On July 17 2017 the National Council of Private Insurance submitted for public consultation a draft regulation on the acceptance of retrocession by insurers and its intermediation.
Brazilian law (Supplementary Law 126/07) defines 'retrocession' as the transfer of reinsurance risks from:
- reinsurers to reinsurers; or
- reinsurers to local insurers.
The draft regulation allows insurers to accept retrocession risks from foreign reinsurers not registered with the Superintendence of Private Insurers (SUSEP) through foreign reinsurance brokers also not registered with the SUSEP, provided that the local insurer is authorised to operate in the lines of risks accepted.
Retrocession contracts must comply with the same requirements as reinsurance contracts. In the future, the SUSEP may issue new rules in order to provide mandatory minimum requirements, as such requirements already exist with regard to reinsurance contracts.
The draft regulation requires that insurers adopt monitoring and control mechanisms to mitigate the accumulation of risks and possible 'spiraling' risks. These are defined as the acceptance of treaty reinsurance and facultative reinsurance in retrocession of risks already accepted by the retrocessionary in insurance contracts and other retrocession contracts.
Finally, insurers cannot accept more than 2% of insurance premiums relating to the risks to which they have subscribed in retrocession, taking into account the totality of their operations in each calendar year. However, the SUSEP may authorise the increase of this percentage if it deems it necessary to do so for technical reasons.
The draft regulation was created by a working group, which was established some years ago, along with the participation of the regulator and reinsurers. The regulation reflects a request to change the Brazilian insurance market and its approval would have a positive effect.
For further information on this topic please contact Marcio Mello Silva Baptista or Barbara Bassani de Souza at TozziniFreire Advogados by telephone (+55 11 50 86 50 00) or email ([email protected] or [email protected]). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
