This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in Brazil.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your 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.
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
The insurance and reinsurance market are essentially governed by two laws, namely Decree-Law nº 73 of 1966 (insurance) and Complementary Law 126 of 2007 (reinsurance). Insurance contracts are governed by the Brazilian Civil Code, and the sale of insurance policies is regulated by the Consumer Defence Code. In addition to these laws, the market is governed by Resolutions of the National Council for Private Insurance (CNSP) and by circulars issued by the Private Insurance Superintendence (Superintendência de Seguros Privados – SUSEP).
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). In the event of a breach of the norms pertaining to solvency, SUSEP has powers to intervene in insurance companies and to order their winding-up. In terms of conduct, SUSEP has powers to impose administrative sanctions on companies or individuals (directors or officers) who are proven to have breached the applicable legal provisions, or to have participated in such a breach. Although SUSEP has comprehensive, adequate and rigorous legislation to punish administrative infractions, there is a consensus amongst practitioners that the regulatory body needs to be modernised and better equipped to fulfil its institutional mission.
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.
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.
Are there restrictions or controls 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.
It is important to mention that mandatory insurance covering risks in Brazil, taken out by individuals resident in Brazil or legal entities that are domiciled here, can only be issued in Brazil itself. The rule does not apply to insurance taken out by Brazilian citizens to cover risks abroad. In general terms, there are no additional requirements imposed on foreign insurers seeking authorisation to operate in Brazil. In relation to reinsurance, the legislation issued post-2007 ended the state monopoly on reinsurance and permitted the entry of new national and foreign reinsurers.
Even though there is still (to some extent) a reserved market for local reinsurers (albeit a declining one), a significant amount of risk is placed on the international market via reinsurers that have been authorised to operate in Brazil (i.e., foreign capital reinsurers that have a branch in Brazil and are subject to some additional requirements) and “eventual” reinsurers (i.e., foreign capital reinsurers that are not subject to additional requirements other than a minimum rating).
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
Only at reinsurance level. In this context, it is important to mention the recent evolution of reinsurance in Brazil. A radical legislative reform in 2007 removed the former state monopoly over insurance and established a system of competition. In recent years, the legislator has adopted successive measures favourable to the opening of the reinsurance market to foreign capital. CNSP Resolution 325/15 established a timeline for the preferential offer of assignment of reinsurance to local reinsurers (market reserve), for each automatic or optional reinsurance contract, according to the following percentages:
(a) 40% until 31 December 2016;
(b) 30% as of 1 January 2017;
(c) 25% as of 1 January 2018;
(d) 20%, as of 1 January 2019; and
(e) 15% as of 1 January 2020. In turn, SUSEP Circular 545/17 mitigated the right of preference of local reinsurers vis-à-vis international reinsurers for the purpose of accepting an automatic or optional reinsurance contract.
What penalty is available for those who operate in your jurisdiction 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.
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.
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.
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:
Variable portion (R$)
Variable portion (£)
AM, PA, AC, RR, AP, RO
PI, MA, CE
PE, RN, PB, AL
GO, DF, TO, MT, MS
RJ, ES, MG
PR, SC, RS
* EAPC non-profit will equal zero. EAPC is a corporation created to institute plans of income and framed within the jurisdiction of the Ministry of Finance and the National Council of Private Insurance (CNSP), being supervised by SUSEP. Local Reinsures: fixed amount of R$ 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% was only required at the end of 2017.
Is there a policyholder protection scheme in your jurisdiction?
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.
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.
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.
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.
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.
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.
In general terms, substantive law is currently more favourable to insureds, but certain recent developments indicate a certain shift towards a more evenly balanced system. Insurance in Brazil is governed by the following statutory framework:
(a) Decree-law 73, of November 21, 1966;
(b) Complementary Law 126, of January 2007; and
(c) the Brazilian Civil Code and the Brazilian Code for the Defense of Consumers. In terms of infra-statutory regulations, the National Council of Private Insurance (CNSP) has powers to issue regulations and the Superintendent of Private Insurance (SUSEP) issues guidelines (circulars) and ordinances. This legal framework is consistent with the legal principles applicable to the operation of insurance and insurance contracts and is similar to the legislative framework and concepts applied to insurance in Latin America and Europe.
Consumer protection and regulatory agencies in Brazil have a significant influence on the rules and regulations applied to the insurance market. In general, they act on a correct technical basis which guarantees relative equilibrium in the market, contributing to the development of the activity.
Moreover, the case law of the Superior Court of Justice (STJ) is particularly relevant in relation to insurance. The STJ is the highest court in the country for issues of federal law, which covers essentially all of the laws and regulations on insurance, and the regulatory activities of the Federal Government and regulatory agencies.
