Regulation & governing bodies
The Brazilian insurance market is regulated by two governmental bodies that report to the Ministry of Finance. These are the Private Insurance National Council (CNSP) and the Superintendence of Private Insurance (SUSEP). CNSP is an inter-ministerial body composed by, inter alia, the Ministry of Finance, the Central Bank, the head of SUSEP, among others. The CNSP’s role is to provide strategic direction on insurance policy in Brazil. CNSP formulates the guidelines for private insurance policies, determines the general features of insurance and reinsurance contracts and regulates those acting as brokers for insurance and reinsurance. The role of SUSEP is to manage, supervise and monitor the operation of the insurance market in Brazil by overseeing the activities of insurance and reinsurance companies, as well as insurance and reinsurance brokers. SUSEP further regulates the guidelines enacted by the CNSP.
The contract of insurance is governed by Articles 757-802 of the Brazilian Civil Code (BCC), Commercial Code 1850 (only for maritime risks), Decree-law 73 / 66, Consumer Defence Code, CNSP resolutions and SUSEP regulations. All contracts of insurance and reinsurance are regulated, with greater protection given to contracts of insurance with consumers (within the meaning of the CDC).
Brazilian case law typically holds buyers of first party insurance to be consumers under the argument that they are protecting their own goods or assets. Nevertheless, whether or not those purchasing third party insurance will be consumers or not will depend heavily upon whether the contract shall serve the policyholder’s business or not. If it does, the CDC will be displaced.
In matters of reinsurance, the contract will be negotiated business to business. In this situation, the presumption is that the parties will be on an equal footing when entering into contracts, so they do not require the additional protections afforded to consumers. As operators of the insurance market, insurers, reinsurers and brokers are also regulated. Prior to commencing operations, each must seek prior authorisation to operate from SUSEP, as well as obtaining all applicable local business permits to operate in Brazil.
Reinsurance transactions
Until 2008, the reinsurance sector in Brazil was monopolised by the government-controlled IRB Brazil RE. The enactment of Complementary Law No. 126 / 2007 opened up the reinsurance sector in Brazil gradually to private enterprise.
Local reinsurers have a right of first refusal on risk transfers by cedants, provided they meet the exact same conditions offered in the international market.
Local reinsurers are prevented from retroceding more than 70% of their gross premium in any given year, except for financial, rural and nuclear risks, which are not subject to such limitation.
Shall direct insurers cede in excess of 90% of gross premiums in any given year, they must present justifications to SUSEP for doing so until March 31 of the subsequent year.
In the event of insolvency, extrajudicial liquidation decreed by SUSEP or bankruptcy by the cedant, the reinsurer will be allowed to pay straight to the insured.
Any risk can only be transferred to a reinsurer not duly licensed by Brazilian authorities in the event of shortage of offering by licensed local or foreign reinsurers. In any event, such a transfer must not be made to reinsurers headquartered in tax havens.
Intragroup reinsurance and retrocession contracts must follow fair competition conditions.
Reinsurance contracts are free to determine what degree of claims’ control, if any, the reinsurer will exercise when a loss is to be adjusted.
Direct insurers cannot assume under retrocession contracts more than 2% of the premium they had underwritten in any given year.
Insurance products
Historically, the content of insurance products in Brazil was highly regulated and standardised. In 2021, insurance authorities passed a series or rules eliminating much of SUSEP’s intervention in this realm and seeking to foster market innovation and the creation of more tailored products. Insurance products aimed at consumers must be previously approved by SUSEP, although under a much less stringent regime than before. Ever since 2021, insurers have had a great deal of freedom to draft custom contracts for large risk insurance lines, which are not subject to SUSEP’s prior approval.
Insurance law in Brazil may be subject to significant change in the coming years if Bill of Law no. 8,290 / 2014 is accepted by Congress. If passed, it would become the first specific Brazilian Insurance Law. The draft of this project was initiated back in 2004 (through Bill of Law no. 3,555 / 2004) and has subsequently been under discussion and evaluation by the market and relevant authorities for a considerable period of time. If approved, the new law would come into force one year after the date of its publication.
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