The government adopted the measure as part of a set of initiatives to try and stop the flight of capital from the country. The Argentinian media has reported that some US$300m has already been repatriated by insurers.

The outlook review by Moody's has targeted half a dozen companies, according to Alejandro Pavlov, a senior analyst at the agency's Buenos Aires office. They include the Argentinian subsidiaries of Chubb and ACE.

The reasoning is that the obligation to repatriate assets constitutes a credit negative event because insurers will have to take the money out of high quality foreign instruments and reallocate it to local assets, which often have lower ratings.

“The new regulation will likely result in an increase in speculative grade instruments in the local market, highly concentrated in sovereign and provincial bonds (rated B3) and local bank deposits (rating ceiling of Ba1),” argued Moody's.

Moody's estimates that 16% of all assets held by Argentinian insurers are invested abroad. But the ratio is much higher in the case of some companies. For instance, the Argentine subsidiary of Zurich has 64.3% of its assets allocated outside the country. The ratio is 63.3% in the case of ACE and 60.4% for L'Union de Paris, which is part of the HDI Group.

Another view has been advanced by Fitch, which has issued a note stating that the new rules for investments abroad does not imply a short-term change in the ratings of insurance companies in Argentina.

According to Darío Logiodice, an analyst at Fitch in Buenos Aires, non-life insurers do not have a significant amount of investments abroad, and some life insurers which offer coverage with saving components are the most likely to face any effects from the repatriation rules.

But Fitch has expressed concerns about the uncertainties created in the market by the apparent ease with which the government changes the rules. “In this sense, it is possible that new changes will be introduced in the short term,” warned the company in a note.

Changes have indeed been plentiful in the Argentinian insurance market of late.

For instance, Moody's also believes that the new reinsurance market rules that were effective in September may also have a negative effect on the ratings of Argentina's insurers.

The new rules have closed the reinsurance market to foreign players by requiring that all reinsurance contracts are placed with firms based in Argentina.

The problem in this case, according to the agency, is the lack of options for insurers to place their risks in the local market.

This concern is shared by other analysts.

Superintendencia de Seguros de la Nación, SSN, has claimed that seven companies have already been granted local status and eight more application processes are under way.

But most of them are units of local insurance companies or pools of insurers which are being created to perform reinsurance transactions within their groups. Independent players capable of serving the whole market remain scarce.

From the first batch of successful applications to local status, only three reinsurers are part of foreign groups: Starr, Mafpre Re and IRB Brazil.

Even though many primary insurers were able to delay any problems until last year by anticipating the renewal of reinsurance contracts, the effects of the closure of the market can already be observed in the market, according to Moody's.

“Some insurers are not as willing now to underwrite certain reinsurance-supported primary coverages, in particular those requiring facultative reinsurance coverage, because of risk management and/or capital adequacy considerations,” said the agency in a note. “These insurers are not yet able to obtain such reinsurance in the domestic market and have not yet gained approval to access the international market directly through the regulatory exception.”

Fitch believes that insurance prices could rise as the market becomes less efficient under the new reinsurance rules.

But Mr Logiodice said that the market is still adapting to the new business environment and it will take time for the effects of the changes to be fully felt.

“In practice, the problem will be more seriously felt in 2012,” Mr Pavlov remarked. “There have not been any impact on ratings yet, but in some cases, the reinsurance regulations combined with the changes in investment policies could have an important effect on the ratings of some companies that have a high level of investments abroad and large cessions to reinsurers.”

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