The Argentinean Insurance Market
March 2001
Based on area, continental Argentina is the
eighth largest country in the world, the second largest in Latin America. Learn
about its insurance market -- its composition, regulatory environment, and how
various coverage lines are handled.
by George
R. Keller
Winterthur International
America Insurance Company
and
Juan Pablo Bragadin
Winterthur International
Argentina
The Republic Argentina is perhaps the most cosmopolitan nation in South America.
Located on the southeastern extreme of the South American continent, it has
traditionally been closely linked with Europe, often to a greater extent than
within the rest of the New World.
Argentina claims a total surface area of 3,761,274 sq. km (1,452,228 sq.
mi.), of which about three-fourths—just under 2.8 million sq. km (1.1 million
sq. mi.)—is located on the South American continent (the rest consists of a
sector of Antarctica and three groups of islands in the South Atlantic). Based
on area, continental Argentina is the eighth largest country in the world, the
second largest in Latin America.
With an estimated population of 36.6 million in mid-1999, it ranks 31st in
the world in population, with an overall population density of 13 per sq. km
(33.9 per sq. mi.) for the continental portion. Some 90 percent of Argentines
live in urban areas; nearly 12 million—33 percent of the nation's people—live
in the Buenos Aires metropolitan area, which has a density of 14,827 persons
per sq. km (38,400 per sq. mi.) in the Federal Capital.
Argentina claims international frontiers that stretch across 25,728 km (16,080
mi.). Most are on the Atlantic Ocean, but on the west, Argentina is bounded
by Chile across the Andes Mountains; to the northwest lies Bolivia; Paraguay
is nearly due north; and Brazil and Uruguay are found to the northeast.
The Argentine Andes rise to a height of 6,959 m (22,834 ft.) at Aconcagua,
the highest elevation in the Americas, but much of Argentina is low-lying and
flat: some 45 percent lies below 200 m (656 ft.) in altitude, while only 10
percent lies above 2,000 m (6,562 ft.). Argentina's climate ranges from subtropical
in the northeast, to temperate in the central region, to arid and semiarid and
cold in the south and along the mountains; each of these main three climatic
zones covers approximately one-third of the country's area.
About one-third of continental Argentina is under production: 28 percent
consists of grasslands, 12 percent is classified as natural forests, and nearly
10 percent is under cultivation. The rest represents urban development, undeveloped
land, bare rock, and inland waters.
Central Argentina holds the country's main agricultural resources: its fertile
pampas, noted for production of grain, cattle, and oilseeds. Argentina ranks
11th in the world in wheat production and is a major producer of oilseeds, corn
(maize), and meat. Argentina also produces substantial quantities of wine grapes,
cotton, sugar, tobacco, rice, and fruit. Its mineral resources include oil and
natural gas, manganese, lead, zinc, iron, copper, tin, gold, and uranium.
Spanish is the official language and is spoken universally, but a number
of Argentines also speak English, Italian, German, or French. Despite the mix
of ancestries and languages, Argentines are fiercely nationalistic, although
many are sometimes unsure regarding their cultural allegiance. This ambivalence
about whether they are more Latin or European is most common in Buenos Aires,
which many other Argentines view as constituting a separate world.
One common saying holds that "Argentina is the most European of the Latin
nations because its people are from the most Latin of the European nations."
Approximately 90 percent of the population is nominally Roman Catholic. However,
some studies indicate that fewer than 20 percent of Argentines are actively
practicing Catholics. Protestants and Jews each account for about 2 percent
of the population, with the remaining 6 percent representing adherents of various
other religions.
| 37 Million |
| 2.8 million sq. km (30% of Europe) |
| U.S. $289 billion |
| U.S. $7,600 |
| U.S. $23.3 billion (FOB) |
| U.S. $25.5 billion (CIF) |
| 96% |
| 425 |
| 74 years |
| 91% |
Insurance Market Facts and Figures
Argentina's insurance market has been severely hampered over the years by
inflation, overregulation, protectionism, and a mismanaged state reinsurance
monopoly. During the last 10 years, growth of the industry has depended heavily
on the broad insurance market reforms put in place since 1990. The market has
responded to macroeconomic stability and reforms designed to reorganize a market
known for its fragmentation, underdevelopment, overregulation, high premium
costs, and financial weakness.
