Brazilian Regulators Have Taken Further Steps To Increase The Attractiveness Of The Brazilian Reinsurance Market

Keywords: Brazil, reinsurance, Brazilian National Council of Private Insurance, CNSP,

Despite the current political turmoil in Brazil which is severally impacting the country's economy, the Brazilian National Council of Private Insurance ("CNSP") has recently issued a new regulation aimed at easing the access of foreign players into the Brazilian reinsurance market.

CNSP Resolution No. 325/15

The Brazilian reinsurance market was opened in 2007 (Supplementary Law No. 126/2007). It provided local reinsurers a preferential offering (originally at 60% of the risks ceded, then reduced to 40%) while occasional reinsurers played a secondary role in the market. Between 2010 and 2011, contradictory rules (CNSP Resolution No. 224 and 225) issued by regulators restricted intra-group cessions, abolished the preferential offering to local insurers and established a market reserve of 40% of all risks ceded in reinsurance. Such rules scared away long-term investors; it reduced the attractiveness of the Brazilian market because local players were obliged to develop complex risk-placement structures to comply with local regulations.

On 3 August 2015, Brazilian regulators issued CNSP Resolution No. 325/15, authorizing a gradual increase in intra-group cessions. This will enable local insurers and reinsurers to gradually cede a more significant share of risks to related companies or those which belong to the same financial conglomerate headquartered abroad. The new cession limits are the following: (i) 20% until 31 December 2016; (ii) 30% from 1 January 2017; (iii) 45% from 1 January 2018; (iv) 60% from 1 January 2019; and (v) 75% from 1 January 2020. However, these limits do not apply to performance bonds, export credit, rural credit , and domestic credit. The limits also do not apply to nuclear risks for which cessions as reinsurance or retrocession are permitted between companies that are connected, and that belong to the same financial conglomerate headquartered abroad, subject to compliance with other legal and regulatory requirements.

The new regulation also defines "related companies" and "companies within the same financial conglomerate" as the "group of entities related, either directly or indirectly, by means of an ownership interest of 10% or more in its capital, or effective operational control, characterized by joint management or administration, or by operating in the market under the same brand or trade name".

CNSP Resolution No. 325/15 has...