As we present this 2024 edition of the Puerto Rico Financial Services Review, we reflect on another year of significant progress and milestones in Puerto Rico’s financial services sector. Despite the global economic challenges, Puerto Rico has continued to solidify its position as a leading jurisdiction for international insurers and banks, bolstered by our resilient regulatory framework and the support of our financial community.
This year, we celebrate the 3rd edition of the Puerto Rico Financial Services Forum, scheduled for October 21 and 22, 2024. The Forum remains a cornerstone in our mission to foster a cohesive and vibrant community, bringing together professionals from the international insurance and banking sectors. It is an opportunity to share knowledge, address challenges, and strategize for the future of our industry.
A key development in 2024 is the passing of Law 49, which further strengthens our international insurance regulatory landscape, enhancing compliance requirements and providing new opportunities for growth within the industry. This legislation underscores Puerto Rico’s commitment to maintaining a robust and transparent financial system, ensuring that our jurisdiction remains competitive and attractive to international businesses.
Another noteworthy achievement is Puerto Rico’s removal from the U.S. Treasury’s list of high-risk money-laundering jurisdictions. This marks a significant milestone, reflecting the diligent efforts of our regulatory bodies, particularly the Puerto Rico Financial Institutions Commissioner’s Office (OCIF), in enhancing our anti-money laundering (AML) and know-your-customer (KYC) protocols. This accomplishment not only bolsters our reputation but also opens new avenues for international partnerships and investments.
As you explore the articles within this review, you will find that our contributors have once again highlighted the resilience and adaptability of Puerto Rico’s financial services industry. From fintech innovations to advances in insurtech, Puerto Rico continues to position itself as a hub for financial technology and innovation.
Looking ahead, it is imperative that we continue to adhere to the highest standards of governance, compliance, and transparency. The collaboration between PRIIA, PRIBA, and our regulatory partners will be crucial in ensuring that Puerto Rico not only meets but exceeds the expectations of the global financial community.
We remain optimistic about Puerto Rico’s future as a premier jurisdiction for international insurers and banks. With continued focus on compliance, innovation, and community building, Puerto Rico is well-positioned to lead in the financial services arena for years to come.
Sincerely
Ruben A. Gely-Ortiz is the President of International Insurers Consulting Group (IICG), and Vice President for the Puerto Rico International Insurers Association (PRIIA). He specializes in off-shore protected cell business and international reinsurance arrangements.
RUBÉN A. GELY | EDITOR-IN-CHIEF
JORGE I. RODRÍGUEZ | ART DIRECTOR
MARIMAR PÉREZ-RIERA | Executive Director
Puerto Rico International Insurers Association
Puerto Rico International Banks Association
HUGO CÓRDOVA | President of PRIIA
Head of Business Development
Advantage Insurance Services, LLC
RUBÉN A. GELY | Vice President of PRIIA President International Insurer Consulting Group, Inc.
MARC JACOBS | Chairman & CEO
Madison Insurance Group Board Member of PRIIA Board of Directors
RAFAEL CESTERO | Capital Member Cestero-Lopategui & Associates Board Member of PRIIA Board of Directors
ERICK NEGRÓN | Special Counsel Rexach & Pico Board Member of PRIIA Board of Directors
ANTONIO RAMÍREZ | Capital Member McConnell Valdés, LLC. Board Member of PRIIA Board of Directors
PEDRO VIDAL | Capital Member Vidal, Nieves & Bauza, LLC. Board Member of PRIIA and PRIBA Board of Directors
EDUARDO COLÓN | President of PRIBA President Advantage International Bank Corp.
GREGORIO D’ANDREA | Executive Vice President BNC International Banking Corp. Board Member of PRIBA Board of Directors
ROGELIO CARDOZO | CEO ItalBank International, Inc. Board Member of PRIBA Board of Directors
ROGER DUERIG | Director and CEO Tolomeo Bank International, Corp. Board Member of PRIBA Board of Directors
ALEXANDER J. SILVER | Managing Director Stern International Bank LLC Board Member of PRIBA Board of Directors
ENGELBERT RODRÍGUEZ | President and CEO Bancaribe International Bank, Inc. Board Member of PRIBA Board of Directors
The Puerto Rico Financial Services Review is published annually onbehalf of the Puerto Rico International Insurers Association (PRIIA) and the Puerto Rico International Banks Association (PRIBA). The views andopinions expressed by our contributors in the articles reflect the author(s) opinions and do not necessarily reflect those of the publisher or editor. PRIIA and PRIBA cannot guarantee the accuracy, completeness, or reliability of the information provided in this publication, and are not responsible for any inaccuracies, omissions, or misrepresentations. Additionally, PRIIA and PRIBA cannot accept liability for any loss or damage caused by the publication or the advertising content. All material in this publication is strictly copyrighted, and no part may be reproduced or used without written consent from the publisher. For more information on obtaining permission to use the material, please contact the publisher.
AMFIRST LIFE INSURANCE COMPANY: FINANCIAL STRENGTH AND STRATEGIC VISION
By: David R. White | September 2024
As AmFirst Life Insurance Company, I.I. continues to grow, we are proud to present an overview of our financial strength, innovative segregated asset plan structure, strategic vision for expansion in Latin America, and the unique strategic value Puerto Rico offers both our company and our clients. This article aims to highlight the foundation and forward-looking strategies that define AmFirst.
Financial Strength
AmFirst Life Insurance Company has consistently demonstrated financial resilience and stability. Our commitment to maintaining strong capital reserves and prudent risk management practices has been recognized by industry leaders, including AM Best, which affirmed our robust financial ratings. This acknowledgment reflects
our ability to meet policyholder obligations and sustain long-term growth.
Our segregated asset plan structure is a cornerstone of our financial strategy. This structure ensures that assets are distinctly separated and allocated for specific purposes, providing additional layers of security for our policyholders. By segregating assets, we can better manage risk and ensure that each policyholder’s assets are protected, reinforcing the trust our clients place in us.
Vision for Expansion in Latin America
Latin America represents a key focus area for AmFirst’s expansion efforts. The region’s growing demand for innovative and affordable healthcare solutions aligns perfectly with our mission. We are committed to extending our
reach and providing Latin American clients with the same superior personal service and cutting-edge technology that our current clients value.
Our expansion strategy in Latin America is driven by a deep understanding of the local markets, regulatory environments, and cultural nuances. We aim to establish strong partnerships with local brokers and business partners to create customized insurance solutions that cater to the unique needs of Latin American communities. This approach not only facilitates market entry but also ensures sustainable growth and a lasting impact.
Strategic Value of Puerto Rico
Puerto Rico holds strategic value for AmFirst Life Insurance Company in multiple ways. As a U.S. jurisdiction with a favorable regulatory environ-
David R. White is the Chairman of Amfirst Life Insurance Company, I.I., combining superior personal service and cutting-edge technology with the confidence of being underwritten by a U.S. domiciled company.
ment, Puerto Rico offers a unique gateway to both North and Latin American markets. The island’s robust financial services infrastructure, skilled workforce, and strategic location make it an ideal base for our operations and expansion plans.
For our clients, Puerto Rico’s regulatory framework provides confidence in the security and stability of their insurance products. The island’s commitment to fostering a business-friendly
environment aligns with our goals of innovation and growth. By leveraging Puerto Rico’s advantages, we can enhance our service offerings and deliver greater value to our policyholders.
Corporate Vision and Commitment
At AmFirst Life Insurance Company, our corporate vision is clear: to provide innovative insurance products
and creative ideas backed by superior personal service and cutting-edge technology. We are dedicated to honesty, optimism, and integrity in all our dealings with clients, brokers, staff, and business partners. This long-term commitment to our mission drives us to continuously improve and adapt to meet the evolving needs of our clients.
OUR COMMITMENT TO MAINTAINING STRONG CAPITAL RESERVES AND PRUDENT RISK MANAGEMENT PRACTICES HAS BEEN RECOGNIZED BY INDUSTRY LEADERS.
AmFirst Life Insurance Company I.I. stands at the forefront of the insurance industry, combining financial strength, innovative asset management, and a strategic vision for expansion. Our commitment to growth and excellence underscores our dedication to building on our successes and exploring new opportunities in Latin America, all while leveraging the unique advantages that Puerto Rico offers. Together, we can achieve a future of financial security and enhanced healthcare solutions for all our clients.
For more information about this article feel free to contact the author at https://amfirstlife.com/contact AmFirst Life Insurance Company, I.I. is located at Escorial Building One 1400 Avenida De Diego, Suite 230-A Carolina, Puerto Rico 00987
A HOLISTIC APPROACH: WHAT TO CONSIDER WHEN UNDERSTANDING YOUR TEAM’S PRODUCTIVITY LEVEL
By: Yeissa M. Rodríguez | September 2024
Being managers, we’re often tasked with assessing our team’s productivity. The conventional approach involves crunching numbers: tallying up working hours, subtracting vacation days, and accounting for sick leave. It seems straightforward—math doesn’t lie, right? But let’s pause for a moment.
Imagine reading that same article on a Monday morning and then revisiting it on a Friday afternoon. Do you have the same stamina? Is your focus
equally sharp? The answer is likely a resounding no. Why? Because as humans, our energy levels ebb and flow. Our mindset shifts. And this variability impacts our productivity.
