A Q&A guide to insurance and reinsurance law in Brazil.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Brazil.
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This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.
In August 2012, the Brazilian Government authorised, by Law No. 12.712, the incorporation of the Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A (ABGF). It is a state controlled company that grants guarantees to infrastructure projects, amongst others.
The Brazilian insurance and reinsurance regulator (SUSEP) also issued new rules on solvency, minimum capital requirements, retention limits and technical reserves, which also apply to local reinsurance companies.
In 2012 the intended privatization of IRB Brasil Resseguros S.A. (IRB) has progressed and is now in its final stages. It is expected to be concluded by mid 2013. Upon its privatisation, which will be made through the conversion of non-voting shares into voting shares and a subsequent capital increase, the majority of its corporate capital will be held by private parties. There is also a best efforts commitment to make an initial public offering of IRB within 5 years.
Insurance. The Brazilian insurance market is closed to foreign players, meaning that only Brazilian companies, which must be duly licensed by SUSEP, can operate in this market. However, local players can be fully owned by foreign companies. Although brokers are the parties duly authorised to intermediate the contractual relationship between the (re)insurer and the (re)insured, their presence is not mandatory.
Insurance is primarily regulated by:
The Brazilian Civil Code (BCC).
Decree-Law No. 73/66.
These laws delegate powers to the local regulator, which can issue additional rules to regulate the market. As a result, in addition to the two statutes above, there are a number of specific regulations governing the Brazilian insurance market. Case law also plays an important role in the Brazilian legal system, although it is generally not binding.
The Brazilian insurance/reinsurance regulator supervises only the registered companies in Brazil and not the entire group of a locally registered insurance company. Its jurisdiction is then limited to the companies operating in Brazil, although penalties can be applied to non-admitted companies doing business locally.
Reinsurance. The Brazilian reinsurance market, which remained under a de facto monopoly until 2007, is now open to foreign players. However, to operate in Brazil these reinsurers must obtain a licence with the local regulator (SUSEP).
The presence of a broker is not required on the purchase of reinsurance. However, the reinsurance broker must be a company duly incorporated and licensed in Brazil.
Reinsurance and retrocession activities are governed by Complementary Law No. 126/07, which is further regulated by Resolution CNSP No. 168/07, as well as other specific regulations issued by SUSEP.
Beyond these rules, the general contractual principles laid down in the BCC apply to reinsurance agreements. The specific rules applicable to insurance agreements should not, in our opinion, apply to reinsurance contracts. We further expect that Brazil will acknowledge international practices and customs as one of the sources of law applicable to reinsurance contracts.
The Brazilian insurance/reinsurance regulator supervises only the registered companies in Brazil and not the entire group of a locally registered reinsurance company. Its jurisdiction is then limited to the companies operating in Brazil, although penalties can be applied to non-admitted companies doing business locally.
The Brazilian national private insurance system consists of:
National Council of Private Insurance (CNSP).
Superintendence of Private Insurance (SUSEP).
The insurance and reinsurance companies and brokers authorised by SUSEP to conduct business in Brazil.
CNSP is a government entity responsible to the Ministry of Finance, and determines the general policies and guidelines concerning insurance, reinsurance, open private pension and capitalisation (capitalização) operations in Brazil.
SUSEP is the Brazilian regulatory agency responsible for detailing the CNSP's resolutions, together with supervising and controlling the Brazilian market.
However, neither CNSP nor SUSEP are responsible for regulating or supervising healthcare operators. These activities are subject to the Supplementary Health Council (CONSU) and the National Agency of Supplementary Health (ANS).
Closed pension funds (fundos de pensão) are, in turn, regulated and supervised by the National Council of Complementary Pension (CNPC) and the National Superintendence of Complementary Pension (PREVIC).
Article 757 of the BCC defines insurance contract as a contract where the insurer, upon receipt of a premium, is obliged to guarantee a legitimate interest of the insured, concerning person or property, against pre-established risks.
Complementary Law No. 126/07 recognised that reinsurance is legally distinct from insurance, by defining it as a transaction where an insurer transfers its risks to a reinsurer. Retrocession is defined as a transfer of reinsurance risks from reinsurers to other reinsurers or to Brazilian insurers.
Essentially, any person or property is insurable against any pre-established risk. The risk is a mandatory element of the insurance contract and can be defined as the possibility of a given damage or loss taking place.
Insurance contracts are strictly regulated. SUSEP controls life and non-life insurance products as well as private pension plans products.
For life and non-life insurance products, companies can offer and sell products once they have filed the contract wording with SUSEP. However, SUSEP can request that changes be made to the products offered after this filing. To offer pension plans, companies must obtain prior approval from SUSEP (penalties apply where this is not done).
There are many rules applicable to the wording of life and non-life policies. In addition, there are also rules governing the wording of policies for:
Export credit insurance.
Civil liability insurance.
The rules differ for life insurance products depending on whether it is individual or group insurance (for example, group policies can only be terminated earlier or have their conditions changed with three-quarters of the insureds' approval).
