Puerto Rico is ramping up its efforts to become a reinsurance capital that it hopes will rival Bermuda and the Cayman Islands, according to a representative of the Puerto Rico department of insurance.

At press time, the first application of the International and Offshore Center is close to being approved and another company is in the process of submitting a formal application, according to Osvaldo Ramirez Bermudez, a director with the Center and a representative for the Puerto Rico insurance department.

Nine companies are presently conducting due diligence examinations to determine whether to establish operations in Puerto Rico and 2-3 local companies are considering forming reinsurance operations, Bermudez says.

The idea was first raised over 30 years ago when Harold Shapiro, who headed up Puerto Rico’s department of economic development, raised the idea. It was resurrected in 2003 and on July 9, 2004, Puerto Rican legislature passed legislation to form an entity (the International and Offshore Center) that would oversee the writing of insurance on foreign risks, reinsurance and Puerto Rican excess lines risks.

The legislation went into effect in March 2005, and in June 2005, regulations were put into place so that the law could be implemented.

The law creates 5 classes of authority that include pure and association captives, two property-casualty classes, and, an unrestricted life and disability class. The life insurance class permits companies with this authority to write disability, life and reinsurance disability and life business.

Among the companies expressing interest at this point, according to Bermudez, are two from Latin America that write life reinsurance with the remainder being property-casualty companies.

The goal is to reach a decision on applications within 30 days of submission, Bermudez says. International companies that are given authority are granted an exemption from all Puerto Rico taxation.

The goal of the Center and the department, headed up by Dorelisse Jurabe Jimenez, Puerto Rico insurance commissioner, is to have 3-5 reinsurers at the end of the first year of operation, and 15-20 by the end of the 5th year, Bermudez says. A total of $104 million in direct revenues is anticipated by the end of the 5th year, he adds.

Currently, according to P.R. law number 399, the Puerto Rican insurance industry generates more than $5 billion in premiums annually, 3 times the volume subscribed in 1990 and a 30% increase over the volume subscribed in 1998. Puerto Rico, according to the Law # 399, is the 4th largest insurance market in Latin America after Brazil, Mexico and Argentina.

The law sets up guidelines for establishing operations in Puerto Rico. Entities set up would be exempt from contributing to guaranty and insolvency funds in Puerto Rico and could not gain any benefit from any such fund. In addition, no international insurer is required to be a member of a rating organization or be subject to rate filings, and no international insurer shall be required to submit any forms or rates for approval by the commissioner.

The law also establishes minimum capital and surplus requirements. For instance, companies in the life and DI business must have no less than $750,000 in capital and surplus in addition to what is required for other classes of authority.

An international insurer must maintain the smaller of this required amount for its class of authority or $5 million.

Advantages that establishing reinsurance operations in Puerto Rico offer, Bermudez says, are being part of the U.S. and its monetary and judicial system, being run by an insurance department that is in the process of establishing accreditation with the National Association of Insurance Commissioners, Kansas City, Mo., and becoming part of a reinsurance center that will be a portal for European and Latin American companies.

Bermudez says that since 1986, Puerto Rico has had an international banking center and that there would be the possibility to coordinate efforts for companies that have both banking and reinsurance operations. The law in Puerto Rico allows the use of letters of credit, he adds.

To help establish a stronghold as a reinsurance center, the Center is planning an active marketing campaign this year in venues ranging from the NAIC to the Risk and Insurance Management Society, New York.