Brazil: Insurance & Reinsurance

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This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Brazil.

It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.

This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit  http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance

  1. How is the writing of insurance contracts regulated in the jurisdiction?

    In general terms, and according to consumer protection legislation, all contracts involving consumer relations – including insurance contracts – must be drafted in a clear and precise manner, especially the clauses that may impose limitation on consumer rights. Specifically with regard to insurance contracts, the Law (Decree 73/1966) confers on the regulating and market supervision bodies, respectively, the National Council of Private Insurance (CNSP) and the Superintendence of Private Insurance (SUSEP) the power to establish the general characteristics of insurance contracts and also the policy conditions to be mandatorily used.

  2. Are types of insurers regulated differently (i.e. life companies, reinsurers)?

    General insurance companies are regulated by general insurance legislation (Brazilian Civil Code and Decree 73/1966), while specialist health insurers also have to comply with specific statutory provisions, and the rules of specific supervisory bodies, such as the National Supplementary Health Agency (ANS). Reinsurance is subject to specific legislation, enacted in 2007, which regulates the different types of reinsurers.

  3. Are insurance brokers and other types of market intermediary subject to regulation?

    Insurance brokers are subject to the supervision of SUSEP and also to a self-regulatory body recently created by law (Brazilian Institute for Self-Regulation of the Brokerage Market for Insurance, Reinsurance, Capitalization and Open Complementary Pension Plans – IBRACOR). Moreover, insurance brokers are the only intermediaries entitled to receive commissions on the basis of insurance.

  4. Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?

    SUSEP authorization is required to act as an insurer or reinsurer in the Brazilian market. SUSEP makes extensive analysis of the authorization request, taking into account the capacity and suitability of the controlling group. SUSEP cannot deny the request if all legal and regulatory requirements are met. This analysis takes on average six months in ordinary circumstances. Insurance brokers must obtain a license from SUSEP, after they have passed a qualifying examination.

  5. Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?

    There are restrictions on the corporate control group of insurers and reinsurers only as in terms of technical and economic-financial capacity. There is no restriction on foreign capital.

  6. Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?

    Only at reinsurance level, in cases in which the risk is assigned eventual reinsurers, but limited to 10% of the total risk reinsured by the ceding insurer.

  7. What penalty is available for those who operate without appropriate permission?

    Individuals or legal entities that engage in insurance or reinsurance operations without proper authorization are subject to the payment of a substantial fine, imposed on the company and its directors, without prejudice to other penalties such as the dissolution of the company, if incorporated in Brazil, payment of damages to third parties and possible criminal prosecution in the event of damage to the local/national economy.

  8. How rigorous is the supervisory and enforcement environment?

    SUSEP has comprehensive, adequate and rigorous legislation to punish administrative infractions. However, there is a general consensus amongst practitioners that the regulatory body needs to be modernized and better equipped to fulfill its institutional mission.

  9. How is the solvency of insurers (and reinsurers where relevant) supervised?

    The solvency of insurers and local reinsurers is monitored by SUSEP. The supervision is based on very advanced legislation, where the concept of risk-based supervision is applied. This model is supported by three pillars: transparency of financial statements and accounting information, adequate corporate governance and sufficient capitalization.

  10. What are the minimum capital requirements?

    The supervised entity must continuously meet a Minimum Capital Requirement (CMR), equivalent to the highest value between the base capital and the risk capital.

    The base capital is composed of a fixed amount stipulated in the authorization to operate, plus a variable amount for operation in each of the regions of the country, according to the following table:

    Region States Variable portion (R$) Variable portion (£)
    1 AM, PA, AC, RR, AP, RO 120.000 30.000
    2 PI, MA, CE 120.000 30.000
    3 PE, RN, PB, AL 180.000 45.000
    4 SE, BA 180.000 45.000
    5 GO, DF, TO, MT, MS 600.000 150.000
    6 RJ, ES, MG 2.800.000 700.000
    7 SP 8.800.000 2.200.000
    8 PR, SC, RS 1.000.000 250.000

    * EAPC non-profit will equal zero. EAPC is a corporation created to institute plans of income and framed within the jurisdiction of the Ministry of Finance and the National Council of Private Insurance (CNSP), being supervised by SUSEP. Local Reinsures: fixed amount of R$ 60 million.

    The risk capital is the sum (through correlation) between capital instalments based on the risk of underwriting, credit, operation and market. It is worth mentioning that market risk capital is still being paid in. The payment of 100% will only be required by the end of 2017.

  11. Is there a policyholder protection scheme?

    There is no specific policyholder protection scheme in Brazil. The policyholder represents a group of insured parties and has the duty to defend them vis à vis the insurer. In legally obligatory insurance and in some specific fields such as D&O and surety, for example, the policyholder is equated to insured persons for the purpose of contracting and maintaining insurance. In voluntary insurance, the policyholder is the insured's agent. Moreover, the insurer may assert against the insured any defense that it has against the policyholder. The non-payment to the insurer of the premiums received from the insured, within the due periods, subjects the policyholder to a significant financial penalty and possible criminal liability. Under Brazilian Law, the term policyholder might also cover a person or a company that contracts insurance in favor of another person or company.

  12. How are groups supervised, if at all?

    Insurers and reinsurers must be incorporated in the form of corporations. In relation to group companies, the Brazilian Law of Corporations prohibits mutual shareholding and any kind of advantage to companies of the same group. Specifically with respect to reinsurance, the Law authorizes the insurance regulator to establish limits and to monitor intergroup transactions, in line with regulations that established maximum percentage limits for such assignments.

