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Brazilian Reinsurance Regulations Published

After the legal breakthrough at the beginning of 2007 with the enactment of Supplementary Law No. 126/07, which established the basic framework for the opening of the Brazilian reinsurance market, the final set of regulations for such opening have been finally enacted. On December 19, 2007, SUSEP (Private Insurance Superintendence) published Resolutions No 168 to 173 in the Official Gazette, which correspond to the final text of the reinsurance regulations, and which resulted from the discussions held over the last couple of months between the Brazilian regulator and the many stakeholders of this important sector of the economy, after the draft regulations had been submitted to public consultation (audiência pública).

The Brazilian regulator (the CNSP – National Private Insurance Council) accepted many of the suggestions submitted by the many interested stakeholders, including dispensing additional collateral for foreign admitted reinsurers with investment grade ratings (granted by Standard & Poors, Fitch, Moody’s or AM Best) and reducing collateral for foreign admitted life reinsurers from US$5 million to US$1 million. For registering with SUSEP to operate in Brazil as an admitted reinsurer, the foreign reinsurer will need to have a net worth in excess of US$100 million and its solvency rating must be a level above investment grade.

It must also maintain a bank account in Brazil (connected with SUSEP) with cash deposits of at least US$5 million (US$1 million for life reinsurers). The sporadic reinsurer, in turn, must have a net worth greater than US$150 million and a rating two levels above investment grade. The regulations also provide for the possibility of underwriting reinsurance in foreign currency when: (i) the assigned insurance was taken out in foreign currency, (ii) the assigned risks are abroad, and (iii) the major reinsurers are foreign (only in non-pro rata reinsurances). Resolution No 171 establishes the rules and procedures for the technical reserves that the reinsurer must collect monthly, such as the reserve for current risks, the reserve for uncollected premia, the reserve for losses to be liquidated, the reserve for technical surpluses, the reserve for financial surpluses, amongst others.

Another important suggestion accepted by SUSEP concerns the limit of the liability the reinsurer withholds. Initially, the regulations established that the withheld risks for local reinsurers were limited to 3% of the reinsurer’s net worth. The enacted rules do not mention such limit and set forth that it shall be defined by the reinsurer, according to its financial situation and subject to SUSEP’s evaluation.

The main Resolution (No 168) becomes effective 120 days after its publication and IRB Brasil – Re (the sole state-controlled local reinsurer to date) will have an extra 180 days to adapt to such regulations. The other Resolutions are immediately effective. Notwithstanding, SUSEP will now start receiving applications from interested foreign reinsurers to either establish themselves in Brazil as local or admitted reinsurers or register as sporadic reinsurers. Market speculation suggests that the Brazilian market could support up to 3 local reinsurers, there apparently being about 20 foreign reinsurers interested in registering as admitted reinsurers (including: Catlin, Federal, General Re, Lloyds of London, Paris Re, Partner Re, RGA and Tempest).

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