Argentina: Major Insurance And Reinsurance Developments In 2008

Although all of the Latin American jurisdictions had notable

regulatory and market developments in 2008, Argentina stands out as

particularly significant given the size of the market involved and

the fundamental nature of the developments seen there in the past

year.

Consolidation And Uncertainty Despite Promise

By most measures, Argentina is considered Latin America's

fourth largest insurance market. The market has continued on a path

of steady growth and consolidation in 2007 and 2008. The total

number of insurers operating in the jurisdiction declined to 184 in

2007, from 189 the previous year and 266 in 1998. Meanwhile,

average insurance market growth has topped 12.8% over the last four

years and insurance penetration remains relatively low. That being

said, however, Argentina's high sovereign risk and the

government's recent nationalization of the nation's private

pension funds has caused many, including Moody's, to express

concern about the coming year for the Argentinean economy generally

and the insurance market specifically.

On October 21, 2008, Argentina's president, Cristina

Fernandez de Kirchner, announced a plan to nationalize the

country's 30 billion dollars in private pension funds (a number

of which were managed by affiliates of international banks and

insurance companies), ostensibly in a effort to protect

retirees' savings during the current global economic turmoil.

The announcement, however, rather than stabilizing Argentina's

economy, resulted in greater uncertainty and tremendous economic

and social turmoil. Argentina's stock market subsequently lost

more than half of its value, the bond market plummeted and the

value of the Argentine peso dropped dramatically. The Argentinean

government publicly blamed the markets' performance on the ten

companies in charge of the pension funds, but much of the losses

were attributable to declines in the value of government bonds.

After the announcement, the Buenos Aires police raided the pension

system's offices and a judge prohibited the companies from

trading on the Buenos Aires exchange for a week. The private

pension funds then proposed a series of reforms as an alternative

to nationalization.

Despite significant domestic and international concerns, the

Argentine government moved forward with its elimination of the

country's private pension system later in the year. A

nationalization bill was passed by Argentina's lower house of

Congress on November 7th and by the Senate on...