Risk-based capital and governance in Latin America: emerging regulations

Risk-based capital is in the limelight as one of the most significant regulatory regimes to affect insurance companies. The countries we discuss in this paper (Argentina, Brazil, Chile and Mexico) each have a distinct view of the proposed single standard and the implications for insurers to drive their organizations to business and regulatory compliance.

Latin American (LatAm) markets are in various stages of sophistication, with each facing a different journey to a risk and economic value-based solvency framework.

Countries such as Brazil are showing a growing interest in implementing modern enterprise risk management techniques. In contrast, the Argentine life and pension insurance market has become nationalized and applying Solvency II methodology does not appear to be feasible in the near future.

Of the four countries, Mexico is one of the most advanced in pushing to apply certain aspects of Solvency II. Proposed law advocates stronger corporate governance and risk management within a well-defined and integrated organizational structure.

This includes establishing effective and permanent internal control, audit and actuarial functions that promote regulatory compliance.

The risk management infrastructure is less sophisticated in Chile. However, there is evidence of a shift from the present regulatory framework to risk-based regulation that better captures current industry risks. Adopting a Pillar II type approach would have numerous benefi ts for Chilean insurers through improved governance and greater consistency in linking decision making to risk appetite.

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