The Global Federation of Insurance Associations (GFIA) has penned a letter to the Argentinian insurance supervisor (SSN) expressing concern over new rules causing serious issues with the payment of reinsurance premiums to foreign companies.
The GFIA says that the issuance of the Joint General Resolution of the Federal Administration of Public Revenues and the Secretary of Commerce No. 5271; and Communication “A” 7622 of the Central Bank of Argentina, has resulted in major restrictions and delays in the payment of reinsurance premiums abroad.
The Federation has warned that these restrictions risk seriously affecting the functionality of the Argentine re/insurance market and its relationship with the broader international reinsurance market.
The GFIA observes that the main purpose of reinsurance is to distribute risk so that it is not concentrated in a single jurisdiction or a single company.
It suggests that delaying the payment of reinsurance premiums implies disarticulating this dynamic of risk transfer and puts at risk local re/insurers who in most cases are not in a financial position to face the entire risks ceded alone.
The GFIA also notes that restrictions on the payment of reinsurance premiums to foreign reinsurers creates risk concentration within Argentina and decreases coverage capacity and access to new products and distribution channels.
Brad Smith, Chair of the GFIA Trade Working Group, finalised the letter with the request, “In view of the foregoing and considering that the reinsurance activities protected by the SSN, and the failure to remedy the current restrictions on the payment of reinsurance premiums abroad would result in a risk of disruption of the domestic insurance market and the Argentine economy, the assistance of the SSN is requested to regularise the payment of reinsurance premiums abroad, thus remedying the problems detailed herein.”
In November last year, rating agency AM Best announced that its outlook for Argentina’s insurance industry remained Negative amid persistent economic challenges.
According to the International Monetary Fund, Argentina’s GDP expanded by 10.4% in 2021, recovering from a three-year recession, with GDP forecast to grow by 4.0% in 2022.
Best highlighted that growth is being driven by government spending, rising consumer demand, and a pickup in industrial activity, as well as improvements in the fiscal deficit (down from 8.6% of GDP in 2020 to 4.3% in 2021) owing partially to higher taxes on export rights, driven by a rise in commodity prices, taxes on family fortunes, and consistent money printing.
However, Best warned that the economy is expected to slow in 2023 due to a decrease in both domestic and global economic activity.
Inflation also remains a significant challenge and worrying situation that is continuing to grow, especially after hitting a high of 83% in September, negatively impacting consumer purchasing power.