The local authorities have regulated reinsurance contracts as little as possible to leave the parties room to negotiate the provisions as they deem appropriate. However, there are some mandatory provisions provided by local regulations, namely:
In the case of the insolvency (extrajudicial liquidation) of the cedant, the liabilities of the reinsurer survive in relation to the liquidated estate, limited to the provisions of the reinsurance agreement.
In the case there is an intermediary reinsurance broker, a clause establishing its powers.
In the case where the risk covered is located in Brazil, a clause establishing Brazilian law and jurisdiction as the applicable ones, except in the case of arbitration.
The commencement and end of the rights and obligations of each party, including how liabilities are affected after termination of the agreement.
The criteria for termination of the agreement.
The risks that are covered and the risks that are excluded.
The period of coverage, identifying the commencement of the liability of the reinsurer and the precise moment in which losses become covered by the agreement.
Under Decree-Law No. 73/66, insurance companies must be either:
Corporations (sociedades anônimas).
All insurance and reinsurance companies are regulated in Brazil.
Insurers are generally regulated in the same way, while reinsurance companies are regulated according to the following categories:
Foreign insurers cannot operate in Brazil. Foreign reinsurers can operate in Brazil, upon SUSEP’s prior approval, as admitted or occasional reinsurers, see below. Exceptionally, risks may be placed with non-registered reinsurers (that is, foreign reinsurers that are neither admitted nor occasional) if a given risk is not accepted by all reinsurers registered in Brazil, regardless of their respective categories.
This is a reinsurer headed in Brazil (that is, a reinsurance company duly incorporated and existing in accordance with Brazilian law) with the exclusive purpose of performing reinsurance and retrocession transactions. Local reinsurers are subject to all local laws and regulations generally applicable to Brazilian insurers, including those concerning intervention and liquidation (except for those laws and regulations that do not apply as a result of the technical, contractual and operational particulars of the reinsurance activities).
This is a foreign reinsurer that complies with certain requirements imposed by the Brazilian insurance authority, registered with the Brazilian insurance authority to carry out reinsurance and retrocession transactions in Brazil. Admitted reinsurers must have a representative office in Brazil.
This is a foreign reinsurer that complies with certain requirements imposed by the Brazilian insurance authority and that is registered with it to carry out reinsurance and retrocession transactions in Brazil. Occasional reinsurers cannot have a representative office in Brazil and cannot be headed in jurisdictions that are considered to be tax havens.
Under Article 73 of Decree Law No. 73/66, insurers cannot carry on non-insurance business.
In line with the above, Article 4 (I) of Complementary Law No. 126/07 provides that local reinsurers must have as their exclusive purpose reinsurance and retrocession operations.
Although there are no such limitations applying to admitted and occasional reinsurers (as they are foreign entities and must therefore comply with their own local laws and regulations in this regard), in Brazil these companies are only authorised to carry out exclusively reinsurance and retrocession transactions.
It is important to note that, under local legislation, insurance companies cannot perform reinsurance (although they can accept retrocession) and reinsurance companies cannot engage in primary insurance.
Insurance and reinsurance companies can have dual licenses covering life and non-life businesses. On the other hand, pension and capitalization companies must have exclusive and restricted corporate purposes, except pension companies as they can also do life business.
The principal limitations concerning the transfer of risk by insurance and reinsurance companies are as follows:
Mandatory cession to local reinsurers.
Local insurance companies must cede to at least 40% of each reinsurance cession to local reinsurers. However, where local reinsurers lack capacity, it is possible to cede the part of the risks which were not accepted by local reinsurers to foreign reinsurers registered as admitted and occasional reinsurers. Where there is a lack of capacity in the local market as a whole (that is, including local, admitted and occasional reinsurers), it is possible to cede the risks to foreign reinsurers that are not registered in Brazil, provided that they comply with certain minimum requirements.
Resolution CNSP No. 168/07 limits the transfer of risks from local insurance and local reinsurance companies to foreign companies belonging to the same financial group to up to a maximum of 20% of the premium related to each contracted coverage. However, this limitation does not apply to the following lines of business:
Export and domestic credit.
Rural and nuclear risks.
Local cedants cannot cede in reinsurance or retrocession more than 50% of the total amount of premium earned in its operations within a calendar year. However, this limit does not apply to the following lines of business:
Export and domestic credit.
These exceptions can be freely ceded by local cedants, provided they are in compliance with any other applicable restrictions.
Brazilian insurers are allowed to cede to occasional reinsurers up to a maximum of 10% of the aggregate value of the premiums ceded in reinsurance, taking into account all of their operations in each calendar year. Local reinsurers, on the other hand, are allowed to cede to occasional reinsurers up to a maximum of 50% of the aggregate value of the premiums issued in relation to risks underwritten by them, taking into account all of their operations in each calendar year.
However, Resolution CNSP No. 203/09, ratified by Resolution CNSP No. 209/10, allowed the cession to occasional reinsurers of up to a maximum of 25% of the aggregate value of the premiums ceded in reinsurance in each calendar year in the fields of surety bonds related to obligations towards governmental entities and oil and gas risks.
