Uruguay: Insurance & Reinsurance

In Uruguay we have in place an insurance Law N° 19.678 (dated October 26, 2018) (the “Insurance Law”) that set certain terms and conditions that shall be stipulated in the insurance agreements/policies. It is a public order law; in this case this means that parties shall apply the stipulations of law and cannot agree otherwise in their agreements. This wishes to protect the weakest contractual party. This is tendency in Latin-American legislations nowadays.

Law also provides certain rules to be followed in the pre-contractual phase, related to disclose of relevant information for the customer.

Further, insurance contracts to be used must be previously submitted to the Central Bank of Uruguay before its use in the market.

Yes, law provides de existence of insurance and reinsurance companies; both are subject to some common rules, despite each type of company (insurance and reinsurance companies) have certain specific rules applicable to each of them. Further, Insurance Law establishes different rules depending on the type of insurance covered by the company. Same are divided into two main categories: i) insurance related to patrimonial damages (Fire insurance; vehicles insurance; robbery insurance, civil responsibility insurance, caution insurance; transport insurance, etc.) and ii) insurance related to people (retirement/pension insurance and non-retirement/pension insurance).

No. Insurance brokers are not subject to regulation (save for when they are engaged with KYC related activities in which case, the insurance or reinsurance companies must previously request for authorization from the CBU to engage such activity). Despite what has been said, there are certain specific reference to that figure made in different insurance rules. For example, insurance and reinsurance companies must: i) assure that the brokers with whom they deal follow integrity, ethical and technical standards, ii) notify them the conduct code adopted by the company; and iii) identify the broker in the insurance policy.

Further, the Executive Power has the power to regulate their activity (but up to date, same is not regulated).

On the contrary, Insurance and Reinsurance are subject to the Central Bank´s of Uruguay Compilation of Rules of Insurance and Reinsurance (“RNSR”).

Yes, insurance and reinsurance companies require the prior authorization to operate, which may be granter -or not- by the Executive Power with the advice of the Superintendencia de Servicios Financieros (dependence of the Central Bank of Uruguay, the “Insurance Regulator” or “CBU”) based on legality, opportunity, and convenience grounds. Additionally, insurance and reinsurance companies require habilitation (license) granted by the Insurance Regulator to start operating.

Moreover, new businesses must organize as Uruguayan corporations by shares (“sociedades anónimas“), and their corporate purpose must be restricted to insurance-related activities and their corporate name must denote such capacity. Their bylaws must expressly provide that the corporation’s capital will be entirely represented by nominative shares, and that transfer of any such shares shall require prior authorization by the Insurance Regulator (despite what has been said, insurance and reinsurance companies that were operating under mutual or cooperative forms as of august 1994, may continue operations under such type of company).

These companies shall submit to the Insurance Regulator the information and documentation required for the purpose (among others: name of the company, indicating its corporate name, real and constituted domicile; notarized testimony of the by-laws or draft by-laws submitted to the Internal Audit Office for its approval, identification data of the legal representatives of the company (full name, nationality, identity document, and domicile); list of shareholders, capital to be contributed and percentage of participation; list of senior personnel; list of the members of the economic group to which the company belongs, description of the activities carried out by them, projected organizational structure and staffing, etc.)

Such authorizations shall take at least between 12 and 18 months depending on the complexity of the information provided by the solicitant. A key factor for the authorization is the track record and/or solvency of the company or its shareholders, as well as the country where the shareholder is based.

According to applicable legislation, the person exercising effective control must satisfy the following conditions: i. must not be linked to activities that may generate a conflict of interest with the financial activity he/she intended to develop. ii. must have seniority and reputation in the business carried out by the insurance or reinsurance company.

In the case of legal entities, it will be considered that there has been no significant organic or inorganic growth (due to acquisitions) in the immediate past. If the person exercising effective control is a financial institution, the following conditions must also be met: i) it must have implemented policies and procedures to prevent it from being used for money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction. ii) its country of origin must be a member of the Financial Action Task Force (“GAFI”) or other similar regional bodies. iii) there must be a Memorandum of Understanding between the home supervisor of the person exercising effective control and the Insurance Regulator or, a degree of collaboration that the latter considers satisfactory between the two supervisors. iv) consolidated supervision should be exercised by the home supervisor. v) the policies to prevent being used in money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction of the country of origin of the financial institution exercising effective control. vi) its risk rating, which must have been granted by an internationally recognized rating agency. In the event that the person exercising effective control has its shareholding package atomized in such a way that no shareholder owns more than 5% of the same, the competent decision-making body must be identified. In this case, the following shall also be considered: i) the way decisions are taken by the latter. ii) the information regarding personal and professional background of the members of such body.

