Legal uncertainty spooks insurers and reinsurers in Brazil

Legal uncertainty is back in Brazil’s insurance market as two pieces of conflicting legislation under analysis by the country’s parliament are creating doubts about the future of large risk policies and the availability of offshore reinsurance in the country. The main point of contention is a bill at the Brazilian senate to create an insurance law that, according to critics, has an outdated, nationalistic tone. But by the end of February, another legislative initiative, which aims to reform Brazil’s Civil Code law, was presented on the bequest of the senate’s presidency. It also contains a comprehensive update of contract insurance law. Brazil does not have its own insurance law, but many consider that provisions under the Civil Code, once updated, should be enough to take the industry into the digital insurance era. However, a group of nationalistic lawyers and politicians, which have the sympathy of the left-wing federal government, are vying to approve the nationalistic bill that they believe will strengthen the rights of insurance consumers. The outcome is uncertainty about the future of the insurance industry’s rules, in a situation that Gustavo León, the head of legal at Swiss Re in Brazil, described as “schizophrenic”. “It is democratic to have two proposals, but the projects compete against each other. How to explain that to international reinsurers and international companies?” he asked during a podcast hosted by ANSP, an insurance school. “Where is the legal security in Brazil?” The initiative that faces the loudest opposition is the nationalist bill. Among other measures, the bill called PLC 29/2017 would create universal Brazilian jurisdiction to solve disputes involving insurance covers for risks based in the country or owned by Brazilian residents, no matter if the capacity comes from abroad. The bill also says that a risk is tacitly accepted by a reinsurer if it does not answer a consultation by a cedent in a period of 20 days after it was presented. Additionally, it partially reverts the liberalisation of wordings in Brazil that occurred barely two years ago and is helping to bring new covers and tailor-made policies into the country. Until recently, all insurance covers sold in Brazil had to be pre-approved by Susep, the country’s insurance supervisor, before being sold to a client, which hampered the development of tailor-made policies for large risks. “The bill is not necessary, and it can impact the appetite of global reinsurers for Brazil,” said Thais Arza Monteiro, a partner at the Mattos Filho law office in São Paulo. Another problem is that the bill aims to create a level playing field between mass market and large risk insurance products, implementing similar underwriting and claim settlement practices for both kinds of buyers. The Civil Code reform, for its part, goes in the opposite direction by making a clear distinction between the two groups of insurance buyers. It leaves reinsurance out of the equation, under the principle that the reinsurance market is global and has its own rules. The market feared that PLC 29/2017 would have been approved by the senate on 19 March, but the vote was delayed as new amendments were presented. One of these amendments, sponsored by a senator aligned with the government, softens the reinsurance-stifling articles a bit. Although not nearly enough for many critics. The Civil Code reform, meanwhile, is supported by Rodrigo Pacheco, the president of the senate, who has not hidden his plans to try to become Brazil’s president at some point. If the new Civil Code is approved under its current wordings, PLC 29/2017 would have to be dropped, as the two pieces of legislation are mutually exclusive, legal experts believe. In other regulatory developments, Susep has made clear it will set up a working group to draft new regulation for the reinsurance market in order to create a national policy for the sector, which was a state monopoly in Brazil for seven decades until 2008. The main goal of the initiative, according to the body, is to guarantee that offshore and local reinsurers will work under similar tax rules. Experts say that this is a real issue in Brazil, but fear that Susep will try to solve the problem by increasing the tax burden on offshore reinsurers, rather than reducing the taxes paid by local players. “The very name of ‘National Reinsurance Policy’ is already frightening,” said Walter Polido, a São Paulo-based insurance lawyer, during the ANSP podcast. “Reinsurance is not national, it is international.” Intervening in the reinsurance market is particularly feared because it took Brazil more than a decade to stabilise the sector after the end of the monopoly. The country is now back on the radar of global reinsurers. The volume of premiums ceded by Brazilian entities to offshore reinsurers increased by 54% in the past two years, according to Susep statistics. Susep has also just launched a consultation to draft a remuneration policy for insurance executives.

Legal uncertainty spooks insurers and reinsurers in Brazil

Fears moves could partially revert liberalisation of wordings

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