Consider the recent pandemic era. It revealed an intriguing phenomenon: many employees thrived while working from home. The daily commute vanished, and the need for formal attire faded, as two set examples. Yet, a new the challenge emerged: how do supervisors account for productivity
when more hours are logged in front of a computer screen?
Let’s dive deeper. Productivity isn’t a mere sum of hours; it’s a multifaceted concept. Here are some factors that defy easy calculation but significantly influence an employee’s output:
Job requirements: it’s crucial to create job requirements that foster a positive and transparent relationship with new employees. These guidelines ensure alignment, fairness, and a healthy
Yeissa Rodríguez is the President of Innova Compliance Solutions and the Director of the Puerto Rico International Banks Association (PRIBA), helping financial institutions comply with its regulatory expectations.
work environment:
- Employers:
• The job expectations should align with employee compensation.
• The job qualifications should not be higher than the job requirements.
• Be as thorough as possible of what is required, either at the job posting, interview process, and/or employee contract. Surprises are not well received by new employees.
A MERE SUM OF HOURS; IT’S A MULTIFACETED
• Communicate the company’s commitment to employee growth culture and validate if it aligns with candidate (e.g. candidate may be looking for a supervisory position, and even though the employee will have to supervise other employees, it is not a senior level position).
- Employees:
• Use the negotiation phase to discuss expectations, compensation, and benefits.
• As a new employee, embrace the process. Even if you have performed the position with prior employers, the environment, the team members, the systems, the policies and procdures, may be new.
• Familiarize yourself with the company’s approach to professional growth.
Transparency between employers and employees is essential for a successful working relationship. By adhering to these principles, both parties can create a supportive and thriving work environment.
Support environment: actions speak louder than words. Organizations must actively support their employees, by understanding the mental, physical, and job-related challenges faced by the employees, and by prioritizing the employee’s well-being by offering a work-life balance.
This simple yet powerful gesture can significantly impact happiness and productivity. As a single mother, at one time, an executive, and now as a business owner, I’ve experienced firsthand how crucial work-life balance is. Imagine not having to decide between attending your daughter’s graduation and a work meeting, this is the definition of five-star satisfaction.
Avoiding detrimental scenarios such as struggling to decide between health and work, because the example set by the supervisor is to attend work even if feeling unwell. Providing employees with all necessary resources, tools, and continuous training is essential to achieve productivity. Assigning new tasks to employees without proper training is
a recipe for failure, as well as asking an employee to complete a task without the necessary tools.
Physical health: regardless of the job type—whether it involves sitting at a desk or being on your feet—the employee’s stamina plays a crucial role in measuring productivity. Stamina encompasses both physical and men-
tal endurance. When mental health is compromised, physical health often follows suit, with signals such as: headaches, back pain, mobility struggles, or even worse, panic or anxiety attacks.
Supervisors must be aware that your organization provides accommodation to employees that require tools, measures, or a workspace environ-
ment fit to that employee. Supervisors are not mind-readers and assumptions can lead to misunderstandings. Employees need to voice their needs. Supervisors, please listen attentively. Sometimes, the simple act of listening can make a significant difference. Communication is key to foster trust that can benefit both employees and organizations.
Mental health: there is a fine line of supervisor-employee relationship, but if the supervisor does not understand or have at least a sense of the employee’s personal struggles, it will be near to impossible to measure their productivity level. Fostering an open-door policy with your team members will encourage trust and honesty.
Creating a healthy work environment can increase the employee’s focus and concentration, achieved not only at the office, but when working remotely. An employee may continuously demonstrate timeliness and effectiveness in their tasks, but having a micro-management environment can generate mistrust and could question competence.
Understanding your team member’s individual strengths and weaknesses can help you in the segregation of tasks, time management, and to individually address their professional development. Not everyone works at the same pace, but as a team, it can be the formula to achieve the com-
pany’s goals. Limitations in mental health can hinder an employee’s problem-solving abilities and their capacity to contribute innovative ideas to the team. Consequently, this may impede professional development and slow overall progress. Jumping into a conclusion that an employee is not executing properly because you do not see any contribution to the team, is a mistake.
Gather all the facts, understand all the facts, and evaluate all the facts. Trust is the foundation to achieve this. Promote trust and you will have the answers you need to measure your team’s mental health capacity.
Employers and/or supervisors can only use a mathematical approach to calculate these four factors, but embracing the holistic approach can elevate the analysis process of the organization and the team. There are factors that cannot be measured by numbers, but documenting the holistic approach can support your productivity percentage to identify any gaps,
needs, duplicity in your processes, or solutions to the team’s efficiency. In this rapidly changing world, it’s crucial for employers and employees alike to recognize that productivity isn’t solely about output—it’s about sustainable well-being.
As we navigate the complexities of work, let’s remember that we are still humans, with intricate mental and physical needs. Prioritizing mental health, fostering supportive environments, and acknowledging the interplay between mind and body are essential steps toward achieving true productivity.
This focus should extend to the organization’s existing employees, with a specific emphasis on employee retention, rather than relying on the uncertainty associated with hiring new employees. After all, a thriving workforce is one that thrives holistically.
For more information about this article feel free to contact the author at yrodriguez@innovacompliance.net
LEVERAGING TECHNOLOGY FOR EFFECTIVE RISK MANAGEMENT IN HIGH-RISK CLIENT BANKS
By: Laura Cohen | September 2024
Cohen is a AML & Fraud Solutions Specialist at The Alacer Group and a Director at Velocity FinCrime Solutions, providing innovative and effective solutions for financial institutions to combat money laundering and fraud.
Imagine a high-risk client bank grappling with the challenge of identifying potential financial crime amidst a sea of transactions. In a world where regulatory scrutiny is at an all-time high, the stakes couldn’t be greater. Every transaction could hide a potential risk, and every client poses a unique set of challenges. In such a scenario, the adoption of a riskbased approach becomes not just a necessity but a strategic imperative.
This article delves into how technology, coupled with a risk-based approach, empowers high-risk client banks to navigate the complexities of financial crime prevention effectively.
The Role of Technology in Risk-Based Approach
A risk-based approach involves assessing the level of risk associated with
each customer and transaction and allocating resources accordingly. One of the key technical aspects of this approach lies in the development of sophisticated risk assessment models. These models utilize advanced data analytics and artificial intelligence (AI) algorithms to analyze vast amounts of customer data and identify nuanced risk factors.
By leveraging predictive analytics, these models can assign risk scores to customers accurately, taking into account various parameters such as transaction history, geographic location, industry sector, and adverse media mentions.
Moreover, technology enables dynamic risk profiling, allowing banks to adjust risk ratings based on changing circumstances and emerging threats. Continuous monitoring of customer activities, powered by au-
tomated monitoring systems, further enhances risk management capabilities. Real-time alerts generated by these systems enable banks to intervene promptly in case of suspicious or anomalous behavior, thereby mitigating potential risks before they escalate.
Technical Insight: Risk-Based Approach Solutions
In the realm of risk-based approach solutions, cutting-edge technology offers innovative features such as:
1. Dynamic Risk Scoring Algorithms: Utilizing machine learning techniques to adaptively adjust risk scores based on evolving customer behavior and external factors.
2. Behavioral Analysis: Analyzing patterns in customer transactions and interactions to identify de-
Laura
TECHNOLOGY
ENABLES DYNAMIC RISK PROFILING, ALLOWING BANKS TO ADJUST RISK RATINGS BASED ON CHANGING CIRCUMSTANCES AND EMERGING THREATS.
viations from established norms and flag potential risks.
3. Network Analysis:
Examining the connections between customers and entities to uncover hidden relationships and detect potential money laundering or fraud schemes.
4. Scenario Modeling:
Simulating various risk scenarios to assess the potential impact on the institution and develop proactive risk mitigation strategies.
In today’s dynamic and complex financial landscape, high-risk client banks face unprecedented challenges in mitigating financial crime risks. However, by embracing technology and adopting a risk-based approach, these institutions can enhance their ability to detect, prevent, and respond to illicit activities effectively.
Just as in our scenario, where every transaction holds the potential for risk, technology-driven risk management solutions empower banks to stay
ahead of emerging threats and safeguard the integrity of the financial system. By leveraging technology to its fullest potential, high-risk client banks can navigate regulatory complexities with confidence and uphold trust and confidence in the financial ecosystem.
For more information about this article feel free to contact the author at laura.cohen@alacergroup.com
The Alacer Group is located at 12320 NE 8th Street Suite 200, Bellevue WA 98005, USA
The Puerto Rico International Insurance Insurers and Reinsurers Act, Act No. 399 of September 22, 2004, incorporated into the Puerto Rico Insurance Code as Chapter 61 (the “IIC Act”), has proven itself to be a key tool in promoting economic development in the insurance industry and in Puerto Rico. It is safe to affirm that the express purpose of the IIC Act to “establish the legal basis to develop Puerto Rico as an International Insurance Center, through which insurers and reinsurers export and import insurance and related services to the insurance industry” (Article 61.010 of the Puerto Rico Insurance Code) has been substantially fulfilled.
Since its inception, the promotion of the International Insurance Center and the IIC Act have been important pillars in the economic platforms of all governments, and essential parts of Puerto Rico’s public policy on insurance and economic development. Until recently, administrations of both principal political parties engaged in important efforts, both within and outside of Puerto Rico, directed at promoting the International Insurance Center and the IIC Act. Additionally, existing international insurers, as well as entities who provide services to such insurers, have also played an essential role in promoting the International Insurance Center, and Puerto Rico as a welcoming jurisdiction in which to establish insurance facilities.
