Calls for renegotiation of CAFTA
Free trade and insurance make for uncomfortable bedfellows in Latin America. Industry representatives and government officials in three Andean countries - Colombia, Ecuador and Peru - remain pragmatic and optimistic about the industry's future once these states sign an umbrella free trade agreement with the US, but their counterparts in Central American countries Costa Rica and Nicaragua are calling for a re-negotiation of the US - Central American Free Trade Agreement (CAFTA).
The ninth round of negotiations between the three Andean countries (and Bolivia as an observer) and the US opened on 17 April in Lima, Peru. Once complete, such a free trade agreement will bring "substantial changes" to Colombia's re/insurance sector, says Andres Florez Villegas, Director General of Financial Regulation at Colombia's Economy Ministry. Whilst this could be perceived as negative by the domestic insurance sector, it will be good for consumers, he added. While mergers and acquisitions are expected to dominate the insurance sector in all three countries after the agreement comes into force, demand for re/insurance is expected to rise alongside increased trade and economic growth, industry spokesmen believe. The free trade accord will make it easier for foreign companies to establish a presence in Colombia and for Colombian companies to open offices in the US. But Colombia is pressing for a five-year transition period after the free trade accord comes into force before allowing subsidiaries of US banks and insurance companies full access to the Colombian market. The US wants full access to all financial institutions immediately. Colombia also wants all new entrants into the market to be subject to national regulation and the companies effectively incorporated in the country, including technical reserves in the national currency.
Negotiations between the Andean states and the US have been underway since May 2004 and were expected to be completed by mid-2005. But the Andean parties say Washington is dragging its feet given the political problems at home where the Central American Free Trade Agreement is hotly disputed by Congress, and the US-sponsored Free Trade of the Americas Accord (FTAA) is effectively suspended because of some Latin American governments' lack of enthusiasm. Now insurance organisations in Costa Rica and Nicaragua are calling for a renegotiation of CAFTA amid fears that state-owned insurers such as Insituto de Seguros (INS) and Caja de Seguro Social might be bought up by foreign companies.