and
Thomas F. "Tom" Morante 
Yani Contreras, Foreign Legal Counsel, is based in our
Washington, D.C. office
Thomas Morante, partner, is based in our
Miami office.
As the G-20 grapple with how to change the global legal framework for financial services to ensure that there are no future financial crises, some countries have moved to quickly modernize their laws to accommodate the insurance needs of consumers and the business opportunities afforded thereby. Two such countries in Latin America present interesting case studies: Costa Rica and Brazil. This article addresses the evolving nature of insurance legislation in these countries and demonstrates the growing significance of the insurance market worldwide.
Costa Rica
At long last, following adoption of the DR-CAFTA Free Trade Agreement and enactment of the required enabling legislation, 2010 will witness the actual opening of Costa Rica's insurance market to competition with the entry of four new participants, one local company, one U.S. company and two Panamanian companies.
The four new participants that have been authorized by the General Superintendent of Insurance (SUGESE) are Seguros del Magisterio for personal insurance; Aseguradora Mundial (subsidiary of a Panamanian insurer) for general insurance; ALICO (an AIG branch) for personal insurance; and ASSA (a subsidiary of Grupo Assa Panama) for personal and general insurance.
These companies, which are expected to begin operations in the middle of the year, will compete in the market with the Costa Rican long lasting National Insurance Institute (INS), which has had the monopoly on insurance since 1924, offering both personal and general lines of insurance. The entry of domestic and foreign insurers to the Costa Rican insurance market expands the market by exploring the needs of new segments of the population and improving the options available for Costa Rica's insureds.
This radical change in the insurance environment in Costa Rica is the result of a long process that began in 2004 when Costa Rica signed the DR-CAFTA – which required signatories to open their insurance markets. This was followed by the adoption of the Insurance Market Regulatory Law in 2008 and corresponding regulations in 2009, which afforded the legal framework governing authorization procedures, registration and operation requirements for the insurance companies along with the creation of the SUGESE.
SUGESE operates under the supervision of the Supervisory Board of the National Financial System (CONASSIF) and is empowered to authorize, suspend, cancel and grant licenses and administrative authorizations to insurance entities in Costa Rica under its supervision as well as to regulate insurance agents and brokers.
From the enforcement perspective, with its comprehensive administrative supervision and investigative provisions, Costa Rica's new insurance law provides a better mechanism to prevent unauthorized insurance business. Prior to enactment of the new insurance law, violations to the old monopoly insurance law were addressed through judicial means. Now, SUGESE, in its new enforcement role, can initiate investigations against persons engaged in unauthorized insurance activities in Costa Rica.
The new law requires that insurance policies offered in Costa Rica must be previously approved by SUGESE and sold only by authorized insurance companies through licensed brokers. The law also regulates offers to the public that are made through phone calls, websites or fax, among others. Recently, alleged violations were reported to SUGESE in connection with the sale by unlicensed brokers of insurance policies issued by insurance companies not authorized in Costa Rica, and SUGESE is gathering information relative to alleged violations, which could lead to the first of many investigations. It would appear that SUGESE intends to act as an aggressive regulator to protect the insurance markets from unauthorized participants, and with significant monetary penalties (fines up to an amount of US$215,000) in the new law, SUGESE would seem to have the necessary regulatory muscle to protect the insurance market from unauthorized participants, thus facilitating the growth of the authorized insurance market.
Brazil
In the first quarter of 2010, Banco do Brasil is expected to assume control of the Brazilian Institute of Reinsurance (IRB Brasil-Re) by acquiring a 30%-50% of its voting stock. The IRB Brasil-Re was wholly owned by the Government and had held the reinsurance monopoly since 1939. On January 15, 2007, Complementary Law 126 eliminated the state insurance monopoly. Today, IRB Brazil Re is organized as an equally owned partnership between the federal government and three insurance companies.
Once the proposed acquisition transaction is completed, Banco do Brasil plans to negotiate with IRB Brasil-Re's principal private stockholders, Itau Unibanco and Bradesco, to create joint management of the reinsurance entity and a possible partnership. This partnership would ensure the technical and professional management of the IRB and the right of a shareholder to "veto" the principal decisions of IRB Brasil-Re.
Because the majority stock of Banco do Brasil is owned by Brazil's Treasury, the acquisition of control of IRB Brasil-Re by Banco do Brasil would not result in the immediate privatization of IRB Brasil-Re. However, at such time as the ownership participation of the Government is diluted through an increase in IRB's capital stock and the acquisition thereof by the three private stockholders, (i.e., other than the Government), the Government would reduce its participation in IRB Brasil-Re's – which would then become a private company.
The potential privatization of IRB Brasil-Re – in addition to the new participants in the reinsurance market – have made visible the openness of the sector when the market opened for new entities willing to offer reinsurance services. Currently, there are four entities that have been authorized as reinsurers: J. Malucelli, Mapfre, XL and Munchener Ruck do Brasil. Brazil has some measures in place to guarantee that reinsurance business remains in the country. For example, the Brazilian reinsurance law guarantees national companies to get at least 60% of the reinsurance contracts entered into in Brazil, but such percentage may be reduced up to 40% in 2010, which shows that these measures may eventually disappear.
The Brazil reinsurance market has a large potential for growth in the next few years. The constant expansion of Petrobras and having Rio de Janeiro as the host of the World Cup in 2014 and the Olympic Games in 2016, will undoubtedly create investments in infrastructure projects and will likely enhance the needs for insurance and reinsurance.
This article was originally published in the LIMRA Regulatory Review, March 2010 (Issue 2010-2 Bimonthly).
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.