Insurance companies. In order to be incorporated in Brazil, insurance companies must have authorisation to do so, issued by SUSEP. The authorisation procedure involves two keys steps.
The first step consists of obtaining SUSEP's prior approval, which must be requested by the future direct controller of the insurance company to the head of SUSEP. This first step is intended to verify whether:
The future direct controller complies with all applicable requirements to hold control of a supervised company.
The business project is feasible.
After this prior approval is issued by SUSEP, the shareholders are authorised to incorporate the company by means of a general shareholders' meeting. In the second step, this incorporation act and all mandatory documents specified in the Brazilian provisions must then be filed with SUSEP for its final approval (ratification). Ratification is dependent on evidence being provided that the minimum capital requirements have been met.
The minutes of the general shareholders' meeting of incorporation can only be registered with the Trade Board after the SUSEP has issued its ratification. As a result, the insurance company is only considered to be duly incorporated after its registration with the Trade Board.
Reinsurance companies. Reinsurance companies must also have authorisation from SUSEP to operate in Brazil, as follows:
Local reinsurance companies. These companies are subject to the same registration requirements applicable to insurance companies.
Admitted reinsurers. The procedure to register a foreign company as an admitted reinsurer involves two steps. The first step consists of obtaining SUSEP's prior approval to establish a representative office in Brazil. The second step consists of obtaining SUSEP's final approval to operate as an admitted reinsurer in Brazil.
To be eligible to register with SUSEP as an admitted reinsurer, the company must comply with the following requirements, among others:
have effectively underwritten reinsurance risks which it intends to cover in Brazil in the last five years;
have a net equity of not less than US$100 million or the equivalent in another freely convertible foreign currency;
have certain minimum solvency ratings;
maintain a bank account in Brazil, in foreign currency, linked to SUSEP, in a bank authorised to perform exchange transactions in Brazil, with a certain minimum amount (US$5 million for reinsurers conducting transactions in all lines of business and US$1 million for reinsurers conducting transactions only in life business);
open a representative office in Brazil.
Occasional reinsurers. The procedure to register as an occasional reinsurer involves only one step. The company must present documents evidencing that it complies with the following requirements (among others):
have effectively underwritten reinsurance risks which it intends to cover in Brazil in the last five years;
have a net equity of not less than US$150 million or the equivalent in another freely convertible foreign currency;
have certain minimum solvency ratings.
Insurance brokers, which are also regulated entities, are the legally recognised intermediaries authorised to promote insurance. Agents are not currently regulated, although they are mentioned in the BCC.
Insurance brokers can be individuals or legal entities and the activities that they can be involved with depend on the authorisation that SUSEP gives them.
One of the most important requirements to become an (individual) insurance broker is to pass a professional examination conducted by an official, authorised institution to evidence one's professional skills.
Legal entities can only be authorised to operate as an insurance broker provided they have a licensed insurance broker (that is, an individual) as one of their officers.
Individuals are prohibited from acting as reinsurance brokers: only legal entities can act as reinsurance brokers.
Reinsurance brokers must also obtain SUSEP's prior authorisation to commence operations. Among other requirements, they must:
Be organised as a Brazilian limited liability company or corporation.
Have as a partner or officer an insurance broker with proven experience in reinsurance.
Purchase a civil liability policy (error and omissions) with a minimum coverage amount of BRL10 million.
Providers of insurance/reinsurance related activities, such as claims adjusters, are not regulated entities. They are, therefore, not subject to SUSEP supervision.
Where there is a lack of capacity of the local market (including foreign registered reinsurers), it is possible to cede the risks to non-registered foreign reinsurers who comply with certain requirements. This means that, in the specific event where there is a lack of capacity in the local market, local cedants can cede risks to foreign reinsurance companies which are not licensed to operate in Brazil. Although this type of cession does not require SUSEP's prior authorisation, the local cedant must inform them of this reinsurance or retrocession agreement entered into by non-licensed companies within 30 days as of the date of acceptance of the risks.
Article 13 of Resolution CNSP No. 166/07 provides that the direct control of (re)insurance companies can be owned only by:
Entities registered with SUSEP (for example, another Brazilian insurance company or a foreign reinsurance company registered with SUSEP and duly authorised to operate in the country).
A holding company whose exclusive purpose is to hold ownership in companies authorised to operate by SUSEP and that adopts the corporate governance standards set out by the legislation in force.
Private equity funds which quota holders are exclusively pension funds and/or any of the above entities.
Although there are no specific restrictions concerning foreign ownership of domestic insurance and reinsurance companies, any foreign company wishing to hold control of these entities must comply with at least one of the above requirements.
Under Law No. 4,594/64, insurance brokers duly registered in Brazil are prohibited from holding an interest in the capital of an insurance or reinsurance company.
The incorporation of an insurer or a local reinsurer is subject to SUSEP's prior authorisation (see Question 9).