Moreover, when applying for authorization to operate, insurance and reinsurance companies must inform the name(s) of their direct shareholder(s) and of the persons exercising effective control of the company, attaching the following information and documentation:

1. Individuals: the information required regarding personal and professional background.
2. Entities:
   1. Notarized testimony of the articles of incorporation or bylaws.
   2. In the case of foreign institutions: b1. Affidavit of the foreign institution, with notarized certification of signature and representation, explaining the control and supervisory bodies of the country of origin that have jurisdiction over the shareholder company. b2. Certificate issued by the competent authority of the country of origin or notarized certificate attesting that the shareholding company is legally incorporated and that, in accordance with the legislation of such country, there are no restrictions or prohibitions for such companies to participate as partners, founders or shareholders of other companies incorporated or to be incorporated in the country or abroad.
   3. Annual report and financial statements for the last 3 (three) fiscal years closed, with the external auditor’s opinion.
   4. Risk rating granted by a rating company, if any.
   5. Affidavit of the shareholder detailing the company’s financial position. Affidavit of the shareholder detailing the chain of shareholders until identifying the legal entity that exercises effective control of the group. It will not be admitted that in this chain there are companies whose shares are bearer shares and transferable by simple delivery. This declaration must be accompanied by notarized certification of signature and notarized certificate of representation of the legal entity. In case it is deemed necessary, the Insurance Regulator will be able to issue a declaration.

No, it is not possible to ensure risks in Uruguayan jurisdiction without a license and habilitation, please see answer to question 4.

New insurance or reinsurance participants that purport to operate in Uruguay must adopt the form of a corporation by shares (“sociedad anónima”).

Further it is important to mention that save for some limited exemptions, risks located in Uruguay must be insured by local companies that have been authorized by the Executive Power and the CBU (being such rule a limit for off-shore insurers that purport to provided off-shore insurance). Local insurance companies may engage reinsurance from reinsurance companies located in Uruguay or abroad.

As mentioned above, insurance brokers are not subject to special regulation, but must considered the market reserve principle if the purport to do business with offshore insurance companies. Furthermore, if the foreign insurance broker purport to do business in Uruguay in a customarily and professionally basis, it they must establish in Uruguay as a local company or a branch.

Law 16.426 states that risks located within Uruguayan territory may only be insured by a duly authorized Uruguayan companies; and that parties and their representatives in the operation (insurance company, insured and broker -if any-) shall be jointly and severally liable for the corresponding taxes and sanctions in case a policy is issued against this rule.

On more general terms, violations to the laws and decrees that regulate the insurance or reinsurance activity, or to the general rules and specific instructions issued by the Insurance Regulator shall be subject to the following penalties: 1) Observation, 2) Warning, 3) Fines of up to UI 65,000,000 (Indexed Units sixty five million) (approx. USD 8,430,135) 4) Intervention, which may be accompanied by total or partial substitution of the authorities, 5) Total or partial suspension of activities, with express fixation of the term, 6) Temporary or definitive revocation of the authorization to operate.

The Central Bank of Uruguay shall inform the Executive Branch of the sanctions applied to such institutions.

In the case of Insurance Companies, the supervisory approach is mainly aimed at preserving the stability and solvency of the entities, based on the systematic and periodic application of a series of supervisory mechanisms, which seek to promote that the entities manage their risks in a professional manner (among them, the risk of being used for money laundering or financing terrorism), that they prepare financial reports in a timely and consistent manner, that they operate prudently and maintain adequate regulatory compliance. Through the procedures applied, the Insurance Regulator seeks to identify problems early so that those responsible for managing the companies can take the appropriate measures to solve them in a timely manner.

A financial user protection function is developed through the attention of queries and complaints received from them.

The Central Bank of Uruguay has an active role in the supervision of insurance companies.

As for solvency conditions, insurers must accredit minimum capital requirements (please refer to question 11).

Furthermore, insurance companies must constitute technical reserves, according to the provisions indicated under the RNSR. Technical reserves are defined as the provisions to be made to honor the obligations assumed before the insurers.

Minimum capital and technical reserves must be constituted by certain type and class of assets as detailed in the RNSR. Detailed regulations lay out how these capital investments can be made, establishing which types of investment are expressly permitted and their respective capital limitations.

