In the past few years, there have been a number of economic and regulatory changes in Argentina that adversely affect international insurance programs covering companies with operations in Argentina. A few of these changes are currency devaluation, premium charges, and reinsurance restrictions.
Over the past year, the Argentine peso has lost approximately 12 percent of its value. Its current exchange rate against the USD marks the weakest the currency has been in nearly 12 years. This devaluation is important for insurance buyers to consider, because as currency fluctuates during the policy period, so will the limits associated with a local insurance policy, if values are to be managed in, or kept consistent with, another currency.
To guard against a possible discrepancy, the insured and broker should discuss strategies to mitigate currency risk. One strategy might be to have local policy limits issued in USD. By doing so, the insured may avoid wild fluctuations in limits relative to global program intent. This approach does not work well in the unlikely event that the local currency significantly appreciates versus the dollar.
Due to recent regulatory change, brought on by a shortage of USD availability in country, premium payments must now be paid locally in Argentine pesos. The need for payment to be made in pesos is a recent amendment to Argentine regulations. In order to ensure local premiums are issued in the appropriate amount, all parties should agree prerenewal upon an exchange rate as of a specific date.
This will alleviate administrative burdens for both the insured and the insurer, in that local premiums will not fluctuate from the agreed-upon premium at the date of binding. This devaluation has impacted the free flow of reinsurance funds as well. In 2012, the Argentine Central Bank passed reinsurance regulations obligating banks and exchange brokers to report USD transfers to local authorities. This guideline was implemented in an attempt to control national reserves.
The change poses a huge issue for insurers and reinsurers, due to transactional burdens and a delay in the transfer of premiums. In some cases, insurance premiums en route to reinsurers in the USA have been known to be held up by the local authorities for up to nine months. Global and local insurers and local authorities continue to work to develop a solution that is acceptable to all parties involved.
These are just a few of the many items to think about when placing an insurance program in Argentina (or in the myriad of other countries facing similar currency volatilities). Please call upon a Lockton International Specialist should you wish to discuss further.