The liquidation of the state-owned reinsurer, the Instituto Nacional de Reaseguros
(INDER), eliminated an enormous drain on the entire sector by eliminating INDER's
right to 60 percent of all reinsurance premiums. (INDER was effectively bankrupt
for several years and had been unable to pay large claims.) The liquidation
of INDER has triggered a massive shakeout, such that many Argentine domestic
companies have to sell, merge, or liquidate.
The reforms went beyond liquidation of the state-owned reinsurer. Since 1991,
massive deregulation of Non-Life insurance rates and policy offerings, elimination
of restrictions on insurance practices for companies with foreign capital (and
equal treatment for foreign firms), and tighter solvency requirements created
a more robust and financially sound insurance industry. Life insurance started
its strong development in 1995.
In summary the Argentina insurance industry is a young and still undeveloped
industry governed by small business, but is growing fast.
Insurance Industry Development
Total revenues for the 1999-2000 period increased to U.S. $6.45 billion,
which represents 2.2 percent of 1999 gross domestic product (GDP), and the Current
Average Growth Rate for period 1996/1999 showed a 13 percent increase per annum,
which demonstrated a steadily growing and developing industry even more than
the GDP growth.
The number of companies registered and doing direct business in Argentina
is 230, of which 27 are retirement insurers, 63 life, 14 workers compensation,
and the remaining 126 non-life and mix (life/non-life insurers). The insurance
industry employed 28,533 people.
Insurance Market Composition
The Argentinean insurance market is split in two major components: Non-life
or general insurance, which includes automobile insurance, workers compensation,
homeowners, fire, civil liability, marine (inland and ocean cargo, hull), technical
lines, theft, surety and bonds, hail, aviation, public transport, and others.
Life and pension insurance includes individual life, group life, retirement
(individual, group, annuities), personal accident, and health insurance.
Argentina
Insurance Market Graph
Non
Life Insurance Graph
Life
Insurance Graph
Automobile insurance accounts for more than half of the premiums in the total
non-life market; workers compensation is about 17 percent; and homeowners and
fire insurance are approximately 5 percent each.
Group life insurance dominates the life insurance segment with almost 33
percent representing the most dynamic segment together with Retirement, which
showed an increase of 7.5 percent and 13 percent, respectively, from last year.
Concentration of the market showed that 20 insurer-groups underwrite 50 percent
of total premium.
La CAJA SEGUROS (Generali owns 30 percent) leads the market with 10 percent
share, while local mutual firms concentrate about 10 percent share and the remaining
30 percent being foreign owned.
Development of Results
The 1999 technical results were negative by U.S. $458 million. Acquisitions
and administration expenses were 49.45 percent and Claims Incurred were 61.3
percent, bringing a combined ratio of 110.75 percent.
With financial results, the market showed a loss of 1.73 percent of gross
written premium, which represents a better situation compared with last year's
results of (4.81 percent). Contributions to mentioned losses were influenced
by poor results of automobile insurance, public transport, hull, inland and
ocean cargo, civil liability, and social security in life.
Regulatory Environment of Insurance
The Superintendence of Insurance "Superintendencia de Seguros de la Nación"
governs industry practices and monitors the financial solvency of insurance
companies and reports to the National Minister of Economy, Works and Public
Services. The insurance contract in Argentina is regulated by the Insurance
Act 17.418; insurers, by Law N° 20'091; and brokers and insurance agents by
Law 22'400.
Retirement insurance started in 1987 by Resolution N° 19'106 when the supervisory
opened the register of insurers to operate in that segment.
Deregulation of the insurance market started in 1992 when the Superintendence
of Insurance dictated the Law 21.523, which regulates the insurers' activity.
A continuous deregulation and flexibilization of the activity was performed
afterward by the authority looking into specific issues such as, for example,
the implementation of Social Security Life Insurance, which was then the first
Private Pension Fund, and the implementation of the Workers Compensation insurance,
both systems regulated by Laws N° 24'241/93 and 24'557/95.
On October 1, 1998, by Resolution N° 25'804 the Superintendence of Insurance
opened the register for new insurers in Argentina and dictated minimum capitalization
requirements as a function of the number and type of business written.
