Monday, July 24, 2017

Bienvenidos a Colombia: A Friendly Market for Foreign Reinsurers

By comparison to other jurisdictions, international reinsurers have easy access to the Colombian market. While the access to underwriting risks is not as limiting, it is not boundless.  Colombia has delineated requirements for reinsurers, which depend on the nature of the business entity.

In Colombia, foreign companies need to be added to the Registry of Colombian Foreign Reinsurers and Reinsurance Brokers (the Spanish acronym is “REACOEX”) in order to operate in the country. The registration process commences with filing a petition with the local regulatory authority called the Colombian Finance Superintendent (SFC).  The SFC will conduct due diligence and confirm compliance with the regulations, which include a pre-established minimum financial rating from one of several accredited institutions (Standard & Poor’s: BBB-, A.M. Best: B+, Fitch: BBB-, Moody’s: Baa3). Once the reinsurer is registered, there is an ongoing annual responsibility to update its rating. 

Reinsurers may choose from any of the following operational options:

  • Incorporate a reinsurance company in Colombia: With the approval of the SFC, reinsurers may create a stock company in Colombia, subject to local regulations and supervision. To create this entity, the company must have a minimum of 5 shareholders with no singular ownership to exceed 95% of the company stock and a minimum capital requirement of USD12M. 
  • Open a branch of a foreign reinsurer: A foreign reinsurer can open a branch office in Colombia, subject to the same regulations and supervision as reinsurance companies. The difference is that the latter has the added burden of complying with the local corporate law formalities.  Conversely, a branch office does not have to have a board of directors, a Corporate Governance Code or an internal control system under Colombian law because it would naturally follow the internal corporate formalities of its main headquarters.
  • Create a representative office: Foreign reinsurers can open a local office to conduct its commercial/administrative activities. This is the most restrictive in nature.  Accordingly, all binding decisions must be made abroad and the local personnel are only meant to undertake commercial/administrative activities and serve as intermediaries between the insured and the insurance company abroad (much like a local sales office).

In the current atmosphere, foreign insurers seem to prefer opening a representative office as evidenced by the lack of incorporated reinsurers or branch offices.  

In addition to the ease of corporate structuring, Colombia is a reinsurer-friendly market because reinsurance contracts are freely-negotiated contracts. While the standard insurance contract tends to be interpreted in the light most favourable to the non-drafting party, the nature of a free-negotiated reinsurance agreement allows for a more equitable interpretation -without having to tilt the analysis in favour of either party- in the event of a dispute. 

While the region is commonly thought of and treated in uniformity as it relates to insurance and reinsurance discussions, the practical realities of its geopolitical boundaries become prevalent when looking at the ease with which foreign reinsurers may operate in individual Latin American countries.  These differences have been noted (in an effort to attract a more robust market) causing local legislative/regulatory changes for the better. For civil-law countries reliant on statutory changes, this is a slow process.  However, this change – much like other things in this practice – may be attributable to a better understanding of the reinsurance business.  Again, demonstrating that having the right personnel with the right knowledge leading the way is key to the success of reinsurers, insurers, and the growth of the Latin American insurance market.   

*Not licensed to practice law in Florida

Wednesday, July 5, 2017

Argentina: Expert Witness Testimony is Key in the Most Litigious Country

Argentina is one of the most litigious countries in Latin America. Per specialized insurance publication “Estrategas,” in September 2015 there were more than 488,000 cases pending in judiciary or mediation proceedings against local insurers. This is an extraordinary number of lawsuits, which are a heavy burden to handle, reserve, and, where required, pay.  
The disbursements made in these cases will normally amount to a high percentage of all claims paid. Therefore, it is hardly possible for a local insurer to be successful in the Argentine market without a high degree of expertise in dealing with litigation.  In this regard, effective use of expert witness testimony is key.
In Argentina, as is common in the rest of Latin America, expert witnesses are not selected and brought-in to testify by the parties, but are rather “official” court-appointed candidates who are randomly chosen by the judge from a list of pre-accredited professionals. The system aims at having the court receive an unbiased and neutral professional opinion on matters relevant to the case.  
The parties can also request the designation of expert witnesses in pertinent fields of knowledge, supplying a proposal of issues to be addressed. 
Expert witnesses will perform any needed investigation such as visiting the loss site, examining an injured plaintiff or scrutinizing the parties’ accounting records – after which a report will be issued and attached to the court file. The parties will receive a copy of the report and be given time to ask additional questions and/or file rebuttals. 
The parties are free to designate their own experts to accompany the court-appointed professional during necessary investigations, file a report of their own and assist in rebutting the conclusions of the court expert if necessary, but this will almost never do the trick. Judges are not legally forced to follow the official expert witness’ conclusions -but in practice, because of the neutrality their report bears, they normally do. 
In our experience, an effective defense should focus on having the court-appointed expert issue a favorable opinion at the outset. Although success cannot be guaranteed, below are some strategies that might help at achieving this:
  • Get your experts involved in the case as early as possible. Have them identify any evidence that may be important to their conclusions, and have the handling adjuster or counsel assist in securing this evidence for future analysis.  
  • Have experts interact with counsel when preparing the defense, and especially as the filing proposing a list of issues and questions for the court-appointed expert is being prepared. Make sure to include all relevant issues.  
  • Have your expert write a clear, detailed report to attach to your first defense filing as documentary evidence. The report should walk the reader through the case and provide ample support for its conclusions. Meticulous reference to supporting evidence that is available for verification should be included. The defense can request that the court-appointed expert refer to this report, its methods of analysis and/or its conclusions. The underlying purpose of this report is not to influence the judge, but primarily to persuade the court-appointed expert witness.   
Chances of success will increase dramatically if you are successful at having the court-appointed expert confirm your position. If not, the same will be true for the adverse party. Therefore, we believe investing time and creativity in doing all you can in this regard at the early stages of the lawsuit can prove to be a most worthwhile procedural endeavor.
Published by Daniel Baron*
*Not licensed to practice law in Florida