Brazil: The New Brazilian Rules For Calculation Of The Adjusted Net Worth Required From Insurance Companies And Local Reinsurers

Last Updated: 27 December 2013
Article by Andre Alarcon

On December 23, 2013, the new Resolution No. 300 of the National Council of Private Insurance (Conselho Nacional de Seguros Privados - "CNSP") was published by the Brazilian insurance and reinsurance agency, the Superintendence of Private Insurance (Superintendência de Seguros Privados - "SUSEP").

The CNSP Resolution No. 300, which will come into force as of January 1st, 2014, revokes the former CNSP Resolution No. 222, of December 6, 2010, and establishes the rules and procedures for the calculation of the adjusted net worth (patrimônio líquido ajustado - "PLA") required not only from the Brazilian insurance companies and local reinsurers, but also from open supplementary pension entities and capitalization companies.

The concept of the PLA is used for (i) assessing the sufficiency of the company's minimum capital amount and (ii) calculating the risk retention limits according to the specific rules in force.

In this regard, it is worth mentioning that a new resolution (CNSP Resolution No. 302) that, among other matters, sets forth the minimum capital of the Brazilian companies regulated by SUSEP, was also published on the same date of publication of the CNSP Resolution No. 300. We will address the issues of the new regulation on the minimum capital amount in another article.

For purposes of the local regulation, the adjusted net worth (PLA) is defined as the accounting net worth asset or accounting equity, as the case may be, adjusted by additions and exclusions, for calculating accurately and strictly the available resources that allow the regulated companies to perform their activities in adverse situations. The PLA shall be net from non-tangible items, assets which valuation entail an excessive level of subjectivity or which already guarantee similar financial activities and other assets which nature are considered by the regulator as improper for preserving the company's solvency.

The PLA shall be calculated based on the accounting net worth asset or accounting equity, as the case may be, with the following deductions:

  1. value of the equity interests in financial and non-financial companies classified as permanent investments, national or abroad, considering the surplus value and the goodwill, as well as the reduction of the recoverable amount;
  2. anticipated expenses not related to reinsurance;
  3. tax credits from tax losses of income tax and negative basis of social contribution;
  4. intangible assets;
  5. urban real estate and real estate investment funds with reserves in urban real estate, considering revaluations, reduction of the recoverable amount and depreciation, which exceed 14% of the adjusted total asset;
  6. rural real estate and real estate investment funds with reserves in rural real estate, considering revaluations, reduction of the recoverable amount and depreciation;
  7. deferred assets;
  8. rights and obligations referring to transactions of branches located abroad;
  9. art works;
  10. precious stones; and
  11. credits arising from the disposal of any of the assets listed above, observed the deduction rule of item v in case of disposal of urban real estate.

It is important to mention that the deductions provided for in items v and vi above do not apply to real estate investment funds which are subject to public offering under the terms of the regulations about public offerings of securities issued by the Brazilian Securities and Exchange Commission - CVM.

The main changes introduced by the CNSP Resolution No. 300 that revoked the former resolution on the matter (CNSP Resolution No. 222) are concentrated in the list of deductions for the calculation of the PRA. SUSEP has been authorized to issue additional rules for the satisfactory compliance of the terms of the new resolution.

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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