  13. Do senior managers have to meet fit and proper requirements and/or be approved?

    The election of directors and officers of local insurers and reinsurers must be approved by SUSEP, which verifies the fulfillment of requirements of moral suitability and technical qualification.

  14. Are there restrictions on outsourcing parts of the business?

    Brazilian Employment Courts do not permit the outsourcing of activities that are part of the core business of the company. However, there are proposals in Congress, and a pending judgment before the Supreme Court, to ease these restrictions.

  15. How are sales of insurance supervised or controlled?

    In general, the sale of insurance is carried out by brokers, subject to the supervision of SUSEP. Consumer law is applied concurrently to ensure that consumers receive adequate information and a guaranteed range of rights in relation to the reliability of the product purchased. From a Consumer Law point of view, there is a protection scheme headed by the Ministry of Justice, and composed of several bodies linked to state and municipal governments, in charge of supervising the sale of insurance.

  16. Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.

    The existing insured protection system can be classified according to the following criteria: (a) solvency: capital requirements and constitution of technical provisions; (b) contractual: rules on the drafting of clauses and the non-admissibility of abusive clauses, consumer-friendly interpretation in membership contracts and specific rules on insurance contracts in the Civil Code; (c) transparency of information: rules on publication and content of financial statements, advertising of suppliers and products; and (d) supervisory bodies focused on consumer protection, such as SUSEP, ANS and the National System of Consumer Protection.

  17. Are the courts adept at handling complex commercial claims?

    Courts have improved in recent years regarding the interpretation of complex insurance contract. Some major disputes occur today and the referral given by the Judiciary has been quite technical and adequate. The Superior Court of Justice ever more defines precedents in its most varied areas of insurance law An important example is the recent Court ruling on D&O insurance, published on February 14th,, 2017, which deals with the policyholder's obligation to declare risk, also denying insurance coverage in case of intentional action by the insured (Special Appeal 1.601.555/SP). It is important to note that several relevant judicial and arbitration cases will be litigated in 2017, mainly in the D&O, engineering and surety areas.

  18. Is alternative dispute resolution well established in the jurisdiction?

    ADR has been expanding in Brazil, and dispute resolution mechanisms are improving. The main reasons for the expansion are (a) the Judiciary is overwhelmed with work; (b) judges often lack the proper technique and means to solve complex disputes; and (c) jurisdiction is no longer the exclusive prerogative of the State, nor is the judicial process the only way to resolve disputes.

    It is indisputable that arbitration is increasingly used to resolve complex cases, with an emphasis on corporate and construction disputes, and, at the same time, there is an increasing incentive for consensual forms of dispute resolution, especially conciliation and mediation. According to the survey "Arbitration in Numbers and Values," arbitration litigation has grown by 73% since 2010.

    With regard to consensual means of dispute resolution, the New Code of Civil Procedure has as one of its fundamental norms the need to foster conciliation and mediation, and for the latter a legislative apparatus has been created to encourage its use.

    In this context, insurance disputes, especially those involving large risks, are fertile ground for the use of ADR, notably due to the specialist nature of the matter, the efficiency of extrajudicial procedures and the need to reduce transaction costs.

  19. What are the primary challenges to new market entrants?

    There are at least three major challenges: (1) to establish an efficient and extensive sales channel, and in Brazil, bank assurance prevails for the so-called "mass insurance"; (2) to seek a business focus or a niche, where expertise or technical expertise can be a competitive advantage; (c) to seek partnerships with other players, specialized in other lines of business, in order to meet different customer demands.

  20. To what extent is the market being challenged by digital innovation?

    This is a very new and controversial subject in Brazil. Regarding internet sales, in addition to the legal issues surrounding the security and validity of insurance contracts, there is a natural aversion by brokers to direct sales, precisely because it excludes them. However, most insurers are studying ways and means of taking advantage of digital innovations, whether in terms of providing information about their products, the possibility of direct interaction with their policyholders or offering and selling products. Internet sales are likely to grow in the coming years.

  21. Over the next five years what type of business do you see taking a market lead?

    The main segments of the insurance industry currently in Brazil are, in order of revenue: health, property and life insurance. For the coming years, an expansion in surety insurance is likely, particularly in relation to infrastructure development projects, rural insurance, D&O, and individual life insurance.

    Many insurance claims have arisen out of the poor economic conditions that have undermined the capacity of some civil construction companies to comply with their contractual obligations. In addition to economic vicissitudes, problems arising out of corruption scandals at Petrobras have also given rise to serious repercussions in the fields of surety and D&O.

    Furthermore, the market is waiting to see the precise effects of the regulations issued in May 2015 by the Transport Authority (CONTRAN) under the auspices of Law 12.977. There is a considerable degree of optimism that the new legislation, in regulating the dismantling of vehicles and sale of parts will go some way to reducing the rate of car-theft in the country.

    The personal insurance and pension segment expanded substantially in 2014, growing 29.7% in comparison with the previous year. In the first quarter of 2015, the so-called accumulation policies experienced exceptional growth, over 160% compared to the first quarter of 2014, an increase that is probably attributable to the uncertain economic scenario. On 2016, the sector grown another 9,2%. Moreover, the third segment, which covers insurers that specialize in health cover insurance, maintained growth levels in 2016.