As a result, no fewer than thirty-two (32) International Insurers and International Reinsurers have been authorized under the IIC Act, all of whom chose Puerto Rico as their domicile over other important insurance centers, such as Bermuda, Barbados, Cayman, London, and the United States.
However, a change in strategic direction took place during the year 2022. Presumably as a result of the loss of the accreditation of the Office of the Commissioner of Insurance (“OCI”) by the National Association of Insurance Commissioners (“NAIC”), the OCI took some measures that were directed at substantially impacting the ability of International Insurers to underwrite insurance on US risks, or assume re-
ACT 49-2024 – RIGHTING THE COURSE
By: Antonio J. Ramírez-Aponte, Esq., CPCU, ARe, ARM | September 2024
insurance from US domiciled ceding insurers, including conditioning the issuance of Certificates of Authority for new International Insurers on a commitment not to engage in business in the US, and the issuance of at least one Cease and Desist order on an existing International Reinsurer, requiring said reinsurer to stop assuming reinsurance from US domiciled ceding insurers.
The OCI’s strategy to curtail the activities of International Insurers in the US reached its apex with the issuance of Circular Letter No. CC-2022-2007-ARI on December 7, 2022. In its pertinent part, the Circular Letter stated:
It is reiterated that any insurer that is organized under the laws of Puerto Rico and is seeking to transact insurance business in another state
or territory of the United States that is accredited by the NAIC shall comply with the processes and requirements of Chapters 3, 28 and 29 of the Insurance Code of Puerto Rico, as a traditional domestic insurer.
In issuing CC-2022-2007, which essentially would require any Puerto Rico insurer seeking to transact insurance in the US to be authorized as a “traditional domestic insurer”, the OCI acted in a manner contrary to the IIC Act, and its public policy underpinnings, ultimately curtailing the development of the International Insurance Center.
Anybody who is familiar with how international insurance and reinsurance markets work, knows that the US is the largest reinsurance market in the world. Closing such market to Puerto Rico International Insurers would have
Antonio Ramírez is a Capital Member at McConnell Valdés LLC and a Board Member at the Puerto Rico International Insurers Association (PRIIA).
put an end to any growth in the International Insurance Center, for the simple reason that no new insurer would be willing to establish operations in a jurisdiction that would restrict them from accessing the US insurance and reinsurance market. Additionally, existing International Insurers would surely look to redomesticate to other jurisdictions where no such restriction exists.
Enactment of Act 49-2024
Concerned about the impact that such actions by the OCI could have on the insurance sector, economic development, and on Puerto Rico’s reputation as a law-abiding jurisdiction, on October 6, 2023, Senator Juan Zaragoza, Chair of the Senate Committee on Finance, Federal Affairs and Fiscal Oversight Board, filed Senate Bill No. 1352,
which was subsequently approved by the House and Senate and signed into law by Governor Pedro Pierluisi as Act 49-2024 (“Act 49”).
The Statement of Motives of Act 49 references findings from an investigation by the Senate Committee chaired by Senator Zaragoza, pursuant to Senate Resolution No. 612 (“RS 612”), regarding the loss of and subsequent reaccreditation of the OCI by the NAIC, and the actions taken by the OCI in regards thereto. In pertinent part, the Statement of Motives states:
The investigation conducted by [the Senate Committee on Finance, Federal Affairs and Fiscal Oversight Board] concluded that, in his quest to achieve reaccreditation of the OCI by the NAIC, the OCI took actions contrary to the IIC Act, Rule 80 of the Rules of
the Insurance Code, and the public policy established for more than 18 years regarding the development of the International Insurance Center, by attempting to prohibit, through regulation, International Insurers from writing insurance in the United States. This, in addition to constituting illegal conduct on the part of the Commissioner, dangerously infringes on the principle of separation of powers, since it is the Legislative Assembly and the Governor who are responsible for determining whether a statute should be amended to change previously established public policy.
The Commissioner’s conduct was motivated by concerns about the impact that International Insurers could have on the NAIC’s evaluation of the OCI.
This Legislative Assembly is aware of the benefit that the NAIC accreditation represents for our insurance industry but is also aware of the importance of the international insurer and reinsurance sector, and of the serious reputational risk for Puerto Rico that, after extending the invitation for them to establish operations in Puerto Rico, we tried to close our doors to them.
The NAIC conducts its accreditation processes through the protocol established in its manual entitled Financial Regulation Standards and Accreditation Program (the “Accreditation Manual”).
The NAIC Accreditation Manual expressly provides that the evaluation of multi-state insurers for purposes of the Part A Standards excludes any domestic insurer from a state organized or authorized under special statutes for captive insurers, special purpose vehicles or similar statutory structures (“This section does not apply to a state’s domestic insurers licensed and/or organized under its captive or special purpose vehicle statutes or any other similar statutory construct.”)
The IIC Act is, precisely, a special law that created the category of International Insurers and Reinsurers distinct and separate from domestic insurers organized under Chapters 28 and 29 and authorized under Chapter 3 of
the Insurance Code, and whose regulations are different from the regulations contemplated for multi-state insurers under the standards of the NAIC. In accordance with the NAIC’s own rules, international insurers organized and authorized under the IIC Act must not be considered by the NAIC in any OCS accreditation process, nor should they present an obstacle for the OCS to maintain said accreditation.
In view of the foregoing, this bill is aimed at reaffirming that, beyond any doubt, the IIC Act is a special law separate and distinct from the law applicable to traditional domestic insurers and to make it clear that international insurers authorized under the IIC Act may do business in the United States and other jurisdictions, provided they comply with the IIC Act and the applicable laws of such jurisdictions.
(Our translation.)
In fulfilling the purpose set forth in its Statement of Motives, Act 49 amends the IIC Act to achieve three things:
1. Clarifies that the IIC Act is a special law or statutory construct, separate from the regulations in the Puerto Rico Insurance Code that apply to domestic insurers.
This is accomplished by amending Article 61.010 of the Puerto Rico Insurance Code to read as follows:
Article
61.010. - Purpose
This chapter will be known as the “Puerto Rico International Insurance Insurers and Reinsurers Act” and its purpose is to establish the legal basis to develop Puerto Rico as an International Insurance Center, through which insurers and reinsurers export and import insurance and services related to the insurance industry. These entities will provide insurance and consulting services in the United States market and in other international markets , and as captive entities, while entities dedicated to the reinsurance or surplus lines business will provide insurance and services inside and outside of Puerto Rico.
This chapter is established by a special law that creates the category of international insurers and reinsurers distinct and separate from domestic or country insurers organized under Chapters 28 and 29 and authorized under Chapter 3 of this Code, and subject to regulations that in turn, are different from the contemplated for multistate insurers under the standards of the National Association of Insurance Commissioners (NAIC). Except in the case of the branches referred to in Article 6.180 of this Code, international insurers and reinsurers organized or authorized under this chapter will have their domicile in the Commonwealth of Puerto Rico but will not be considered insurers incorporated in Puerto Rico for purposes of the corresponding definition in article 3.010 of this Code, and the provisions of this Code that extend to the insurers thus defined in said article 3.010 will not be applicable.
THE IIC ACT HAS ESTABLISHED PUERTO RICO AS A PREFERRED DOMICILE FOR INTERNATIONAL INSURERS AND REINSURERS, WITH OVER THIRTY-TWO COMPANIES CHOOSING IT OVER OTHER GLOBAL INSURANCE CENTERS.
(Our translation.)
As a special statutory construct, the IIC Act is separate and distinct from the regulations in the Puerto Rico Insurance Code that apply to Puerto Rico domestic insurers, and, in accordance with the Part A Standards of the NAIC Accreditation Manual, should have no impact on the NAIC accreditation of the OCI. The amended Article 61.010 makes this abundantly clear.
2. Clarifies that no provision in the IIC Act shall be construed as prohibiting an International Insurer from conducting insurance business in any state or territory of the United States.
Act 49 added a new Article 61.035 to the Puerto Rico Insurance Code that reads as follows:
Article 61.035. – Different Statutory Treatment; Reciprocity.
By being subject to statutory treatment different from that applicable to domestic or country insurers authorized under Chapter 3 of this Code, an international insurer or reinsurer may not request reciprocal treatment in a state or territory of the United States for insurance licensing purposes or credit for reinsurance, based on the provisions of the law and regulations of Puerto Rico applicable to the international insurer or reinsurer being considered substantially similar to those of such state or territory.
No provision in this Chapter shall be construed to prevent an international insurer or reinsurer from writing direct insurance on, or reinsuring, risks located, residents or to be performed in any state or territory of the United States, or in any other foreign jurisdiction, provided that the international insurer or reinsurer complies with the regulations of such state, territory or jurisdiction or with any federal regulations applicable to such direct insurance or reinsurance underwriting activity, including for these purposes, without being understood as a limitation, any regulations applicable to the insurance or reinsurance by insurers or reinsurers not authorized (non-admitted basis) in such state, territory or jurisdiction.
(Our translation.)