In June 2000 by Resolution N° 429, the Superintendence fixed the basis of
premium collection systems in order to have more transparency in the market
and approved different ways to collect premiums through electronic devices,
banks, and/or credit cards.
Premium Payment and Taxes
According to Resolution N° 429, policies are in force when premiums are effectively
entered in company books. The market allows premium installments depending on
the line of business (generally up to 10 installments for homeowners, automobile,
or individual life policies).
Premiums can be paid either to the insurer or to the broker. Electronic collection
starts after 1 month in order to get those insurers more control over premium
collection. Premium payments are accounted for as an expense and are therefore
tax deductible.
All Argentinean non-life premiums are subject to internal taxes (4.6 to 5.6
percent) and value added tax (VAT) (21 to 26 percent), depending on the legal
address of the insured and tax condition. Life insurance does not apply VAT
Internal taxes, and VAT is paid by the insured in addition to the premium. The
insurer must pay VAT to the government 20 days after the date invoice is issued
to the insured.
Currency
The local currency in Argentina is the PESO $. The Convertibility Law went
into effect in April 1991 to stabilize Argentine finance and make them more
transparent, thus providing greater confidence to both national and international
investors. Since 1992, this law established the parity of 1 Peso to 1 U.S. dollar,
freely convertible.
Under such law Argentinean policies can be written both in local or foreign
currency. Most policies are written in U.S. dollars because of the devaluation
experienced of the currency in 1985. The insured can pay premium either in Argentinean
pesos or U.S. dollars, and claims can be settled in the same currency.
Language
The official language is Spanish and policies must be written in that language.
Nevertheless, it is accepted for some wordings to be written in English, such
as ocean marine hull and cargo, without approval by the supervisory.
Non-Admitted Insurance
Non-admitted insurance is prohibited. The local supervisory can apply fines
up to 25 times the local standard premium. Non-admitted insurance can also be
considered a tax evasion and therefore subject to Penal Law.
Compulsory Insurance
Compulsory insurance in Argentina applies to the following:
- Automobile third-party liability up to $30,000 per occurrence and $60,000
per event with defense cost up to 30 percent, medical expenses $1,000; funeral
expenses $1,000
- Life insurance (death) for dependent workers up to $4,800 per employee
- Workers compensation for all employees according to Law 24.557
- Civil liability for the use of boilers and sign lights within the capital
city of Buenos Aires
- Fire of dwelling condominiums in capital city of Buenos Aires to cover
common parts of the building
Reinsurance
At year-end 1999, there were almost 100 registered reinsurers in Argentina,
of which 3 had active local operation (General & Kolnische Re, Royal&Sun Alliance,
Mapfre). The remainder operate with representative offices.
Export of reinsurance out of Argentina is possible and subject to reinsurance
tax of 3.5 percent, except 0 percent for Germany and 2.5 percent for Spain,
Italy, Switzerland, and France due to double tax imposition agreements signed
by governments.
Pure fronting business is available depending on the line of business (usually
applicable to oil and gas and aviation business).
Argentina also has 51 reinsurance brokers operating in the market and registered
with the local authorities. Insurers are allowed to place reinsurance contracts
through brokers with non-registered reinsurers subject to minimum qualification
made by international surveyor.
Brokers
Non-life insurance is written mainly through brokers. Direct business is
possible, but unusual. An exception is automobile insurance, where telemarketing
direct sales have been growing during the last 2 years.
All major international insurance brokers are represented in Argentina with
Ayling Marsh being the largest. Brokers are compensated via commissions. The
average commission rate is 15 percent. In some cases, brokers receive fees for
large industrial risk consulting.
Life insurance is written mainly through agents. Life insurers have their
own sales force, although insurers have started to develop different distribution
channels, including brokers and telemarketing.
E-business has started in Argentina over the last 2 years; however, few contracts
have been consummated.
Natural Hazards
Argentina has no heavy exposure to natural hazards. Nevertheless, earthquake
in the west (Andean Mountains) and floods in central and east Argentina can
be expected due to worldwide climate changes, which have caused increased temperatures
resulting in more rainfall.
