When the Dominican Republic enacted a new insurance law last summer, it affirmed its interest in having insurance companies from the United States and other countries operate in the Dominican Republic. The new law also makes clear what requirements insurers from the U.S. and elsewhere must meet to enter the Dominican market.
The law sets forth separate requirements for local insurers and for foreign insurers operating in the Dominican Republic.
A local insurer must be established as a commercial company, in accordance with the Dominican Commerce Code, and must be devoted exclusively to insurance operations, reinsurance, or both, and to other operations that normally are related to those activities.
The minimum paid-in capital of insurance companies is RD$8,500,000, or its equivalent, in Dominican pesos, of US$500,000. Up to 10 percent of the minimum capital may be used to create a guarantee fund, which will serve to compensate for unexpected accidents as well as a means of financing in cases of significant financial loss. The Superintendent of Insurance is empowered to adjust, in consultation with insurers and reinsurers, the minimum subscribed and paid-in capital required of insurers as well as the portion that may be used for the guarantee fund.
The law also requires that the stock structure of domestic insurance companies must have at least 51 percent of the amount of its paid-in capital held by Dominicans. Similarly, a majority of stock must be owned by Dominican individuals.
Foreign insurers must meet all of the requirements applicable to local insurers. In addition, foreign insurers should:
- have operated in their country of origin for more than five years,
- file a certification from the appropriate authorities from their country that states that they meet the requirements necessary to operate as insurers in their country of origin, and
- must demonstrate that at least 51 percent of their paid-in capital was contributed by non-Dominicans.
Various provisions of the Dominican insurance law explain what may be included in an insurance contract. For example, it must be written in the Spanish language or, if written in another language, it must be accompanied by an official translation that will be relied on if needed to interpret the agreement.
Additionally, the law sets forth the content and extension of coverage that can be granted under each insurance line, and the conditions that may be established by the insurer in issuing the policy as well as the permitted exclusions. It also notes that an insurer issues insurance, assumes its responsibilities, and sets premiums on the basis of the statements and descriptions made by the insured or its representative in the application or other document. Moreover, the insured or its representative must not omit any circumstance related to the risks, nor make claims after an accident, that contradict its prior statements.
Insurers may not issue a policy that covers risks that would be covered by different insurance lines. The law also establishes a two year limitations period from the date of an accident by which an insured must initiate any action against the insurer or reinsurer, and a three year period for third parties to commence such an action.
In the case of life insurance, the law also requires that policies include clauses relating to a grace period, indisputability, non-forfeiture, dividends (when corresponding to participating plans), automatic premium loans, liquidation options, and value tables.
The law also establishes that properties covered under an insurance contract generally will be considered insured at their market value, and that it is the responsibility of the insured to indicate in the application its correct value and keep it up to date during the life of the contract. In addition, a property insured in an amount higher than its market or replacement value does not increase the amount payable on its loss and does not result in any additional obligation on the part of the insurer, other than a duty to reimburse the policyholder for the excess premium paid.
As provided by the insurance law, for policies to be in force, payment of specified premiums generally must be received in its entirety by the insurer or its agents within the first ten days of a policy's issuance, unless otherwise agreed upon by the parties. Regarding the terms of payment agreements that parties may agree upon, the law envisages that the maximum period for premium payment cannot exceed 120 days as of the date of issuance and in any case the insured must pay at the time of the formalization of the payment agreement a minimum of 25 percent of the total policy premium. It is important to point out that premiums paid by an insured to his or her insurance broker will not be considered paid to the insurer while payment has not been received by the insurer or its general or local agent unless they have authorized the insurance broker in writing to collect said premiums.
Coinsurance policies are recognized in the Dominican Republic. These policies offer coverage provided by more than one insurer for the same risk and through one document. The insured may designate the insurer that will perform as "agent" to represent the other insurers involved. The agent will be responsible for total collection of premiums and its proportional distribution among the other companies involved. Each coinsurer will be responsible for claims that correspond to the percentage of its participation.
Insurers may propose premium rates for the products they offer in their respective lines. Rate proposals are to be filed with the Superintendent of Insurance for their evaluation and approval. After they are approved by the Superintendent, they cannot be modified, except if they are again filed for approval with the Superintendent.
