RIO DE JANEIRO SÃO PAULO VITÓRIA RECIFE BRASÍLIA DÜSSELDORF

“Recent Developments in Brazilian Reinsurance Law” IV AIDA EUROPE CONFERENCE London, September 2012 Reinsurance Working Party Luís Felipe Pellon

In 2007, a new Law opened the Brazilian reinsurance market to companies interested in this branch, that was, until then, exclusively on the hands of IRB Brasil Re, a state-owned company. The changes arising in this market were deep, reaching contracts’ wordings, commercial practices, brokerage, claims’ adjustment, as well legal and regulatory aspects, and did require training of personnel and restructuration of companies. THE END OF THE STATE MONOPOLY IN 2007

THE NEW PLAYERS Law contemplates 3 kinds of reinsurers, namely (i) the local, (ii) the admitted ones, and (iii) the occasional ones. Local reinsurers must be incorporated in the country, while, for the admitted, only a representation office is required. To the eventual ones, only a registration at the Brazilian Insurance Commissioner – SUSEP is demanded.

THE PREFERENCIAL OFFER The new Law provides for a market reserve to the local reinsurers, that has the right for a preferential offer (first refusal) corresponding to 40% (forty percent) calculated over all the reinsurance cessions made by the insurer.

THE REINSURANCE MARKET IN BRAZI L To date, 12 local, 29 admitted and 56 occasional reinsurers did obtain registration, and there is a capacity to absorb more companies, given the needs of the local reinsurance market, that has a total premium production of US$ 2,7 Billions a year and is growing at the rate of 20% per year.

THE CHANGE BY THE INTRA-GROUP ASSIGNMENT The CNSP Resolution 232 restricted the intra-group assignment for insurers and local reinsurers, to 20% of the premium corresponding to each coverage business in all automatic or facultative contracts.

A NEW STATE OWNED INSURANCE / REINSURANCE COMPANY Just a week ago the Brazilian Parliament issued a new law (Law 12,712) in order to create a new State Owned Insurance and Reinsurance company, the ABGF, with a capital of US $ 12,5 billion. This will aim to cover risks not accepted fully or partially by the insurance / reinsurance market in guarantees, credits and all risks related to infrastructure projects. There is a lot of concern about the consequences of the entry of this new player on the market and where can go their activities. While it is recognized that large infrastructure projects in Brazil, by its size and complexity are having difficulties in obtaining appropriate and sufficient coverage of insurance and reinsurance, the creation of this new company is contrary to the global trend to maintain the State away from the economy.

SOLVENCY II FOR BRAZIL Insurance Supervisors issued new rules in order to bring the Brazilian Regulatory System closer to the European Solvency II System. That movement was a reaction against the uncertainties within worldwide insurance and reinsurance market, especially due to the failure of rating system. The systemic condition focused by Insurance Supervisors also concerns the strong concentration, particularly in Bank assurance. In line with this, the control organs introduced also new rules for (1) the calculation of retention limits in insurance businesses and portfolios developed by insurance and reinsurance companies and (2) the evaluation of assets which cover technical reserves.

MICROINSURANCE A final aspect lies on the fact that in Brazil, this year, companies shall start operating with micro insurance all over the country.