This is likely the most important provision in Act 49. Notwithstanding the fact that all OCI and government administrations since the enactment of the IIC Act in 2004 understood that the Act allowed International Insurers to conduct insurance business in the US, and in fact promoted the Internation-
al Insurance Center as a point of entry into the US insurance market, the OCI assumed a diametrically different position in 2022 and 2023. Article 61.035 serves to impede this incorrect interpretation of the Act, and again points the International Insurance Center in the right direction.
3. Imposes on the OCI the obligation to maintain, protect and prioritize the development and growth of the International Insurance Center.
Act 49 added the following new subsection (7) to Article 61.260 of the Puerto Rico Insurance Code:
Article 61.260.- Powers and Responsibilities of the Commissioner.
(1)
(7) It shall be the obligation of the Commissioner to maintain, protect and assign priority to the development and growth of the International Insurance Center. Likewise, it will be
the obligation of the Commissioner to submit an annual report to the Legislative Assembly, on or before June 30 of each year, on the efforts made by the Office of the Insurance Commissioner to comply with this obligation. This report must include: (a) a list of the projects conceptualized and/or executed during the year for the development of the International Insurance Center and the status of each one; (b) a list of possible legislative or regulatory initiatives that may impact the International Insurance Center; (c) statistical information on applications for authorization of new international insurers and reinsurers; (d) legislative, regulatory or public policy issues that may impact the International Insurance Center; (e) any other matter or conflict that may impact the development of the International Insurance Center.
(Our translation.)
This provision empowers the Legislature to assure that the OCI is, in fact, complying with its responsibility to
develop the International Insurance Center.
Act 49 truly represents a new beginning for the International Insurance Center, and a righting of the course, a correction of the deviation that took place during the years 2022 and 2023, to once again place the International Insurance Center in a direction of continued growth.
For more information about this article feel free to contact Antonio J. Ramírez, Esq. at ajx@mcvpr.com or https://www.mcvpr.com. McConnell Valdés LLC has offices in Puerto Rico and Miami located at:
McConnell Valdés LLC
270 Muñoz Rivera Avenue Hato Rey, Puerto Rico 00918
McConnell Valdés LLP
SunTrust International Center
1 SE 3rd Avenue, Suite 1650 Miami, Florida 33131
CONSIDERATIONS ON THE REINSURANCE OF PUERTO RICO RISKS BY INTERNATIONAL INSURERS
By: C. Ignacio Matos Benítez, Esq. | September 2024
The approval of the International Insurers and Reinsurers Act of Puerto Rico in 2004 (Chapter 61 of the Puerto Rico Insurance Code), and enabling regulations subsequently promulgated by the Office of the Insurance Commissioner of Puerto Rico (Rules 80, 81 and 82 of the Puerto Rico Insurance Code Regulations) achieved the creation of the Puerto Rico International Insurance Center (“CIS,” by its Spanish acronym), aimed at stimulating the formation of international insurers by leveraging the long-existing US income tax exemption generally applicable to Puerto Rico corporations with the adoption of new and supplementary local tax incentives, paired with a prudent and flexible regulatory regime.
The CIS successfully gave rise to a new sector within Puerto Rico’s insurance industry, dedicated to underwriting
insurance and reinsurance for “offshore” (i.e., non-Puerto Rico) jurisdictions. While the CIS has succeeded in attracting foreign investors to avail themselves of its platform, it also features less noted and exploited provisions that may not only further contribute to the sector’s growth, but may also increase market capacity for the reinsurance of Puerto Rico resident risks while encouraging increased participation from local entrepreneurs.
The International Insurers and Reinsurers Act, since its adoption twenty years ago, contemplated that in addition to the acting as insurers and reinsurers of offshore risks, international insurers could engage in reinsurance (as opposed to direct underwriting) of Puerto Rico resident risks. While the Office of the Insurance Commissioner (“OIC”) then quickly promulgated and enacted the regulatory guidance and
framework to enable offshore operations, it took longer to do the same with regards to the reinsurance of domestic Puerto Rico risks. The subsequent (2013) enactment of enabling regulations by the OIC (Rule 100 of the Puerto Rico Insurance Code Regulations), and certain (2014) amendments to the Insurance Code, currently allow international insurers to reinsure Puerto Rico resident risks, and further allow Puerto Rico domestic insurers to take credit for reinsurance ceded to international insurers.
This decades-old legal framework in turn provides Puerto Rico residents the opportunity to invest either directly or indirectly (i.e., through a qualified international insurer holding company as defined in the CIS legislation) in the underwriting of reinsurance of Puerto Rico resident risks, via a stake in an international insurer or in a seg-
Ignacio Matos is a Partner at the Rexaxh & Picó, LLC law firm. Since 1981, the firm has been specializing in Insurance Regulatory matters and assisted with issues regarding the Puerto Rico International Insurance Center.
regated assets plan (“SAP”) operated by an international insurer.
A key feature of the CIS is that it allows organizations to utilize the facilities of an international insurer (underwriting, ratings, claims management, accounting, reinsurance, and expertise) to participate in the underwriting of certain risks, including their own, without incurring in the financial or administrative commitments of organizing and managing an international insurer (or, for that matter, a captive insurer in another domicile). Subject to prior approval, international insurers may establish and operate one or more SAPs. A SAP is not a separate legal entity, but is instead a distinct unit of the international insurer that maintains legal and accounting separation of its own assets and liabilities, in accordance to the international insurer’s plan of operations of SAPs submitted to the OIC for its approval.
Assets attributed to one SAP are not available to satisfy the liabilities of another SAP or the “general account” liabilities of the international insurer, and vice versa. This separation and allocation subsist even in the event of the insolvency of either the SAP or the international insurer’s general account. Participation as, for example, the owner of preferred shares of an international insurer, through a contractual agreement tying the dividends or other proceeds to be earned by such shares to the performance of one or more SAPs, is one method through which a Puerto Rico investor can derive benefits from the tax incentives provided under the CIS legislation.
Specifically, the current framework allows certain categories of international insurers (Class 3, for property and casualty risks excluding catastrophic; Class 4, for property and casualty risks including catastrophic; and Class 5, for life and disability risks) to reinsure, for their own general account or through a SAP, Puerto Rico resident risks in accordance with a “Special Category Authorization.” Pure and association captive insurers (Classes 1 and 2) are excluded from transacting insurance or reinsurance of Puerto Rico resident risks. Thus, Puerto Rico residents do
not have an option, under the CIS legislation, to create a captive insurer for their own enterprise risks.
THE CIS LEGISLATION ALLOWS INTERNATIONAL INSURERS TO ESTABLISH SEGREGATED ASSETS PLANS, WHICH OFFER PUERTO RICO INVESTORS UNIQUE OPPORTUNITIES.
majority (51%) of the international insurer’s premiums (excluding premiums ceded in reinsurance) derive from offshore (non-Puerto Rico) business, while only 49% may originate from reinsurance of Puerto Rico risks. Furthermore, fair competition safeguards require that international insurers adhere to additional requirements, otherwise inapplicable for the insurance or reinsurance of offshore risks.
Other than the fact that the underlying Puerto Rico risks must be insured by a Puerto Rico admitted insurer, the main requirement to exercise such special category authority is that the
Essentially, these safeguards require that international insurers comply with the statutory standards generally applicable to insurers authorized to reinsure Puerto Rico risks (i.e., involving minimum capital and surplus, fiduciary deposit, investment in eligible Puerto Rico securities, among others). Accordingly, Puerto Rico resident risks insured by duly authorized insurers, whether domestic or foreign, may be reinsured by international insurers or SAPs operated thereunder.
Puerto Rico domestic insurers may obtain credit against their reserves for reinsurance ceded to international in-
surers wielding the special category authorization. Moreover, Puerto Rico domestic insurers may, within Puerto Rico’s credit for reinsurance framework, obtain a reduction of liability for reinsurance ceded to international insurers that do not exercise the special category authorization, provided that such international insurers’ contractual obligations to the ceding insurers are secured by funds held in trust, for the sole benefit and withdrawal of the ceding insurers, and consisting of eligible assets held at a qualified financial institution.
Subject to the legal framework described above, Puerto Rico residents, legal or natural persons, that invest in an international insurer or in a SAP established thereunder, may receive dividends and similar profit distributions (including liquidation distributions) paid out by the international insurer on account of such investments.
Such dividends or other profit distributions are fully tax exempt; the statutory provisions granting such exemp-
tion do not make any distinction for such purposes between resident or non-resident stockholders.
Puerto Rico-chartered international insurer holding companies, organized in accordance with the International Insurers and Reinsurers Act, may enjoy certain tax benefits in addition to the full tax exemption on dividends or similar profit distributions received from international insurers.
As mentioned, Puerto Rico businesses are barred from creating captive insurers to insure their own enterprise risks under the CIS legislation. Even through ownership of a non-captive international insurer, they would still be limited to reinsuring their owns risks directly subscribed by an admitted carrier, and only after generating enough offshore premium to cover the 51/49 ratio.
A more feasible option for a Puerto Rico business entity, applicable to all sectors, could be to invest in a SAP within an already established inter-
national insurer whose offshore premiums are sufficient to cover the reinsurance of Puerto Rico risks under the special category authorization or by collateralizing its obligations with funds in trust.
Such investor would still need to leverage its commercial relationships with a Puerto Rico admitted insurer to reinsure a portion or all its enterprise risks with its SAP. An incentive for the direct carrier is that the SAP owner would be motivated to manage its own risks more effectively.
