Latin America regulations remain cause for concern

New reinsurance regulations in both Brazil and Argentina continue to be a worry for many in the international reinsurance industry.

Although the Brazilian authorities have effectively repealed one of two new resolutions due to come into effect this year, there is still concern over how the new rules will affect the industry as a whole in the country.

The rule Brazil has changed concerns intracompany cessions. Instead of introducing a complete prohibition on this, insurers will be allowed to transfer up to 20 percent of each reinsurance treaty to companies that are based overseas and are linked with or belong to the same financial conglomerate.

But a resolution that came into force on March 31, which requires the placement of 40 percent of reinsurance business with local reinsurers, remains in force. The Federation of European Risk Management Associations has warned that this ruling could have a number of adverse effects.

These include increased costs, a reduction of capacity in the insurance and reinsurance market, and a concentration of risk within the country.

Similarly, a new regulation in Argentina, which requires Argentinean insurers to use Argentinean reinsurers or Argentinean subsidiaries or branches of foreign companies with local capital of approximately $5 million, has caused similar concern.

The International Cooperative and Mutual Insurance Federation has stated its opposition to the new resolution, which it says has the potential to reduce competition, which in turn could lead to an increase in pricing.