Where there is a direct or indirect change of control, this change must also be authorised by SUSEP before the change occurs. The procedure for obtaining this approval is very similar to that required for the incorporation of a new insurance company, except that, after the first approval is granted, the shares of the insurance or reinsurance company can be transferred to the new controller, provided that the parties commit to undo the deal if SUSEP denies the second and final approval.
Finally, under local regulations, the following occurrences must be notified to SUSEP, who can, at its discretion, request additional documentation:
A third party buys more than 5% of an insurance or reinsurance company.
Any shareholder increases its stake by 5% or more.
Any transfer of control or change in the controlling group of reinsurance brokerage companies that could interfere in the management of the company must be notified to SUSEP within 60 days from the date of the relevant corporate act implementing that change. The future controllers must present to SUSEP the documents evidencing compliance with the requirements set out in Article 5 of Resolution CNSP No. 173/07.
Additionally, under local regulations, the following occurrences must be notified to SUSEP, who can, at its discretion, request additional documentation:
A third party buys more than 5% of the reinsurance broker.
Any shareholder increases its stake by 5% or more.
Some important ongoing requirements that must be fulfilled by (re)insurance companies in Brazil include the following matters:
Renewal of registration.
Minimum capital. Insurance and local reinsurance companies must always maintain a minimum capital consisting of the greater of the base capital, the risk capital (the current name of additional capital), and the solvency margin.
For local reinsurers the base capital consists of a fixed amount of BRL60 million. For insurance companies, the base capital consists of the sum of a fixed amount and a variable amount, which is determined according to the region where the company has been authorised to operate. The fixed amount is BRL1.2 million and the variable amount ranges from BRL120,000 to BRL8.8 million, according to the geographical area, or BRL15 million to operate throughout the country.
The risk capital is comprised of the following risks, underwriting risk, market risk, credit, risk and operational risk, which to date have been partially regulated by SUSEP.
Investments. Supervised entities, such as local (re)insurers, are not entirely free to decide where to invest their assets, as these investments are governed by specific regulations in Brazil. The general guidelines and criteria for permissible investments are set out in Resolution CNSP No. 226/10.
Under these rules, these companies must have assets to serve as collateral (related to their reserves) and free assets (not related to their reserves). Assets must be invested by local insurers and insurers taking into consideration the following goals:
Reporting requirements. Insurance and reinsurance companies are also subject to some periodic reporting requirements. Most importantly, they must keep their information up to date before SUSEP by periodically submitting the Periodic Information Form (Formulário de Informações Periódicas) (FIP).
Intragroup transactions. Intragroup cross-border reinsurance and retrocession transactions are subject to a 20% limitation (see Question 8, Intragroup limitation).
Renewal of registration. Admitted and occasional reinsurers must annually renew their licences with SUSEP. Admitted reinsurers must present the relevant documentation by 30 April each year. The deadline for occasional reinsurers is 30 June.
Internal controls. Insurers, local reinsurers and representative offices of an admitted reinsurer must have an internal control system, in accordance with the requirements of applicable regulations. Generally, this internal control system should aim at establishing mechanisms to ensure compliance with local legislation and to prevent fraud and money laundering practices.
Supervisory fee. Local (re)insurers and admitted reinsurers are subject to the collection of a supervisory fee due to SUSEP for the performance of its monitoring activities on January, April, July and October of each year.
Insurance brokers must inform SUSEP about any change in their cadastral information (recadastramento) and periodically renew its licence before SUSEP.
Reinsurance brokers must notify SUSEP within the established deadline of the occurrence of any of the following acts:
Transfer of head office.
Modification of the corporate capital.
Transformation of the corporate type under which the reinsurance broker is incorporated.
Appointment of officers.
Appointment of members of the audit committee and other bodies under the company's bye-laws.
Any amendments to the company's bye-laws.
Opening of new premises, the transfer or the closing of activities, as well as a change of the head's address.
Resolution CNSP No. 243/11, sets out the administrative penalties applicable to insurance, reinsurance, capitalisation, and pension and brokerage activities, as well as the rules on SUSEP's punitive administrative proceedings (PAS).
Under the new rules, individuals or legal entities that violate any of the regulations in force are subject to the following penalties, which can be applied cumulatively:
A fine that can vary from BRL5,000 to BRL1 million.
A fine in an amount equal to the (re)insured amount, applicable in the case of insurance, reinsurance or coinsurance transactions made without the relevant authorisations; the (re)insured amount can be estimated by SUSEP if no access to the company's accounts is granted or if SUSEP identifies that those accounts have been manipulated.
30 to 180 days of suspension.
Prohibition from occupying a position or a job in public service companies or in state-owned or state-controlled companies and their respective subsidiaries, pension companies, capitalisation companies, financial institutions, insurance and reinsurance companies for a period ranging from two to ten years.
Cancellation of the registration of an insurance broker (whether an individual or legal entity).
Cancellation of the authorisation to operate.
Under these rules, consumers can report violations of supervised entities to SUSEP at any time. These reports are followed up by an investigation and, where appropriate, the opening of a PAS, which can result in the application of the above penalties.
