Measure to reduce foreign insurer advantage in Puerto Rico to be introduced
Would allow local companies to establish their catastrophe reserve
SAN JUAN — Puerto Rico House Speaker Carlos Méndez Núñez announced Thursday that a measure will be introduced that matches the reserve requirement of insurers thus eliminating an advantage foreign companies had over Puerto Rican ones.
“The north of this measure is to allow our local insurers to compete on equal terms with those of other jurisdictions in the accounting area, which will benefit the competition, and therefore, Puerto Rican consumers,” the speaker said in a statement.
The measure was co-authored by majority New Progressive Party Reps. Yashira Lebrón Rodríguez and Antonio Soto Torres.
As explained by the speaker, Article 25.030 (6) of Act 77 of June 19, 1957, the Insurance Code of Puerto Rico, imposes on the Commissioner of Insurance the responsibility of determining the accounting treatment of the reserve in insurers’ annual statement.
“This requirement is only applicable to local insurance companies. That is, insurers from other jurisdictions do business in Puerto Rico, but are not subject to the requirements established in Chapter 25 of the Code. This, in turn, adversely affects the parameters used by the National Association of Insurance Commissioners (NAIC), AM Best, and other evaluating entities, if Puerto Rican insurers are compared with other insurers from other jurisdictions, not subject to said regulation,” the House leader said.
“That’s why this bill benefits the local consumer directly because, insofar as local insurers are harmed, there will potentially be less opportunity for them to remain in the market, thus limiting the options for our consumers,” he said.
Méndez specified that the measure eliminates the current requirement that each insurer retain at least 2 percent of its catastrophic hurricane exposure. This is replaced by the freedom for insurers to establish the amount of their reserve.
Likewise, he explained that the contributions to the reserve of catastrophic losses will be considered an unpaid loss and the minimum withholding required will be charged against the assets of the insurer when determining its economic situation. The contributions to the catastrophic reserve will be deductible as a loss when determining the net taxable income under the Internal Revenue Code of Puerto Rico.