Prudential Solvency in Latin America: Inside the Region’s Largest Insurance Markets

Episode Summary

While Latin America accounts for just 3% of the global insurance market, the region’s total written premiums grew at an impressive 11% annually between 2019 and 2024, with projections indicating this growth will continue. In this installment of Skadden’s yearlong podcast series on global prudential solvency requirements, host Robert Chaplin and colleagues Caroline Jaffer and James Pickstock do a deep dive into the insurance regimes in Mexico, Brazil, Chile and Argentina. Tune in as they break down each jurisdiction’s regulatory authority, unique prudential requirements and gradual shift toward European or Bermudian-style risk-based systems.

Key Points

• Brazil: In December 2025, Brazil’s insurance contract law will come into force, which will impose stricter response deadlines for insurers, enhance claims transparency and restrict unilateral policy complications, aligning the country’s regime closer to Solvency II.
• Mexico: Mexico overhauled its prudential regulatory regime in 2016 with a regulatory philosophy closely aligned with Solvency II, including requirements that replicate the three pillars of Solvency II quantitative requirements, governance and risk management, disclosure and supervisory review.
• Chile: Under Chilean insurance law, insurers must maintain paid in a subscribed capital expressed in Unidades de Fomento, or unidades. Unidades are a unique financial unit used in Chile and, unlike traditional currencies, is not a physical currency but an inflation-indexed unit that adjusts daily based on the Chilean consumer price index. This means that the country’s minimum capital requirements are expressed in unidades and not Chilean pesos. Chilean insurance solvency is structured around a statutory minimum floor and two legal concepts: net equity, or patrimonio neto, and a risk-based capital, or patrimonio de riesgo.
• Argentina: Argentina’s reforms include allowing insurance contracts to be denominated in foreign currencies, though the regime remains rules-based rather than risk-based with prescriptive capital requirements and asset investment restrictions.

Voiceover (00:01):
From Skadden, The Standard Formula is a Solvency II podcast for UK and European insurance professionals. Join us as Skadden partner, Robert Chaplin, leads conversations with industry practitioners and explores Solvency II developments that matter to you.

Robert Chaplin (00:16):
Welcome back to the Standard Formula Podcast. This episode continues our global series on prudential requirements forming part of our forthcoming Encyclopedia of Prudential Solvency. Today we’re discussing select prudential solvency regimes across Central and Latin America. Bienvenidos. Historically, insurance penetration in the Central and South American region has been lower than other areas such as Europe, North America or Asia. Many in the region still lack access to insurance products, with greater limited awareness of the benefits, or indeed, need for such products offering financial protection. By way of example, Mexico has one of the largest markets in the region, but its insurance penetration rate lags far behind the global average.

(01:03):
Profitability in some parts of the market is also still volatile, especially in the non-life segment, despite seeing a rise in demand for property and casualty insurance. While the Central and Latin American market may be considered relatively less developed, the market is certainly vibrant and growing. A leading consultant’s global insurance report this year finds that while Latin America accounts for just 3% of the global insurance market, the region’s total written premiums grew at an impressive rate of 11% annually between 2019 and 2024. The projections for this year and beyond are for this number to increase even further. There are significant opportunities.

(01:45):
Improving technology is transforming the insurance industry in the region by making insurance more accessible and affordable through digital platforms. Today, we’ll focus on four key jurisdictions: Mexico, Brazil, Chile and Argentina. Each of these has its own regulatory authority and unique prudential requirements, which we’ll explore in depth. Joining me today to navigate these regimes are my colleagues, Caroline Jaffer and James Pickstock — incidentally, both Spanish speakers. It’s great to have you both here to discuss prudential solvency in this fascinating part of the world.

James Pickstock (02:21):
Thanks, Rob. We have a lot to discuss today.

Caroline Jaffer (02:23):
Agreed. Shall we dive right in?

Robert Chaplin (02:25):
Yes. Let’s start with the region’s biggest market and country, Brazil. Before we begin, our thanks go out to our good friends at Mattos Filho for their input and feedback on this section of today’s podcast. Caroline, please give us an overview of the Brazilian regime.