Consumers seeking indemnification and/or damages against supervised entities must file a lawsuit to this end.
See above, Insurance/reinsurance providers.
See above, Insurance/reinsurance providers.
There are no specific restrictions concerning the persons to whom insurance/reinsurance services and contracts can be marketed or sold in Brazil. However, where the relationship between the insurer and insured is a consumer relationship, the provisions of the Brazilian Consumers Defence Code will apply.
Brazilian reinsurance regulation expressly provides that the parties are free to agree on cooperation provisions between themselves. However, the participation of the reinsurer in the claims regulation process must not affect or modify the obligations of the insurer before the insured.
Additionally, Article 39 of Resolution CNSP No. 168/07 establishes that reinsurance contracts (whether treaty or facultative) can contain a claims control provisions in favour of the local reinsurer, when the local reinsurer has the greatest percentage of participation in the risk.
In the absence of specific written contractual provisions, the principle of good faith and the internationally recognised customs will prevail. However, most of the policy wordings contain provision establishing the duty of the insured in co-operating (with documents, clarification and information) in the claims' adjustment proceedings.
Although the BCC does not specifically regulate the failure to disclose information in reinsurance contracts as it does for insurance contracts, the principle of good faith, generally applicable to all agreements executed under Brazilian law, will govern the matter jointly with the contractual provisions and can lead, depending on the circumstances, to the voidance of the contract and the non-payment of the recovery amount.
Insurance companies can choose to operate with either:
A standard wording provided by SUSEP by line of business.
A non-standard wording produced by the insurance company and filed with SUSEP for analysis and approval.
If the insurance companies choose to operate with the standard wording, they must only file a petition with SUSEP informing of their intention to start offering the respective product in accordance with the terms and conditions of the standard wording. In this case, SUSEP's approval is not necessary.
In the event of a non-standard wording of a life or non-life insurance, the insurers are allowed to offer the product right after the filing of its wording (general conditions of the policy and actuarial note) with SUSEP. However, SUSEP can request changes in the products.
To offer pension plans, companies must obtain prior approval from SUSEP, subject to penalties.
The general conditions of policies must meet some minimum requirements established by the regulator, which vary depending on the type of product the insurance company intends to offer. Regarding life products, the rules change depending on whether the insurance concerns individual or group policies.
In addition to the registration of the policy wording, it is mandatory for insurance companies to issue an insurance certificate for each insurance product purchased. The insurance certificate must contain certain minimum and mandatory requirements and information.
The following clauses are commonly found in insurance policies:
Indemnity exclusion due to terrorism.
Indemnity exclusion due to force majeure.
Indemnity exclusion due to wilful misconduct acts.
Obligation to notify the insurer in the case of a change of control of the insured.
Obligation to promptly notify a claim.
In addition, there are some mandatory wordings that, under Brazilian local regulation, must be included in the general policy conditions:
"The acceptance of the insurance is subject to analysis of the risk."
"The registration of this wording with SUSEP does not imply that this authority encourages or recommends its commercialisation."
"The insured may consult the cadastral situation of the insurance broker on the website (www.susep.gov.br), using the number of his/her/its registration with SUSEP, complete name and CPF/CNPJ."
The insurance regulator does not provide statistical information regarding the number of treaty and facultative reinsurance agreements entered into in the Brazilian market.
Reinsurance agreements do not need to be pre-approved by the regulator, but there are a few mandatory provisions, such as:
A clause providing that, in the case of the insolvency (extrajudicial liquidation) of the cedant, the liabilities of the reinsurer will survive vis-à-vis the liquidated estate, subject to the provisions of the reinsurance agreement.
Where there is an intermediary reinsurance broker, a clause establishing its powers.
Where the risk covered is located in Brazil, a clause establishing that Brazilian law and jurisdiction will apply, except in the case of arbitration.
Reinsurance contracts must be contractually formalised within 270 days from the date the coverage has begun, otherwise the relevant risk will not be considered as transferred by the insurance authority.
Finally, as there is almost no case law on reinsurance contracts or principles, it is very important for the parties to a reinsurance contract to include wording evidencing the principles regulating their relationship. In particular, any specific remedies recognised in other jurisdictions (such as avoidance or repudiation) should be expressly set out in the reinsurance contract.
In addition to the mandatory clauses, the Brazilian reinsurance market also makes use of the following principal international clauses:
Follow the fortune.
Follow the settlement.
Claims control clause.
Claims deadline for notification.
Claims cooperation clause.
Conditions precedent clause.
Back-to-back provisions clause.
From a regulatory perspective, if the insurance company has previously decided to operate with a standard wording, any condition that it intends to modify in that standard wording must first be submitted for SUSEP's analysis. Depending on the extent of the changes made by these new terms and conditions, SUSEP can consider the product as a non-standard wording product and, therefore, subject it to the regulator's analysis.
