurance Companies

Resolution 1116/2018 (the “Resolution”) replaces point 30.1 of the General Regulation of Insurance Activity (“RGAA”) , and in the majority of cases, doubles the minimum capital which must be held per line of business, with respect to the minimum capital established until now. Thus, for example, to operate in motor insurance, a company must hold a minimum capital of ARS 60 million, approximately USD 1.6 million (before the Resolution it was ARS 30 million); for civil liability of automotive vehicles allocated to public transport of passengers a minimum capital of ARS 60 million, approximately USD 1.6 million (before, ARS 36 million); and for surety and credit insurance, a minimum capital of ARS 18 million (before, ARS 9 million).

In accordance with article 3 of the Resolution, those insurance companies authorized from  July 31, 2016 to operate in reinsurance must hold a minimum capital of ARS 350 million, in addition to the minimum capital required for them to operate in direct insurance.

Quarterly Updates

The new amounts fixed by the Resolution will be required starting from the submission of the financial statements for periods beginning from  January 1, 2019. From July 1, 2019 the amounts defined by the Resolution (other than those fixed for operating in reinsurance) will be adjusted quarterly to the passive interest rate of Communique No 14,290 of the Argentine Central Bank. The amounts in force at the close of every quarterly period must be published by the Superintendence of Insurance (“SSN”) previously.

Minimum Capital Calculated on Premiums and Claims

The Resolution also defines new limits for the calculation of the coefficient which was established by points 30.1.1.2 and 30.1.1.3 of the RGAA for the formulas which must be applied to determine the minimum capital required on the basis of written premiums and claims experience.

Gradual Adjustment Regime

The Resolution provides that companies will be able to apply a “Gradual Adjustment Regime” which will increase capital requirements every quarter, from January 1, 2019 until December 31, 2019.

Reinsurance Operations

New point 30.1.4 of the RGAA maintains the limit established for insurance companies, who are able to write reinsurance business up to 10% of the total of the premiums written in direct insurance. However, the Resolution also adds some details, establishing that insurance companies must be able to write reinsurance business exclusively in the lines in which they have authorization to operate in direct insurance and only for risks ceded by insurance companies duly authorized to operate by the SSN.

Minimum Capitals of New Companies

To unify criteria with respect to the determination of minimum capital, the Resolution eliminates point 30.4 of the RGAA for which, from now, both existing and new companies must hold the same minimum capital, defined in new point 30.1 of the RGAA. Before this reform new companies had to hold an initial capital equivalent to double of that established in point 30.1, which may subsequently be reduced to four stages at a rate of 25% per year.

New Rules for Authorization to Operate in Any Line of Insurance.

Point 23.9 is also incorporated to the RGAA with the purpose of regulating the authorizations to operate in any line of insurance, the cases in which these may be revoked and the minimum volume of premiums to be written.

Thus, the new point 23.9.3 of the RGAA provides that the absence and/or total lack of written premium in any line of business (e.g., motor, civil liability, property, life, burial)  for 12 months (counted backwards, i.e., from the close of the interim period –March, June, September, and December- in relation to the same period of the year before) triggers the automatic expiry of the authorization to operate in said line of business.

Furthermore, the Resolution also fixes a minimum volume of written premiums for groupings of lines, basically life and non-life. A minimum of 5% of premiums in life (point 23.9.2.2 of the RGAA) and in  non-life insurance (point 23.9.2.1 of the RGAA) must have been written at the end of each fiscal year to maintain the authorization to operate in either life or non-life, calculated with respect to the minimum capital. If these minimums are not reached, this will trigger the expiry of all the authorization to operate in either life or non-life insurance, as applicable.

Whatever may be the cause of the expiry of the authorization of an insurance line, the company must maintain the minimum capital until the SSN issues a resolution on the expiry and releases the entity from its obligation to maintain the corresponding capital requirement.

-Prohibition of Operating in a Joint Form in Life and Non-Life Insurance: The Resolution maintains the prohibition for new entities to operate jointly in life and non-life insurance (point 23.9.1.2 of the RGAA). Those entities which at the date of entry into force of the Resolution are authorized to operate jointly in life and non-life insurance must continue to operate in this way but they must hold the corresponding capital for each one of these insurance lines (article 6 of the Resolution). Until now, the RGAA established a combined minimum capital of ARS 54 million (approximately USD 1.44 million) for entities who operated jointly in life and non-life insurance.

-Revocation of Authorization to Operate: to request the revocation of the authorization to operate in one or more insurance lines, the prior consent of the SSN is required (point 23.9.5 of the RGAA). Whatever may be the cause of the request for revocation, the entity must maintain the minimum capital required until the SSN approves the revocation and releases the entity from its obligation to maintain the corresponding capital requirement (point 23.9.6 of the RGAA).