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Starting April 15th, 2008, the
Brazilian reinsurance market will be open to foreign and
domestic competitors. IRB Brasil Re, until now the only
authorized reinsurance entity, will lose its statutory
monopoly. Susep (Private Insurance Superintendency) will
regulate the reinsurance market (which covers both reinsurance
and retrocession, usually involved in large policies). IRB is
allowed to continue operations as a qualified local
reinsurer.
CNSP Resolution No. 168/2007 and
its supplementary Resolutions, issued December 17, 2007, thus
complete the change in statutory regime provided for in
Complementary Law No. 126 issued 15th January 2007. The Law
contemplates three types of reinsurers: "local",
"admitted" and "occasional" and sets
different criteria for each, although all must be registered at
Susep. Although no regulated reinsurer may engage in other
types of business or insurance activities, a Local Reinsurer
may act as the representative of an Occasional Reinsurer, and
companies of the same group may contract reinsurance or
retrocession coverage from a related insurer.
Local Reinsurers must take the
form of a Brazilian sociedade anônima, or
corporation. Admitted Reinsurers and Occasional Reinsurers are
foreign reinsurance companies, the former having a
representative office in Brazil, while the latter are exempt
from this requirement. Both must have been operating in their
regulated home market for at least five (5) years. Occasional
Reinsurers may not be incorporated in tax haven jurisdictions,
defined by statute as those who tax corporate income at a rate
less than 20% or whose corporation laws do not permit the
identification of shareholders. The minimum capital for Local
Reinsurers is R$60 million (around US$ 33 million), that
Admitted Reinsurers is US$100 million, while that for
Occasional Reinsurers is US$150 million.
Local reinsurers are subject to
standard regulatory controls, such as minimum capital, loss to
premium ratios and actuarial tables. Foreign reinsurers must
have a minimum solvency classification issued by international
risk evaluation agencies and Admitted Reinsurers must maintain
an account with Susep to guarantee its obligations.
Under the statute, through
January 16, 2010, Brazilian insurers must offer at least 60% of
their reinsurance needs to Local Reinsurers, and 40% after that
date. Moreover, reinsurance of life insurance and private
pension funds is restricted to Local Reinsurers. Reinsurance is
to be contracted in Brazilian currency save where permitted by
the regulations—where the insurance itself is in
foreign currency, where losses may occur abroad or where the
majority of non-proportional reinsurance is by foreign
reinsurers.
The regulations permit the
participation of reinsurance brokers, and stipulate certain
contractual terms of interest to foreign reinsurers, among
which are some that permit disputes to be resolved by
arbitration, without regard to Brazilian law, and which permit
reinsurers to be involved in claim adjustments, without
prejudice to the ultimate liability of the insurer to the
insured.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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