Puerto Rico Office of the Commissioner of Insurance
Puerto Rico is the latest domicile to enter the ILS and catastrophe bond market. Angela Weyne, commissioner of insurance, reveals why
What was it that instigated Puerto Rico’s decision to enter the ILS and cat bond markets?
We are always looking at anything we can do to update our legislation and make sure we are at the forefront of anything that is happening in the markets worldwide. This is why we decided to submit a piece of legislation to amend Chapter 61 of the Insurance Code of Puerto Rico, which encompasses the legislation applicable to international insurers and reinsurers operating on the island.
Fundamentally, these entities are isolated from most of the provisions applicable to insurers doing business in the domestic market, as they are subject to special monitoring on solvency, liquidity and soundness of their plan of operations.
Originally approved in 2004, Chapter 61 has since been updated to secure tax treatment on insurers and recently to fine tune the captive and ILS environment.
We are very flexible in that way, in looking at anything that makes sense when it comes to developing our international insurance centre (IIC).
We are looking at the worldwide trends when it comes to catastrophe and insurance-linked securities (ILS) types of reinsurance vehicles.
These new products are not an addition to or replacement for our captive industry. The new markets are to run parallel to the captive industry, as another string to the IIC’s bow.
Is the process of adding a new class to the country’s insurance legislation a complicated one?
Thankfully, we have a legislature that is aware and open to the education we give them about the benefits of new and cutting-edge legislation. We always have to look at the new things that are happening and be ready to move accordingly.
We need to be flexible and provide education to those who need it—this includes the regulators.
Not everybody understands insurance so it is our job to make sure that they understand why all these new factors and possibilities are important.
Is the introduction of these new vehicles something of a representation of how keen Puerto Rico’s insurance industry is to progress?
Both the industry and the government here are very much aware of the advantages that developing our IIC has for Puerto Rico itself. We have a great deal of backing from both of these parties.
As your readers may know, Puerto Rico excels as one of the top leaders in the Latin America insurance market with a very well-developed local insurance industry. The way to promote the growth of this industry is by going international and embracing new international trends. We have a very strong legislation for many different kinds of operations.
We have been focusing on trying to grow the captive area, as this is probably the area that can grow the fastest and create a critical mass with the incentives we have. We also want to look at every new kind of product and make sure that our legislation is open to accommodate any potentially beneficial operation that wants to establish itself under the IIC.
Will these amendments to the legislation be the last for the foreseeable future, or are there more on the horizon?
Regardless of what happens with interest rates and the worldwide economy, we are always going to see capital looking for better ways to get a return on their investment.
I think everything continues to evolve and the important thing is to be a part of that evolution when it happens. What happens with different economies in different parts of the world is going to dictate whether we see evolution in the ILS market or not. Right now, cat bond rates are declining and that could be temporary or it could be permanent.
I see a very strong and important market for cat bonds in Latin America. I still do not think that this area has taken advantage of these new vehicles yet, in the same way that domiciles have from Europe and the Far East. People like Australia and New Zealand have taken advantage of cat coverage in a big way, and we need to do the same.
Has there been a great deal of interest since the introduction of the legislation? Or is it too soon to tell?
It is certainly too soon to tell. For sure we know that there are a number of opportunities of combining or using this new class of insurer with other jurisdictions in the US and Latin America. As a result of that, we see a number of possibilities in that direction.
We do know of some prospects that are already interested, though we cannot elaborate more until they are completed. However, I can confirm that we have received information about some of them already, so watch this space.
