Sound legal knowledge a key to exploiting LatAm opportunities

Latin America is a fast developing re/insurance market, says Alex Guillamont, a partner with Kennedys international law firm, based in Miami. Wealth accumulation is increasing among the 415 million people in the region, and with this prosperity comes the need for life and non-life insurance.

“With local regulators relaxing laws concerning foreign participation and investment into some countries, the region is attracting the attention of global re/insurance companies and advisers keen to unlock potential growth and gain valuable business and professional experience,” he said.

However, two major issues affecting re/insurers in LatAm are exchange rates and inflation, particularly in Venezuela and the new insurance contracts act impacting Peru, Mexico and Chile.

“The system of exchange controls in Venezuela has been in effect for over 12 years,” said Guillamont. “Since 2003, when exchange control came into effect, the process of obtaining foreign currency from the Venezuelan Central Bank (BCV) has become more cumbersome by the day.”

This situation has been aggravated by the Venezuelan government not having the capacity to provide the sums of US currency demanded by the private sector, he added.

Currently, there are three so-called “official” exchange rates coexisting in Venezuela. The general exchange rate is $1/Bolivar6.30.

The other two exchange rates apply only under exceptional circumstances and result from (i) bids made to the BCV in auctions where participants are exclusively companies (SICAD I); and (ii) auctions, in which bidders and buyers exchange offers (SIMADI). SICAD I and SIMADI are systems for the acquisition of foreign currency as well as indicators of floating exchange rates of reference.

“Difficulties in accessing foreign currency through the BCV have also affected the insurance market in Venezuela,” he said. “Presently, it is common for local cedants to struggle when making premium payments to reinsurers abroad on a timely manner, due to the length of the process of purchasing foreign currency from the BCV and, in some cases, the rejection of the purchase application.”

In Chile, there are new rules on adjusters and setting forth the Procedure Applicable to Claims Handling DS1055 (June 2013), there is a new Insurance Contract Law Nº 20667 (December 2013) and there are also new regulations issued by the regulator, Superintendencia de Valores y Seguros (SVS), including NGC 353 Regulating Insurance Policies, NCG 349 Registry of Policies, Circ 2114 Regulating Premium and information duties and new wording of all the texts of policies registered with the SVS.

“Currently, claims handling in Chile is a highly regulated activity and only registered adjusters can adjust claims,” said Guillamont. “The infringement of this prohibition is punished by law and the SVS is responsible for the establishment and administration of the registry of authorised adjusters.

“The new law establishes that in the construction and interpretation of the reinsurance contract, the international custom and contractual practices are to be taken into account and in cases of doubts and ambiguities in insurance contracts, the interpretation more favourable to the insured shall prevail.”

In Mexico, he noted that an update on limitation period for claims under insurance contracts must consider that the legal position to date is that an insured has two years from the date of loss to file a lawsuit against its insurer for non-payment (Article 81 of the Mexican Law on Insurance Contracts). There are two usual ways by which the time bar can be interrupted if: (a) a lawsuit is filed or (b) if the insurer accepts liability—other or under Article 84 [O1]  the appointment of ‘perito’—not an expert adjuster.

“There has been a recent and monumental shift in Mexican legal doctrine away from Civil Code (Roman law) black letter law interpretation principles of equity, that is, judged using discretion to issue ‘fair’ rather than purely ‘legal’ decisions,” said Guillamont.

“An important takeaway for the insurance industry could be: do not abandon time bar defence under Article 81, but understand that judges have more leeway and may not accept such a defence, especially if adjustment is ongoing.”

The latest LatAm- related insurance industry developments will be discussed at the upcoming  2016 Miami | Latin American Claims Re/insurance Forum.

Alex Guillamont can be contacted at: alex.guillamont@kennedyslaw.com.