The solvency of the insurers and reinsurers is controlled by different means such as the obligation to have a risk management system, a corporate governance structure, an actuarial function, internal audit controls, etc.; the obligation to file different reports to the Authorities regarding its financial situation, risk management, accounting, investments, etc.; the requirements regarding basic capital and solvency margin as well as certain reconstitution plans, the obligation to have audited financial statements or compilation reports, the obligation to observer certain accounting rules, etc.

For insurance related to patrimonial damages, minimum capital is determined by the greater of the following parameters: i) USD 1.260.000 approx. (“Basic Capital”) for any insurance branch (in case the insurance company increases its business line adding a new insurance branch, a 1/6 of said sum must be added to the Basic Capital), adjusted on a quarterly basis; ii)”Solvency margin,” which is calculated based on premiums and claims.

For insurance related to people, minimum capital is similarly calculated, but solvency margins calculations differ. Further, for insurance related to private pension fund retirement regime, an extra of USD 800.000 must be adds to the Basic Capital amount.,

Minimum capital for reinsurance companies will be determined by applying the same calculation but considering a basic capital equivalent to 10 times the Basic Capital for a single branch, regardless of the number of branches in which it operates.

Yes. Insurance companies must submit to the CBU prior to market, the terms, and conditions of the policy as well as the technical sheet of the product.

Further, Insurance law set certain terms and conditions that shall be stipulated in the insurance agreements/policies.

Law also provides certain rules to be followed in the pre-contractual phase, related to disclose of relevant information for the customer.

Insurance and Reinsurance companies must have codes of ethics as well as procedures to receive and treat client’s complaints.

When insurance or reinsurance companies request for the authorization to operate before the CBU they must indicate the companies comprised under the same economic group to which the insurance or reinsurance company belongs, including description of the activities carried out by them, operational and commercial links with the insurance or reinsurance company.

Under corporate governance standards, they insurance and reinsurance companies must avoid conflict of interest issues with related parties. In such regard, they must control and manage the potential conflicts of interest between shareholders, directors, senior management, and other related parties.

For the custody of certain type of investment assets, the custodian of same cannot be related party. In such regard the RNSR states that: an insurance company cannot appoint for custody a related, controlled or controlling company, directly or indirectly, of the same or of any of its shareholders.

Further, information regarding the economic group of the insurance or reinsurance company must be filed before the CBU on an annual basis.

Yes. Information on the moral and technical suitability of new directors, general manager, and trustee of insurance a reinsurance companies must submit to the CBU. Such senior personal must not take position on such role until the CBU communicates that it does not oppose to the appointment.

Directors, managers, trustees (among others) who act negligently in the performance of their duties or approve or carry out acts or incur in omissions, may be subject to the application of fines between UR 100 (aprox. USD 3,483) and UR 10,000 (aprox. USD 348,292) or disqualified from exercising said positions for up to ten years.

The Central Bank of Uruguay, by well-founded resolution, may request as a precautionary measure before the competent court, the seizure of assets, credits, rights and actions of the insurance or reinsurance company companies, whose economic or financial stability was affected and those of those natural or legal persons who, on their own behalf or as members of the Board of Directors of said institutions or that of other companies, had participated in presumptively fraudulent operations that directly or indirectly could have contributed to causing the aforementioned imbalance.

Further, directors are subject to the general liability regime provided under companies act 16.060.

Yes, please refer to answer to question 4.

Yes. Insurance and reinsurance companies must request the authorization of the Insurance Regulator to contract third parties for the rendering in their favor of those services inherent to their line of business which, when performed by their own agencies, are subject to the regulatory and control powers of the Insurance Regulator.

The companies rendering outsourced services shall be subject, with respect to those activities, to the same rules as those that apply when they are performed by the controlled entities, except for those of a sanctioning nature.

Outsourcing does not imply in any case exemption or limitation of the liability that the law or the regulations impose on the institutions for failure to comply with their obligations.

The acceptance of clients may not be outsourced.

Insurance and reinsurance companies must have written policies and procedures in place to ensure effective identification, measurement, control, and monitoring of the risks -both present and future- associated with the outsourcing agreements entered.

In particular, they should assess the risks arising from the outsourcing of multiple activities to the same provider.

Yes. Minimum capital and technical reserves must be covered by certain type and class of asset as detailed in the RNSR. Detailed regulations lay out how these capital investments can be made, establishing which types of investment are expressly permitted and their respective capital limitations.

Terms and conditions of the insurance policies are controlled by the CBU, considering that same must submit to the CBU prior to market.