In the event the company works with a non-standard wording (also called a "general condition"), any special condition that modifies it (by including new terms or excluding existing ones) must be filed with SUSEP for analysis and registration. It is possible to file various types of special conditions jointly with the non-standard wording, which allows insurance companies to offer a more flexible insurance product to the market.
Please note that, under Brazilian law, insurance companies must expressly deny the acceptance of an insurance proposal within 15 days from its receipt, because an insurance company's silence on the issue will otherwise be considered to be an acceptance of the risk. Once the proposal is accepted, all information described in both the proposal and the offer (advertisement) made by the insurance company becomes part of the insurance agreement, even where those matters are not expressly mentioned in the policy wording or in the insurance certificate.
It is also important to highlight that any inconsistent or ambiguous information set out in the insurance proposal, general and special conditions or insurance certificate will be interpreted in favour of the insured, since an insurance agreement is in most cases considered an adhesion contract under Brazilian law.
Under the BCC, parties to any agreement must act in good faith both before and after its execution. Further, in matters concerning insurance there is an aggravated duty of good faith on the parties expressly established in the BCC.
Since the utmost good faith principle applies to any sort of agreement, the authors consider that the above rules also apply to reinsurance contracts. Additionally, since reinsurance agreements can have an insurance nature, although they are not technically insurance agreements, the duty of utmost good faith is also aggravated in these types of agreements.
The relationship between an insurer and the insured is generally considered to be a consumer relationship. This will be the case when the insured is considered as a consumer under the Brazilian Consumers Defence Code (CDC), that is, when the insured, regardless of being a natural person or a legal entity, is the "final user" of the insurance. Without this feature the relationship is not a consumer one. In the case of consumer relationships, all protective provisions of the CDC shall apply.
According to the CDC provisions, insurance policies must be written in Portuguese and be simple, clear and straight-forward, any exclusions must be highlighted.
In civil liability insurance policies, the insurer's obligation is triggered by an extrajudicial or judicial claim made by a third party against the insured. Particularly in financial lines, policies establish that the insurer starts to anticipate the insured's defence costs from this date onwards.
In property and life insurance policies, the duty to indemnify the insured is triggered by a notice given by the latter informing the insurer of the occurrence of a loss.
In the event of a late notice of claim, Brazilian courts have ruled that that insurance companies will only have legal grounds to deny the payment of the loss if they can prove that the omission or late notice has caused the insurer damage. In all other situations, the insured will be entitled to receive indemnification.
Except in relation to mandatory insurance (for example, mandatory third party damage vehicle insurance), the majority of case law and commentators agree that a third party direct claim against the insurer is not possible. If there is someone interested in the relationship between an insured and an insurer and there is a dispute between them, the third party will generally only be allowed to participate in that dispute as an interested third party, provided the legal applicable requirements are met.
Under the BCC, the insured has one year to file a lawsuit from the date they become aware that the insurer has declined to cover the claim.
As far as civil liability insurance policies are considered, the one-year term starts to run from the date the insured is summoned or on the date they pay a third party with the insurer's consent.
With reinsurance there are no specific provisions concerning limitation periods. As a result, the general ten-year limitation period (which runs from the date coverage is denied) can apply. However, this remains a controversial issue.
Reinsurers and retrocessionaires are not directly liable to insureds for the amounts assumed in reinsurance and retrocession, meaning that the cedants are fully and exclusively liable to the insureds.
However, Complementary Law No. 126/07 foresees that, in the case of the insolvency, extra-judicial liquidation or bankruptcy of a cedant, direct payment to an insured of the portion of the indemnification relating to the reinsurance is permitted in the following cases, provided that payment of the relevant portion was not made to the insured party by the cedant or to the cedant by the reinsurer:
All other cases, if there is a cut-through clause.
However, it is the authors understanding that, based on the freedom-of-will principle, the parties can agree on cut-through provisions in circumstances different from the two mentioned above.
Where there is good faith non-disclosure or misrepresentation by the insured, the insurance company can select one of the following options under the BCC:
Terminate the contract, reverting to the insured the amount of premium representing the period which will not be covered.
Charge an additional premium.
Where the omission was made in bad faith, the insured loses its right to receive any indemnity and remains obliged to pay the premium.
For all other types of breach, Brazilian courts usually hold that insurance companies only have legal grounds to refuse payment or reduce the insurance indemnity if they can prove that the breach has caused actual damage to the insurer.
Punitive damages are not recognised by the Brazilian legal system. Moral damages, which are insurable, usually take the place of punitive damages, although these are substantially smaller amounts than punitive damages.
Brazilian insurance and reinsurance companies are subject to an "extra-judicial liquidation proceeding" if they become insolvent. Under this regime, all credits must be paid to the liquidated estate.
Brazilian law establishes that the insured has especial rights over the technical reserves of (re)insurance companies. In addition, in the case of facultative business, insureds have the right to claim directly against the reinsurer if the cedant becomes subject to an extra-judicial liquidation proceeding.
Finally, direct and indirect controllers of insurance and reinsurance companies have unlimited liability if they become insolvent.
