“Guaranteed” Deferred Payment Checks – Amendment to Investment Requirements for Insurance Companies

Resolution No. 36,349 (the "Resolution") issued by the Argentine Superintendence of Insurance ("SSN" after its acronym in Spanish) on December 6, 2011 and published in the Official Gazette on December 15, established a new set of requirements for insurance companies when investing in the purchase of checks guaranteed by mutual-guarantee companies or similar entities ("Deferred-Payment Checks") (Sociedad de Garantía Recíproca or “SGR”).

According to Law No. 24,452, Section 54, a deferred-payment check is an instrument whereby the issuer undertakes to make a payment upon the expiration of a certain period, counted as of the date of its issuance. At the expiration date the issuer must have sufficient funds deposited in a checking account or must have an overdraft authorization.

The Argentine Securities Commission (“CNV”, after its Spanish acronym), by Resolution No. 14,689/2003 (replaced by Resolution 16,692/2011), enabled the negotiation of deferred-payment checks in the capital market. There are different types of negotiations for deferred-payment checks (see Marval News # 91 –"Deferred payment checks guaranteed by warrants"), including those "guaranteed" by an SGR or similar entity, who is responsible of its listing on the stock market.

The SGR must back the Deferred-Payment Checks with general funds or as trustees of a specific fund (the "Specific Fund"). The maximum amount of Deferred-Payment Checks, which must be deposited at all times with Caja de Valores S.A., may not exceed 300% of the amount of the Specific Fund, calculated as of the date of the latest accounting information filed.

The Resolution amends point 35.14 of the General Rules for the Insurance Activity (the "Rules"), which establishes new requirements for Deferred-Payment Checks. The requirements and limitations may be classified as follows:

a) Rating and Deposit of the Investments

Deferred-Payment Checks must have a minimum rating of "BBB" by a rating agency authorized by the CNV. Deferred-Payment Checks must comply with the deposit regime of item 39.10 of the Rules.

b) Limitations to Investment in Deferred-Payment Checks

Insurance companies may invest up to 5% of their capital or 5% of their total investments (excluding real estate), whichever is higher. Not more than 50% of such sum may be concentrated in one SRG.

c) Due date of Deferred-Payment Checks

For Deferred-Payment Checks with an expiration date exceeding 180 days from their date of issuance, the SGR will have to be registered with the Central Bank of Argentina. Deferred-Payment Checks with an expiration date exceeding 120 days from the date of closing of the financial statements closing shall not be considered “liquid investments” under item 39.9 of the Rules.