The Authorities Defined Which Investments by Insurers Qualify as Investments in the “Real Economy”

On December 14, 2012, the Argentine Superintendence of Insurance (“SSN” after its acronym in Spanish) enacted Communication No. 3,404, introducing the first investments to qualify as investments in the “real economy” under subsection k), section 35.8.1 of the General Insurance Regulatory Framework (“RGAA” after its acronym in Spanish). Subsection k) was incorporated to the RGAA by Resolution SSN No. 37,163, as announced by the President in her Insurance Day speech of October 24, 2012.

Consequently, the only currently authorized investments in the “real economy” are: a) YPF S.A. Negotiable Private Bonds (Class X, XI and XIII); and b) the followings SME Investments Funds: Pellegrini Empresas Argentina Pymes, GPS Pymes Class B, RJ Delta Empresas Argentina Pymes Class B, Schroder Desarrollo y Crecimiento Class A, Galileo FCI Abierto Pymes Class B, Cohen Abierto Pymes Class B, AL Abierto Pymes Class B, Gainvest Pymes Class B, Compass Argentina Abierto Pymes, Premier Abierto Pymes Class A, SBS Abierto Pymes Class B, FST Empresas Argentina Pymes, Pionero Empresas FCI Abierto Pymes.

Resolution SSN No. 37,163 redefined the insurance companies’ investment regime. Among the changes introduced, subsection k) requires that insurance and reinsurance companies invest a minimum of 10% of their total investments and a maximum of 20% (in both cases, excluding real estate) in instruments that finance production or infrastructure projects. While life and retirement insurers must observe a minimum of 12% and a maximum of 30% of their total investments, in the case of ARTs (employment risk insurers) the minimum and maximum amount to 5% and 20%, respectively.

As a consequence of these minimum investment requirements, the insurance market is emerging as one of the largest institutional investors in what the authorities call the "real economy".

Through joint Resolution Nos. 620 and 365, the Argentine Ministries of Economy and Industry created the Eligibility Committee of Investments for Insurance and Reinsurance Companies (Comité de Elegibilidad de Inversiones de las Compañías de Seguros y Reaseguro), whose main function is defining which investments qualify under subsection k).

Notwithstanding the foregoing, the SSN, by Communication No. 3,375, established the guidelines for anyone who is interested in submitting its production projects for the Committee to consider. Projects must be submitted to the SSN, where they are to be analyzed by the UASIP (after its acronym in Spanish), a body within the SSN that analyzes and follows up on the development of production projects. The UASIP must verify compliance with the following general requirements and minimum information: (i) that the funds are aimed at financing production projects (i.e., they are focused on the development of the industry); (ii) negotiable private bonds and financial trusts must be subject to the authorization of the Comisión Nacional de Valores (“CNV”, similar to the US Securities and Exchange Commission); (iii) funds obtained must be allocated to such specific destination.

If these requirements are complied with, the SSN will submit to the Eligibility Committee a list of those investments that, in the opinion of the SSN, have the solvency, guarantee and liquidity associated to the maturity of the commitments that the investments support, and will have a direct impact on the “real economy”. The Committee will be the agency to finally decide which investments qualify under subsection k).

Investments approved by the Committee will remain subject to the final authorization by the CNV, where applicable, and will be published on the SSN’s website.

These measures have been enacted within the framework of the National Strategic Insurance Plan (“PLANES” after its acronym in Spanish). The purpose of PLANES is, among others, to increase the percentage that the insurance industry represents in the Argentine gross domestic product, which at present does not exceed 3%.