On August 21 1996, the Brazilian Congress approved an amendment to the Federal Constitution (Constitutional Amendment No. 13) extinguishing the monopoly on the reinsurance business in Brazil, assigned until then to the Instituto de Resseguros do Brasil - IRB ("IRB"). Subsequently, Article 59 of Law No. 9649, of May 27, 1988, changes its name to IRB-Brasil Resseguros S.A. ("IRB-Brasil Re"), and all the reinsurance activities in the country are under the control of IRB-Brasil whose majority shareholder is the Federal Government. Therefore, in practical terms, the reinsurance monopoly still exists de facto.
Circular No. 8 issued by the Head of IRB-Brasil Re on April 2, 2002 sets forth a special procedure, as outlined below, that enables insurance companies to negotiate internationally the reinsurance coverage for new risks assumed from April 2 onwards and that are known to demand optional placement abroad.
Upon receiving a request for quotation or insurance coverage qualifying for this special procedure, the insurance company willing to adopt it will immediately inform IRB-Brasil Re of its intention and formally request the corresponding process number to IRB, attaching the available preliminary documents. Subsequently, the insurance company may consult directly with any of the reinsurance companies represented in Brazil, forwarding to them the documentation required for the pre-evaluation of risk. In this case, "represented in Brazil" means that the reinsurance company concerned is required to have a fixed address and technical team permanently available in the Brazilian territory. After the evaluation, the reinsurance company will confirm in writing to the insurance company the reinsurance coverage to be attributed to the risk, which must be equivalent to at least 30% of the total amount to be reinsured. Once these requirements are duly fulfilled, the insurance company will forward to IRB-Brasil Re the reinsurance proposal together with the relevant documents required to evaluate the risk accompanied with the written confirmation by each reinsurance company involved in the process. Then, IRB-Brasil Re may or may not authorise the placement of risk with such reinsurance companies. Circular No. 8 further clarifies that the use of such special procedure means simply that IRB-Brasil Re is ready to allow insurance companies to participate in optional reinsurance coverage negotiations on the international market. It does not imply any waiver or reduction by IRB-Brasil Re of its prerogatives, which will have the discretion to approve or not the placement abroad. Additionally, IRB-Brasil Re will be entitled to request other quotations from other or the same reinsurance companies directly consulted with by the insurance company, establish new requirements or do anything it deems necessary for the proper discharge of its legal duties. The special procedure established in Circular 8 will be reviewed six months from now taking into consideration the evolution of the reinsurance international market and its impact on the operational routines of the insurance companies and the IRB-Brasil Re.
In summary, this new special procedure applies to new risks only, since renewing existing operations is still entirely up to the IRB-Brasil Re. Brazilian insurance companies can consult solely with those foreign reinsurance companies that are represented in Brazil, and despite these restrictions, the contracting of the reinsurance coverage for new risks is subject to the prior and express approval of IRB-Brasil Re.
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