Caroline Jaffer (02:42):
Thanks, Rob. Brazil is by far the biggest insurance market in Latin America. It has a robust regulatory architecture. The primary regulator is the Superintendência de Seguros Privados, or SUSEP, overseen by the Conselho Nacional de Seguros Privados, or CNSP, both of which sit within Brazil’s Ministry of Economy. CNSP and SUSEP work together. CNSP issues policies and regulations which are then supervised and implemented by SUSEP. SUSEP supervises all insurance and reinsurance companies other than health insurers which are overseen by a separate agency. Brazil has undergone and continues to undergo major reforms to its prudential landscape.

(03:24):
From December 2025, Brazil’s insurance contract law will come into force, which will impose stricter response deadlines for insurers, enhance claims transparency and restrict unilateral policy complications. From an international perspective, the insurance contract law limits counterparties’ ability to designate foreign law and jurisdictions in local insurance disputes. There is also increased risk governance requirements through the Own Risk and Solvency Assessment. Slowly but surely, Brazil is shifting from a rules-based regime to a European or Bermudian-style risk-based system akin to Solvency II.

Robert Chaplin (04:01):
Thanks, Caroline. Given the gradual shift in the guiding regulatory mind, how does this impact on local and foreign insurers and reinsurers? James?

James Pickstock (04:12):
A good question, Rob. All entities must be a Brazilian company authorized by SUSEP to operate in the insurance market. Generally speaking, an insurer or local reinsurer must be a joint stock corporation, but insurers may also be a cooperative insurance society. If an international insurer wishes to operate in the insurance market, they must do so as a Brazilian insurer with international investment. In respect of reinsurance, Brazil has three categories of reinsurer.

(04:37):
First, local reinsurers, being those incorporated in Brazil. Second, admitted reinsurers, being those foreign reinsurers with a representative office in Brazil and certain capital deposits. And third, occasional reinsurers, being those foreign reinsurers without a local presence. Foreign reinsurers headquartered in places considered by Brazilian law as tax-favorable jurisdictions cannot be licensed as occasional reinsurers and therefore they must be admitted reinsurers. Such jurisdictions currently include, among several others, Bermuda, the Cayman Islands, Gibraltar and the Channel Islands. Insurers may only contract with foreign reinsurers that are not registered in Brazil in very specific circumstances, which include the lack of capacity offered by local, admitted and occasional reinsurers.

(05:22):
The precise requirements for such reinsurers will be included in the accompanying chapters of this podcast episode, but in summary, such foreign reinsurers must be able to demonstrate, amongst other items, good standing in their jurisdiction of incorporation, a certain minimum rating, submit to SUSEP any requested financial statements, and hold a net worth of at least 150 million US dollars. There are a few other items to note, including the following: first, life insurance products with survival benefits or pension plans may only be carried out by local reinsurers, who may then further retrocede to foreign reinsurers.

(05:55):
Second, local reinsurers may retrocede more than 70% of premiums issued annually, save for financial, agricultural and nuclear risks. And third, in the case of an extrajudicial liquidation of a Brazilian insurer, usually in the case of poor management of the insurer’s finance and with respect to its overall financial situation, the direct and indirect controlling shareholders will have unlimited liability for the insurer’s liabilities regardless of fault.

(06:21):
Similarly, management will also be held responsible, but in each case only to the extent of their individual respective faults. In instances where a manager’s fault is not clear, their assets will remain frozen nonetheless. Rob, what are the capital requirements for Brazil? Is there a Solvency II-style owned funds tiering?

Robert Chaplin (06:38):
Thanks, James. Insurers in Brazil are classified in four tiers from S1, being the largest insurers, to S4, being the smallest. Brazil’s regime doesn’t have both a Solvency Capital Requirement and a Minimum Capital Requirement as one would expect in Solvency II-aligned regimes. Rather, Brazilian insurers are subject to an MCR requirement being the minimum shareholders’ equity, which, subject to certain accounting adjustments, must be held by the relevant insurer at all times. The MCR corresponds to the greater of either an insurer’s base capital and its risk capital. Let’s compare that.

(07:19):
So, the base capital consists of a fixed amount applicable to all insurers plus a variable portion depending on the geographic region of operation or the classification of the insurer. So for example, an S1 insurer with authority to operate across Brazil will need to have base capital of 15 million Brazilian reais, which is approximately 2.8 million US dollars. In contrast, an insurer’s risk capital is intended to reflect the specific risks to which that specific insurer is exposed.

