Legal and regulatory considerations for prospective Brazilian insurers

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E667E303-E527-42B7-8852-817CC3184CCBContributed by Chalfin, Goldberg, Vainboim & Fichtner

December 17 2013


The courts in Brazil are entrusted with interpreting and applying the law. As a civil law system, there is no principle of stare decisis, under which lower courts are bound by the decisions of higher courts. Instead, Brazilian courts follow the principle of jurisprudence constante, according to which the existence of previous decisions applying a particular rule of law is important, but not necessarily determinative in subsequent analogous cases, except in situations where the law establishes otherwise. Therefore, the precise wording of each law assumes great importance.

As a result, insurance activity is governed by numerous laws and regulations. The main statutes are:

•the Civil Code;

•the Commercial Code;

•the Health Insurance Law (9,656/1998);

•Decree-Law 73/1966; and

•Complementary Law 126/2007.

A large number of regulations have also been issued by the administrative authorities in the form of resolutions, circulars and others.


The Civil Code governs civil relationships and contracts in general, including insurance contracts. In addition, the Commercial Code covers marine insurance contracts.

Decree-Law 73/1966 established the National Private Insurance System, which is composed of the National Private Insurance Council (CNSP), the Superintendent Office of Private Insurance (SUSEP) and the various insurance and reinsurance companies authorised to operate in Brazil.

The CNSP’s main responsibility is setting the overall policy on private insurance and the criteria by which insurance companies are incorporated, covering the legal and technical limits for insurance and reinsurance operations.

SUSEP, an independent agency linked to the Ministry of Industry and Commerce, is the insurance industry regulator, entrusted with executing and overseeing compliance with the policies and guidelines set out by the CNSP.

Health and dental insurance plans are regulated and overseen by the National Supplementary Health Agency, an independent agency linked to the Ministry of Health, with a hierarchical position similar to that of SUSEP.

In 2012 CNSP Resolution 243/2011 entered into force, which sets the administrative penalties applicable to individuals and companies for infractions of legislation and regulations on insurance, coinsurance, reinsurance, retrocession, capitalisation, open private pension plans, insurance brokerage and independent auditing. The resolution also covers the procedures for administrative inquiries and penalty proceedings conducted by SUSEP.

SUSEP recently issued a new regulation, Circular 437, which modifies the basic rules on the marketing of new general civil liability insurance policies. The new regulatory framework took effect in June 2013.

Insurance contracts

The Civil Code establishes the requirements for the validity of insurance contracts, of which the most significant are:

•the assumption of a guarantee obligation by the insurer of a legitimate interest of the insured;

•payment of a premium by the insured;

•the effective existence of a legitimate insured interest, referring to a person or thing; and

•that the risk be predetermined.

The code also authorises coinsurance and reinsurance, according to the specific regulations issued.

According to the code, there are two broad categories of insurance in Brazil – namely, for damages and for persons. The guarantee established for insurance against damages is limited to the amount stipulated in the policy and the maximum indemnity must correspond to this figure. If more than one policy exists covering the same event, whether it be damage to or loss of an object, or liability for a tort, the total payout will be apportioned between the insurers. In contrast, for insurance of persons, multiple contracts can cover the same interest, with the same or different insurers and no apportionment of the payouts.

Reinsurance market

Until 2007 IRB Brasil Resseguros SA, a company created in 1939 and controlled by the Brazilian government, held a monopoly on the provision of reinsurance in Brazil (although it was allowed to lay off part of the risks in the foreign market or to authorise insurers to do so). This monopoly ended in 2007 with the enactment of Complementary Law 126, which set out the policy on reinsurance, retrocession and intermediation, allowing private reinsurers to operate in the Brazilian market. In September 2013 SUSEP approved the assignment of IRB’s stock control to a shareholder group composed of the federal government and insurance firms such as:

•BB Seguros Participacoes;

•Bradesco Auto RE Companhia de Seguros;

•Itau Seguros;

•Itau Vida e Previdencia; and

•Fundo de Investimento em Participacoes Caixa – Barceloa.

