Brazil: Proposed Changes In The Brazilian Insurance And Reinsurance Market Regulation Under A Corporate Perspective - Outlook For 2015

Last Updated: 15 December 2014
Article by Andre Alarcon and Beatriz Buchaim

Recently, the Brazilian Private Insurance Supervisory Agency (SUSEP) has made publicly available the draft of a new Resolution by the National Council of Private Insurance (CNSP), through the Notice of Public Inquiry No. 7/2014 (Edital de Consulta Pública Nº 7/2014). If approved, this rule will most certainly impact the Brazilian insurance and reinsurance market regulation. It was granted a 10-day term as of the publication date, which ended on October 30, 2014, to the public to reply to SUSEP with comments and suggestions to the proposed wording.

The rule is intended to provide for the requirements and proceedings that shall apply in the incorporation, authorization to operate, change of control, corporate changes and conditions to the election of members of statutory or contractual bodies, among others, of the entities supervised by SUSEP. The proposed Resolution shall revoke the CNSP Resolutions Nos. 136/2005 (which relates to the election and appointment of members of statutory bodies of regulated entities); 166/2007 (which provides for the requirements and proceedings for incorporation, authorization to operate, transfer of corporate control, corporate restructuring and cancellation of the authorization to operate for regulated entities); 221/2010 (which amended the CNSP Resolution No. 166/2007); 255/2012; and 288/2013 (which amended the CNSP Resolution No. 136/2005), as well as some articles of the CNSP Resolutions No. 282/2013, 173/2007 (which regulates the reinsurance brokerage activities) and 168/2007 (which provides for the reinsurance and retrocession activities). The main objective of this new rule is to standardize and unify determined legal and regulatory references to be considered under similar cases involving different types of entities regulated and supervised by SUSEP.

Among the proposed changes to be implemented, some can be considered more important and deserve especial attention, as they are expected to cause an impact to certain concepts the market is already familiar with.

Accordingly, one of the changes proposed by SUSEP is to amend the definition of qualified equity participation, which now shall correspond to 15% or more. The current rules establish the concept of qualified equity participation any entity or individual who holds interest in any company (either a company regulated by SUSEP or any other that is part of its controlling structure) in a percentage superior to 5%. Therefore, any individual or entity that meets this percentage needs to be identified and analyzed by SUSEP within the context of the controlling group of a regulated entity.

If the new concept is approved, it will be a positive change, as disclosing information and documents related to entities or individuals with a very reduced equity participation (as it is the case of the current 5%) will no longer apply. Accordingly, the analysis of the controlling group of a regulated entity will become less time consuming and more objective.

Still relating to the control of regulated entities, for clarification purposes, SUSEP now proposes a clear and defined concept of controlling group following the model already adopted by the Brazilian Central Bank on the matter and using the Brazilian corporate law as a reference, which is the individual or group of individuals linked by a voting agreement or under a common control that hold(s) interest as partner corresponding to the majority of the capital stock of a corporation (sociedade anônima).

However, not only improvements are expected to be in place with the issuance of the new rule. Regarding the conditions for occupying positions in statutory or contractual bodies of regulated entities, the draft of the new CNSP Resolution determines that prior to the corporate act in which the individuals are elected to the mentioned positions, the regulated entities must consult SUSEP on the fulfillment of the applicable requirements by the future managers. On its turn, SUSEP will have 60 days to reply to the consultation, approving or not the person(s) indicated by the supervised company.

This would be a drawback to the innovative essence of the new rule, as it will require the observation of unnecessary formalities and consequently, on the new intended goal of SUSEP's agility. Under the current rules, SUSEP already has the prerogative to approve or not the election of an individual that has been appointed to the management of a regulated entity, as the election act itself requires prior approval from SUSEP to be valid.

Therefore, if previously to the corporate act of election, the individuals need to be analyzed by SUSEP, each election will be delayed in relation to the current timing and some transactions that may depend on such elections will be impacted negatively.

Nonetheless, as already mentioned above, the project is still under analysis by SUSEP and when approved, it will be possible to verify the actual changes brought by the new rule and to further comment on its impacts to the Brazilian insurance market.

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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