FURTHER DEVELOPMENTS IN FOLLOW THE SETTLEMENTS IN LATAM

FURTHER DEVELOPMENTS IN FOLLOW THE SETTLEMENTS IN LATAM.

INTRODUCTION We hereby address various questions on follow the settlements clause as applicable in Argentina, Colombia, Brasil, Mexico, Panama and Peru to facilitate an understanding on the names in which follow the settlement clause fits in the legal framework of each of them countries and its application. A questionnaire was completed by the fully specialized lawfirms in each jurisdiction, to which I am very grateful: Argentina Martín Argañaraz and María José Sánchez, Allende & Brea Brazil Eduardo Avila de Castro, Machado & Meyer. Colombia Oscar Tutasaura Posse Herrera Ruiz. Panama Ernesto Arias Sucre Arias Reyes. Peru Marco Rivera Osterling. Finally, I also must thank Juan Pablo Sainz and Lorena Tejedo of NHG for their support in this presentation and research.

CHART JURISDICTION SPECIFIC LEGAL FRAMEWORK SPECIFIC LEGAL PROVISIONS INTERPRETATION AND EFFECTS OF THE CLAUSE PROOF OF LOSS AND REQUIREMENTS PRECEDENTS PARTICULARITIES ARGENTINA Subject to CC, ICL and reinsurance agreement Silent Contract, insurance regulations and customary practice Silent N/A 3 rd party damage shall be compensated BRASIL Subject to decree-law 73/66 N/A Insurance principles and good faith Silent Follow the fortunes precedent Common clauses COLOMBIA Law agreed by the parties Cc art. 1134 Accordng to law agreed by the parties or CC Insured has freedom to prove the loss N/A MEXICO Subject to CC Silent Clauses are valid and binding according to CC Silent N/A Common clauses N/A Reinsurance contract N/A Contractual freedom prevails. Companies shall be registered at the sirp N/A Reinsurance contract Judge may request additional evidence if deemed appropriate N/A SBS authorized and BBB-S&P or similar rating PANAMA PERU N/A Subject to ICL

ARGENTINA LEGAL FRAMEWORK v In Argentina, reinsurance activity is governed by the terms and conditions of the reinsurance agreement , the specific regulation for reinsurance agreements and the insurance contract law. v Argentine law is silent on this type of provisions, however this is a common clause found in reinsurance contracts. THE CLAUSE v There has been no court ruling on the interpretation and effects of this clause. Eventually Argentine courts should interpret this clause pursuant the terms and conditions of the contract, the insurance regulations and the international custom and practices. This practices should be considered valid and binding by a local court.

ARGENTINA PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE v In Argentina, there have been case law precedents that consider, in some cases, that deductibles established in an insurance contract are unenforceable against affected third parties. In those cases the insurer shall compensate the affected third party even though the amount claimed is below the deductible set forth in the insurance contract executed between the insured and the insurer. v Whereas, the insurer have to pay as indemnification below the deductible, pursuant a judicial ruling, many insurers have understood that they could attempt to make a claim against its reinsurer for the amount paid as, on the basis of the “follow the fortunes” or “follow the settlements” doctrine.

ARGENTINA PROOF OF LOSS AND REQUIREMENTS v Considering that (i) there is no Argentine legal provision establishing such reinsurance principle, and (ii) there are not case law precedents of the Argentine courts dealing with such matter, it is the insured who must prove conclusively before a local court the application of this international doctrine resorting to the international custom and practice of the reinsurance market. v Follow the settlement clauses may only be effective when the insured is legally liable. The reinsurer would not be bound by a follow the settlement clause if the cedent’s claim relies on an ex-gratia payment to the original insured.

COLOMBIA APPLICABLE LEGISLATION v. Reinsurance Contracts are governed by the law agreed by the parties with the only exception of statute of limitations. According to Colombian Law the reinsurer liability shall not end, in any case, before the statute of limitations applicable to the insurer. v. Parties are free to the chose applicable law, if they do not specify the applicable law, the doctrine has stated that the applicable law to the reinsurance contract is the ceding insurer´s Law. v. The Colombian Code of Commerce establishes in article 1134 that the reinsurer is bound to the insurer in the same terms that the insurance company is bound to the insured.

COLOMBIA THE CLAUSE v The interpretation will depend on the applicable legislation selected by the parties and in the terms and conditions of the reinsurance contract. In insurance and reinsurance contracts the “good faith” principle applies. PROOF OF LOSS AND REQUIREMENTS Under Colombian Law, the insured has freedom to prove the ocurrence and amount of the loss. If the ocurrence of the loss and its value is proved by the insured or beneficiary, the insurer must pay the claim. Since that moment the ceding insurer is entitled to affect the reinsurance contract. v Usually, the insurer takes the same evidence given by the insured to prove its right in light of reinsurance contract. v

COLOMBIA v v PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE The parties of the reinsurance contracts are free to include the follow the settlements clause in the contract. The interpretation of the clause will depend on the applicable law chosen by the parties and terms and conditions agreed in the contract. If the parties do not specify anything related to follow the settlement clause, and in the event that Colombian Law applies, this clause will be interpreted broadly. According to the Code of Commerce the reinsurer follows the fortune of the insurer, unless bad faith is proved.

