SUSEP Circular 537/2016: additional criteria for intragroup cessions

Superintendence of Private Insurance (SUSEP) Circular 537 provides additional criteria for complying with Article 14(4) of National Private Insurance Council Resolution 168/2007, as amended, including new rules for the local reinsurers and intragroup cessions market.

Under Resolution 168, the limits for premiums corresponding to automatic and facultative contracts in the transfer of risks from the insurer or local reinsurer to affiliated companies or foreign companies belonging to the same financial conglomerate are as follows:

• 20% until December 31 2016;
• 30% from January 1 2017;
• 45% from January 1 2018;
• 60% from January 1 2019; and
• 75% from January 1 2020.

In light of the discussions regarding the interpretation of this rule, SUSEP Circular 537 has clarified that the 'premium corresponding to each automatic or facultative contract' is defined as:

• the ceded reinsurance or retrocession premium for each reinsured risk under the reinsurance contract or proportional facultative retrocession;
• the ceded reinsurance or retrocession premium for each reinsured risk per layer under the reinsurance contract or non-proportional facultative retrocession. The premium must be calculated considering each line of business included in the contract, including contracted sub-ranges;
• the ceded reinsurance or retrocession premium for the risks underwritten and covered by each reinsurance or retrocession proportional automatic contract. The premium must consider each year of the contract; and
• the ceded reinsurance or retrocession premium per layer in each reinsurance contract or non-proportional automatic retrocession contract. The premium must be calculated considering:
  • each year of the contract; and
  • each line of business included in the contract, including contracted sub-ranges.

Reinsurance and retrocession programmes that combine proportional and non-proportional cessions must observe the above criteria in each cession.

The rule also highlights that reinsurance or retrocession commission should not be deducted from the ceded reinsurance or retrocession premium.

Finally, in accordance with the circular, contracts that have already been signed but do not comply with the new rule will be considered valid until their renewal or up to one year from publication of the circular (ie, May 12 2017), whichever is earlier.