Further, Insurance Law set certain terms and conditions that shall be stipulated in the insurance agreements/policies.

Law also provides certain rules to be followed in the pre-contractual phase, related to disclose of relevant information for the customer.

Insurance and Reinsurance companies must have codes of ethics as well as procedures to receive and treat clients complaints.

Insurance companies must request for the authorization of the Insurance Regulator to outsource those services that are inherent to their business and when performed by the company are subject to the control of the Insurance Regulator.

Typically, insurance policies are sold by brokers. As mentioned, insurance brokers are not subject to regulation (save for when they are engaged with KYC related activities in which case, the insurance or reinsurance companies must previously request for authorization from the CBU to engage such activity). However, insurance and reinsurance companies must: i) assure that the brokers with whom they deal follow integrity, ethical and technical standards, ii) notify them the conduct code adopted by the company; and iii) identify the broker in the insurance policy.

Lastly, law 17.250 (consumer protection act) also applies to consumer insurance relationships with insurers.

Under Law N° 16.246, risks located within Uruguayan territory must be insured by local companies that have been authorized by the Executive Power and the CBU (being such rule a limit for off-shore insurers that purport to provided off-shore insurance). The only exceptions admitted by this territoriality standard are those insurance agreements of (i) transportation and international commerce (exclusively regarding the transported goods) and (ii) merchant ships for commercial transportation of goods or persons.

Moreover, the Insurance Law dictates that, both parties and their representatives shall be jointly and severally liable for the corresponding taxes and sanctions in case a policy is issued against this rule.

Despite of all this, local insurance companies may engage reinsurance from reinsurance companies located in Uruguay or abroad. Finally, there are no additional rules regarding offshore offerings of insurance, provided it is performed without physical presence in Uruguay (otherwise, insurer could trigger the need to establish in Uruguay).

There are no consumer policies that restrict in some way the price of the insurance. Notwithstanding, there is a strict framework for consumer protection, being the relevant: (i) Consumer Law N° 17.250 (“Consumer Law”); (ii) Law 19.678; and (iii) Insurance Regulator rules.

Consumer Law.

As a general rule, Consumer Law regulates relations between suppliers and consumers, under what is call a “consumer relationship”. However, pursuant Uruguayan doctrine, the concept of consumer had been consistently broadened and comprehends some relationships between two businesses. In this framework, Consumer Law states the following protections to the consumers:

• All documents shall be expressed in Spanish (although other languages may also be used).
• The product offering must provide clear and easily readable information on its characteristics, nature, quantity and quality.
• The supplier must inform, in all bids, and prior to the formalization of the agreement, the price (and if offers credit or financing), the methods of updating the benefit, the applicable interest and any other additional interest for late payment, extra additional charges, if any, and the place of payment.

Moreover, there is an obligation to act and negotiate in “good faith”, and there are established “abusive clauses” that may be declared null in order to protect the consumer.

Insurance Contract Law.

The Insurance Contract Law expressly states that the Consumer Law applies in substitution of the first mentioned law. Moreover, under the Insurance Law, there are certain provisions that regulates these agreements, even with an interpretation clause in favor of the policy taker.

In this sense, pursuant article 8 both policyholder and insured have the right to receive a copy of the executed agreements; article 25 regulates the mandatory information that the policy shall contain; article 33 expressly states that the insurer shall act in good faith and is obliged to duly inform the policy taker about the product. Additionally, if some advertisement of the insurer has misleading information, such advertising shall be interpreted in a way that benefits the policy taker.

Insurance Regulator rules.

Insurance companies are also subject to rules imposed by the Insurance Regulator, regarding the information given to the clients, advertisements, etc. Consequences of non-compliance to the Consumer Law, the Insurance Law and the Insurance Regulator rules may trigger commercial liabilities before the customer and may also trigger an administrative sanction imposed by the regulator.

Yes, however, the vast majority of commercial complex cases are subject to arbitral procedures and not to ordinary courts.

Yes. Insurance rules obliges insurance and reinsurance companies to have an internal procedure to attend customers, which shall include ways to formulate the claim, forms, and response times (which shall not exceed those established by the RNSR). Institutions must follow this procedure in all cases in which a claim cannot be resolved immediately in favor of the client.

If the claim is not satisfied, the customer may also file the claim before the Consumer Defense Office of the Ministry of Economy or the Central Bank of Uruguay.

Further, alternative dispute resolution methods are developed in Uruguay. In this sense, it is standard practice to agree arbitral clauses in complex commercial contracts.