(07:57):
For example, this could include, amongst others, underwriting risk, credit risk, market risk or operational risk. Usually, it can be expected that an insurer’s risk capital will exceed the base capital and so this will usually be the MCR and must be fully paid in. Caroline, are there any asset restrictions on the technical reserves?

Caroline Jaffer (08:20):
Thanks, Rob. In addition to the MCR, there is also the technical provisions or own funds to consider. Insurers must set aside technical provisions in accordance with CNSP criteria and those investments that back those reserves must satisfy diversification, liquidity, solvency and security criteria. On investments, Brazil has strict and detailed rules on what type of assets may be invested by insurers and local reinsurers, such rules being set by Brazilian finance authorities and reviewed periodically.

(08:51):
These same rules impose certain investment limits per class of asset and issuer. By way of example, P&C insurers and local reinsurers can invest 100% of the assets backing their liabilities in fixed-income investments, 100% of which may be in treasury bills issued by the Brazilian government. However, they can only invest 49% in variable income investments, 20% in real estate-linked investments (though not brick and mortar assets) and 10% in foreign currency denominated investments, which may include certain types of investments abroad.

(09:27):
In summary, the Brazilian regime is, little by little, moving towards a risk-based regulatory approach. The risk capital model reflects alignment with Solvency II, Pillar I, quantitative risk-based capital. The introduction of an Own Risk and Solvency Assessment also reflects alignment with the Solvency II, Pillar II governance risk management and internal assessment. Investment rules with diversification criteria limits and liquidity reflect Solvency II’s requirement that assets backing technical provisions must satisfy quality, liquidity and matching requirements.

Robert Chaplin (10:03):
Excellent. Let’s now move on to the second-biggest jurisdiction based on premium volume, and that’s Mexico. Before we begin, our thanks go out to Nader, Hayaux & Goebel for their input and feedback on this section of today’s podcast. James, can you please walk us through Mexico’s insurance regulatory framework?

James Pickstock (10:23):
With pleasure, Rob. Mexican insurance and reinsurance is governed by the Insurance and Surety Companies Law, or LISF, the insurance contract law and the insurance rules. For Mexican purposes and pursuant to Mexico’s insurance contract law, an insurance contract is any agreement pursuant to which an insurance company agrees to provide indemnification for damages or to pay an amount of money on the occurrence of a risk covered under the terms of the contract in exchange for the payment of a premium.

(10:48):
Insurance and reinsurance entities themselves are regulated by the Comisión Nacional de Seguros y Fianzas, or CNSF, an independent agency of the Ministry of Finance and Public Credit. The CNSF is Mexico’s insurance supervisory authority and is a member of the International Association of Insurance Supervisors. Perhaps notably, the LISF was explicitly designed to be broadly equivalent to the EU’s Solvency II regime, which we covered extensively in our previous podcast episode, though there are some important structural and methodological differences. Like so many other jurisdictions globally, insurance and reinsurance companies require authorizations to carry on their lines of business.

(11:24):
In Mexico, such licenses fall into three broad categories: life, accidents and health, and property and casualty. Interestingly, no entity may hold a license for more than one category, a differentiator in comparison to many other jurisdictions. Any insurer may also carry out reinsurance in the same lines of business as the underlying insurance provided that remains within its licensing permissions without the need to further apply for a reinsurance license. However, it is possible that an insurer can be licensed exclusively for reinsurance activities. Rob, as mentioned, the Mexican regime has its roots in Solvency II. How does that translate into capital requirements for Mexican insurers?

Robert Chaplin (12:03):
Good question. Mexico overhauled its prudential regulatory regime in 2013 with the new regime coming into effect in 2016 with a regulatory philosophy that’s closely aligned with Solvency II. Both are risk-based principles-oriented systems in which the LISF requirements replicate the three pillars of Solvency II quantitative requirements, governance and risk management, disclosure and supervisory review. Of course, much more detailed information on the Solvency II and Solvency UK regimes can be found in our previous podcast episode and our guide to Solvency II. We put links to these resources in the show notes. James.

James Pickstock (12:45):
Thanks, Rob. Pursuant to the Mexican regulatory regime, Mexican insurers must maintain risk-based capital to satisfy a Solvency Capital Requirement or SCR and a lower Minimum Capital Requirement or MCR. The SCR is calculated by applying a standard formula prescribed by the CNSF, which reflects underwriting, market, credit, operational and catastrophe risks. In calculating their SCR, each insurer may deploy an internal actuarial model, which should be based on its own risk experience and exposure, together with the proper system for evaluating shocks and change, together with being able to implement any variations required by the CNSF.

