All eyes on Argentina

Latin America’s third-largest economy has become increasingly attractive to international insurers over the past two years, although major headwinds remain even as the global re/insurance market makes inroads into the nation. According to AM Best, the Argentinian economy has been developing favourably since 2016, as evidenced by an uptick in its equity markets and a re-entry into the debt markets, while extensive liberalisation efforts by President Mauricio Macri have led to a much friendlier environment for international re/insurers. Macri has made progress on legal and regulatory reforms, moves which have made conducting international business easier. His efforts towards the liberalisation of his country’s financial sector led to the Argentinian insurance regulatory, Superintendencia de Seguros de La Nación, declaring that the country is open for insurance-related business. In July 2017, admitted reinsurers were permitted to write a drastically greater share of risks in the local insurance market. Argentinian insurers are now allowed to place up to 50% of their premiums with admitted reinsurers, up from the previous 10%, with that percentage increasing to 60% in July of this year, and 75% in 2019. “Prior to July 2017, Argentinian insurers were required to place 100% of their ceded premiums among national reinsurance companies, which later retroceded such risks to admitted reinsures (global reinsurers authorised to reinsure risks in Argentina),” explained Alfonso Novelo, senior director for analytics at AM Best. “Since insurers currently can place up to 60% of their ceded premiums directly with admitted reinsurers, in addition to increases in minimum capital requirements among the national reinsurers, the level of protectionism for the national reinsurers is gradually decreasing,” he added. Some of these efforts could be to the detriment of the local market however, Novelo said. “In 2017, the requirement for foreign reinsurers to have a permanent representation through the Public Registry of Commerce in Argentina was lifted by the regulator. Even though this change could get the attention of a greater universe of global and regional reinsurers, the increase in the capital requirements for registration in order to offer reinsurance in Argentina to $100m from $30m, can be viewed as a greater barrier to entry for regional reinsurers whose equity volumes are below the recently required threshold,” he said. “In addition to such increase in capital requirements, there is also the need for credit ratings provided by internationally renowned rating agencies,” he added. Insurers in the country have seen gross premiums written grow for five years from $13.2bn in 2012 to $13.2bn 2016, with the non-life market making up 81% of total gross premiums written, according to AM Best. As of June 2017, Argentina’s market share of all premiums throughout Latin America was 10.8%, the third highest in the region, although much lower than Brazil’s 47.7%. Non-life insurance rates have remained fairly stable from 2008 to 2017, with motor insurance making up the lion’s share of those premiums across the board, followed by workers’ compensation coverage. Property coverage has contracted slightly since 2014. Concerns about Argentina’s stability remain however, with AM Best retaining its Country Risk Tier 5 (CRT-5) designation, a label shared with nations such as Venezuela which is currently going through an economic crisis. The CRT-5 designation is AM Best’s highest level of risk. “The financial system risk is the highest concern regarding the CRT designation. Argentina’s economy contracted by... CLICK HEADLINE TO READ MORE

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