Admitted Reinsurers Sanctioned with the Cancellation of Their Registration May Not Reapply for Registration

The Argentine reinsurance framework allows foreign entities authorized to conduct retrocession and reinsurance business in their home country to act as “admitted reinsurers,” provided they meet the registration requirements set by local regulations.

This case (CNCom, Chamber “A,” in re National Insurance Superintendence vs. R V Versicherung Ag re: External Entities, 08.29.2024) dates back to 2010, when the Superintendence of Insurance (SSN) canceled the registration of an admitted reinsurer for failing to comply with the obligation to report changes in its underwriting policy within 30 days (article 6, subsection j) of SSN Resolution 24805). The admitted reinsurer had entered into a supplementary agreement that modified a reinsurance contract, guaranteeing profits to the admitted reinsurer regardless of the technical results of the reinsurance contract .

The SSN deemed this conduct to be in breach of the applicable regulations, since it had allowed the ceding company to falsely report the SSN a higher volume of assets and a reduced level of liabilities, affecting the SSN’s supervisory and control powers. The admitted insurer appealed the sanction the SSN imposed, but the Court of Appeals in Commercial Matters affirmed it in 2016.

Six years later, the sanctioned foreign reinsurer approached the SSN again and requested a new authorization to register as admitted reinsurer in Argentina, under the terms of article 2 of the Annex to Section 2.1.1 of the General Regulations for the Insurance Activity. The SSN denied this registration request.

The admitted reinsurer appealed this denial, arguing that the 2010 sanction had not caused the dissolution of the company, nor the liquidation of its assets, and that the SSN’s denial exceeded the powers Law 20091 grants the SSN. It also argued that no regulation prohibited a sanctioned foreign reinsurer from requesting a new authorization from the SSN, if the reinsurer complied with legal regulations in force and demonstrated that it had implemented legal and security measures to avoid incurring in mistakes such as those the reinsurer had been sanctioned for.

The Court of Appeals in Commercial Matters affirmed the SSN's resolution, stating that “if the cancellation of a registration were to be an end in itself, opening up the possibility of applying for another registration, the sanction imposed would be of no practical effect, allowing any sanctioned foreign reinsurer, almost without interruption, to request a new registration to operate in this market.”

As the SSN had previously stated, the Court emphasized that the sanction was imposed for irregular conducts in the reinsurance activity, which included fronting arrangements, i.e., operations where the admitted reinsurer had undertaken no actual risk.

The Court also highlighted that, when it comes to a local insurer whose authorization to operate is revoked, the insurer’s dissolution is automatic and its liquidation immediate. Therefore, allowing a new registration of a foreign reinsurer–who cannot be liquidated in Argentina because it is governed by the laws of its country of incorporation–would create an inequitable and inadmissible disparity between the situation of local and foreign reinsurers when their authorizations are revoked.

In conclusion, and notwithstanding potential challenges to the legal arguments of this case law, admitted reinsurers must take extreme care to comply with SSN regulations, since the current position is that the cancellation of their registration could be final, preventing any future registration in Argentina.