To sum up, for various reasons the capacity of international insurers to underwrite reinsurance of Puerto Rico risks represents an important and sometimes overlooked feature of the CIS legislation.
For more information about this article feel free to contact C. Ignacio Matos, Esq. at imatos@rexachpico.com or www.rexachpico.com, Rexach & Picó LLC is located at 802 Ave. Fernández Juncos Esq. La Paz, Miramar San Juan, PR.
THE INSOLVENCY OF AN INTERNATIONAL INSURER AND ITS SEGREGATED ASSET PLANS: A SYNOPSIS OF THE LEGAL FRAMEWORK IN PUERTO RICO
By:
The success Puerto Rico and its “International Insurers and Reinsurers Center” (“CIS”, by its acronym in Spanish) has had, in attracting investors and insurance companies to Puerto Rico, may to a great extent, be attributed to its bestin-class regulatory framework. The CIS´legal structure incorporates many of the best practices and norms found in both, U.S. and international captive insurance domiciles.
Under the regulatory oversight of a jurisdiction accredited by the National Association of Insurance Commission-
ers or “NAIC”, the CIS in Puerto Rico offers the possibility of operating within a U.S. territory considered an attractive gateway to insurance markets in the United States, Latin America, and other regions.
An important component of the CIS´ framework is centered on the legal provisions which will be applied in the event of a possible insolvency scenario faced by protected cells or segregated asset plans organized and operating within a licensed international insurer. Chapter 61 of the Insurance Code of Puerto Rico, which governs the CIS,
allows insurers authorized to operate as protected cell or “segregated asset plan” (SAP) companies to organize protected cells or SAP´s, and confers upon each such SAP, its respective assets and liabilities, all of the legal attributes of an independent and separate legal entity. Therefore, pursuant to this legal framework, assets attributed to a particular SAP will only be liable for the insurance risks assumed and the business conducted by such SAP.
What follows is a summary of some of the legal provisions that will apply to a scenario in which an SAP operating
Pedro I. Vidal Cordero | September 2024
Attorney Pedro I. Vidal Cordero is a Capital Member at the Vidal, Nieves & Bauzá LLC law firm and he has significant experience in insurance regulatory, transactional and compliance matters. Pedro is also a Board Member at the Puerto Rico International Insurers Association (PRIIA).
under the CIS is declared insolvent by the insurance regulator, and ordered to be liquidated.
The legal and regulatory framework governing the insolvency of the segregated asset plans operating within an international insurer in Puerto Rico
In general, the insolvency of an international insurer operating as a segregated assets plan company is subject to the powers of the Commissioner of Insurance of Puerto Rico as the liquidator appointed by law of the international insurer.
THE NAIC ACCREDITATION ENSURES THAT PUERTO RICO’S REGULATORY OVERSIGHT ALIGNS WITH THE HIGHEST STANDARDS IN THE INSURANCE INDUSTRY, ENHANCING ITS APPEAL AS A
JURISDICTION FOR INTERNATIONAL INSURERS
Regarding the insolvency and liquidation of the international insurer, Article 61.160, paragraph (6) of the Insurance Code recognizes, once again, the legal separation of the assets that are part of the general account of the international insurer, as opposed to those that the insurer has attributed to a segregated asset plan it organizes. It does so by stating that in case of the liquidation or rehabilitation of an insolvent international insurer, “the segregated assets plan shall not be available for the payment of the general obligations of the insurer.” (Our emphasis).
Therefore, the insolvency and liquidation of an international insurer that operates as a segregated asset plan company does not presuppose the insolvency and liquidation of any of its SAP´s. In particular, Article 61.140(8) of the Insurance Code contemplates the possibility of a separate and indepen-
dent insolvency, on the one hand, of the international insurance company itself and, on the other hand, the possible insolvency of any of its segregated asset plans. The legal procedure that should be followed in the case of the insolvency of a SAP will be the same procedure that an international insurer would follow if it were declared insolvent.
The liquidation of an insolvent international insurer or any of its SAP´s will be
governed by the the provisions of the Insurance Code in Puerto Rico that apply to the rehabilitation and liquidation of general domestic insurers operating in Puerto Rico and subject to the supervision of the Commissioner of Insurance of Puerto Rico.
However, neither international insurers, nor their SAPs are required to join or contribute to any of the guaranty associations operating in Puerto Rico for the benefit the policyholders of an
insolvent domestic insurer.
Moreover, Chapter 61 of the Insurance governing international insurers and their SAPs specifically provides that for purposes of the insolvency proceedings followed in respect to an international insurer or an SAP that is declared insolvent, the definition for “assets” which will be followed will be that of Chapter 61 of the Insurance Code, --which offers a broader category of assets which may be owned and held by an international insurer or a SAP in comparison to the assets that a domestic insurer offering insurance in Puerto Rico may own and hold--, and not the definition contained in Chapter 40 governing insurance insolvencies generally.
As an NAIC-accredited jurisdiction, Puerto Rico has adopted the NAIC´s insurance rehabilitation and insolvency framework, which is found in the several NAIC model laws governing this area. In Puerto Rico, the NAIC insolvency framework was included in Chapter 40 of the Insurance Code, which gives the Insurance Commissioner broad powers as the court-appointed liquidator and provides a blueprint for the procedures that need to be followed when an insurer is declared insolvent.
The purpose behind these insolvency norms and provisions is to protect the interests of policyholders, claimants, creditors and the general public once an insurer is determined to be insolvent.
The Insurance Code confers exclusive jurisdiction to the Commissioner of Insurance to determine the insolvency of an insurer and, with the intervention of the courts in Puerto Rico, order its liquidation. Once a final order of liquidation is issued by a court of law in Puerto Rico at the request of the Commissioner of Insurance, the latter will be appointed as the liquidator and take immediate possession of the property and assets of the insurer to manage the same with the supervision of the court of justice.
The Commissioner of Insurance will only be accountable to the court that oversees the liquidation of the insur-
er in managing and disposing of the assts of the insolvent insurer or SAP. As a general rule, the final order declaring the insolvency and receivership of an insurer has the effect of staying all legal claims and actions against the insurer, its property and other assets.
From that moment forward, such actions or complaints will be subject to the liquidation proceedings that will be conducted by the Commissioner of Insurance under the supervision of the court pursuant to Chapter 40 of the Insurance Code.
PUERTO RICO’S BEST-IN-CLASS REGULATORY FRAMEWORK, WHICH OFFERS A ROBUST LEGAL STRUCTURE INCORPORATING
BEST PRACTICES FROM U.S. AND INTERNATIONAL CAPTIVE INSURANCE DOMICILES, POSITIONS
THE ISLAND AS A STRATEGIC GATEWAY TO INSURANCE MARKETS
Among the powers that the law gives the Commissioner of Insurance as liquidator of an insolvent insurer subject to liquidation procedures, are the power to effect sales of the property of the insurer, collect debts and marshal all of the assets of the insolvent insurer, including the power to take the necessary measures to preserve its assets, borrow money and agree to contracts in general, file actions, hire employees for the insurer and hold public hearings among other important powers of the Insurance Commissioner as liquidator.
As most of the laws that create a egal framework and a procedure for carrying out the liquidation of an insolvent commercial business, Chapter 40 of the Insurance Code establishes an order of priority of payments to be followed in relation to the claims that may exist on the assets of the insolvent insurer. In general, the payment order is divided into eight classes or types of claims. Essentially, first, are claims for the administrative expenses of the liquidator and of any guaranty associ-
ation, claims related to debts with employees, claims under insurance policies, claims for unearned premiums, claims of the Federal Government of the United States or the Government of Puerto Rico and its dependencies, late claims or other individual claims, unsecured loans and, finally, claims of the shareholders and owners of the insolvent insurer.
Finally, with respect to insurers other than Chapter 61 international insurers or their SAP´s, the provisions of Chapter 40 of the Insurance Code are complemented by other provisions of law set forth in Chapters 38 and 39 of the Insurance Code. These two Insurance Code chapters recognized the creation of the Guaranty Association of Miscellaneous Insurance of Puerto Rico and the Association of Guaranty of Life and Disability Insurance of Puerto Rico. In summary, the possible insolvency
of a segregated asset plan created by an international insurer under the CIS will not, as a matter of law, result in the insolvency of the international insurer
or any of the other SAP´s it may have created. Pursuant to the legal framework governing such segregated asset plans, insolvent segregated asset plans will need to be declared as such by the Commissioner of Insurance, and their liquidation will be governed by the court-supervised provisions briefly discussed above which are located in Chapter 40 of the Insurance Code and apply to insurance company insolvencies, in general.
Pedro Vidal-Cordero is a licensed attorney in Puerto Rico and in the District of Columbia, with over 30 years of professional experience. His practice covers corporate, regulatory, contractual and transactional matters related with the operation of insurance companies, captives, and reinsurers in Puerto Rico, as well as other business entities established in Puerto Rico. For more information about this article feel free to contact Pedro I. Vidal-Cordero, Esq. at pvidal@vnblegal.com or vnblegal.com
Vidal, Nieves & Bauzá is located at Suite 110 T-Mobile Center in Guaynabo, Puerto Rico.
PLANNING FOR THE NEXT STORM: THE CRITICAL ROLE OF CAPTIVE INSURANCE IN HURRICANE-PRONE PUERTO RICO
By: Rubén A. Gely-Ortiz, AINS ARM CAMS | September 2024
Rubén A. Gely-Ortiz is the President of the International Insurers Consulting Group, the Editor-In-Chief of the Puerto Rico Financial Services Review (PRFSR), and a Board Member at the Puerto Rico International Insurers Association (PRIIA).
