Highlights of Brazil

TozziniFreire Advogados

20.1 Regulation of the Brazilian Insurance Market

The National System of Private Insurance, created by the Decree-Law No. 73/1966, as amended, is composed as follows:

* National Council of Private Insurance - CNSP;
* Superintendence of Private Insurance - SUSEP;
* Companies authorized to operate with reinsurance;
* Companies authorized to operate with private insurance, capitalization and private pension (generally, insurance companies);
* Licensed insurance and reinsurance brokers.

The CNSP is the normative body of the insurance and reinsurance activities in Brazil, which sets forth the guidelines and rules of the governmental policy for private insurance, capitalization, private pension (open pensions plans) and reinsurance. The CNSP has been subject to several changes to its composition - the last one through Law No. 10,190, of February 14, 2001, which determined CNSP's current structure.

The SUSEP, an autonomous government agency linked to the Ministry of Finance, supervises the insurance and reinsurance markets, inspecting the companies authorized to operate with private insurance, capitalization, private pension (open pension plans) and reinsurance, including the incorporation, organization and operation of such companies. The SUSEP also has the attribution of regulating the rules enacted by the CNSP.

20.2 Insurance Companies

Insurance companies are entities incorporated as stock corporations (sociedades anônimas), which offer insurance agreements, whereby such companies undertake the obligation to pay the insured, or whoever the insured appoints, an indemnification, in case risks arise as indicated and feared, receiving, for such purposes, the agreed premium. Such companies must be granted with a prior governmental authorization, in order to operate, issued by the Ministry of Finance, after a requirement is presented to SUSEP, and submitted to the CNSP.

The insurance companies must maintain provisions to guarantee their operations, pursuant to the criteria set forth by the CNSP and further rules enacted by the SUSEP. The investments must be diversified, according to the rules enacted by the National Monetary Council.

Due to its importance in the society, any amendment to the bylaws of insurance companies, as well as the election of each of the members of its management, shall be previously submitted to the analysis and approval by the SUSEP.

20.3 Placing the Products in the Market

The insurance companies must obtain a specific approval by the SUSEP for each product to be commercialized in the market. Once such approval is granted, the product shall be commercialized pursuant to the terms and conditions submitted and approved by the SUSEP. Any further change made to the product requires a new submission for approval by the SUSEP.

The distribution of insurance in the market is usually made through duly licensed insurance brokers who submit the proposals for the acceptance by the insurance companies. In case the insurance company receives insurance proposals directly from the insured, the correspondent brokerage commission, nevertheless, shall be paid to the Insurance Educational Development Fund, managed by the Insurance National School Foundation - FUNENSEG.

20.4 Civil Liability of Directors and Officers of Insurance Companies

Directors and officers of insurance companies are jointly liable for the losses caused to third parties, including the company's shareholders, due to the noncompliance with laws, rules and instructions related to the operation of insurance, coinsurance, reinsurance and retrocession, and, specially, for the lack of constitution of mandatory reserves.

Regarding the lack of constitution of mandatory reserves, it is important to mention that the action or omission, personal or collective, from which the insufficiency of the reserves and coverage arises, related to the guarantee of the obligations of the insurance companies, is considered a crime against the public economy, punishable pursuant to the respective legislation.

20.5 Reinsurance

Brief History

Until the creation of the Reinsurance Institute of Brasil (IRB), in 1939, the reinsurance activities in Brazil were practiced, mostly, by foreign companies. From 1939 until April 17, 2008, the reinsurance market in Brazil was a monopoly of the IRB, which had also the power of regulating the market.

In 2000, Brazil rehearsed an opening of the reinsurance market. However, an Unconstitutionality Action was filed challenging the law that approved the opening. Only in 2007, the Complementary Law No. 126 was enacted. Such Complementary Law finally provided the guidelines for the opening of the reinsurance market in Brazil
In July, 2007, the CNSP, the body in charge for supervising the transition to the open reinsurance market, published resolution 164/07, which regulated the transition.

Meanwhile, the SUSEP worked to regulate and determine the rules for preferential offer, incorporation of companies and other rules necessary for the operation of the reinsurance market.

Currently, the reinsurance market in Brazil is regulated, mostly, by five Resolutions enacted by the CNSP, numbered as 168, 169, 170, 171, 172 and 173.

Types of Reinsurance Companies

Reinsurance companies interested in operating in Brazil shall be qualified as local, admitted or occasional reinsurers, pursuant to the following rules:

Local Reinsurance Company: is the reinsurer headquartered in Brazil, incorporated under the corporate form of a stock corporation, which has as its sole corporate purpose operations of reinsurance and retrocession. The local reinsurance company shall be subject to the same rules applicable to the insurance companies, such as: authorization for incorporation, operation, transfer of corporate control, election and responsibilities of the members of the management, and constitution of technical reserves. The local reinsurance company shall have the minimum capital comprised by the sum of the "base capital" (BRL 60 million) with the "additional capital" (calculated with basis on the risks inherent to its operation).

Admitted Reinsurance Company: is the reinsurer headquartered abroad, with a representation office in Brazil, duly registered as such before the SUSEP, to carry on operations of reinsurance and retrocession. The registration and operation of the admitted reinsurer shall depend on the compliance with certain requirements, such as, among others: experience, in the country of origin, of at least 5 years in the lines of reinsurance which it intends to operate, net worth not inferior to US$ 100 million, minimum solvency classification (S&P: BBB-; Fitch: BBB-; Moody's: Baa3; AM Best: B+), and a foreign currency account in Brazil, linked to SUSEP, in a bank authorized to operate in foreign exchange in Brazil, with a minimum balance of US$ 1 million or equivalent in freely convertible foreign currency for admitted reinsurers operating in all lines of business.

Occasional Reinsurance Company: is the reinsurer headquartered abroad, without a representation office in Brazil, duly registered as such before the SUSEP. Its activities in Brazil shall be limited to carry out reinsurance and retrocession operations. The registration and operation of the occasional reinsurer shall depend on the compliance with the following requirements: experience, in the country of origin, of at least 5 years in the lines of reinsurance which it intends to operate, net worth not inferior to US$ 150 million, minimum solvency classification (S&P: BBB; Fitch: BBB; Moody's: Baa2; AM Best: B++), as well as not be incorporated in a tax haven.

Right of First Refusal and Limits on Reinsurance Cessions

Local reinsurance companies have the right of first refusal in relation to reinsurance cessions, equivalent to 40% of the premium ceded.

Insurance companies and the local reinsurance companies may not assign, respectively, in reinsurance and retrocession, more than 50% of the premiums issued related to the risks which they have underwritten, considering the totality of their operations, yearly. The SUSEP may approve exceptions, upon analysis of a technically justified requirement.