In the past, the Superior Court of Justice had a distinct tendency to find in favour of insured parties in relation to insurance issues, sometimes going so far as qualifying norms or establishing presumptions contrary to insurers in the interpretation of provisions of the Civil Code (particularly the interpretation of articles 763, 768 and 785). Recently, the STJ has taken a more technically sound approach applying the law in line with its technical basis. It is very likely that the court will take into account the rules edited by the CNSP and SUSEP as sources of interpretation and will adhere more to the actual wording of the law.
It is important to note that specific legislation (a Draft Law on Insurance – PLC 29/2017) is currently at an advanced stage of progress through Congress. If introduced, it will revoke several provisions of the Civil Code and CNSP and SUSEP rules. It is difficult to predict the repercussions of the law, but it is likely that it will lead to Brazilian courts reviewing the positions they took under the previous law in relation to the tenets and concepts of insurance and reinsurance law with possible change of approach in relation to certain issues (e.g. the regime of aggravation of risk, expenditure on salvage, apportionment of payout, direct third-party actions, follow the fortunes, statutory limitation, etc.).
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.
Moreover, commercial insurance disputes are decided by the court of the insured’s domicile. Small claims courts are available for matters involving up to 40 times the minimum wage (i.e. up to approximately £8,000). Regarding the procedural timeline, in the State Court of São Paulo, for example, a case takes on average a total of 3.3 years to be judged by a civil court and a court of appeal. If the case then goes to the Superior Court of Justice or to the Federal Supreme Court, this timeframe can increase by another 1.1 years. In the State Court of São Paulo there are 25,366,780 cases – commercial and others – pending before 2,607 judges, which gives a ratio of one judge to 9,730 cases. One of the main initiatives of the new Brazilian Civil Procedure Code, enacted on 2015, was to speed up the trial timeline with the introduction of a more flexible system whereby the parties are allowed to enter into procedural agreements to define the number of submissions/pleadings, the deadlines and the type of evidence to be produced.
Is alternative dispute resolution well established in your jurisdictions?
ADR has been expanding in Brazil, and dispute resolution mechanisms are improving. The main reasons for the expansion are:
- the Judiciary is overwhelmed with work;
- judges often lack the proper technique and means to solve complex disputes; and
- 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. 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.
Moreover, in the arbitration context, Brazilian courts and especially the Superior Court of Justice fully uphold the principle of party autonomy enshrined in Brazilian legislation, so that parties have broad freedom to choose the manner and the procedure by which their dispute is to be resolved. The position of the Superior Court of Justice on this is very clear from its rulings in applications to recognise foreign awards and on applications to set aside domestic awards.
Parties to arbitration proceedings are free to establish the procedure that best suits them, provided they comply with the requirements of due legal process and its corollaries (Law of Arbitration, article 21, paragraph 2). Brazilian courts apply the principle of kompetenz-kompetenz and, once an arbitral tribunal has been constituted, the parties can only resort to the courts after the arbitral award has been issued, other than in circumstances in which they need to enforce interim relief or another coercive measure granted by the tribunal during the course of the proceedings. Furthermore, the arbitral award is considered to be an enforceable title, on a par with a court order (Law of Arbitration, article 31), but which can only be enforced by a court.
Parties to arbitration may apply to the courts for an order to vacate (set aside) the arbitral award if the award featured serious procedural defects. Courts are not allowed to review the merits of the award. Therefore, the challenges to arbitral awards only succeed in proved cases of serious procedural defects, which are rare in practice.
What are the primary challenges to new market entrants?
There are at least three major challenges:
- to establish an efficient and extensive sales channel, and in Brazil, bank assurance prevails for the so-called "mass insurance";
- to seek a business focus or a niche, where expertise or technical expertise can be a competitive advantage; and
- to seek partnerships with other players, specialized in other lines of business, in order to meet different customer demands.
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.
Over the next five years what type of business do you see taking a market lead?
The Brazilian economy has surprisingly detached from the political crisis and has been showing signs of recovery. The insurance market, which has always robustly resisted Brazilian economic crises, is now in a situation that is conducive to its development. Currently, the main segments of the insurance industry in Brazil are, in order of revenue: health, property and life insurance. In the coming years, there is likely to be an expansion in surety insurance, particularly in relation to infrastructure development projects. Rural insurance, D&O, and individual life insurance are also expected to grow.
From a litigation and loss adjustment perspective, 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 had serious repercussions in the fields of surety and D&O.
In relation to the risk posed by the increase in longevity, which is the main emerging risk in the Brazilian market, a binding precedent, issued by the Superior Court of Justice, has introduced a creative solution for individual private insurance policies: a specific life-expectancy table for the Brazilian population, updated periodically, with policies featuring a contractual clause linking the adjustment of the benefits to the evolution of the life-expectancy table (Special Appeal 1.568.244/RJ). It is also important to note that several relevant judicial and arbitration cases will be decided in 2019, mainly in the D&O, engineering and surety areas. Furthermore, despite the existence of some worrying situations in relation to the large number of lawsuits before the courts, there has been a clear evolution in the case law in relation to the application and interpretation of Insurance Law.