There are no regulations or case law on this matter. However, it is possible to infer that Brazilian judges would consider granting full effectiveness to insurance policies and make the excess coverage insurer "drop down" and pay.
Set-off of mutual debts and credits in "extra-judicial liquidation proceedings" of insurance and reinsurance companies are normally not allowed.
Local insurance and reinsurance companies are subject to the following corporate taxation:
Taxes on profits. Corporate income tax (IRPJ) is charged at a 15% tax rate plus an additional 10% tax rate on any income exceeding BRL240,000 on an annual basis. Social Contribution Tax on Net Profits (CSLL) is charged at a 15% tax rate over the local (re)insurer's net profits. The real profit method for calculating IRPJ and CSLL is mandatory for (re)insurance companies.
Taxes on revenues. The Social Integration Program (PIS) and the Financing of Social Security (COFINS) taxes are charged monthly on gross revenues received by the local (re)insurer at rates of 0.65% (PIS) and 4% (COFINS). Legal provisions allow certain credits to assess the tax basis.
Taxes on Distributions. Profits distributed as dividends to a Brazilian resident or foreign investors are not subject to taxation in Brazil, provided that such amounts are related to profits generated after January 1, 1996. The Tax on Exchange Transactions (IOF/Exchange) is currently levied at a zero rate for remittance of dividends. Interest on shareholders’ equity distributed to shareholders triggers a taxation that varies depending on the location of the beneficiary, as follows:
Brazilian resident beneficiary: Withholding Income Tax (WHT) at 15% in anticipation of the IRPJ due at the end of the fiscal year;
Non-Brazilian residents, not located in a favourable tax jurisdiction (FTJ): WHT at 15%;
Non-Brazilian residents, located in a FTJ: WTH at 25%.
Currently, IOF/Exchange is levied at 0% for remittance of interest on shareholder's equity.
Tax on Insurance Transactions (IOF/Insurance). Generally charged over insurance, reinsurance or retrocession transactions. However such IOF/Insurance is currently levied at 0% in reinsurance and retrocession transactions, and also in certain insurance transactions.
Admitted and occasional reinsurers, as non-resident taxpayers, are subject to the tax treatment generally applicable to non-resident companies when carrying out reinsurance transactions with local cedants.
The payment of premium or reinsurance indemnity between local cedants and admitted or occasional reinsurers triggers the following taxation:
Tax on Foreign Exchange Transactions (IOF/Exchange). Charged over the amount exchanged. Foreign exchange transactions carried out for the purposes of reinsurance premium remittance are currently subject to IOF/Exchange at 38%.
Tax on Insurances Transactions (IOF/Insurance). Currently levied at 0% in reinsurance and retrocession transactions.
Withholding Income Tax (WHT). Levied on the remittance of (re)insurance premium abroad. The tax basis of WHT is equivalent to 8% of the amount paid, credited, delivered, employed or remitted abroad. Regarding the rate applicable, there is a discussion whether the 15% rate (general rate applicable on remittances), or the 25% applies (the WTH rate generally levied on service fees). The Brazilian tax authorities have been taking the stance that the WHT shall be always collected at a 25% rate on (re)insurance premiums.
PIS Import and COFINS Import. The tax basis is equivalent to 15% of the amount remitted. Rates applicable to the remittance of (re)insurance premium are 1.65% (PIS-Import) and 7.6% (COFINS-Import). There is a controversial issue, once there are grounds to defend that PIS-Import and COFINS-Import should be solely assessed on the import of services and goods, which do not comprise premium remittance.
Also the representative office in Brazil of the admitted (re)insurer (RepOffice) will be subject to taxation as a regular Brazilian company of a non-insurance nature, as follows:
Taxes on profits. The profits of Brazilian companies are subject to IRPJ at a rate of 15% plus an additional 10% on any income exceeding BRL240,000 on an annual basis and to CSLL at a 9% rate.
Taxes on revenues. PIS and COFINS are charged monthly on gross revenues either in accordance with the cumulative system at the rates of 0.65% (PIS) and 3% (COFINS) or the non-cumulative system at the rates of 1.65% (PIS) and 7.6% (COFINS), in which case specific credits deduction are allowed. The law grants an exemption of PIS and COFINS for service export, provided that the service fee flows into the country.
Tax on services (ISS). ISS is a municipal tax charged on services rendering and its rates vary from 2% to 5% according to the service rendered and to the local legislation. According to the current law, ISS shall not be levied on exports of services if the service is rendered in Brazil to a foreigner "service recipient" or the "result of the service is verified abroad". Due to the imprecise terms of legislation and the current understanding of tax authorities, the non-collection of ISS should be supported by a lawsuit.
If a Brazilian (re)insurance brokerage company renders services to a Brazilian resident company, the following corporate taxation would apply:
Taxes on profits. The profits of Brazilian companies are subject to IRPJ at a rate of 15% plus an additional 10% tax rate on any income exceeding BRL240,000 on an annual basis and to CSLL at a rate of 9%. There is a discussion whether (re)insurance brokers qualify as "private insurance entities" or "private insurance autonomous agents" and, then the 15% CSLL rate would apply.
