The reinsurance market is constantly being revised in order to end the existing reinsurance monopoly. The main regulations governing this sector are Supplementary Law 126/2007 and National Council of Private Insurance Resolution (CNSP) 168/2007, which governs reinsurance, retrocession and its intermediation.

These regulations require contracts to be effectively formalised within 270 days of the effective date of coverage, on penalty of being considered invalid by the Superintendence of Private Insurance (SUSEP). That said, even if a contract is not effectively formalised, it may still be considered a valid contract between the parties, but will not be considered for regulatory purposes or solvency requirements. The reinsurer's acceptance in the reinsurer proposal serves as proof of the purchased coverage.

The contractual formalisation of reinsurance transactions has been extensively discussed by the reinsurance market in the last few years due to SUSEP's intense supervision and the different legal interpretations of the definition of 'contractual formalisation' and the way in which it is achieved.

New rules

In order to clarify the additional criteria related to the contractual formalisation of transactions, SUSEP Circular 524 (which regulates Article 37 of CNSP Resolution 168/2007) was published on January 21 2016.

According to this new circular, the execution of a reinsurance contract by a reinsurer will be considered formalised as long as it contains the date of execution and identifies the signatory. These conditions are also required whenever there is an endorsement by the insurer.

The definition of 'contractual formalisation' under the circular was been well received by the reinsurance market. However, the circular brings some practical difficulties, as it requires the identification of the signatory and reinsurer.

While the circular does not expressly require the cedent's signature in the reinsurance contract, the cedent's consent to the terms and conditions of the contract must be evidenced to SUSEP. A signature would be the most natural means to express consent, despite the fact that the circular is silent regarding the form of acceptance, which can be express or implied. Further, the broker's express acceptance does not supersede the cedent's.

In relation to endorsements, according to SUSEP, each endorsement must be formalised in a contractual amendment, regardless of the period of formalisation of the original contract. Endorsements must be formalised within 270 days, starting from the beginning of the term of endorsement.

There has been some discussion regarding endorsements being applied retroactively to the original date of coverage, but most arguments are in favour of formalising endorsements within 270 days, provided that the original contract is still formalised within its respective term.

The circular also sets out that a reinsurer's acceptance of a reinsurance proposal, even electronically, constitutes proof of contracted coverage. A digital copy of a formalised contract is sufficient proof of contractual formalisation and SUSEP can require the cedent or reinsurer to provide a copy. In addition, the circular clarifies that cover notes issued by reinsurance brokers do not replace reinsurance contracts.

Lastly, in light of the new circular, it is likely that SUSEP will increase its inspections of reinsurance contracts.