(13:21):
While the model is developed internally, its implementation is subject to the prior approval of the CNSF. We do note, however, that the current trend within the CNSF is not to approve such internal models. In further aligning the Mexican regime with international standards, from 2023 Mexico has implemented IFRS 17 accounting standards, demonstrating further alignment with European standards.

Robert Chaplin (13:43):
James, that does sound familiar. Caroline, is this the same for owned funds?

Caroline Jaffer (13:49):
It is, Rob. Mexican owned funds are similarly classified by tiers, or niveles, in a similar style to Solvency II. There are three niveles which map quite closely onto each solvency tier. Practically, Mexican rules are more conservative and simpler reflecting local market conditions including less reliance on market-consistent valuation, more limited eligibility of subordinated instruments and the CNSF retains discretionary approval over non-standard items. Each nivel is subject to limits to cover an insurer’s SCR. There are certain aspects with which listeners will be familiar.

(14:24):
By way of example, nivel one must represent at least 50% of the insurer’s SCR. Nivel two cannot exceed 50% of the SCR, and nivel three cannot exceed 15% of the SCR. The total amount of funds across nivel two, covering items such as subordinated debt, hybrid instruments and preference shares, and nivel three, covering items such as deferred tax and other assets specifically permitted by the CNSF, cannot exceed a specified percentage — usually around 50%.

(14:54):
One further interesting point to note concerns ESG factors. Whilst many jurisdictions globally encourage a consideration of ESG factors, in Mexico it is a requirement for Mexican insurers and reinsurers to consider their ESG impact when making insurance-related and investment decision-making, forming a core part of their business plans. Rob, we’ve talked about the regulatory regime for insurers, but what about investors, particularly those from outside of Mexico? How does the regulatory regime welcome foreign investors or not?

Robert Chaplin (15:24):
From a regulatory perspective, Mexico requires that direct risks based in Mexico are underwritten within Mexico by a Mexican insurer. The starting point is that foreign insurers can’t write direct risks based in Mexico and acting as an unauthorized insurer attracts criminal liability for the individuals involved. There are limited exceptions to the general rule that mean that foreign insurers can enter into insurance contracts in Mexico. Such situations include covering risks that can only occur in foreign countries where the foreign insurer is already authorized to carry on insurance operations. There are also limited exceptions where foreign insurers may directly insure for the movement of goods, ships, aircraft and vehicles into and out of Mexico or where there is no domestic Mexican insurance company that offers the relevant coverage.

(16:21):
In any event, risks insured by a Mexican insurer may be reinsured in their entirety to a foreign reinsurer provided that such foreign insurer is registered with the reinsurer’s registry. One perhaps more unusual feature of the Mexican regime is that there’s a maximum retention limit per line of business which is calculated annually using a formula set by the LISF. Any risks over this retention limit must be ceded to reinsurers, however, there’s no minimum retention requirement in Mexico. So James, we’ve discussed the rules applying to domestic and foreign insurers and reinsurers, but what does the picture look like for foreign investors?

James Pickstock (17:05):
Well, Rob, despite the general localization of underwriting risks in Mexico, a foreign investor can control the entire capital stock of a Mexican insurer or reinsurer, though there are similar controller notification and approval requirements as can be found in other jurisdictions. The acquisition of interests in a Mexican insurer by foreign governments and authorities is generally prohibited. In Mexico, acquisition of more than 5% of the capital stock of an insurer or reinsurer will require prior approval from the CNSF, whilst the transfer of more than 2% will require a written notice of transfer within three business days following the transaction.

(17:39):
In those situations where there is a domestic Mexican insurer or reinsurer contracting with a foreign registered reinsurer, there are naturally interesting questions around group supervision and regulation. If a Mexican insurance undertaking is a subsidiary of a foreign parent, then the regulation of the Mexican insurance subsidiary extends to the foreign insurance group to which the subsidiary belongs. Further, one particular tax element that may be of interest to listeners is that any foreign reinsurer is subject to a withholding income tax of 2% in Mexico on paid or assigned premiums that it receives from any tax resident in Mexico.

