Lay of the land

Strict regulations coupled with calculated implementation of reforms has ensured the stability of the Colombian insurance sector.

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THE COLOMBIAN INSURANCE SECTOR has undergone a number of regulatory changes in recent years. While the market remains small in relation to the greater financial sector, insurance has seen impressive growth in comparison to the Colombian economy as a whole. A series of mergers and acquisitions that began in 2014 has ushered in a period of sustained growth. The market has seen an annual growth rate of 3.1% in recent years, with an impressive 11% yearly increase in 2019. Initial growth forecasts by the World Bank for the market in 2020 anticipated growth of between 3% and 3.6%. Growing penetration rates have reflected the increasing demand for insurance products and ushered in the need for improved regulations across the sector.

The insurance market in Colombia is overseen by the Financial Superintendent of Colombia (FSC), which was created in 2005 after the merge of several financial regulatory bodies. Though attached to the Ministry of Finance, the FSC has wide ranging authority and works independently in its capacity as a superior. The market is primarily regulated by the Organic Statute of the Financial System, in addition to a handful of other laws regulating access for foreign or non-domiciled insurers and protection for their clients, financial conglomerates, special lines, solvency requirements, and risk management procedures.

While Colombians are allowed to purchase insurance from non-domiciled insurers, certain types must be purchased by a regulated insurer in the country. These include insurance that is compulsory under national law; insurance that covers state entities; and insurance related to social security, such as life insurance, employers’ liability insurance, and annuities.

Foreign as well as domestic insurers and reinsurers wanting to incorporate are required to receive authorization from the FSC before beginning business. Obtaining FSC authorization consists of several requirements. The insurer or reinsure must be organized as a limited company or a cooperative association, and it must satisfy a minimum capital requirement, half of which is paid at the time of incorporation, with the remaining half being due within 12 months. Additionally, the company must maintain a level of assets, minimum reserves, and a solvency margin stipulated by law. Applications are followed by a period of public review. If there are no public objections and the company satisfies the FSC’s requirements authorization is granted.

Foreign companies wishing to operate in Colombia have several options of doing business in the country: they can open branch offices, register as foreign insurers or reinsures, open representative offices, or incorporate as insurance or reinsurance companies. Branch offices offer foreign insurers easier access to the Colombian market than through local incorporation, and also allow the company to operate without the strict requirements of incorporation. Branches are still regulated by the FSC and must abide to the regulations controlling incorporated companies. Branch offices however must face additional requirements before they can operate. These include paying the entire minimum capital amount at the time of establishment; holding a minimum amount of assets in the country; and the permanent local presence of a credentialed representative.

Foreign operators can offer several types of insurance and reinsurance that are unregulated by the FSC, as long as they undertake local registration. Among these types are marine and aviation trans

port insurance, and agriculture insurance. Foreign insurers can offer these insurance types after applying to the FSC for a place on the register of foreign insurers, with requirements for each type being slightly different. Foreign firms wishing to offer marine or aviation policies in Colombia must have a minimum rating of BBB- by Standard and Poor’s or equivalent, as well as solvency levels, minimum capital, and asset levels equivalent to the requirement for local incorporated insurers. Requirements for agricultural insurance are similar. In addition, the government, through the country’s rural development bank, Finagro, subsidies between 70% and 90% of individual premiums for agriculture insurance for smallholder farmers, and between 50% and 70% for those of larger farmers. The government is considering new regulations that promote parametric insurance for agriculture cover.

Foreign reinsurance businesses are also able to operate and transact in Colombia. Such firms can apply to the FSC for a spot on the Register of Foreign Reinsurers and Reinsurance Brokers after submitting an extensive amount of paper work, and then may be granted approval after demonstrating compliance with a number of requirements that are closely aligned with those for marine and aviation transport insurers. Once included on the register, foreign reinsures can open representative offices in the country. These offices are regulated by the FSC. Additionally, regulations passed in late 2019 allow for to operate via subscription agencies, which take responsibility of placing reinsurance in place of foreign reinsurers. Subscription agencies need to be listed in the Register of Foreign Reinsurers and Reinsurance Brokers and stipulate their business lines offered through an agent.