Taxes on revenues. PIS and COFINS are charged monthly on gross revenues, either in accordance with:
the cumulative system at the rates of 0.65% (PIS) and 3% (COFINS); or
the non-cumulative system at the rates of 1.65% (PIS) and 7.6% (COFINS), in which case specific credit deductions are allowed.
There is a discussion whether (re)insurance brokers qualify as "private insurance emtities" or "private insurance autonomous agents" and so the modified cumulative system assessed at the rates of 0.65% (PIS) and 4% (COFINS) would apply.
Tax on services (ISS). ISS is a municipal tax charged on services rendering and its rates vary from 2% to 5% according to the service rendered and the local legislation.
The Brazilian transfer pricing rules would apply depending on whether the transactions are carried out between a Brazilian company and its foreign related parties (“Controlled Transactions”).
By verifying whether prices practiced in Controlled Transactions are at arm’s length (that is, are commensurable with market standards), the transfer pricing regulation may determine a corresponding adjustment on the Brazilian company’s taxable profits that arguably reflects market standards.
There are no special procedures or venues for (re)insurance-related complaints or disputes in Brazil. Insurance and reinsurance disputes can be brought before the courts or submitted to arbitration.
Arbitration proceedings are governed by Law No. 9,307/96. Parties to insurance and reinsurance contracts can freely select arbitration as the way to solve any dispute arising from the contract. Where an insurance transaction is characterised as a consumer relationship or an adhesion contract, especial attention must be paid to the drafting of an arbitration clause, as there are specific requirements that apply in this case (see Question 35).
Local and international arbitration awards are recognised in Brazil and can be enforced before the Brazilian judicial system. However, foreign arbitration awards must be previously confirmed by the Superior Court of Justice. Currently most arbitration awards are recognised by Brazilian judges. In certain specific cases (for example, where the arbitration clause is defective or the arbitration tribunal is irregularly instituted) arbitration awards are questioned by the judges, although this is a rare occurrence.
Insurance policies issued in Brazil are invariably subject to Brazilian law. Where the insured qualifies as a consumer, their place of residence will be the appropriate forum, although the parties are free to choose the forum where there is no consumer relationship.
The insurance company and the insured can choose arbitration as the method of dispute resolution. However, because insurance agreements are generally considered to be consumer agreements, arbitration clauses will only be considered valid and enforceable if previously agreed by the insured, as evidenced by a specific document which is not the insurer's general policy conditions.
Under local regulations, reinsurance agreements concerning risks located in Brazil must include a clause submitting any disputes to Brazilian law and jurisdiction (except for those cases where there is an arbitration provision).
If the parties choose arbitration, they can freely choose the law applicable to any arbitration (except if both parties are Brazilians, where the Brazilian law shall apply). Additionally, the parties should choose the arbitration chamber in which the arbitration proceeding will take place, and the applicable arbitration rules depending on the chamber chosen. Ad hoc arbitration provisions can be difficult to enforce in Brazil.
There is a Bill which has been under analysis since 2004 (Bill No. 3555) which intends to revoke the Decree-Law No. 73/66 and all insurance provisions established by the BCC in order to create a "new insurance and reinsurance law". However, this Bill remains a controversial issue.
Main activities. FENABER is a non-profitable association which meets with and represents the reinsurance companies operating in Brazil. In addition to its political aspects, FENABER intends to promote the development of the reinsurance market in Brazil, by disseminating and supporting its relevant institutional activities, including the qualification of professionals by fostering research projects focused on reinsurance education.
Main activities. FENACOR represents 26 brokerage state associations. Its main purpose is to defend the interests of brokers before private entities and public authorities.
Main activities. CNSeg meets with and politically represents four National Federations of the insurance industry, namely:
The National Federation of Insurance Companies (Federação Nacional de Seguros Gerais) (FenSeg).
The National Federation of Private Pension and Life (Federação Nacional de Previdência Privada e Vida) (FenaPrevi).
The National Federation of Supplementary Health (Federação Nacional de Saúde Suplementar) (FenaSaúde).
The National Federation of Capitalisation (Federação Nacional de Capitalização) (FenaCap).
CNSeg's purpose is to congregate the main leaderships, coordinate political actions and design strategic plans for the industry and also represent it before the government, the society and national and international entities.
Qualified. Brazil, 1991
Areas of practice. Insurance, reinsurance and pensions.
Qualified. Brazil, 2011
Areas of practice. Insurance, reinsurance and pensions.
Qualified. Brazil, 2012
Areas of practice. Insurance, reinsurance and pensions
Assisting various companies in all matters related to the incorporation of local insurance and reinsurance companies, as well as M&A deals on the registration of foreign reinsurers in Brazil.
Advising on the structuring and drafting of insurance and reinsurance products and plans and contracts.
Advising on the drafting and negotiation of insurance distribution agreements, coverage issues and claims adjustment procedures, insurance and reinsurance litigation/arbitration proceedings and various regulatory issues.