(18:12):
This applies to the gross amount paid to the foreign reinsurer without any deduction, and is paid by the person making the payments to the foreign insurer. However, Mexico does have double tax treaties with many jurisdictions around the world, including the U.K., the United States and various other countries in the European and Latin American community, which may serve to benefit from a lower rate or even exempt the withholding tax altogether.

Robert Chaplin (18:34):
I suppose a natural follow-on question as to the interplay of the Mexican regime with foreign investment is how the asset mix that investors may deploy as part of their own funds differs from Solvency II? Caroline?

Caroline Jaffer (18:48):
Well, Rob, while the regimes between Mexico and Europe are closely aligned from a prudential capital perspective, there are some important differences. As listeners will no doubt know by now, under Solvency II there is no prescriptive list of requirements for investments in assets made by insurers and reinsurers. Instead, conduct and decision-making is governed with reference to the prudent person principle, a risk-driven approach which ensures that there is sufficient security, quality, liquidity and profitability in investment decision-making.

(19:19):
In contrast, the Mexican prudential regime is prescriptive. Further details of the exact eligible assets will be found in the accompanying chapter to this podcast episode, but in summary, insurers may invest up to specified portions of their total asset pool into assets such as government securities, state and municipal debt, corporate bonds, and other securities, investment funds, real estate, loans and mortgages, derivatives and cash deposits.

(19:46):
Critically, there is a limit on the extent to which insurers domiciled in Mexico may invest abroad. For example, insurance and surety companies cannot invest directly outside the country, however they can invest in foreign securities that are traded through the international quotation system of the Mexican Stock Exchange.

Robert Chaplin (20:04):
Excellent. Thank you, Caroline. So in summary, Mexico’s prudential regulation regime is heavily based on the European-style Solvency II, which brings familiarity and comfort to investors and insurers familiar with that framework. Unlike Solvency II, which is designed to be implemented across the European Union’s member states with their varying individual approaches, Mexico’s system is tailored specifically to the Mexican market and can be seen in elements such as its more prescriptive asset mix elements rather than a more principles-based approach. Let’s now turn to the third-biggest insurance market in the region, Chile.

James Pickstock (20:41):
Thanks to Barros & Errázuriz for their input and review into this section. The insurance sector in Chile is regulated by the Comisión para el Mercado Financiero, or CMF. The CMF is the primary insurance regulator and oversees insurers and reinsurers pursuant to a varying statute and regulations. The CMF is responsible for ensuring the proper functioning, development and stability of the financial market, promoting market participation and safeguarding public trust.

(21:06):
Its broad authority extends to insurance companies, investment funds, banks, stock exchanges and publicly traded corporations. The CMF exercises regulatory, supervisory and sanctioning powers, including issuing binding rules, monitoring compliance such as reporting and disclosure obligations and imposing sanctions for violations of laws or regulations at its discretion. (21:26):

Similar to other jurisdictions we’ve discussed in this episode, insurers in Chile must also be incorporated as public corporations and it is generally not permitted for foreign insurers to offer to underwrite risks in Chile. Again, with similar exemptions in place to cover international maritime, commercial aviation and goods in transit.

Robert Chaplin (21:41):
Thanks, James. Caroline, let’s consider Chile’s system of capital requirements, which I believe are not as simple as simply prescribing a US dollar figure.

Caroline Jaffer (21:50):
Yes, Rob. That’s absolutely correct. Let’s start with the Minimum Capital Requirements. Under Chilean insurance law, insurers must maintain paid in a subscribed capital expressed in Unidades de Fomento, or unidades. Unidades are a unique financial unit used in Chile. Unlike traditional currencies, a unidad is not a physical currency but an inflation-indexed unit that adjusts daily based on the Chilean consumer price index (CPI). A singular unidad is worth approximately 42 US dollars at the date of recording in November 2025.

(22:24):
For insurers, this means that their Minimum Capital Requirements are expressed in unidades and not Chilean pesos. The range of unidades required starts at 90,000 for insurers undertaking either life or P&C insurance, being approximately 3.8 million US dollars, through to 120,000 unidades for reinsurers and composite insurers conducting both life and P&C, being approximately five million US dollars. Whilst we have spoken about unidades with approximate US dollar figures, it’s important to remember that the reason for expressing minimum capital reserves and technical obligations in unidades ensures that their real value is maintained regardless of inflation.