Insurance Coverage
Property Damage. Medium and small commercial
risks and homeowners are insured by package policies on a named-perils basis,
including fire, lightning, explosion, aircraft, vehicle impact, strike, riot,
civil commotion, terrorism, malicious damage, lock-out, smoke, burglary and
theft, water damage, and natural perils (windstorm, flood, earthquake, hurricane,
hail, tornado, cyclone), electronic equipment and civil liability.
Whereas assets are generally covered on full-basis value (replacement cost),
sublimits for theft (mainly in values in transit and in safe boxes), water damage,
electronic equipment (computers, laptops, etc.) and civil liability (comprehensive
liability) apply.
Large industrial risks are insured on an all-risk basis, including property
damage for all assets. Machinery breakdown and inland transit can also be included
with sublimits. There is no uniform wording; each insurer uses its own version.
Business interruption is usually covered under the Gross Profit Form (defined
as gross profits less discontinuing expenses).
Inland transit cargo coverage has been deteriorating by the exposure of theft,
and sometimes most insurers prefer to issue separate policies to have a better
control and risk management. Ocean cargo follows the international standards
dictated by Institute Cargo Clause forms. Carrier liability can be included
as an additional clause to the cargo insurance. Theft in transit between loading/unloading
to final destination is the highest exposure in the country. The market also
offers a waiver of subrogation clause required by freight forwarders when the
owner insures the goods.
Theft, generally speaking, is the main peril, which has contributed to losses
within the insurance market (applicable also to automobile, currency and currency
equivalents, and inventories).
Engineering/Construction. Few international
insurers handle this special line of business. Policy wordings follow the European
forms. Smaller projects (betterment and small construction) can be included
under the property policy for large industrial risk. Knowledge of insurer staff
prevails when approached to provide coverage.
Civil Liability. Articles 109 and 129 of Insurance
Act regulate the Civil Liability insurance. This insurance is based on indemnity
coverage where the insurer is obliged to indemnify obligations of its insured
against a third party for both extracontractual (U.S. premises liability) and
contractual liability (including products liability). The indemnity of the insurer
is considered within the measure of the insurance, which means a limited liability.
The coverage is based on an occurrence as a consequence of an event happening
during the agreed period. The insurer guarantee includes defense costs and judicial
fees even if the third party claim is declined. Defense costs and fees are in
addition to the limit of indemnity. The insured must report the event or any
possible liability within 3 days of its acknowledgement. It is important to
mention that third party has direct action and can file suit directly with the
insurer, bypassing the insured.
Coverage available in the market includes comprehensive liability, product
liability, construction liability, and professional liability (medical malpractice,
brokers, architects, lawyers). Standard forms and wordings vary with each insurer.
Workers Compensation and Employers Liability. 1996 introduced the W.C. Law Nr. 24.557. Its provision covers loss prevention
and compensation for work-related claims. These claims may arise out of sudden
and violent occurrence due to or in the course of employment or out of an occupational
disease, provided the disease is included in a list that forms part of the law.
The objective of the law is to reduce losses through prevention, compensate
workers for work injury or disease, and foster rehabilitation, promote retraining
enabling employees return to work faster after work injury or disease, and promote
collective labor negotiations to achieve improved prevention and benefits.
The scope of the law is compulsory for employees in the private sector, civil
servants and public sector employees, and persons performing civic duties.
Benefits under the law include:
- Temporary disability (85 percent of earnings for first 30 days and 100
percent of earnings for next 11 months) when disability is determined after
4 days (time excess);
- Permanent disability (lump sum of 1,000 days earnings if totally disabled);
- Partial disability (lump sum equal to average daily wage loss time 1,000
days);
- Medical benefits (costs of medical attention, appliance and pharmaceuticals
covered by employer); and
- Survivor benefit (lump sum of 1,000 days' earnings payable in addition
to any ordinary pension due) payable from death of insured.
The maximum monetary benefit for death is currently at $110,000.
Workers compensation (WC) coverage is written by specific WC companies called
A.R.T., requiring surplus of minimum $3 million. Self-insurance is allowed but
a separate $3 million surplus fund must be established.
The main topic of the WC law was to relieve employers of all civil liability
to employees and survivors, with the exception that civil liability remains
for those instances in which there is a proof of a wrongful act committed knowingly
and with the intent of injuring a person or a person's rights (Article 1072
of Civil Code).
