Brazil’s insurance regulator, the Superintendency of Private Insurance (SUSEP), recently issued regulations establishing that cessions to occasional reinsurers (see definition below) by Brazilian insurers may not exceed 10% of the total premiums ceded to reinsurers. The new regulations further establish that no Brazilian insurer may cede more than 50% of the risk it underwrites to occasional reinsurers. The moves were not unexpected, having been foreshadowed in SUSEP’s discussions with the industry.
The Brazilian reinsurance market was opened to foreign reinsurers for the first time earlier this year. On January 15, 2007, Complimentary Law No. 126 established a framework for ending the long-standing government monopoly on the reinsurance business in Brazil and opened the Brazilian reinsurance market to private foreign insurers. On December 17, 2007, SUSEP and the National Council on Private Insurance (“CNSP”) issued Resolution No. 168, which implemented Complimentary Law No. 126 and established the requirements for foreign reinsurers wishing to underwrite reinsurance in Brazil. Resolution No. 168 became effective on April 19, 2008.
Complimentary Law No. 126 and Resolution No. 168 established three categories of private reinsurers: (1) local reinsurers (resseguradores locales); (2) admitted reinsurers (resseguradores admitidos); and (3) occasional reinsurers (resseguradores eventuais). Local reinsurers are defined as reinsurers organized under Brazilian law as Brazilian corporations (sociedades anonimas). Admitted reinsurers are defined as reinsurance companies incorporated under the law of foreign jurisdictions that maintain a representative office in Brazil and are registered as such with SUSEP. Finally, occasional reinsurers are defined as reinsurance companies incorporated in foreign jurisdictions that do not have a representative office in Brazil, but are registered with SUSEP.
A foreign reinsurer not to wising to establish a representative office in Brazil, is permitted to register with SUSEP as an occasional reinsurer if it satisfies the following requirements:
- Authorization in its country of incorporation to underwrite local and international reinsurance in the same lines as it seeks to underwrite in Brazil;
- Solvency, and operation in its country of incorporation for greater than 5 years;
- A minimum net worth/surplus of greater than US$150 million or the equivalent;
- The following minimum rating from the following rating agencies: Standard & Poors (BBB), Fitch (BBB), Moody’s (Baa2), AM Best (B++); and
- A permanent agent domiciled in Brazil, with broad powers of administrative and judicial representation.
In addition, no foreign reinsurer may register as an occasional reinsurer if it is incorporated in a “tax haven,” a term defined to mean any jurisdiction in which income tax is levied at less than 20% and/or where reinsurance companies are subject to excessively strict rules of confidentiality regarding their constitution and composition.
Complimentary Law No. 126 and Resolution No. 168 also impose certain limitations on the lines of reinsurance that may be accepted by a foreign reinsurer and on both the percentage of reinsurance that an insurer may cede to a foreign reinsurer and the overall volume of reinsurance that may be underwritten in Brazil on an annual basis by occasional reinsurers:
- Occasional reinsurers may not reinsure of life insurance and pension plans, which are reserved for only local reinsurers.
- Ceding companies must offer local reinsurers the right of first refusal on at least 60% of the premiums ceded until January 16, 2010 (and 40% thereafter). This vetting requirement permits a ceding company to first obtain quotes from foreign reinsurers and then present a quote to local reinsurers, who will have either 5 days (facultative reinsurance) or 10 days (treaty reinsurance) to match such quote. The vetting requirement will be fulfilled when local reinsurers either accept 60% of the risk or when all local reinsurers have refused or partially refused to match the foreign reinsurer’s quote.
- The Brazilian government has the right to impose an annual cap on occasional reinsurer’s participation in the Brazilian reinsurance market.
SUSEP’s new regulations address this final point, setting the annual cap on cessions to occasional reinsurers at 10% of the overall Brazilian reinsurance market and 50% of any individual Brazilian insurer’s underwritten risk.
It remains to be seen whether these limitations will discourage foreign reinsurers from registering as occasional reinsurers in Brazil, or if they will opt instead to register as admitted reinsurers or avoid the jurisdiction altogether.
For a copy of Complimentary Law No. 126, please click here.
For a copy of Resolution No. 168, please click here.