(23:05):
As unidades increase in line with the CPI, predictability for supervision is smoother reducing the need for constant regulatory changes. For example, if the numbers were set in US dollars, the pesos exchange rate fluctuations could cause volatility unrelated to the insurers’ underlying solvency. In short, the unidad acts as a real value anchor that keeps regulatory thresholds stable in terms of purchasing power. Rob, is there any equivalent to the Solvency II Solvency Capital Requirements?

Robert Chaplin (23:35):
Thanks, Caroline. Absolutely. Beyond the Minimum Capital Requirement, insurers must also maintain a solvency margin based on technical reserves and risk factors and a risk-based capital requirement defined as the greater of two calculations, premium-based and loss-based formulas designed to capture exposure through volume and loss experience.

(23:59):
However, in the case of life products that don’t generate mathematical reserves, the law bases risk capital on capital at risk with a factor capped at one per thousand differentiated by branch or risk type. Compared with Solvency II, Chile’s framework is more prescriptive in investment eligibility and less model-driven in capital calibration, but both regimes seek the same objective of ensuring that available high-quality capital exceeds a risk-sensitive requirement under sound governance. James, can you tell us more, please, about the structure of the solvency requirements?

James Pickstock (24:34):
Certainly, Rob. Chilean insurance solvency is structured around a statutory minimum floor and two legal concepts: net equity, or patrimonio neto, and a risk-based capital, or patrimonio de riesgo. In accordance with the Chilean regulatory framework, an insurer’s risk-based capital cannot be lower than its net equity, and net equity must not fall below the statutory minimum floor. With respect to investment eligibility, both technical reserves and risk-based capital must be fully backed by eligible assets that meet the CMF’s diversification and quality standards.

(25:07):
Although the list of permitted assets is broad, the eligibility criteria is strict. Domestic fixed income must meet minimum credit ratings. Domestic equities and mutual fund units must be registered in the Securities Registry. Foreign assets must comply with international rating or listing standards, and the use of derivatives is tightly restricted to hedging purposes only.

(25:26):
Foreign investments are allowed up to a ceiling set by the central bank, which by law cannot be lower than 20% of reserves and risk capital. The CMF further provides detailed guidance on how this limit is applied, including exceptions for collateral used in hedging operations. The result is a comprehensive solvency regime where liability profiles, capital requirements and the quality and liquidity of assets are supervised in a cohesive and integrated manner.

Robert Chaplin (25:51):
One of the focuses in each of these discussions on different jurisdictions today is the openness to international counterparties. James, what’s the Chilean view?

James Pickstock (26:01):
The Chilean insurance market is reasonably open to international reinsurers and foreign investment, with some standard regulatory overlay. For example, foreign reinsurers can operate directly in Chile provided they meet certain conditions being that they have a risk rating of at least triple-B or equivalent, and they have an appointed representative on the ground. There is no general prohibition on foreign ownership of local insurers, nor are there different rules in place, for example, with respect to capital requirements.

(26:24):
In respect to foreign-owned Chilean insurers, Chile has no mandatory session to local reinsurers and relies on market forces, unlike several of its neighbors. However, the CMF does monitor reinsurance counterparty risk, and insurers must report their exposures and ensure foreign reinsurers meet certain credit quality standards. In terms of structuring more generally and similarly to other regimes that we have discussed today already, the CMF distinguishes between general P&C insurers and life insurers.

(26:49):
However, Chilean law provides that no insurance company may cover risks included in both categories. Therefore, if an investor wanted to enter the insurance business in Chile in both categories, P&C and life, they would have to establish two separate companies, and each of these companies must have a capital of at least 90,000 unidades fully subscribed and paid in.

Robert Chaplin (27:09):
Thanks, James. Before we move on, James, is there anything else to note on the Chilean regime?

James Pickstock (27:15):
There are a couple of further interesting differentiators with Solvency II for listeners. Whilst we’ve spoken about certain similarities with the Solvency II standard and the introduction of the risk-based supervision system for insurance companies, the specific bill to further enact these provisions has been pending since 2011 with no signs that it will be fully enacted in the near future.

(27:33):
Second, notwithstanding the legislative progress, the CMF has issued several general regulations which govern, amongst other things, stronger risk management and corporate governance for insurers, updated principles and best practices for the insurance industry, and guidance on improving an insurer’s risk management systems and assessment of their solvency.