Many cases were presented to courts requesting unconstitutionality of the
law because of the limit of maximum indemnity ($110,000) and the controversy
of how much could claim an injured person throughout a Civil Court. Different
Civil Chambers for special cases have sentenced in favor of employees.
In the beginning of the law, the insurance market decided to provide excess
limits for employers' liability as an extension of a comprehensive civil liability
policy only in case a Civil Court dictated obligation of the insured to pay
the demand. Presently, with several cases of jurisprudence against insureds,
the market has decided to suspend the coverage for new business and keep existing
business under special conditions and subject to the client relation.
Automobile. Third-party liability (TPL), as
mentioned before, is mandatory for all registered cars, trucks and buses. The
supervisory has stated maximum limits for TPL up to $3 million for cars, $10
million for trucks, and $ 15 million for buses and public transport.
Green cards are required to evidence insurance coverage under the transit
regulation. The standard policy can also include the property damage (hull).
Special Products. Some special coverages can
be purchased within the market to protect:
- Banks and financials institutions (bankers blanket bond or crime and
fidelity)
- Agriculture
- Oil and gas (control of wells, comprehensive offshore insurance, petrochemical
package policies)
Life and Pension Insurance
Life Insurance. Life insurance has been the
force behind Argentina's market growth for the last 5 years, showing at yearend
1999 a 38 percent share of GWP.
Traditional coverage for personal accident, either individual or group, is
available in the market. Some large clients purchase group personal accident
to fund compensation in case of employee death and release any further civil
action from their heirs.
Group life is a well-developed market because it has survived Argentina's
different economic scenarios. Highly competitive and price-driven, customers
demand excellence in quality and service. It is mainly a broker-controlled segment.
Most international insurers write life insurance.
Pension/Retirement Benefits. The Argentine
social security system is another beneficiary of broad-based privatization and
decentralization reforms. After running a deficit for most of the 1980s, the
nearly bankrupt state system was scrapped, and the government opened up the
pension plan management market to private companies for the first time. The
past 30 years have seen a near doubling of the 65-and-older age group, while
the 1980s brought a drop in productivity and participation among the working
population.
In a financing structure originally designed by the government to be sustained
by a pensioner-to-worker ratio of 4 to 1, a drop in that ratio to 1.6 to 1 by
1990 meant that the old system simply could not satisfy demand. As a result
of this financial strain, the average pension benefit dropped to U.S. $150 per
month, just a quarter of the average Argentine worker's monthly salary at the
time. It was only a matter of time before changing demographic forces coupled
with a mismanaged pension delivery system forced the implementation of the new
system.
In 1993 a law was passed creating a new Integrated Pension System. The new
law created two regimes: one in which the government takes out a percentage
of the worker's salary with the worker contributing an additional portion; the
other in which the employee chooses to participate in a private pension fund.
Workers were given the choice between a modified government social security
package or one of the various private schemes known by their Spanish acronym
AFJP (Administradoras de Jubilaciones y Pensiones). The new system was designed
to emulate the highly successful Chilean privatized pension model begun in 1981,
which became so successful that Chilean private pension funds are now the nation's
most powerful institutional investors.
In Argentina, the progress toward that goal is now on its way. At the outset,
just 20 percent of the working population remained in the modified government
scheme, with another one-third subscribing to an AFJP administered by a large
Argentine public commercial bank. The balance, nearly half of all workers, in
turn joined one of the more than 2 dozen private plans. Currently, there are
19 AFJPs, with 6 managing about 70 percent of total market assets. Because these
newer, private plans are still emerging, a market opportunity exists for prominent
foreign-based firms who have an edge over the local competition in many aspects
of plan operations and administration.
These private pension funds are growing, and they have already become a net
supplier of credit to the economy. By the end of 1996, the private cumulative
total national savings of private pension funds amounted to U.S. $5 billion
(up from $2.5 billion pesos in December 1995). Pension funds could ultimately
generate substantial reservoirs of medium- and long-term credit (which have
been largely unknown in Argentina) as the market reaches as much as U.S. $50
billion over the next 10 to 15 years.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.