New Rule Enacted Concerning Occasional Reinsurers

The occasional reinsurer (or ressegurador eventual, as it is known in Portuguese), i.e., the foreign reinsurance company with registered offices abroad and that may operate in Brazil without a local representative office, has had its participation in the recently opened Brazilian reinsurance market restricted.

Effectively open to private competition since April 17, 2008, the Brazilian reinsurance market already has 14 reinsurers authorized to operate, among local, admitted and occasional reinsurers, with a further 19 reinsurers awaiting Susep’s approval.

On July 3, 2008, Decree No. 6.499/2008 was published in the Official Gazette. The Decree establishes that insurance companies are permitted to contract reinsurance from occasional reinsurers only up to 10% of the premium to be assigned for reinsurance¹. The Decree is already in effect.

The occasional reinsurer is a foreign company and is not required to have a local office in Brazil or an account amounting to at least US$5 million. In terms of a physical presence in Brazil, the occasional reinsurer is only required to appoint a local resident attorney-in-fact, for which reason the authorities believe that such reinsurer must have a transaction limit.

The authorities' intention is to avoid that a small occasional reinsurer comes to Brazil and absorbs a large part of the reinsurance business, at the expense of local and admitted reinsurers.

Further, the Decree establishes a limit of 50% of the risk to be assigned to occasional reinsurers as retrocession².

Further information may be obtained directly from Felsberg e Associados' Insurance and Reinsurance Department, from Partner Neil Montgomery at neilmontgomery@felsberg.com.br and Associate Ana Carolina Penteado at anapenteado@felsberg.com.br.

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1. “Aricle. 1. The insurance company or cooperative may assign to occasional reinsurers up to 10% of the total amount of premiums to be assigned (in reinsurance), the total transactions within the calendar year being considered for such purposes. Sole paragraph: The regulatory entity is hereby authorized to define the fields in which such amount may be excepted.”

2. "Article 2. The maximum amount permitted for a reinsurer to assign to occasional reinsurers is of 50% of the total amount of premium regarding the subscribed risks, the total transactions within the calendar year being considered for such purposes".