(27:50):
Finally, Solvency II insurance companies must prepare public reports disclosing information on their solvency risks, governance and capital. While their Chilean counterparts are required by the CMF to do the same, there is no obligation to make this information public. In summary, the level of specificity imposed by Solvency II on insurance companies is higher than that of the Chilean framework. This is reflected, for instance, in the requirements for internal self-assessment processes of insurance companies, the mechanisms for risk evaluation and calibration, and the level of detail required by the CMF for information reporting.

Robert Chaplin (28:21):
Excellent. Thank you for that overview, James. Finally, last but not least, let’s discuss Argentina. Our thanks go out to the team at Calwaro Capital for their thoughtful review of this section. James, could you provide us with an overview please?

James Pickstock (28:36):
Of course, Rob. Argentina’s insurance regulator is the Superintendencia de Seguros de la Nación, or the SSN, which is an agency of the Argentine Ministry of the Economy and oversees the activities of insurance brokers, intermediaries, and insurance and reinsurance entities in Argentina. The SSN monitors, evaluates and inspects the activities of market operators to protect policyholders, ensure compliance with current laws and regulations, and promote the development of a sound, transparent and efficient market.

(29:00):
The SSN has broad-ranging powers, including licensing, approving insurance plans and policies, supervising solvency status, reviewing investments and policies relating to risk retention, auditing and sanctions. The legal framework is rooted in three core insurance laws: one in respect of insurance contracts, one in respect of insurance companies and one in respect of broker activities. Collectively, we’ll call those the Argentine insurance laws.

(29:24):
The Argentine insurance laws are supplemented by a directive, the Reglamento General de la Actividad Aseguradora, which supplements and regulates the implementation of the Argentine insurance laws. Historically, a central critique of the Argentine regime is that whilst details are prescriptive, it is not yet transitioned to a risk-based approach, catering more subtly for the individual requirements on individual reinsurers and insurers.

Robert Chaplin (29:47):
That’s interesting. Thanks, James. We’ve seen with other jurisdictions that we’ve discussed in this podcast that there are tendencies to require insurers to be incorporated in the jurisdiction. Is that the case here as well?

Caroline Jaffer (29:59):
Exactly, Rob. Under the Argentinian insurance laws, only entities which are incorporated in Argentina can be licensed by the SSN, meaning an insurer must be incorporated in Argentina, a cooperative or a mutual entity, or a branch of a foreign insurer, but only where they are formally established and registered in Argentina with SSN approval. Therefore, it’s not possible for a foreign insurer to simply passport in or write risks in Argentina from abroad. It must have a local legal presence. As with other jurisdictions we have discussed, such as Mexico earlier, there are limited exceptions for areas such as marine and aviation risks. Rob, can you give more detail about Argentina’s prescriptive-style regime?

Robert Chaplin (30:42):
Yes, of course. Prudential requirements in Argentina have erred on the side of being rules-based rather than risk-based. There’s an MCR that insurers must always maintain. The exact requirement varies depending on the insurance business involved. For example, the MCR for life insurers differs greatly in comparison to P&C insurers, which differs again, in contrast to reinsurers. Generally speaking, there are three key criteria which are applied in determining the minimum capital thresholds and it’s determined as the higher of first, a specific amount to be determined by the SSN, currently 1.2 billion Argentine pesos (equivalent to approximately 832,500 US dollars).

(31:29):
Second, an amount determined as a percentage of premiums for the 12 months immediately preceding the fiscal year-end and taking into account different percentages for each line of business. And third, an amount based on the losses of the 36 months immediately preceding the fiscal year-end, also taking into account different percentages for each line of business. For reinsurers, Argentina requires reinsurers to maintain a minimum capital equal to the higher of an amount determined by the regulator, currently Argentina pesos 6 billion, equivalent to about US dollars 4,162,000, or an amount determined as a percentage of premiums.

(32:12):
In the context of Argentina’s historically high inflation, the figure determined and set by the SSN can be amended and varied from time to time to account for any wider instability in the economy. Caroline, in addition to the capital requirements, how does the SSN approach an insurer’s asset mix and investments?

Caroline Jaffer (32:31):
Thanks, Rob. It’s an interesting question, and just as with the Minimum Capital Requirements you just mentioned, it is required that the amount of reserves must be invested in a prescriptive list of assets set out in the Argentine insurance laws, which require insurers to follow set standards on investment policy, asset mix, valuation, diversification and asset liability matching.