In accordance with the law, insurers, reinsurers and their associations may recommend guidelines to serve to establish individual rates, as well as suggest to the Superintendent benchmarks for revision of said rates.
Any party to an insurance contract may seek to cancel it. Where the insured requests cancellation, the insurer may retain the portion of the premium corresponding to the time the insurance was in force, calculated on the basis of a short-term rate established in the contract. The insurer also may deduct an amount equal to the total of claims paid during the period in force from the amount to be reimbursed.
Where the insurer requests cancellation, the portion of the premium corresponding to the time the policy was in effect will be withheld. The insurer must notify the insured in writing at least 10 days prior to the cancellation and then file that notification with the Superintendent.
Cancellation of insurance due to lack of payment does not prevent the policy from being in force until the date covered by the amount of premium paid, unless the insurer decides to reimburse the amount of the unused portion of the premium.
An insured's claims must meet the requirements and provisions in the policies. After receiving a claim that meets these formalities, an insurer must notify the insured in writing about his or her claim within a period not to exceed 30 days.
In the case of disputes that arise regarding the position adopted by an insurer with respect to a claim, the insured may resort to arbitration and conciliation procedures established by the new insurance law.
Arbitration and Conciliation
The law establishes rules for the appointment of an arbitrator to resolve disputes arising between insurers and insureds with respect to claims filed by insureds. In such a situation, an arbitrator is to be appointed by mutual and written agreement of the parties. In the absence of an agreement, each one of the parties may appoint, at its own cost, an arbitrator to settle the dispute in question. If the appointed arbitrators do not reach an agreement, the parties will appoint a third arbitrator who will chair the hearings, reach a decision with the others by majority vote, and draw up the arbitral award.
As provided by the insurance law, insurers must have the following reserves:
- Actuarial reserves
- Reserves for risk in progress
- Specific reserves
- Reserves for possible liabilities
- Reserves for catastrophic risks
The law also provides that all insurers and reinsurers, in all lines, must invest reserves in certificates of deposits in banks located in the Dominican Republic or in financial instruments easily liquidated, issued and guaranteed by institutions authorized as such within the financial system, or in:
- securities issued or guaranteed by the Dominican government;
- loans with first lien mortgage guarantees, as long as the properties given as guarantee are located in the Dominican Republic and the amount does not exceed 60 per cent of the actual value of said property;
- stocks and bonds of local companies dedicated to promotion of health centers, social security, industrial, and development of local tourism;
- real estate located in the country, so long as it is free of encumbrances and, when it includes buildings, is well insured, particularly against catastrophic risks;
- loans to insureds guaranteed by their own individual life insurance policies, in the amounts of their guaranteed securities; and
- term deposits in banks located in the Dominican Republic.
Retained Line and Reinsurance
The retained line consists of the maximum amount to be withheld in each individual risk by insurers and reinsurers in any of the lines in which they are authorized to operate and has the objective of providing companies with the necessary creditworthiness and financial stability of their portfolio in the case of an accident of significant magnitude.
The retained line of an insurer or reinsurer authorized to operate in the Dominican Republic may be the equivalent of 10 percent of its equity. Insurers and reinsurers may freely set their withholding or amount they wish to assume on their own account, without reinsurance, for each risk they accept directly or through reinsurance, as long as said amount does not exceed its retained line, nor is lower than 2.5 percent.
Under the law, insurers and reinsurers are prohibited from taking a variety of actions, such as granting loans guaranteed by their own shares, extending credit to individuals or companies residing outside of the Dominican Republic, and retaining for over two years real estate acquired in payment of debts.
The new insurance law of the Dominican Republic also contains provisions setting forth accounting rules for insurers and reinsurers and relating to adjusted technical equity and minimum liquidity, the total and partial assignment of portfolios between insurers and reinsurers operating in the same line of insurance, mergers of insurers and reinsurers, and dissolution of insurance and reinsurance companies. U.S. insurers seeking to expand their operations should recognize the extensive insurance law now in effect in the Dominican Republic, and the opportunities it provides.
Ricardo A. Pellerano is a Partner with the Dominican Republic law firm of Pellerano & Herrera. He regularly represents foreign investors in transactions in the Dominican Republic and throughout the Caribbean and Latin America.