A year after the enactment of Resolutions 223/2010 and 224/2010 by the Brazilian National Private Insurance Council (“CNSP”), Brazilian insurance regulators are pointing out that the number of local reinsurers (licensed to carryout reinsurance in Brazil) has doubled from 6 to 12.
This set of controversial regulations, initially scheduled to become effective on 31 March 2010, directly affected the reinsurance market, including foreign reinsurers with branches in Brazil. The regulations provided two significant changes: (i) local reinsurers would no longer have the right of first offer on 40% of reinsurance cession, instead there would be the obligation to contract at least 40% of any reinsurance risk with local reinsurers; and (ii) local reinsurers could no longer transfer any liability under insurance, reinsurance or retrocession undertaken in Brazil to any parent or affiliated reinsurance company abroad.
The market reacted with strong complaints, challenging the validity of such rules and claiming that both the CNSP and the Brazilian Superintendence of Private Insurance (“SUSEP”) did not hold a public consultation prior to enacting such rules – a breach of the routine procedure which caught the various members of the market by surprise. The intense debate in the media that followed forced the government to finally publish Resolution CNSP 232/2011 (on 28 March 2011) that revoked Resolution 224/2010 and permitted local insurers to transfer 20% of their risks undertaken in Brazil to parent or affiliated companies based abroad. Furthermore, each insurance and reinsurance company is now responsible for monitoring compliance with the 20% threshold. However, risks associated with performance bonds, exportation credits, internal credits, nuclear risks and rural are not subject to the 20% limit, and may be transferred freely. The obligation to contract 40% of reinsurance risks with local reinsurers, however, remains valid.
The increase in the number of local reinsurers celebrated by the Brazilian Government is openly recognised by major players, who are stating that the costs of accessing the 40% exclusive market is worth it in relation to the largely increasing Brazilian insurance market. 2012 is expect to inaugurate an even greater number of local reinsurers who have already applied for licensing with SUSEP.