(32:54):
Key categories of permitted investments include securities of the national government or loans guaranteed by the government of Argentina, property located within Argentina, shares of or securities issued by corporations incorporated in Argentina or abroad that are listed or traded on stock exchanges in Argentina, loans secured by the above securities, debentures and shares up to certain limits, financial operations fully guaranteed by banks or other financial institutions duly authorized in Argentina. As you will note, for the most part, the form of the assets in which insurers may invest must have an Argentina nexus.

Robert Chaplin (33:31):
So, we discussed that there is now reform to open up the Argentine industry to more international markets. How does that sit alongside the principles that insurers are set up and business conducted in Argentina?

James Pickstock (33:45):
That’s a good question, Rob. Argentina differentiates between, on the one hand, local reinsurers being those incorporated in Argentina or branches of foreign reinsurers domiciled locally and admitted reinsurers, on the other hand, being foreign reinsurers operating from their home jurisdiction and that are registered with the SSN. Foreign reinsurers must be registered with the SSN and meet certain criteria, such as being authorized in its home jurisdiction, and the SSN can then authorize a local reinsurer to cede risks to such foreign reinsurer where the local capacity is insufficient.

(34:16):
For example, the SSN may allow the use of foreign reinsurers for risks exceeding certain thresholds or where there is no domestic technical capability for a particular transaction. Nonetheless, there remains quantitative ceilings on how much premium may be ceded to a foreign reinsurer, and the overriding rationale remains to ensure that a significant portion of the risk retention by local reinsurers or locally domiciled entities and not to have full substitution by foreign reinsurers. In any event, prior approval for reinsurance placements with a foreign reinsurer, particularly where local capacity does exist, is required.

Robert Chaplin (34:50):
Presumably, it’s the case in such situations that foreign investors will not necessarily consider it desirable to settle such a transaction in Argentinian pesos.

James Pickstock (35:02):
This is a good point, Rob. The general rule under the Argentine insurance laws is that insurance contracts must generally be denominated and payable in Argentine pesos. This is tied to Argentina’s monetary sovereignty principle whereby obligations payable in a foreign currency are considered obligations to deliver the equivalent in pesos unless the contract provides otherwise and is approved by the SSN. Recent deregulation, as a result of the Milei administration’s reforms, means that the SSN now permits insurance contracts to be issued and settled in foreign currency, most typically US dollars and euros, provided that there is a so-called conversion clause contained within the underlying contract and such clause itself is approved by the SSN.

(35:44):
However, in these situations, there is an expectation that an insurer maintains investments denominated in, or linked to, that same payment currency. This ensures proper asset liability matching and avoids any potential for exchange rate risks to undermine solvency concerns. The SSN retains powers to monitor this through quarterly financial reporting and on-site inspections. Relatedly, there is still a foreign asset limit. A reinsurer or branch of a foreign company registered in Argentina may only hold up to 50% of the capital held against its liabilities in foreign assets. Again, and in any event, only with SSN approval.

Caroline Jaffer (36:20):
It’s also worth noting that the SSN has stated its desire to move the regulatory regime in the direction of a modern model of risk-based regulation and supervision built around the three pillars: solvency, through the use of risk-based capital and risk-based supervision; licensing; and consumer protection. As the SSN continues to introduce reforms aimed at international best practices, Argentina remains very much one to watch, and insurers and potential investors into Argentina should pay close attention to Argentina’s macro environment, including considerations such as inflation, currency devaluation and interest rate volatility.

Robert Chaplin (36:58):
Thank you, Caroline. That brings us to the end of today’s deep dive. Each of these Latin American jurisdictions balances local market realities with leading global risk-based systems. Whilst each jurisdiction we’ve discussed today has its own uniqueness, there are undoubtedly common trends: all emphasize sufficient capital, prudent risk management and the safeguarding of policyholders.

(37:22):
There’s a gradual shift towards a Solvency II-style system, which will grow confidence in the soundness of these markets and bring further opportunities for insurers, reinsurers and investors alike. My thanks to Caroline and James for joining me today. There’s been a lot to cover in this episode. We hope you enjoyed this episode, and do please join us for our next episode, where we’ll cover prudential regulation in Africa. Until next time.

Caroline Jaffer (37:47):
Thanks all.

James Pickstock (37:48):
Thanks all.

Voiceover (37:50):
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(38:07):
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