BRAZIL LEGAL FRAMEWORK v Decree-Law No. 73/66 and complementary Law 126/02 are basic statutes regulating the National Private Insurance System, these laws contain general rules and principles that must be followed regarding insurance and reinsurance business in the country. Brazilian laws and regulations do not contain any specific provision governing “follow the settlements” clause. THE CLAUSE v Reinsurance agreements are subject to general contract law and must be construed in accordance with certain general insurance principles and rules, especially the utmost good-faith principle.

BRAZIL PROOF OF LOSS AND REQUIREMENTS v Based on an interpretation of anti-money laundering rules and regulations, certain brazilian scholars sustain that insurers may not make ex gratia payments to insured parties and therefore, that such payments could not make part of the relevant reinsurance coverage. PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE v The majority of reinsurance agreements contain general, relatively, “follow the fortunes” clauses. Furthermore, several agreements also contain “follow the settlement” clauses, as well as “claims notification” or “claims cooperation” (more rare) clauses.

MEXICO v v v LEGAL FRAMEWORK There is no specific law for reinsurance contracts. These are subject to the Code of Commerce and to the extent applicable to the Insurance Contract Law. Mexican law does not regulate settlement clauses. Follow the Settlement clauses in reinsurance contracts shall be subject to the specific terms and conditions agreed in the reinsurance policy. THE CLAUSE Follow the settlement clauses are valid and binding. In case of breach of the clause, the insurer may claim either: specific performance on the reinsurance contract or an indemnity for damages and loss of profit.

MEXICO PROOF OF LOSS AND REQUIREMENTS v. Mexican law is silent on proof of loss and requirements. But it is customary that the insured must prove the covered peril and amount of the loss suffered. v. If the cedent´s claim relies on an ex-gratia payment to the original insured, the reinsurer wont be bound by a follow the settlements clause. PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE v. As a general rule, foreign insurance and reinsurance companies are not allowed to take direct insurance in Mexico on a non-admitted basis; hence, fronting operations are a common practice. v. Mexican regulation sets maximum retention limit for Mexican insurance companies. Most of the companies cede the risk to foreign reinsurers.

PANAMA LEGAL FRAMEWORK v Reinsurance contracts are subject to the Reinsurance Agreement. Follow the Settlements are not regulated by statute or any law in Panama. These clauses are therefore subject to the terms and conditions of the reinsurance policy. THE CLAUSE v Circuit Courts (if the parties agree) will interpret the reinsurance policy pursuant to their terms and conditions according to the Commercial Code of Panama. v Follow the settlement clauses in reinsurance contracts are valid and binding and thus enforceable.

PANAMA PROOF OF LOSS AND REQUIREMENTS v. Proof of loss is not regulated in Panamian Law. Parties will have to abide by what was agreed in the reinsurance contract and in its defect, by local commercial practice. PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE v. Total contractual freedom prevails. Parties may agree whatever they desire, provided their agreement does not violate the law, moral and public order. v. Local risks and persons may only be insured by licensed companies in Panama. The reinsurance company should be registered before the Superintendence of Insurance and Reinsurance in Panama. v. Whenever an insurance company isn´t capable to accept a specific risk, it may front reinsurance and cede 100% of the risk if so desired.

PERU LEGAL FRAMEWORK v In Peru, reinsurance contracts are subject to the Reinsurance Agreement. v The legal treatment of reinsurance policies is undeveloped in Peru, and there are no clear rules in this respect. Rather, it is likely that the insurance and general contractual provisions would be applied to reinsurance policies. THE CLAUSE v It is likely that a Peruvian Arbitral Tribunal would seek uniformity between insurance and reinsurance policies in respect of a claim, while a clearly drafted clause be given effect.

PERU PROOF OF LOSS AND REQUIREMENTS v The burden of proof rests on who asserts the facts supporting his claim or on whoever contradicts alleging new facts. However, article 194 of the Peruvian Civil Procedure Code states that when the evidence presented by the parties is insufficient, the judge, in a reasoned and unchallengeable decision, can request the parties to file any additional evidence he deems appropiate. PARTICULARITIES IN THE USE OF THE FOLLOW THE SETTLEMENT CLAUSE v To proceed with insurance and banking activities, a person must be authorized by the Superintendence of Banking and Insurance. Thus, in order to write insurance locally, a fronting company is required. However, according to article 10 of the General Law, Peruvian residents are able to contract insurance policies from foreign companies if done so abroad. Peruvian insurers are able to write reinsurance in Peru if licensed.