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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?

In the insurance and reinsurance market, the existing trends show moderate and continuous growth. The Superintendence of Private Insurance (SUSEP) – the body responsible for the authorisation, control and supervision of the insurance market, open supplementary pension plans, capitalisation and reinsurance in Brazil – recently announced a 7% increase in the collection of premiums compared to the first half of 2016. This scenario will remain until at least the end of 2017. In 2018 more robust growth is expected as low inflation and falling interest rates are predicted, which increase credit and suggest a favourable outlook for the insurance market. The reinsurance market is expected to follow the same trend.

Regulatory framework

Legislation

What is the primary legislation governing the (re)insurance industry in your jurisdiction?

The insurance and reinsurance industry is primarily governed by:

  • Decree-Law 73/66;
  • Complementary Law 126/07; and
  • Articles 757 to 802 of the Civil Code (Law 10,406/02).

Reinsurance policy is governed by Complementary Law 126/07.

Regulators

Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?

The Brazilian national private insurance system was created by Decree-Law 73/66 and comprises the National Council of Private Insurance (CNSP) and the Superintendence of Private Insurance (SUSEP). Both bodies report to the Ministry of Finance.

The CNSP is responsible for:

  • establishing the general guidelines and rules for insurance and reinsurance policies;
  • regulating the constitution, organisation and operation of insurers and reinsurers; and
  • guaranteeing the capital of insurers and reinsurers.

The SUSEP is responsible for:

  • executing policies drawn up by the CNSP;
  • issuing instructions and circulars;
  • supervising private insurance operations; and
  • imposing penalties.

Ownership and organisational requirements

Ownership of (re)insurers

Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?

Insurers must be incorporated in the form of a corporation and cannot exploit any other branch of commerce or industry.

In terms of investments, insurers and reinsurers must comply with strict rules set down by the National Monetary Council and the National Private Insurance System, in particular relating to limits on the application of technical reserves and provisions. The rules for the flow of foreign investment into Brazil must also be observed, as well as the Corporate Law (6,404/76).

What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?

The procedures for the transfer of control of an insurer or local reinsurer are set out by National Council of Private Insurance (CNSP) Resolution 330/15 and Superintendence of Private Insurance (SUSEP) Circular 529/16. These regulations impose a series of formalities to obtain prior authorisation, such as the delivery of documents, evidence and technical interviews. The prior authorisation must subsequently be homologated by SUSEP.

Admitted and occasional reinsurers are submitted to local government criteria.

Organisational requirements

Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?

Yes. According to Article 72 of Decree-Law 73/66, combined with Article 25 of Law 4595/64, an insurance company must be incorporated in the form of a corporation. A local reinsurance company must also be incorporated in the form of a corporation, according to Complementary Law 126/07.

Also according to Complementary Law 126/07, admitted reinsurers must be headquartered abroad, with a representative office in Brazil, and occasional reinsurers must be registered by the supervisory authority and must be headquartered abroad, without a representative office in Brazil.

Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?

Yes. Insurers and reinsurers must follow corporate governance criteria based on the pillars of internal control, which also set out definitions of responsibilities, the segregation of activities, risk management and the systematic monitoring of activities.

In addition, some conditions must be fulfilled by those who intend to fill statutory or non-statutory positions in insurers or reinsurers. These conditions are set out in Appendix II of CNSP Resolution 330/15, including:

  • having unblemished reputation;
  • being resident in Brazil;
  • not being impeded by bankruptcy crime;
  • possessing technical expertise for the exercise of the position, duly proven with academic qualification; and
  • having professional experience.

Operating requirements

Authorisation procedure

Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?

Anyone who intends to run business in Brazil as an insurer or reinsurer must be pre-authorised by the Superintendence of Private Insurance (SUSEP). National Council of Private Insurance (CNSP) Resolution 330/15 and SUSEP Circular 529/16 both set out a series of requirements for obtaining prior authorisation, such as the delivery of documents, evidence and technical interviews. The prior authorisation must subsequently be homologated by SUSEP.

Financial requirements

What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?

Minimum capital is required to allow (re)insurers to run business in Brazil. For insurers and local reinsurers, the minimum required capital is set by CNSP Resolutions, and comprises:

  • base capital – a fixed amount that varies according on the region where the institution is authorised to run business; and
  • additional capital – an amount that varies according to the risks of the operation of each company.

For admitted and occasional reinsurers, no minimum capital is required, but solvency classification applies to specific agencies with minimum required classification, in addition to net worth of not less than $100 million for an admitted reinsurer and $150 million for an occasional reinsurer.

Do any other financial requirements apply?

Other financial requirements set by the regulatory authority are applicable, such as collecting specific technical reserves and reducing assets.

