Venezuela remains an enticing and daunting jurisdiction in 2010, as the government continues to intervene in the financial services and other major industries and the insurance industry faces the prospect of a new comprehensive insurance law. Counterbalancing these concerns is the country's high premium growth rates, buoyed by untapped demand, petroleum-related industry and an economy with little dependence upon the struggling U.S. and European markets. As a whole, Venezuela remains a study in extreme balancing of potential risk and reward.

New Insurance Law

During 2009, increasingly dire predictions came out of Venezuela concerning the contents and potential impact of a proposed comprehensive new insurance law containing more than 300 new articles governing the authorization of insurers and reinsurers, approval of products and regulation of market conduct. The stated goal of the legislation was consistently promoted by the government as the elimination of past abuses in the market and the mandating of fair treatment of the general population. Not surprisingly, the proposed solutions involved further limitations upon private, and particularly foreign, insurers and reinsurers. The comment period on the bill passed during 2009, and many expected the bill to pass the legislature before the end of the year. Nonetheless, as of the writing of this whitepaper, the law has still not been enacted.

As to foreign insurers and reinsurers, the law contains a prohibition against doing business with such entities as to Venezuelan risks in the absence of authorization of the foreign entities or approval by the Venezuelan authorities on a surplus lines basis. Of far greater concern, however, the proposed legislation provides for policy-by-policy review by the nation's insurance regulator to ensure that premiums charged are "fair." Given the government's greater involvement in the insurance industry, discussed in further detail below, the potential for mischief is nearly endless.

In addition, in December 2009, the government announced that insurers would be required during fiscal 2010 to pay a "special contribution" tax of .30% of their total net premiums for 2009.

Nationalization of Banks/Insurers/Insured Assets

Nationalization of insured assets remained a concern in Venezuela in 2009, particularly in petroleum sector. In June, London's marine insurance market announced that it had withdrawn maritime war-risk coverage for Venezuela (including Lake Maracaibo), as well as the nation's "Exclusive Economic Zone," which stretches up to 20 nautical miles off the country's shores. The move came after the Venezuelan government expropriated more than 300 service vessels and more than 70 gas processing units belonging to foreign companies, including Tidewater, Inc. and Exterran Holdings, Inc. The move represented the first time in some twenty years that a South American nation has been excluded from maritime war-risk coverage. It should be noted that the move did not block London underwriters from charging additional premium to reinstate coverage as to the affected area.

Government intervention in the financial services sector also became of growing concern in Venezuela in 2009. In May, the Venezuelan government nationalized Banco de Venezuela, the local subsidiary of Grupo Santander and the third-largest bank in the country. In December 2009, the Venezuelan government proceeded to nationalize two small banks, Confederado and Bolivar Bank, and liquidated two related firms, Banpro and Canarias, purportedly due to violations of the country's banking laws. The government has also placed a number of other banks under investigation, including Central Banco Universal, Baninvest and Banco Real. In addition to the banks nationalized this year, the Venezuelan government already controlled Banfoandes, Banco del Tesoro, Banco Industrial and Banco Agricola, which themselves represent approximately 25% of the country's deposits.

As part of its nationalization of these banks, the Venezuelan government took control over the entities' related insurance operations, including Seguros Premier. In addition, the government nationalized private insurer Seguros La Previsora (the country's fourth-largest insurer) in December of 2009, asserting that the company was two months behind on its obligations to certain insured public institutions. Finally, in the last days of 2009, the Venezuelan regulator authorized the creation of a state-owned insurance and reinsurance company named Bolivariana de Seguros y Reaseguros. The government has stated that the new company's initial role will be to cover risks related to the nation's international agreements. Combined with the impending new insurance law and the recent government seizures, however, there is little reason to believe that the government will not soon became a major player in the Venezuela's private insurance market.

Double-Digit Growth

The only reason that Venezuela remains attractive despite these issues is because premium growth in the country remained extremely strong in 2009. For the year, growth rates remained between 20% and 40% depending upon the periods compared, with premium growth nearing and even topping 50% in a number of different product lines. Premium growth reports consistently placed Venezuela among the fastest growing markets in Latin America in 2009, generally ranging between 20 and 40% annual growth. These bottom-line numbers continued to result in foreign companies navigating the existing and developing hurdles to success in Venezuela, with new companies entering the market in 2009 and many others continuing their business in the country.

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