Tony Dowding talked to João Marcelo Santos, founding partner of Santos Bevilaqua Advogados, and former director and deputy superintendent of the Superintendence of Private Insurance (SUSEP), about the Brazilian insurance market and global insurance programmes, including recent legislative changes, barriers to foreign entrants, and the main players in the market.
What is the current state of the insurance market in Brazil?
The Brazilian insurance regulation does not impose any obstacle to foreign investments in local insurers and reinsurers. The process of setting up a local insurer or reinsurer is fast and objective, and does not tend to take more than five months after the initial filing with SUSEP, the Brazilian insurance supervisor.
There are also the usual limitations for contracting insurance with foreign companies by persons residing in Brazil and legal entities domiciled here.
Regarding the Brazilian reinsurance market, foreign reinsurers must be registered with SUSEP. There are some pre-conditions to be fulfilled, mostly the minimum net equity of $150m and five years of operations. Foreign reinsurers are also subject to certain entry barriers imposed by the regulation in favour of the local reinsurers. The most significant barrier is the first refusal right of the local reinsurers over 40% of every reinsurance risk cession, facultative or automatic.
However, a new recent legislation will make possible the launching of insurance-linked securities (ILS) within the Brazilian insurance and capital market, allowing the securitisation of insurance and reinsurance risks in Brazil.
The Brazilian special purpose vehicles that will launch the ILS will probably (when the final regulations are issued) be low-cost local reinsurers, due in part to their protected cell structure and to the full collateralisation inherent to the ILS scheme. This, similar to the other markets’ frameworks, means that ILS will be an attractive instrument for those interested in investing in the Brazilian reinsurance market.
Has there been any change in attitude towards non-admitted insurance? Under what circumstances can risks be covered by non-admitted insurers?
The general rule is the obligation to contract insurance, by Brazilian residents and by companies domiciled here, with Brazilian insurance companies. The exceptions are periods in which the resident is abroad (the main example is travel insurance) and, in the case of companies, when the risk to be covered is located abroad.
In fact, the concept of ‘risks abroad’, in this context, may be subject to some controversy. For instance, D&O and civil liability, coverages may be difficult to be ‘localised’ and global programmes are, as usual, a challenge from the local compliance perspective.
The insurance can also be contracted abroad if it is not offered in Brazil, which the policyholder must be able to demonstrate, presenting non-accepted insurance proposals to the insurance supervisor, if required.
Is there a tougher stance being taken by the regulatory and tax authorities on compliance?
The Brazilian insurance supervisor tends to focus its actions on the need for local authorisation for the sale of insurance in Brazil. Global programmes, for example, tend not to be subject to greater focus. On the other hand, fiscal and exchange rate problems can occur in specific situations, but their occurrence can be avoided by properly setting up and managing global programmes.
Have there been any legal, regulatory or tax changes recently that impact non-life insurance or global insurance programme business, or are any planned?
The relevant changes recently occurred are related to foreign exchange rules, which have been significantly relaxed and will come into force in 2023. With regard to contractual rules and insurance regulation applicable to admitted/non-admitted insurance, we have not had any relevant changes in the last 15 years.
In practice, as in other jurisdictions, the contracting of global programmes must be evaluated and taken care of so that maximum compliance with Brazilian legislation is sought.
Who are the leading insurers on the non-life side? Are there any restrictions on foreign insurers operating in the market?
Among the largest non-life insurance companies operating in Brazil, we have Bradesco, Caixa Seguros and Porto Seguros, the first two as bancassurance, and all multiline with a focus on auto insurance, and foreign capital companies such as AXA, Allianz, Chubb, HDI Talanx, Mapfre, Tokio Marine, Sompo and Zurich.
Although there is no restriction on Brazilian insurers with foreign capital, the sale of insurance in Brazil by foreign insurers without authorisation is prohibited, and there have been several supervisory actions by SUSEP in order to penalise this type of situation.