Personnel qualifications

Are personnel of (re)insurers subject to any professional qualification requirements?

Yes. Members of insurers and reinsurers elected or appointed to statutory or contractual bodies must have duly proven technical training compatible with the position to which they were appointed.

Members of the fiscal council must have graduated in higher education or have held a position as a company administrator or on a fiscal council for at least three years.

Finally, according to CNSP Resolution 115/04, technical certification is required for employees of insurers that act directly:

  • in loss and claim adjustment;
  • with internal controls;
  • in the public service; and
  • in the direct sale of insurance.

Business plan

What rules and requirements govern the business plans of (re)insurers?

No specific rules and requirements apply to the business of (re)insurers.

Risk management

What risk management systems and procedures must (re)insurers adopt?

Risk management systems and procedures adopted by (re)insurers are based on internal controls set out in SUSEP Circular 249/04.

Reporting and disclosure

What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?

(Re)insurers must submit monthly to the SUSEP the SUSEP Periodic Information Form, which contains statistical and other required information.

Other requirements

Do any other operating requirements apply in your jurisdiction?

There are no other applicable operating requirements specifically relating to reporting and disclosure.

Non-compliance

What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?

Non-compliance with operational requirements may subject (re)insurers to administrative penalties applied by the regulatory authority. Depending on the severity of the non-compliance, the penalties include warnings, fines, suspension, disqualification and cancellation of the authorisation to operate a business.

Contracts

General

What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?

The conclusion of insurance and reinsurance contracts in Brazil is governed by:

  • Decree-Law 73/66;
  • Complementary Law 126/07; and
  • Articles 757 to 802 of the Civil Code (Law 10,406/02).

Reinsurance policy is governed by Complementary Law 126/07. In addition, the National Council of Private Insurance (CNSP) and the Superintendence of Private Insurance (SUSEP) are responsible for formulating private insurance policy, through resolutions and circulars.

Mandatory/prohibited provisions

Are (re)insurance contracts subject to any mandatory/prohibited provisions?

Yes. The technical provisions for (re)insurers are set out in Articles 1 and 23 of CNSP Resolution 321/15, which set out mandatory provisions, without prejudice to others, to be constituted with prior authorisation from the SUSEP.

Implied terms

Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?

Yes. According to Article 72 of Decree-Law 73/66, combined with Article 25 of Law 4595/64, an insurance company must be incorporated in the form of a corporation. A local reinsurance company must also be incorporated in the form of a corporation, according to Complementary Law 126/07.

Standard/common terms

What standard or common contractual terms are in use?

Some standard and common clauses are used for insurance and reinsurance contracts (eg, coverage clause, coverage risks, excluded risks, premium payment, claims adjustment and loss of rights).

Moreover, some standard and common terms are used for insurance and reinsurance contract wordings (eg, ‘insurer’, ‘reinsurer’, ‘insured’, ‘policyholder’, ‘loss adjustment’, ‘claim’, ‘policy’ and ‘liability’). A regulatory glossary with definitions and terms usually used in the insurance and reinsurance market is available on the website of the SUSEP in both Portuguese and English.

‘Smart’ contracts

What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?

In Brazil, regulations for insurance contracts prevent the free development of ‘smart’ contracts and innovative technologies. Insurance operations have firm rules based on traditional hiring models. Some actions can be seen in terms of digital platforms, but these are strongly limited by the regulatory authority. However, reinsurance contracts are traditionally executed, and no innovations have been seen to date.

Breach

What rules and procedures govern breach of contract (for both (re)insurer and insured)?

Breach of contract is primarily governed by:

  • Decree-Law 73/66;
  • Complementary Law 126/07; and
  • Articles 757 to 802 of the Civil Code (Law 10,406/02).

Reinsurance policy is governed by Complementary Law 126/07.

Consumer protection

Regulation

What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?

The Consumer Defence Code (Law 8,078/90) and the Civil Code (Law 10,406/02) safeguard the rights of purchasers of insurance products and services.

Claims

General

What general rules, requirements and procedures govern the filing of insurance claims?

The procedures for filing insurance claims are set out in the conditions of the contract, usually in a specific chapter of the insurance contract.

Notice of a claim is usually given by means of a formal communication sent by the insured, who will provide the insurer with documents proving the claim, its consequences and damages in order to allow the loss adjustment to take place. This will be done by observing, in particular, the duties of good faith and cooperation between the parties.

Time bar

What is the time bar for filing claims?

Overall, the time bar for filing claims is one year, as provided by Article 206(1) of the Civil Code (Law 10,406/02).

Denial of claim

On what grounds can the (re)insurer deny coverage?