Moreover, there are some specific procedures to address consumer law controversies. Under Law N° 18.507, claims where the amount claimed is less than USD 2.500 (approx.), are subject to an abbreviate procedure.

No. Uruguayan legislation does not regulate the sales or transfer of books of insurance or reinsurance.

However, same can be performed, having to analyze the most efficient way to make said transfer considering, among other rules, those related to the “sale of commercial establishment or on-going concern”, the assignment of agreements, etc.

Further, another way to transfer the business is through the transfer of the shares of the insurance company, procedure ruled by the Insurance Regulator. In such regard, the transfer of shares requires prior approval of the Insurance Regulator. The transfer will be authorized or not based on reasons of legality, opportunity, and convenience. The filing of such authorization request shall accompanied with the documentation required by the regulator.

In Uruguay the primary challenges for new market entrants are to fulfill the regulatory requirements and obtain the authorization and license required (even more taking into consideration the component of discretion -opportunity and convenience-to grant the authorization of the Executive Power).

One of the main challenges for the insurance market in the face of digital innovation is the exposure of privacy and confidentiality arising from cybercrime and to deal with authentication and AML challenges

To address this challenge, insurance companies must manage risks linked to authentication procedures, information technology, relating to failures in the security and operational continuity of computer systems, failures in development and implementation of the said systems and with their compatibility and integration, and inadequate investment in technology, among other aspects. As a result of all this, insurers are also finding in the digital channel a means to streamline their tasks, become more efficient and ultimately more profitable.

The new digital developments will generate a before and after at the time of doing business, and this also affects the digitalization of insurance or insurance marketing through the use of remote systems. According to the insurance compilation, companies, in any marketing modality, with or without the use of remote systems, can issue electronic policies, complying with the requirements established in Law 18,600 (which recognizes de validity of digital signatures and digital documents).

In short, nowadays the application of innovation technologies, in this case to the insurance business, is called to generate an impact that will redefine both the operation and the strategies to do business in the future, and this is being promoted in our country.

The Personal Data Law (Law No. 18,331) and its regulations establish obligations to those responsible for the processing of personal data, which, in this case, are insurance or reinsurance companies. In Uruguay, the regulation establishes full respect for the fundamental and legal rights of the holders of personal data and imposes duties on those who carry out the processing to ensure the proper treatment of the personal data of customers, suppliers, employees and other persons involved. This regulation also typifies infringements and establishes penalties for companies in case of non-compliance with these obligations.

Likewise, the RNSR set rules regarding record keeping where availability, reliability, confidentiality, and integrity standards are required.

The Personal Data Law and its regulations regulate the international transfer of personal data; article 23 of Law No. 18.331 and except for certain exceptions, provides the prohibition of international data transfers with countries or international organizations that do not provide adequate levels of protection, according to the standards of International or Regional Law on the matter, except for exceptions.

Moreover, RNSR establishes that when insurance or reinsurance companies outsource services that are inherent to their business and same involve the data processing abroad, insurance and reinsurance companies must request for authorization to engage that third party, complying with certain rules. In such regard and among other requirements, insurance and reinsurance companies must pay particular attention to the legal and regulatory requirements existing in the host jurisdiction as well as to the potential political, economic, and social conditions or other events that may conspire against the provider’s ability to satisfactorily comply with the agreed obligations.

Likewise, the third party must have a mode of operation and equipment that allows online access to all the information from the terminals installed in the supervised company.

Regarding the safekeeping of the information abroad, a copy of same must be physically filed in Uruguay.

ESG criteria (environmental, social and good governance) are being taken into account by companies in new investment and consumption habits that seek companies and products empathetic to these criteria. Insurance companies and other financial institutions are no exception.

However, nowadays, there are still no specific regulations on this point for insurance companies.

We understand that globally emerging technologies or approaches such as blockchain, robotics, cognitive computing, self-driving cars shall be at the forefront on a permanent basis. Companies are being challenged constantly, having to analyze and implement them quickly (and the periods are getting shorter and shorter), only then will they be able to respond adequately and meet customer expectations.

The financial sector has recently been under threat from a number of new competitors that are entering through innovation and cultural changes; the same thing is happening in the insurance business. In most countries in the region we have seen interesting moves from insurance companies innovating in interactive portals for advisors, apps for their end clients, direct insurance sales, micro-insurance, etc.

More specifically in Uruguay certain modifications that are being discussed in relation to social securities legislation may also imply modifications in insurance business as well.