Venezuela postpones debate on re/insurance legislation reform.
The Venezuelan legislature, the National Assembly, has postponed a scheduled debate on reform of legislation governing the insurance and reinsurance sector until September. But this has not calmed fears in the market that the government is moving to take over the sector. First proposed in April 2005, the draft insurance and reinsurance law aims to include so-called “co-operative” insurers and reinsurers within its regulatory framework.
Venezuela has over 70,000 registered co-operatives covering the farming, retail, tourism, taxis, waste disposal industries among others, based in low-income areas and financed generously through state banks. Co-operative insurers, loosely based on a mutual structure, have emerged in these low-income areas through “missions”. These are state organisations which provide subsidised food, education and work and are financed to a total of $6bn annually from Venezuela's oil export revenues and which themselves are directly under the control of President Hugo Chávez.
Over the past year, government ministers have been calling for insurance and reinsurance to be more “accessible” to the general, mainly low-income. In 2005, total written insurance premiums in Venezuela were about $2.7bn, approximately 1.9% of GDP. Five national companies dominate the primary market with a cumulative 54% share. The cooperatives are not regulated at present. But when they do eventually come under the supervisory umbrella, there could be less room for conventional insurers in the market, thinks Jorge Yanes, insurance analyst at ratings agency Fitch Venezuela.
But privately, market players interpret government calls for making insurance more accessible as a euphemism for ultimate state takeover of the private insurance and health care industry. Over the past seven years of the Chávez presidency about half of the private sector has collapsed and a growing number of firms have been expropriated. The government continues to issue regular calls for the expropriation of farms, land, second homes and even cars.
Insurers and reinsurers in Venezuela are already facing severe difficulties under the country's strict exchange controls and fixed exchange rate. Reinsurance premiums to be paid abroad must first be approved by the government's foreign exchange regulator, Comisión de Administración de Divisas (Cadivi).