As a rule, indemnity can be denied by the insurer based on:

  • non-payment of the premium;
  • risks expressly excluded from coverage; or
  • when the insured fails to comply with its contractual obligations or aggravates the risk subscribed by the insurer.

In reinsurance relationships, coverage is essentially denied in case of:

  • no express contractual provision for the risk covered;
  • no specific contractual clause; or
  • non-compliance with conditions imposed by the contract.

What rules and procedures govern the insured’s challenge of the denial of a claim?

In the administrative sphere, the insured can file a reconsideration request directly with the insurer. Nevertheless, the National Council of Private Insurance requires that every insurer establish an ombudsman's office, which may be used by the insured through agile and effective means (eg, email, telephone), and which will serve as a channel of communication between the parties in mediation and conflict resolution. The insured can also use the consumer protection bodies and the Superintendence of Private Insurance (SUSEP) if it wishes to contest the denial of a claim. If these fail, or if the insured prefers not to request reconsideration, the insured may file suit.

The right to sue is guaranteed to the insured by Article 5(XXXV) of the Federal Constitution, which provides that any threats or damages to rights will be considered by the judiciary.

Third-party actions

On what grounds can a third party file a claim directly with the (re)insurer?

Usually, where the insured is notably guilty, a third party can file a claim directly with the insurer under liability insurance. This situation is set out in SUSEP Circular 437/12, even in case of death coverage in life insurance, when the beneficiary claims the insured amount.

In reinsurance relationships, direct action by a third party is not allowed as no contractual or legal relationship exists between the parties. Complementary Law 126/07 also prohibits direct action.

However, as an exception, a reinsurer may pay an indemnity directly to an insured in case of insolvency, liquidation order or bankruptcy of the insurer, as set out in Article 14(1) of Complementary Law 126/07 – this is referred in reinsurance contracts as the ‘cut through clause’.

Punitive damages

Are punitive damages insurable?

Based on the strict definition of ‘punitive damages’, such damages are not covered under Brazilian law. However, moral damages are usually an excluded risk, with the possibility of contracting specific coverage for this type of damage.

Subrogation

What regime governs (re)insurers’ subrogation rights?

The right of subrogation of (re)insurers is provided by the Civil Code (Law 10,406/02). Some insurance modalities also provide for alternative loss recovery methods (eg, performance bonds).

Intermediaries

Regulation

How are the services of insurance intermediaries regulated in your jurisdiction?

Insurance brokers are intermediaries and are regulated by Law 4,594/64, which governs the profession of insurance brokers, as well as Decree-Law 73/66 and the Civil Code (Law 10,406/02). In addition, National Council of Private Insurance Resolutions 249/12 and 510/15 govern this area.

Tax

Tax liability

What tax liabilities arise in the conduct of (re)insurance business?

Due to the complexity of the tax rules, (re)insurers have several responsibilities including, at the federal level:

  • withholding tax (tax on loans, exchange and insurance), which is charged on the issuance of policies; and
  • income tax, which is charged on payments of brokerage commission.

Other fiscal responsibilities apply at the state and municipal levels.

Insolvency

Regulation

What regime governs the insolvency of (re)insurers?

The insolvency of (re)insurers is governed by Decree-Law 73/66 and is processed by the Superintendence of Private Insurance (SUSEP).

Effect on insureds

How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?

According to Decree-Law 73/66 and National Council of Private Insurance Resolution 335/15, once the economic and financial insolvency of the (re)insurer has been configured, the SUSEP determines the extrajudicial liquidation of the company. At this moment, any indemnities due to insureds will be suspended until the general framework of creditors is established. Payments will then be arranged according to the privileges and classification of creditors. Therefore, since this is a long and slow procedure, the delay affects the right of compensation of the insured or the (re)insurer.

Dispute resolution

Litigation

Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?

As a rule, suits relating to insurance issues are filed before the common civil court and the special civil courts. In most insurance contracts, the domicile area of the insured is privileged, so that is where legal actions take place.

How are insurance disputes with a cross-border element handled in your jurisdiction?

In some cases, insurance disputes with a cross-border element are also dealt with by the arbitration courts, in addition to the common civil courts.

What issues are commonly the subject of insurance litigation?

The most common issues dealt with by the judiciary are those arising from the denial of compensation, disallowance or reimbursement.

What is the typical timeframe for insurance litigation?

Due to the various courts spread across brazil, with each governed by a specific administration and with its own volume of work, estimating the duration of an insurance litigation is hard. The average timeframe for insurance litigation is five years, although this varies widely.

Arbitration

What regime governs the arbitrability of insurance disputes?

The arbitrability of insurance disputes is governed by Law 9,307/96, considering the amendments provided by Law 13,129/15.