In September 2017, Hurricane Maria swept across Puerto Rico with devastating force, leaving behind a trail of destruction that would take years to fully assess and address. For many businesses on the island, the storm wasn’t just a natural disaster—it was a financial catastrophe. Insurance claims, meant to provide a lifeline in times of crisis, became a source of frustration and delay. Months passed, then years, and for some businesses, the promised relief never fully materialized.
This is the reality of living and working in a hurricane-prone area like Puerto Rico. The unpredictability of these natural events is compounded by the equally uncertain timeline of insurance payouts. After a major storm, insurance companies are inundated with claims, each one needing careful assessment before payments can
be made. The sheer volume and complexity of these claims often result in significant delays, leaving businesses in a precarious position as they struggle to rebuild, reopen, and retain their workforce.
In the midst of this uncertainty, some businesses have found a way to protect themselves and their operations from the long waiting game that follows a disaster. They’ve done this by setting up captive insurance structures—a strategy that has proven invaluable in hurricane-prone regions like Puerto Rico.
THE STORY OF A SMALL MANUFACTURING BUSINESS
Consider the story of a small manufacturing business based in San Juan, Puerto Rico. The company had been in operation for over a decade, produc-
ing specialized components for the automotive industry. Their products were highly sought after, and they had a loyal customer base that extended across the Caribbean and into the mainland United States.
When Hurricane Maria hit, the company’s facilities suffered extensive damage. The roof of their main production building was torn off, leaving machinery and inventory exposed to the elements. Flooding caused further damage, rendering much of their equipment unusable. The company’s owners immediately filed an insurance claim, expecting that the coverage they had diligently maintained would soon provide the funds needed to begin repairs.
But weeks turned into months, and the insurance payout was nowhere in sight. The delay was due to the over-
whelming number of claims filed after the hurricane, as well as the complexity of assessing the full extent of the damages. Meanwhile, the company was faced with mounting expenses. They needed to repair their facilities, replace damaged equipment, and cover the cost of business interruption. Every day that passed without the insurance money put them closer to financial ruin.
Fortunately, this business had taken a critical step before the hurricane season began—they had established a captive insurance company. This captive was designed specifically to cover gaps in their traditional insurance, such as deductibles, waiting periods, and exclusions. As soon as the hurricane hit, the captive was able to pro-
vide immediate funds to begin the recovery process. The company used this money to start repairs, secure temporary production facilities, and keep their employees on the payroll. While they still had to wait for the full insurance payout, the funds from their captive allowed them to stay afloat during those critical early months.
WHAT IS CAPTIVE INSURANCE?
A captive insurance company is a wholly-owned subsidiary that provides insurance to the parent company. Essentially, it allows a business to self-insure certain risks by setting aside funds in a dedicated entity. These funds can be used to pay claims immediately after a disaster, providing a crucial financial buffer while the
business waits for traditional insurance payouts.
One of the key benefits of a captive insurance structure is the ability to tailor coverage to the specific needs of the business. For example, a company might use its captive to cover the high deductibles that often accompany property insurance policies in hurricane-prone areas. Captives can also be used to insure against risks that are typically excluded from traditional policies, such as certain types of flood damage or business interruption caused by supply chain disruptions.
In Puerto Rico, the international insurance center offers an attractive incentive for businesses to establish captives. The legislation allows companies to fund their captives with pre-tax dollars, effectively lowering the cost of setting aside these funds. Additionally, the net income of the captive, which includes both underwriting profits and investment gains, is taxed at a preferred rate of 4% when it exceeds $1,200,000. This makes the captive insurance structure not only a smart risk management tool but also a financially advantageous one.
WHY CAPTIVE INSURANCE IS CRUCIAL IN HURRICANE-PRONE AREAS
The experience of Hurricane Maria underscored the importance of having quick access to funds after a disaster. Traditional insurance, while essential, often comes with significant delays. The larger and more complex the claim, the longer it can take to settle. In the meantime, businesses are left to fend for themselves, struggling to cover immediate costs and keep their operations running.
In a hurricane-prone area like Puerto Rico, this delay can be particularly damaging. Hurricanes can cause widespread destruction, affecting entire regions at once. This not only increases the number of claims filed but also strains local resources, making the recovery process even slower. For businesses, the ability to tap into an emergency fund—one that is immediately accessible and designed
specifically to cover gaps in traditional insurance—can make the difference between survival and closure.
Captive insurance provides this critical safety net. By setting up a captive, businesses can create a reserve that is ready to respond the moment disaster strikes. This reserve can be used to cover a wide range of expenses, from repairing physical damage to replacing lost inventory to paying employees during periods of business interruption. Because the captive is owned and controlled by the business itself, there is no need to wait for an external insurance company to process a claim. The funds are there, ready to be used when they are needed most.
THE FINANCIAL ADVANTAGES OF CAPTIVE INSURANCE
Beyond the immediate benefits in a crisis, captive insurance offers significant financial advantages.
tect themselves from risk but also to potentially profit from their captive’s operations. Investment gains and underwriting profits generated by the captive are taxed at this low rate, making the captive not just a risk management tool but also a potentially profitable one.
PLANNING FOR THE FUTURE
As we look to the future, it’s clear that the risks posed by hurricanes and other natural disasters are not going away. In fact, with climate change, these events may become more frequent and more severe. For businesses operating in hurricane-prone areas like Puerto Rico, the question is not if another storm will come, but when.
By establishing a captive insurance structure, businesses can take control of their risk management strategy. They can create a financial buffer that is ready to respond immediately after
SOME BUSINESSES IN PUERTO RICO HAVE MITIGATED RISKS BY ESTABLISHING CAPTIVE INSURANCE STRUCTURES,
The ability to fund a captive with pretax dollars means that businesses can set aside more money for future risks without increasing their taxable income. This makes it easier to build up a substantial reserve, one that can cover even the most severe disasters.
The tax benefits don’t stop there. Puerto Rico’s international insurance center has created a favorable environment for captives, with a tax rate of just 4% on net income over $1,200,000. This allows businesses to not only pro-
a disaster, ensuring that they have the funds needed to keep their operations running. This not only protects the business itself but also the livelihoods of its employees and the broader community that depends on its success.
Hurricane Maria was a stark reminder of the importance of planning ahead. For those businesses that had already established captives, the storm was a test of their resilience—a test that they passed. For others, it was a wake-up call. As we prepare for the next hurri-
cane season, now is the time to consider whether a captive insurance structure could be the key to weathering the storm.
In Puerto Rico, where the threat of hurricanes is always on the horizon, captive insurance isn’t just a smart financial move—it’s a necessity. The combination of immediate access to funds, tailored coverage, and financial advantages makes captives an essential part of any business’s disaster preparedness plan. With the right planning and the right tools, businesses can not only survive the next hurricane but emerge from it stronger than ever.
ABOUT THE AUTHOR: RUBÉN A. GELY-ORTIZ, AINS ARM CAMS
Rubén A. Gely-Ortiz is a visionary leader in the insurance industry, recognized as one of Captive International’s “40 under 40” for his exceptional contributions to the field. He is a strong advocate for Puerto Rico’s International Insurance Center and has played a pivotal role in revolutionizing captive insurance structures to meet the unique needs of Puerto Rican businesses.
With unparalleled expertise in Act 399, Rubén is a master in the formation and operation of international insurance entities in Puerto Rico. His deep understanding of risk management, compliance protocols, and the intricacies of both local and international insurance landscapes has positioned him as a leading authority in the industry.
In the specialized area of reinsurance, Rubén has made a significant impact by bridging the gap between primary insurers and reinsurers, ensuring efficient risk transfer and distribution. His strategic insight and unwavering dedication not only strengthen Puerto Rico’s insurance sector but also create meaningful opportunities for community impact.
For more information about this article feel free to contact Rubén A. Gely-Ortiz at ruben.gely@priia.org or browse the Puerto Rico International Insurers Association page https://priia.org
ACCELERANT RE: REDEFINING REINSURANCE IN PUERTO RICO WITH A VISION FOR GLOBAL IMPACT
By: Accelerant | September 2024
Accelerant is a ReInsurance company that specializes in data-driven risk exchange, connecting specialty underwriters with risk capital.
Accelerant’s mission is to re-platform the insurance industry — so that it works better, for everyone. And as Accelerant enters Puerto Rico, it is poised to make an even more transformative impact on the global reinsurance landscape in partnership with its new domicile. This move not only signifies Accelerant’s commitment to expanding its global footprint but also underscores its vision to reshape the insurance industry through cutting-edge technology and analytics, forward thinking domiciles and robust sources of capacity, and a Member-focused strategy.
THE ACCELERANT VISION: TECHNOLOGY-DRIVEN GROWTH FOR MGAS
Accelerant is a data-driven risk exchange, which connects specialty underwriters with risk capital providers and improves transparency across the ecosystem. In today’s rapidly evolving environment, traditional approaches to insurance no longer suffice. The efficient exchange of risk is a cornerstone of our global economy. That’s where Accelerant’s approach is so novel.
