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Insurance Alert – February 2023

ALERT - INSURANCE

The Regulation of Credit Insurance, Surety and Bonds Issued by the Insurance Company is approved

Through Resolution Nº 0332-2023, the SBS adopted the Regulation of Credit Insurance, Surety and Bonds Issued by Insurance Companies (the “Regulation”), which seeks to further develop the regulation and supervision of such insurance.

The Regulation establishes new strategies, policies and procedures for the underwriting and monitoring of surety and surety bond policies that insurers must implement, as well as other technical guidelines aimed at improving the management of these products.

In this regard, among others, the standard establishes the following:

  • A distinction is made in the case of surety bonds between bonds that guarantee credit obligations (GOC bonds) from those that guarantee other types of obligations (GOO bonds).

  • A specific distinction is made between domestic credit insurance and export credit insurance:
  • Domestic Credit Insurance: insurance whose purpose is to guarantee to a natural person, legal entity or juridical person the payment of the credits it has in its favor for commercial transactions, when the insolvency of its clients occurs.
  • Export Credit Insurance: insurance whose purpose is to guarantee an exporter, whether a natural person, legal entity or juridical person, the payment of credits in its favor for commercial transactions, due to commercial and/or political risks that may lead to the insolvency of its clients.
  • The constitution of the “Surety and Bond Underwriting Committee” is established for all companies whose surety insurance premiums and bond commissions at the close of the previous fiscal year represent 15% or more of the total of all their general insurance premiums and bond commissions, must constitute a Surety and Bond Underwriting Committee. Among its functions is to approve at least those coverages that exceed 20% of its effective equity and to evaluate semi-annually the payment capacity of its surety bonds and surety policies under scenarios that include the execution of the largest exposures of its portfolio of policies and surety bonds.
  • The minimum content of the surety certificate of a surety policy and of the GOO bond is indicated.
  • It is mentioned that insurance companies must implement a manual (Credit Risk Manual) containing the general policies for the evaluation of the applicant of the GOC bond, together with the policies for the constitution of provisions and the methodology for the calculation of the equity requirement by credit risk and by economic cycle, in accordance with the regulations in force.
  • It is determined that insurance companies may issue surety policies and electronic surety bonds following the provisions issued by the SBS on the matter.

The Surety Policy Regulation, approved by SBS Resolution No. 3028-2010, shall be repealed as of June 1, 2023.