US embassy cable - 04BOGOTA4475

UNCLAS SECTION 01 OF 02 BOGOTA 004475 
 
SIPDIS 
 
USDOC FOR ITA/TD/LMARINACCIO 
STATE PLEASE PASS TO USTR/KCLAMAN AND FHHUEGEL, AND 
EB/TPP/MTA/MST 
 
E.O. 12958: N/A 
TAGS: ECON, BEXP, ETRD, CO, FTA 
SUBJECT: INSURANCE ISSUES IN FTA NEGOTIATIONS WITH COLOMBIA 
 
REF: STATE 82588 
 
1.  Following is post's response to REFTEL request for 
information on Colombia's insurance sector in preparation for 
FTA negotiations which begin on May 17. 
 
2.  Begin Questions and Answers: 
 
Q: Has the country engaged in any treaties in which they 
grant insurance-sector preferences to another country?  If 
so, please provide details. 
 
A: Colombia is not party to any treaties granting insurance 
preferences to other countries. 
 
Q: Are there equity limits for foreign insurance companies? 
If so, are there foreign insurance companies in the market 
place with equity higher than the current restriction? 
 
A: There are no equity limits for foreign insurance companies 
in Colombia. Over 60% of insurers are foreign. 
 
Q: Are there legal limitations on the structure of foreign 
insurance companies operating in the host country (e.g. 
branch, subsidiary, joint-venture, representative office)? 
 
A: Yes, Decree 663 of 1993 prohibits transactions with 
foreign insurance firms or their representatives if they do 
not have a commercial presence in the country.  This 
limitation applies not only to life insurance, pensions, and 
health insurance, but also to insurance for transportation of 
people and merchandise.  Foreign insurance companies must 
establish commercial presence in the country through 
subsidiaries. 
 
Q: Can insurance companies engage in non-life, life and 
reinsurance activities from the same legal entity? 
 
A: No.  Insurance companies cannot engage in different 
insurance activities from the same legal entity (except for 
some complementary activities as provided by law.)  Life 
insurance companies cannot engage in any other insurance 
activity.  Likewise, reinsurance companies are only 
authorized to engage in reinsurance activities. 
 
Q: Does the host country allow universal banking via foreign 
firms? 
 
A: Foreign providers are not barred from any activity as long 
as they are established as a subsidiary with commercial 
presence.  This means they must comply with minimum capital 
requirements as local companies.  Foreign insurance companies 
are not allowed to operate as branch offices (except for 
advertising purposes).  Banks cannot engage in different 
financial activities; management for each activity must be 
separate. 
 
Q: What types of insurance services are compulsory?  Are 
foreign insurers allowed to provide compulsory insurance? 
 
A: All automobile owners must purchase third-party auto 
insurance.  Also, work-related accident insurance is 
mandatory in workmen's compensation plans.  Foreign insurers 
are allowed to provide compulsory insurance. 
 
Q: Is there an obligatory pension scheme?  Is there a 
voluntary pension system?  Do private firms manage voluntary 
pensions?  Is the market open to foreign participants?  If 
private firms can manage the voluntary portion of an 
employee's pension, is this open to foreign competition? 
 
A: A mandatory pension contribution of 13.5 percent of salary 
must be deposited either in the state pension fund (ISS) or 
in a private fund.  According to the pension reform of 2003, 
this contribution will increase one percentage point in 2004 
and two percentage points in 2005.  Moreover, the minimum 
retirement age will increase from the current 60 for men and 
55 for women (valid until 2008) to 62 for men and 58 for 
women (from 2009-2018) to finally 65 for men and 62 for women 
after 2018.  A system for voluntary pensions also exists. 
Private and public pension funds are able to manage 
contributions to voluntary pension systems.  Pension funds 
can only invest up to 10 percent of their portfolios abroad. 
The pension market (mandatory and voluntary regimes) is open 
to foreign competition. 
 
Q: Are capital controls applied to firms in the insurance 
sector? 
 
A: There are no capital controls in the insurance sector. 
 
Q: What are the established capitalization levels?  Are there 
capitalization differences for domestic and foreign firms? 
A: According to Colombian law, all insurance companies in 
Colombia (except reinsurance companies) must maintain minimum 
capitalization levels of 7.5 billion Colombian pesos (or 
approximately US$ 2.5 million.)  Reinsurance companies must 
maintain minimum capitalization levels of 23.4 billion 
Colombian pesos (or approximately US$ 8.5 million.)  There 
are no capitalization differences for domestic and foreign 
firms. 
 
Q: Are there limitations on how the minimum technical capital 
can be invested?  Can it be invested abroad? 
 
A: 100 percent of the required technical capital must be 
invested in government bonds or bonds issued by the Central 
Bank, or FOGAFIN, or any other stock or securities issued by 
private or public firms as approved by Decree 094 of 2000 and 
Decree 2779 of 2001.  It should be noted that minimum 
technical capital is defined as the difference between the 
present value of future risk (that would be paid by the 
insurance provider) and the present value of net payments (by 
the insured legal entity).  Additional statutory capital that 
is not part of the minimum technical capital has no 
limitations and can be freely invested.  A maximum of 10 
percent of a company's investment portfolio can be invested 
in securities issued by the same legal entity. 
 
Q: Does the state insurance control body provide public 
notice and an opportunity for public comment in the 
development of new insurance regulations? 
 
A: The Banking Superintendent acts as the state insurance 
control body.  All new insurance regulations are published on 
their website www.superbancaria.gov.co. There are no 
established procedures for prior comment on new insurance 
regulations. 
 
Q: Are there any state-controlled insurance or reinsurance 
companies in the market place and, if so, are there any 
requirements for mandatory reinsurance cessions to these 
companies? 
 
A: There are no state-controlled insurance or reinsurance 
companies, nor mandatory reinsurance cessions.  All 
reinsurance companies operating in Colombia are foreign 
reinsurance companies.  Reinsurance activity is liberal in 
Colombia.  All foreign reinsurance companies are required to 
register with the Banking Superintendent. 
 
Q: Are there any limits on the consumption abroad of 
insurance services? 
A: Consumption of insurance services abroad is strongly 
restricted in Colombia, including insurance for 
transportation services needed abroad.  The purchase of 
insurance abroad is allowed only when no similar insurance 
service is available domestically.  To purchase insurance 
services abroad, the purchaser must be authorized by the 
Banking Superintendent. 
 
Q: What types of insurance may be provided cross-border? 
 
A: Colombian legislation restricts all cross-border insurance 
activity, including insurance for transportation services as 
explained above.  Locally established insurance companies 
must provide insurance for vessels, airplanes, and 
automobiles operating domestically, even those under a 
foreign flag.  The Financial Statute prohibits transactions 
with insurance companies that are not legally registered and 
established in Colombia.  Such limitations include life and 
non-life insurance. 
WOOD