Foreign Reinsurers in Guatemala and the Consequences of Their Merger/Acquisition

The reinsurance sector has not been immune to the globalization of markets. This market provides coverage to insurance companies, which in turn meet the needs of today’s world by offering tools that enable greater underwriting capacity. Due to the regulatory nature of insurance activities, this phenomenon has led States to adapt regulatory frameworks to allow local insurers to access the international insurance and reinsurance market. One such tool is the ability to contract reinsurance coverage with foreign reinsurers.

Guatemala is no exception, as its regulations grant freedom to local insurers or reinsurers to enter into reinsurance agreements with foreign insurance or reinsurance entities. In this regard, the same regulatory framework (in this case, the Insurance Activity Law and the Regulation for the Registration of Foreign Reinsurers or Insurers, Reinsurance Contracts, and the Determination of Retention Limits or Maximums) establishes as a requirement that insurance or reinsurance entities authorized to operate under the laws of their home state must be registered with the Superintendency of Banks in order to contract reinsurance coverage with local insurers or reinsurers.

This registration must be renewed periodically and involves a series of requirements and obligations in order to be maintained. Therefore, any change in the legal status of a foreign reinsurer registered in Guatemala, as well as any change in its international credit rating, must be reported to the Superintendency of Banks, in its capacity as the local regulator. This allows the authority to confirm the continuity of the registration, thereby enabling local insurers to continue contracting reinsurance with the said reinsurers.

Since a merger or merger by absorption between one or more reinsurance entities necessarily implies a change in the legal status of one or more of them (e.g., due to the extinction of legal personality or the formation of a new entity), and may also involve a change in international risk rating, such an event must be reported to the Superintendency of Banks if any of the entities involved in the merger are registered and have active reinsurance coverage in Guatemala.

This notification must include confirmation of which entity will be the surviving entity in the case of absorption of the others, or, where applicable, information about the new entity formed as a result of the merger, along with its international credit rating. The result will be the registration of the new or surviving entity with the Superintendency of Banks (if it does not already have a current registration), and the cancellation of the registrations of the entities that cease to exist.

Furthermore, since the acquisition of a reinsurance group or entity often entails the future merger of the acquired entities with existing entities within the acquiring group, the merger of such entities must be reported at the time the merger is formalized, in case the absorbed entity is registered as a foreign reinsurer with the Superintendency of Banks. This situation allows, in a more practical manner, for the advance registration of the surviving entity (if it does not already have one) with the Superintendency of Banks.

It is of utmost importance that the reinsurer surviving the merger, or the entity formed as a result of the merger, whichever the case may be, holds the corresponding registration with the Superintendency of Banks, since failure to do so would prevent local insurers from contracting reinsurance coverage with such entities.

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