CNSP Resolution 168/2007 established three categories of reinsurer:

•local reinsurers (those incorporated in Brazil, with management in the country);

•admitted reinsurers; and

•occasional reinsurers.

SUSEP keeps and discloses a list of local, admitted and occasional reinsurers authorised to function in Brazil, as well as of insurance brokers. It also establishes the requirements for the economic activity of reinsurers in Brazil. Regulation of the economic status of reinsurers that intend to operate in the national market is an aspect on which the CNSP and SUSEP must focus attention, such that this control does not create conditions that embarrass, rather than encourage, the entry of new reinsurers into the market, whether local, admitted or occasional.

Local reinsurers

Local reinsurers are those headquartered in Brazil. According to CNSP Resolutions 169/2007 and 227/2010, in order to operate, a local reinsurer must hold capital equivalent to the base capital (ie, R60 million), plus a variable amount of additional capital, as defined by law. The local reinsurer must maintain this amount constantly in order to ensure that the risks inherent in its operations are covered.

Admitted reinsurers

For a foreign company to qualify as an admitted reinsurer, it must:

•have a representation office in Brazil;

•meet the requirements of Complementary Law 126/2007 and the follow-on regulations issued thereunder applicable to reinsurance and retrocession; and

•maintain registration with SUSEP, according to the requirements of CNSP Resolution 168/2007.

For registration with SUSEP, the admitted reinsurer must have a minimum solvency classification issued by a risk classification agency equal to:

•a Standard & Poor’s rating of BBB-;

•a Fitch rating of BBB-;

•a Moody’s rating of Baa3; or

•an AM Best rating of B+.

SUSEP can change these minimum levels and the risk classification agencies at any time. It must also have net equity of $100 million and maintain a type of escrow account in Brazil in foreign currency linked to SUSEP, with a minimum balance of $5 million for reinsurers operating in all areas, and $1 million for those only active in personal insurance.

Occasional reinsurers

Occasional reinsurers need not maintain a representation office in Brazil, but they must still satisfy the requirements of Complementary Law 126/2007 and the regulations applicable to reinsurance and retrocession, as well as registering with SUSEP by satisfying certain requirements of CNSP Resolution 168/2007.

The minimum solvency classifications for occasional reinsurers are:

•a Standard & Poor’s rating of BBB;

•a Fitch rating of BBB;

•a Moody’s rating of Baa2; or

•an AM Best rating of B++.

Again, SUSEP can change these minimum levels and the risk classification agencies at any time. The minimum net equity requirement is $150 million, with no requirement to keep an escrow account in foreign currency linked to SUSEP to guarantee operations in the country.

Taxation of insurance and reinsurance

Insurers and reinsurers are subject to the same taxes and social contributions applicable to all companies in Brazil. Of particular note is the tax on financial operations, as established in the National Tax Code. The rates apply to the overall value of the premiums received each month as follows:

•For reinsurance, mandatory insurance of mortgage loans made by agents of the National Housing System, insurance on export finance and the international transportation of goods, aviation insurance and civil liability insurance paid by airlines, and in transactions where the amount of the premiums is allocated to insurance plans with survivorship coverage, the rate is 0%.

•For life and similar insurance and personal accident insurance (including mandatory insurance for personal damages caused to persons (even if not passengers) by vehicles and vessels or their cargo), the rate is 0.38%.

•For private health plans, the rate is 2.38%.

•For other insurance transactions, the rate is 7.38%.

Newly authorised companies

Law 12,172/2012 created a government-owned company linked to the Ministry of Finance called Agencia Brasileira Gestora de Fundos Garantidores e Garantias SA, popularly known in the market as Segurobras. Its specific purpose is to concede guarantees against the risks applicable to large projects and the public financing thereof. In August 2013 members of the administrative council, executive committee and board of auditors were nominated. Segurobras will not have a monopoly.

The most recent company to receive authorisation from SUSEP to operate as a local reinsurer was Allianz Global Corporate & Specialty, part of the Allianz Group. In addition to reinsurance operations in Brazil, it will also handle those of the group in Argentina, Peru and Colombia.

Source: International Law Office



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