Brazil: Memorandum - Insurance, Reinsurance And Pension - (08/03/2013)

1. CNSP Resolution No. 276/13

CNSP Resolution No. 276/13, in force since February 18, 2013, sets forth rules and procedures for the calculation of retention limits for insurance companies and local reinsurers.

The new rule revoked CNSP Resolution No. 40 dated December 8, 2000, as well as CNSP Resolution No. 57 of September 3, 2001, CNSP Resolution No. 71 of December 3, 2001, and CNSP Resolution No. 172 of December 17, 2007, which established the calculation of insurance company technical limits and instituted rules and procedures for local reinsurance company retention limits, consolidating into a single rule the provisions regulating this area.

According to the new standard, retention limit values by lines of business and groups of lines of business must be calculated in February and August of each year based upon the company's adjusted net worth and should be notified to the Brazilian regulator (SUSEP) on a monthly basis. Insurance companies do not need to obtain SUSEP's prior approval if their retention limits are less than or equal to 5% of adjusted net worth.

2. CNSP Resolution No. 278/13

CNSP Resolution No. 278/13, in force since February 18, 2013, provides for restitution of brokerage commissions to insurance companies in the event of insurance policy cancellation or return of premiums.

Article 1st of the new standard brings back the wording of Article 19 of SUSEP Circular No. 429 of February 15, 2012, that was revoked by the Article 1st of Circular SUSEP No. 436 of May 31, 2012. According to this standard which is now in force, in the event of policy cancellation or return of premiums, the broker or the brokerage company should refund to the insurance company the received commission proportionately to the value returned or not received by the insurance company.

3. CNSP Resolution No. 279/13

CNSP Resolution No. 279/13, which revokes CNSP Resolution No. 110 of May 7, 2004, and which will enter into force after April 19, 2013, requires insurance companies, open private pension entities, and capitalization companies to appoint ombudsmen ("ouvidores").

The ombudsman's duties must be expressly approved by executive management and the ombudsman will report directly to the chief executive officer (or equivalent officer), who will respond jointly for the acts committed by or on behalf of the ombudsman. The ombudsman may not have other functions, except that of SUSEP Relations Officer. Information regarding the ombudsman must be entered and kept up to date on the "periodic information form" (Formulário de Informações Periódicas – FIP). The new standard has increased the minimums for the financial ombudsman's decisions, which was previously R$30,000.00 per claim and now can be no less than R$100,000.00 per claim.

Additionally, it is up to the ombudsman to respond to the complainants within 15 days from the date of filing of the complaint. The ombudsman also must keep an updated log of complaints received and, at the end of each six-month period, the entity must prepare a report validated by an internal audit and with the minimum content that is set forth in the new standard.

SUSEP will monitor the performance of the ombudsman in accordance with minimum levels of efficiency and quality.

The new standard requires entities to provide specific direct-dial service (DDG 0800) free of charge for ombudsman at least during normal business hours. It also authorizes entities that are part of the same economic group to utilize a single ombudsman. Finally, it permits entities to outsource certain ombudsman duties through agreements with service providers, provided, however, that the entity remains responsible therefor.

4. Resolutions CNSP Nos. 282, 280, 283, and 284/13

The new resolutions, which entered into force on February 18, 2013, provide new minimum capital requirements to be obeyed in all insurance, reinsurance, pension, and capitalization markets.

CNSP Resolution No. 282/13

CNSP Resolution No. 282/13 changes the general rules of construction and maintenance of minimum capital required by insurance companies, private pension entities, capitalization companies, and local reinsurers.

For purposes of the new regulations, the minimum required capital will be the greater of the base capital, the risk capital (the current name of additional capital), and the solvency margin – it is no longer equivalent to the sum of the base capital and the additional capital.

The values of the capital base were maintained and, except in relation to local reinsurers, there is a fixed quota and a variable quota, which is determined according to the region in which the company has been authorized to operate, as per the following chart:

On the other hand, the risk capital formula changed, which must be observed by companies. The risk capital will comprise the following risks, which so far have been partially regulated by SUSEP: underwriting risk, market risk, credit risk, and operational risk.

That rule also includes provisions concerning the "Corrective Solvency Plan" (PCS) and the "Recovery Solvency Plan" (PRS). The current standard provides for new circumstances where SUSEP may require a PRS, subject a regulated entity to a "direção fiscal" (surveyed management) regime, or even impose its extrajudicial liquidation.

As for transitional rules for local reinsurers, the new resolution provides that, until CNSP regulates the risk capital requirements in relation to underwriting, market, credit, and operational risks, the minimum capital required shall be the greater of (i) the capital base, (ii) the risk capital, (iii) 20% of the total retained premiums in the last twelve months, or (iv) 33% of the annual total retained claims average in the last thirty-five months.

CNSP Resolution No. 280/13

CNSP Resolution No. 280/13 establishes new rules for calculation of the risk capital related to the underwriting risk of insurance companies and private pension entities, the latter not being included in the prior resolution. The resolution in question, however, does not apply to insurance of (i) habitation within the financial system's license, (ii) compulsory personal injury caused by motor vehicles on land or to cargo, or to persons transported or not (DPVAT), and (iii) compulsory insurance for personal injury caused by vessels or their cargo (DPEM).

This resolution brought changes to the criteria for calculation of the underwriting risk capital, which must now be met by the companies.

CNSP Resolution No. 284/13

CNSP Resolution No. 284/13 is applicable only to capitalization companies and specifically sets forth the rules for calculation of the risk capital related to underwriting risk.

CNSP Resolution No. 283/13

CNSP Resolution No. 283/13 sets forth the rules for calculating the risk capital related to the operational risk of the insurance companies, private pension entities, capitalization companies, and local reinsurers, in which the operational risk is deemed to be the possibility of losses arising from failures, deficiencies, or inadequacies of people, systems, and internal processes, or even fraud or external events, and covering the legal risk of the supervised entities listed above, excluding, however, risks arising from strategic decisions and from the reputation of the institution.

5. CNSP Resolution No. 285/13

CNSP Resolution No. 285/13, in force since February 18, 2013, establishes the minimum requirements that must be observed by insurance companies in the sale of insurance plans by means of "ticket" ("bilhete") and does not apply to compulsory insurance, which must follow specific rules.

Besides defining the insurance ticket as the document issued by the insurance company that formalizes the acceptance of coverage requested by the insured, dispensing with filling out the socalled insurance proposal, the text of the new rule determines that the duration of the insurance coverage obtained by means of a ticket will start at midnight on the date of the premium payment, unless SUSEP establishes a different time.

Finally, the new rules establish that insurance plans sold by means of tickets must be subject to new filings with SUSEP.

6. CNSP Resolution No. 281/13, and SUSEP Circular No. 462/13

CNSP Resolution No. 281/13, in force since February 18, 2013, regulates the constitution of technical reserves of insurance companies, open private pension entities, capitalization companies, and local reinsurers, including insurance companies and private pension entities that are authorized to operate exclusively with micro-insurance. SUSEP Circular No. 462/13 establishes the method of calculation and the manner in which such provisions should be constituted, and has been in force since February 18, 2013, with an adjustment period until December 31, 2013.

We will continue to monitor the above matters and will inform our clients of any significant developments.

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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