At the core of Accelerant’s strategy is its focus on aligning incentives across the insurance value chain. Better data and insights, along with stable capacity commitments, empower Managing General Agents (MGAs) to see market leading growth with tailored solutions for their niche markets. That helps drive a virtuous cycle — better portfolio performance in turn attracts more
high-quality capital providers, which continues to drive healthy growth.
A NEW ERA OF CAPITAL STABILITY
One of the key innovations Accelerant brings to the table is its long-term capacity commitments thanks to its ecosystem of risk capital partners. Unlike the traditional reinsurance market, which can be volatile and unpredictable, Accelerant offers its Members five-year capacity agreements. This stability allows MGAs to plan for the future with confidence, knowing that they have the backing of a robust and reliable capital providers.
What drives this stability? Accelerant’s approach to risk capital is built on the concept of a diversified, low-volatility
risk portfolio. By pooling risks through its risk exchange, the company ensures that its members benefit from a stable and efficient capital supply. This strategy not only protects MGAs from market fluctuations but also enhances their ability to deliver consistent value to their clients.
ENTERING PUERTO RICO: A STRATEGIC EXPANSION
Accelerant’s entry into Puerto Rico is a strategic move based on our belief that the island is growing in prominence as a hub for international insurance. Puerto Rico’s International Insurance Center offers unique advantages for (re)insurers, including a well-established and broadly respected regulatory framework. By establishing operations in Puerto Rico, Accelerant is positioning itself to tap into new markets while providing MGAs with access to global capacity.
ACCELERANT RE IS TRANSFORMING REINSURANCE, USING TECHNOLOGY AND STABLE CAPITAL TO MAKE P.R. A GLOBAL INSURANCE HUB.
JEFF RADKE: THE CONNECTOR IN INSURANCE
Leading Accelerant is CEO Jeff Radke, a visionary known for his commitment to innovation and his drive to empower employees as experts. Under his leadership, Accelerant has rapidly grown into a global powerhouse, with a presence in Europe, Canada, UK, the continental United States, and now Puerto Rico. Radke’s philosophy is simple yet profound: enable people to focus on what they do best by providing them with the tools, technology,
and support they need to succeed. It’s a philosophy that he is about for specialty underwriters, risk capital providers, and Accelerant’s team.
Radke’s leadership has been instrumental in fostering a culture of transparency and collaboration at Accelerant. This is reflected in the company’s high Net Promoter Score (NPS) of 90.
A TRANSFORMATIVE FUTURE FOR REINSURANCE
Accelerant Re’s entry into Puerto Rico marks the beginning of a new chapter in the global reinsurance industry. Accelerant is even set to redefine what it means to be an insurer or a reinsurer in the modern world by realigning incentives and increasing transparency.
ACCELERANT’S COMMITMENT TO PUERTO RICO
Accelerant’s strategic entry into Puerto Rico is further highlighted by its recent membership in the Puerto
Rico International Insurers Association (PRIIA). Accelerant is dedicated to helping Puerto Rico excel as a leading jurisdiction in the international insurance market. By actively participating in PRIIA, Accelerant is positioned to influence key developments within the industry, advocating for best practices and supporting initiatives that create opportunity for all Puerto Ricans, enhance the regulatory framework and business environment in Puerto Rico.
In line with its long-term vision, Accelerant is also investing in the local workforce. The company is building their local team, with the intention of having a full management team in place by 2025. This initiative not only reflects Accelerant’s commitment to the Puerto Rican market but also its belief in the island’s potential as a hub for global insurance operations.
For more information about this article feel free to contact Meliza Matos at meliza.matos@accelerant.ai or browse https://accelerant.ai
STRENGTHENING RISK MANAGEMENT ACROSS LATIN AMERICA: IRON SHIELD I.I.’S ROLE
By: Norberto Jauregui | September 2024
Norberto Jauregui is the Financial Director at Iron Shield, I.I., and he has vast experience in administration, finance management, and Auditing. Norberto has collaborated with the Puerto Rico International Insurers Association (PRIIA) in many projects.
n the dynamic and often unpredictable business landscape of Latin America, companies face a myriad of risks that can disrupt operations and threaten long-term viability. To navigate these challenges, effective risk management is essential. Iron Shield I.I., headquartered in Puerto Rico, stands as a trusted partner for Latin American businesses seeking to bolster their risk management strategies.
PUERTO RICO: A STRATEGIC GATEWAY
Iron Shield I.I. operates from Puerto Rico, leveraging the island’s unique position as a nexus between North America and Latin America. This strategic location, coupled with Puerto Ri-
co’s favorable regulatory environment, allows Iron Shield to offer tailored insurance solutions that address the specific needs of Latin American businesses. The company is fully accredited under Chapter 61 of the Puerto Rico Insurance Code, enabling it to provide comprehensive reinsurance services that extend across the region.
SEGREGATED ASSET PLANS: A KEY OFFERING
At the heart of Iron Shield I.I.’s offerings are its Segregated Asset Plans (SAPs). These plans, also known as Protected Cells, allow businesses to manage specific risks in a customized and secure manner. By segregating assets and liabilities, companies can
protect their core operations while addressing unique risks that may arise in different markets or sectors. Each SAP is managed independently, providing clients with the flexibility to tailor their risk management strategies to their specific needs.
PARTNERSHIP WITH IICGPR: ENHANCING REGIONAL REACH
To further strengthen its presence in Latin America, Iron Shield I.I. collaborates closely with the International Insurer’s Consulting Group (IICGPR), a highly specialized team based in Puerto Rico. This partnership allows Iron Shield to offer a comprehensive suite of services, including risk assessment, insurance program design, and
regulatory compliance, all tailored to the Latin American market. As the principal representative and general manager for Iron Shield in the region, IICGPR plays a pivotal role in ensuring that clients receive the highest level of service and expertise.
A FOCUS ON SPECIALIZED SOLUTIONS
Iron Shield I.I. understands that each business in Latin America faces unique challenges. Whether it’s navigating the complexities of cross-border trade, managing risks in volatile markets, or protecting assets in sectors such as energy, manufacturing, or agriculture, Iron Shield provides specialized solutions that address these specific needs. The company’s team of experts works closely with clients to develop risk management programs that are not only robust but also adaptable to
changing circumstances.
PUERTO RICO’S REGULATORY ADVANTAGE
Puerto Rico offers a regulatory environment that is particularly advantageous for international insurers. The island’s use of the U.S. dollar, combined with its distinct legal and fiscal autonomy, provides a stable and secure foundation for insurance operations.
Additionally, Puerto Rico’s International Insurance Center, established in 2005, serves as a hub for insurers looking to enter the Latin American market. This center offers a range of incentives and support services, making it easier for companies like Iron Shield I.I. to offer competitive and effective insurance solutions to their clients.
COMMITMENT TO EXCELLENCE
Iron Shield I.I. is committed to providing exceptional service to its clients. This commitment is reflected in the company’s values of integrity, transparency, and continuous improvement. By maintaining the highest standards of professionalism and ethics, Iron Shield ensures that its clients receive the most reliable and effective risk management solutions available.
LEVERAGING PUERTO RICO’S REGULATORY ADVANTAGES, OFFERS LATIN AMERICAN COMPANIES CUSTOMIZED RISK MANAGEMENT SOLUTIONS.
LOOKING AHEAD: THE FUTURE OF RISK MANAGEMENT IN LATIN AMERICA
As Latin America continues to grow and evolve, the need for effective risk management will only increase. Iron Shield I.I. is well-positioned to meet this demand, offering innovative and specialized solutions that help businesses navigate the complexities of the region’s markets. Through its partnership with IICGPR and its strategic base in Puerto Rico, Iron Shield is poised to play a leading role in the future of risk management in Latin America.
In conclusion, Iron Shield I.I. represents a critical resource for Latin American companies seeking to improve their risk management programs. With a focus on tailored solutions, a strategic partnership with IICGPR, and the advantages of operating in Puerto Rico, Iron Shield I.I. is ideally suited to help businesses across the region manage their risks and achieve long-term success.
For more information about this article feel free to contact Norberto Jauregui at info@ironshield.com.pr
The strength of the financial industry lies in its ability to adapt, innovate, and create lasting value. As associations, PRIIA and PRIBA have successfully collaborated with our regulators and legislature to continue shaping Puerto Rico as a leading international financial center.
Executive Director PRIIA | PRIBA
In the vast and intricate world of insurance, two terms often surface: surplus lines insurance and direct procurement. Both concepts represent alternative routes to obtaining coverage, particularly for risks that traditional insurers may shy away from. Understanding the differences, origins, legal aspects, and current market dynamics of these approaches is crucial for both insurance professionals and policyholders alike.
ORIGINS AND EVOLUTION
Surplus lines insurance traces its roots back to the 19th century, a time when traditional insurers were reluctant to cover certain risks deemed too high or unconventional. Enterprising individuals saw an opportunity to fill this gap by establishing non-admitted insurers, which operated outside the regulatory purview of the states where risks were located. These non-admitted insurers, often referred to as surplus lines insurers, provided coverage for risks that fell outside the scope of admitted insurers’ appetites.
Direct procurement, on the other hand, emerged originally by jurisprudence provided by the US Supreme Court back in the year 1897, with the case Allgeyer v. Louisiana, in which the court invalidated a Louisiana statute because it violated an individual’s constitutional right of “liberty of contract” granted by the Due Process Clause of the 14th Amendment. The validity, applicability and requirements of the direct procurement approach for covering particular risks, was subsequently confirmed and refined in the decades thereafter through a series of cases resolved by the US Supreme Court, and then ratified by Congress in the McCarran Ferguson Act of 1945. More recently, with the passage of the Nonadmitted and Reinsurance Reform Act (NRRA) in 2010.
