Latin America: the opportunities and the challenges

26 April 2012 Sedgwick, Detert, Moran & Arnold LLP Mark Kendall
Partner, Insurance Division Specialises in Property & Casualty Reinsurance mark.kendall@sedgwicklaw.com +44.20.7398.8929

Duncan Strachan
Special Counsel, Insurance Division Specialises in Latin America duncan.strachan@sedgwicklaw.com +44.20.7398.8931

Presenters

Mark Kendall Partner, Insurance Division Specialises in Property & Casualty Reinsurance

Duncan Strachan Special Counsel, Insurance Division

Sedgwicks Worldwide Offices

Sedgwicks London office

3 partners and 9 associates handling complex

coverage and defence work for the London market

Our team specialises in the reinsurance of property

& casualty losses in the energy, utilities, transport and construction sectors
Broad experience of representing reinsurers in Latin

America fluent Spanish speakers

Our Latin American expertise

Network of trusted lawyers across Latin America
Broad experience of South American losses:

Breach of claims cooperation in respect of numerous claims against a Brazilian road operator Coverage advice to reinsurers on Argentine courts decision to ignore policy deductible and limits Defence to Colombian class actions following terrorist attack on oil pipeline

Overview of the region: opportunities and challenges

Defining trends

1. Economic growth and development - need for

continued investment
2. Political stability is the foundation for continued

and sustainable growth

3. The legal environment claims (and their value)

on the rise
4. Transferring risk increasing need and demand

for liability cover

BRAZIL

Brazil in context
Latin Americas giant demand for insurance Opening up of the reinsurance market in April 2008

- criticism of recent protectionist regulations

Infrastructure investment (2014 World Cup, 2016

Olympics, energy, transport)

Comparatively low risk of natural disasters, flooding

is a concern

Brazil claims environment

Reinsurance law is undeveloped and relatively

untested
Procedural obstacles and dangers Lengthy court proceedings involving (re)insurers High interest rate (9%)

Brazil welfare system

Compulsory social security - Instituto Nacional do

Seguro Social (INSS)

Slow rise in private complementary insurance Workers can bring claims against employer (2 year

limitation)
INSS recoveries also on the rise

Brazil the (re)insurance market

Largest insurance market in Latin America

growing need and demand for insurance products

Abolition of monopoly held by the Brazilian Institute

of Reinsurance (IRB)
Protectionist measures (resolutions 225 and 232)

relaxed
Tension remains between interests of IRB and

foreign reinsurers

Brazil the (re)insurance market 2

Foreign reinsurers entitled to operate as:

Local - head office in Brazil Admitted (e.g. Lloyds) - representative office, accounting and reporting obligations Eventual - registered with Susep, limited to 10% share of risks
Six local reinsurers in Brazil by the start of 2011

had increased pressure on IRB market share

Brazil take away points

Obligatory application of Brazilian law and

jurisdiction
Consider using international arbitration
Uncertainty about the rules applicable to

reinsurance
Expressly set out the effect and consequences of each term

Brazil take away points

Automatic cut-through against reinsurers

Check the terms of the original policy and solvency of the local insurer
IRB competition

Concurrent text in Portuguese (with English version to prevail) Encourage interaction and agreement with the local insurer

MEXICO

Mexico in context
Lloyds desk in London catastrophe risks Stable economic growth, slowed by world crisis Recognition of need for investment - infrastructure

Insurance penetration very low - challenge

Mexico claims environment

Not a litigious society

Risk of legal action in the US

Mexico welfare system

Mandatory system protects employers from civil

claims
Rare for employers to face claims for compensation State compensation is capped

Mexico (re)insurance market

Strict rules on writing business in Mexico Limited business reaches foreign reinsurers Insured-friendly interpretation of (re)insurance

contracts
Arbitration is a good compromise

Mexico take away points

Strict rules for interpretation of coverage

Use claims cooperation where possible Be sure to act upon rights immediately
Insured-friendly interpretation

Use arbitration Take care when reserving rights

COLOMBIA

Colombia in context

Strengthening political and economic position Development in insurance since liberalisation in

1989
Investment Grade rated - increased opportunities

to reinsurers
Terrorism

Colombia claims environment

Increase in collective and constitutional actions Rise in dispute resolution to avoid lengthy

proceedings
Impact of interest can be significant at 24% per year Costs at 15 20% of award

Colombia welfare system

Mandatory workplace social security System and compensation managed through

specialist entities (ARPs)

Rare for ARP to seek recovery from employers 2011 reform

Colombia the (re)insurance market

Open market insurers free to place business with

registered foreign reinsurers

Insurance rules are developed BUT confusion over application to reinsurance Common for insurer to be made a defendant

Colombia take away points

Obligatory Colombian law and jurisdiction

Include provision for international arbitration Or use Colombian arbitration for speedier, more sophisticated resolution

Local insurer will often be joined to proceedings Reinsurance is recognised as separate Draft important provisions as warranties Take care in discussion with cedant / adjusters

ARGENTINA

Argentina in context
Energy crunch, despite abundant natural resources

(oil, shale gas, metals)

Economic growth (agriculture, manufacturing) Nationalistic policy overshadows need for investment Protectionism and uncertainty restricts opportunities

for reinsurers

Argentina claims environment

Significant increase in litigation creaking legal

system
Conciliation process compulsory in Buenos Aires Unpredictable judgments (Ortega; Goyeneche)

Insured-friendly interpretation of policy

Argentina welfare system

State system covers compensation for employees

through specialist insurance companies (ARTs)

State recoveries against the employer are rare Employees increasingly seek compensation from

employer instead of the ART

Regulatory change proposed to increase certainty for

the insurance market

Argentina the (re)insurance market

Mandatory Argentinean law and jurisdiction since

2008 (no foreign arbitration)

Very restrictive regime on foreign reinsurers First US$50m of any risk must be placed with Local

Reinsurer
Will the SSN grant a waiver in some cases for

Admitted Reinsurers (e.g. Lloyds)?

Argentina take away points

Potential for growth but uncertainty rules Prospects for foreign reinsurers may improve in the

long term
High risk associated with new business and claims

Higher premiums? Effective management to reduce litigation risk

CHILE

Chile in context
Leading economy developed legal system Growing industries, major exports in copper, iron

ore, gold
Impact of 2010 earthquake Few restrictions on foreign investors in Chile

Los 33 and their legacy

Chile the claims environment

Increase in claims - personal injury cases Class actions uncommon

Court procedure is relatively well-developed

Dispute resolution encouraged Third party claims against insurers

Chile workers compensation

Mandatory / automatic social security scheme Employees also have right to sue employers for

compensation:
Moral damages Loss of earnings

Chile the (re)insurance market

Insurance and reinsurance interpretation insured

friendly
Importance of the adjuster Chilean law and jurisdiction - arbitration for large

disputes
Good practice to have proper Spanish translation

Chile take away points

Developed body of insurance law & market custom

Draft reinsurance contracts carefully Dialogue with (re)insured is crucial Claims cooperation / control
Court procedure remains cumbersome

Favour Chilean arbitration

Good technical lawyers available to advise locally

The rest of the region?

Risky business in Venezuela, Ecuador

Boom in Peru and Panama

A bright future?

Economic strength Increased demand for insurance opportunities for

Lloyds
Unpredictable application / interpretation of

insurance rules
Important not to generalise