Incorporation of Insurers and Reinsurers in Argentina - Transfer of Shares and Capital Contributions - Amendments to Legislation in Force

Through Resolution 37,449 (the “Resolution”), the Argentine Superintendence of Insurance (the “SSN”, after its acronym in Spanish) replaced section 7 of the General Regulation of the Insurance Activity and included substantial amendments to these matters. However, most of these amendments now in writing are requirements that were already requested in practice by the SSN, or incorporate guidelines recommended by the International Association of Insurance Supervisors (“IAIS”) or by the European directive “Solvency II”. Below, we analyze some of the most important amendments, which will have an impact –among other things– on the incorporation of new entities or on the purchase process of existing entities.

A) Authorization to Carry On Insurance and Reinsurance Activity in Argentina

• - Market Convenience

Although Law 20,091 already states that every request of authorization to carry on insurance or reinsurance activity is subject to “market convenience” (section 7, subsection g), the Resolution now provides more details about what the SSN is to analyze in this regard. These new requirements seem in line with the investment principles in the “real economy” recently established by the subsection K) of Section 35.8.1 of the General Regulation of Insurance Activity (see Marval News # 124 – “The Authorities Defined which Investments by Insurers Qualify as Investments in the ‘Real Economy’”). The Resolution sets forth that the authorization will be granted provided the new entity is related to the “…development of a productive project for the country, allocating economic and human resources to a clear and specific capital investment plan that accompanies the country’s economic evolution, with the promotion of employment and the reinvestment of revenues within the national territory. The SSN will evaluate the characteristics of the project, the conditions of market, the backgrounds and responsibilities of the applicants and their experience in the insurance industry…”.

• - Solvency of the Shareholders and Members of the Direction and Supervisory Bodies

When requesting authorization to incorporate a new insurer or reinsurer, the petitioner must specify the corporate capital that it is going to be contributed initially, stating the shareholders that are going to pay it in, their domiciles, nationality and their respective shareholdings, including documentation evidencing that they have enough liquidity to execute in due time and manner the committed capital contributions. This, although not expressly regulated, was a requirement that the SSN already took into account when authorizations to operate or to transfer shares were requested.

The Resolution also deals with the requirements that must be fulfilled by the members of the direction and supervisory bodies of the entity that requires authorization.

In line with the IAIS principle of “Suitability of Persons”, the new legislation incorporates the requirement that shareholders, as well as members of the direction and supervisory bodies, file some documentation to evidence their moral, technical, economic and financial solvency.

The Resolution also incorporates matters associated to anti-money laundering and financing of terrorism, which is in line with the Financial Information Unit’s regulations and with the IAIS principle of “Anti-money Laundering and Combating with the Financing of Terrorism”.

• - Organizational Chart and Economic Group

In line with the IAIS principles of “Suitability of Persons”, “Risk Management and Internal Control” and “Group-wide Supervision”, and with the second pillar of Solvency II (“Supervisory Review”), the requesting entity must file a report containing –among other things– the management scheme of the entity, the organizational chart projected with a description of functions, main policies, guidelines for the attention of insureds, risk management, and other issues related to government, accounting, administrative, communication and risk control systems, anti-money laundering and financing of terrorism, as well as the software and hardware to be used.

Moreover, if the requesting entity is part of a corporate group, a chart with the group structure must be filed, identifying all the companies taking part in it (including insurers and other entities, whether regulated or not).

The requesting entity will also have to provide information as regards transactions with related companies, and links between the companies that are members of the group (such as consolidated financial statements). That is to say that, among other things, the requesting entity will have to provide information about future intra-group services.

• - Feasibility Report and Business Plan

In line with the first and third pillar of Solvency II (“Minimum Capital Requirements, Reserves and Investments” and “Market Discipline”) and with the IAIS principles of “Conduct of Business”, “Macroprudential Surveillance and Insurance Supervision”, “Capital Adequacy”, “Reinsurers and Other Forms of Risk Transfer” and “Intermediaries”, the requesting entity must file a feasibility report with a solvent business and financial plan that should consider issues such as insurance lines, main features of the products, provisions related to set up costs, premiums and losses, reinsurance agreements, distribution channels, IT projects, etc. The report must be certified by an accountant and an actuary.

On the other hand, as from its incorporation, the entity will have to comply with the requirements set forth in the previous regime for existing entities, such as reporting on the person responsible for the Internal Control, the person responsible for the Insured Customer Service, the Compliance Officer, the person responsible for Investment Polices, etc.

B) Transfer of Shares and Capital Contributions

In the case of transfer of shares and/or capital contributions in existing companies, the entity must require the prior approval from the SSN. This simplifies the previous regime, which required that the approval request be filed by the relevant direction and supervisory bodies of the entity, as well as by the sellers and purchasers of shares, which rarely occurred in practice.

It is to be noted that the new regime removed the 10-day period for requesting authorization from the SSN as from the execution of the contract or pre-contract, the first down payment, or the effective collection of the funds as irrevocable contribution. The Resolution does not set forth a period of time to request the SSN’s approval. However, as long as the SSN does not decide on the convenience of those transactions, the transfer of shares to the purchasers and/ or the acceptance of the capital contributions by the relevant direction body cannot take place. The suppression of this 10-day period will solve issues that usually arose in multijurisdictional deals, where the parties typically were not in a condition to file the necessary information within the terms set forth by the SSN.

In accordance with the Resolution, and similar to what was provided in the previous regime, the approval request to be filed with the SSN will have to include a description of the main features of the proposed deal, indicating the number of shares, class, votes, face value, negotiation value and payment conditions. In the case of capital contributions the applicant must identify the type and value of such capital.

In general terms, the Resolution increases the quantity of information to be provided in connection with the purchasers or contributors, bringing it into line with information that is requested from shareholders and members of the direction and supervisory bodies of entities that request authorization to carry on insurance and/or reinsurance activities.

The Resolution also sets forth that these requirements must be complied with in case of “capitalization of irrevocable contributions” and of “capital contributions”.

Summing up, the Resolution aims to revamp the legislation to international standards. The complexity and length of the incorporation or purchase process of an insurer or reinsurer will certainly depend on how the SSN actually implements these new requirements.

For more information, please contact:

• Pablo S. Cereijido
• Mariano A. Bernardi