This legislation aimed to streamline the process of purchasing surplus lines insurance by allowing insureds to bypass licensed surplus lines brokers and directly procure coverage from non-admitted insurers. The NRRA sought to enhance efficiency,
NAVIGATING THE INSURANCE LANDSCAPE: DIRECT PROCUREMENT VS. SURPLUS LINES INSURANCE
By: Rafael Cestero Lopategui, Esq. | September 2024
Rafael Cestero is an Insurance Attorney and Capital Member at Cestero-Lopategui & Associates, former Commissioner of Insurance for the Goverment of Puerto Rico, and a Board Member at the Puerto Rico International Insurers Association (PRIIA).
promote competition, and provide insureds with more control over their insurance programs.
LEGAL FRAMEWORK
The legal landscape surrounding surplus lines insurance and direct procurement is multifaceted, governed by a combination of federal and state laws. Surplus lines insurance is primarily regulated at the state level, with each state enacting its own laws and regulations governing surplus lines transactions. These regulations typically require that surplus lines coverage be placed through licensed
surplus lines brokers and that non-admitted insurers meet certain eligibility and financial stability requirements.
Direct procurement, as facilitated by the NRRA, operates within a framework of federal and state laws. The NRRA grants insureds the right to directly procure surplus lines insurance from non-admitted insurers without the involvement of a licensed surplus lines broker. However, states retain authority over surplus lines transactions within their borders, and insureds must ensure compliance with state laws and regulations when utilizing direct procurement, for example the re-
sponsibility of the insured to pay state taxes for buying insurance outside of state borders.
PROS AND CONS
Surplus lines insurance and direct procurement each offer distinct advantages and drawbacks for insureds and insurers alike.
SURPLUS LINES INSURANCE:
Pros:
1. Flexibility: Surplus lines insurance provides coverage for unique or highrisk situations that traditional insurers may avoid.
2. Market Access: It offers access to coverage when admitted insurers are unwilling or unable to provide it.
3. Innovation: Surplus lines insurers often pioneer new insurance products and coverages in response to emerging risks and market demands.
Cons:
1. Lack of Regulation: Non-admitted insurers may not be subject to the same regulatory oversight as admitted insurers, potentially exposing policyholders to greater risk.
2. Limited Consumer Protection: In the event of insurer insolvency, policyholders may have fewer protections and avenues for recourse compared to coverage provided by admitted insurers.
DIRECT PROCUREMENT:
Pros:
1. Streamlined Process: Direct procurement eliminates the need for a surplus lines broker, reducing administrative burdens and potentially lowering costs.
2. Increased Control: Insureds have more direct involvement in selecting coverage, negotiating terms, and managing their insurance programs.
3. Efficiency: Direct procurement can
expedite the insurance placement process, allowing insureds to quickly obtain coverage for their specific needs.
Cons:
1. Limited Expertise: Insureds may lack the specialized knowledge and guidance provided by surplus lines brokers, potentially leading to gaps in coverage or inadequate risk management strategies.
2. Compliance Challenges: Direct procurement requires insureds to navigate a complex regulatory landscape, ensuring compliance with state laws and regulations governing surplus lines transactions.
SURPLUS LINES INSURANCE AND DIRECT PROCUREMENT
ARE ESSENTIAL IN TODAY’S INSURANCE MARKET, CATERING TO SPECIALIZED RISKS AND PROVIDING TAILORED SOLUTIONS.
CURRENT MARKET DYNAMICS
In today’s insurance market, both surplus lines insurance and direct procurement play significant roles, catering to the needs of insureds across various industries and risk profiles. Surplus lines insurance remains a critical avenue for securing coverage for hard-to-place risks, specialized industries, and emerging exposures such as cyber liability and climate-related
risks. Direct procurement is gaining traction, particularly among large commercial insureds seeking greater control over their insurance programs and costs. Insureds are increasingly leveraging direct procurement to streamline the insurance placement process, negotiate bespoke coverage terms, and access non-traditional markets and capacity.
LEGAL PRECEDENTS AND JURISPRUDENCE
Over the years, various legal cases have shaped the landscape of surplus lines insurance and direct procurement, addressing issues such as state regulatory authority, insured rights, and insurer obligations. Courts have generally upheld the rights of insureds to directly procure surplus lines insurance in accordance with the NRRA, affirming states’ authority to regulate surplus lines transactions within their borders. Despite its legal validation by the federal government since 1897, the right of an individual to directly pursue insurance remains still not-well understood, even for some state insurance regulators.
CONCLUSION
In today’s global business markets, in which technology provides both the insured and the carriers innovative solutions for better risk management, evermore surplus lines insurance and direct procurement represent alternative pathways for obtaining insurance coverage outside the traditional admitted market. While each approach offers its own set of advantages and challenges, both play integral roles in meeting the evolving needs of insureds in today’s dynamic insurance landscape.
By understanding the differences, navigating the legal framework, and leveraging the expertise of industry professionals, insureds can effectively manage their risks and secure tailored insurance solutions that meet their unique needs and objectives.
For more information about this article contact Rafael Cestero Lopategui, Esq. at cesterolaw@gmail.com
DESCUBRA NEXTGEN: INNOVACIÓN Y SEGURIDAD EN SEGUROS DE SALUD
PARA CLIENTES DE BANCOS
INTERNACIONALES
By: Luciene Da Silva | September 2024
EN PUERTO RICO
Luciene Da Silva es Directora de Negocios (“Business Director”) de NextGen, una compañía de seguros que ofrece acceso a la red global más completa de médicos y hospitales; y un proveedor confiable de seguros de salud en América Latina y el Caribe.
INTEGRACIÓN ESTRATÉGICA EN EL MERCADO FINANCIERO
En el competitivo entorno financiero de Puerto Rico, los bancos internacionales tienen la oportunidad única de diferenciarse y fortalecer su competitividad mediante la integración de servicios de seguros de salud innovadores. NextGen I.I., líder en soluciones de seguros de salud internacional, se presenta como el socio ideal en este escenario.
Con productos que garantizan acceso a una red global de atención médica
de primera línea, NextGen no es solo un proveedor de seguros, sino un aliado estratégico que enriquece el portafolio de servicios bancarios.
OPORTUNIDADES EN EL MARCO REGULATORIO RENOVADO
Los recientes cambios legislativos en Puerto Rico han creado un ambiente propicio para que los bancos internacionales exploren nuevas avenidas de crecimiento. La creación de agencias de seguros dentro de estas instituciones no solo cumple con los requisitos regulatorios, sino que tam-
bién abre la puerta a lucrativas oportunidades de ingresos por comisiones a través de la venta de productos de seguros especializados.
NEXTGEN: UN CATALIZADOR PARA LA EXPANSIÓN DE SERVICIOS
Al asociarse con NextGen, los bancos pueden ofrecer a sus clientes acceso exclusivo a planes de salud internacionales de élite. Estos planes no solo cubren necesidades médicas en América Latina y el Caribe, sino también brindan acceso privilegiado a los mejores hospitales en los Estados Uni-
dos. Este nivel de cobertura se traduce en una propuesta de valor inigualable para clientes que buscan seguridad y bienestar para ellos y sus familias, posicionando al banco como un proveedor integral de soluciones financieras y de salud.
BENEFICIOS DE LA COLABORACIÓN CON NEXTGEN
1. Competitividad Aumentada: La inclusión de seguros de salud internacionales de alta calidad aumenta la competitividad del banco al ofrecer un servicio diferenciado que responde a las demandas de clientes exigentes.
2. Ingresos por Comisiones: Cada póliza vendida representa una fuente directa de ingresos adicionales para el banco, fortaleciendo su flujo de caja y rentabilidad general.
3. Satisfacción y Retención del Cliente: Ofrecer productos que protejan la salud y la estabilidad financiera de los clientes mejora su satisfacción y fideli-
dad hacia el banco.
4. Expansión del Portafolio de Servicios: NextGen facilita la expansión del portafolio de servicios del banco, permitiendo no solo retener a clientes existentes, sino también atraer a nuevos clientes buscando soluciones integrales de salud y financiamiento.
LOS BANCOS
INTERNACIONALES EN PUERTO RICO
PUEDEN FORTALECER
SU COMPETITIVIDAD INTEGRANDO
SEGUROS DE SALUD
INNOVADORES.
CONCLUSIÓN
En un mundo donde la salud y las finanzas están cada vez más interconectadas, los bancos internacionales en Puerto Rico tienen una oportunidad dorada para destacarse y prosperar mediante la integración de servicios innovadores de seguros de salud de NextGen.
Esta estrategia no solo es una respuesta a las tendencias globales y las expectativas de los clientes, sino también una forma inteligente de navegar por el cambiante paisaje regulatorio y maximizar las oportunidades de crecimiento. Invitamos a todos los bancos internacionales a descubrir cómo NextGen puede ayudarles a transformar sus ofertas de servicios, garantizando un futuro más seguro y saludable para sus clientes.
Acceda a nuestro sitio web para más información ( nextgen.me ) o entre en contacto con Luciene Da Silva a través del email luciene.dasilva@nextgen.me
