MEMORANDUM TO CLIENTS
30/11/2009 Insurance and Reinsurance
Newsletter - Brazilian Insurance and Reinsurance Regulation
We inform that the Brazilian local insurance authority, SUSEP, issued Circular SUSEP No. 391, dated October 16, 2009, published in the Brazilian Official Gazette on October 19, 2009, which “amends Circular SUSEP No. 381, dated January 8, 2009”, regarding singular insurances (“seguro singular”), and also Circular SUSEP No. 392, dated October 16, 2009, published in the Brazilian Official Gazette on October 20, 2009, which “sets forth the operational procedures for the issuance of foreign currency insurance and for contracting insurance abroad”.
A. Singular Insurance
Circular SUSEP No. 391/09 amends Circular SUSEP No. 381/09, which establishes the procedures to inform SUSEP, by electronic means, of the issuance of singular insurances.
Article 5 of Circular SUSEP No. 381/09 established that new singular insurance policies issued after March 31, 2009 had to comply with its provisions. Circular SUSEP No. 391/09 introduced a new wording to such article, establishing that new specific regulation concerning electronic remittances of the policies contractual conditions shall be enacted by SUSEP. Meanwhile, until such specific regulation is duly enacted by this authority, singular insurance shall be registered by means of a previous administrative procedure before SUSEP.
Additionally, Circular SUSEP No. 391/09 adds one paragraph to article 1 of Circular SUSEP No. 381/09, prohibiting mandatory insurances and rural insurances to be structured as singular insurances.
All the other provisions of Circular SUSEP No. 381/09 remained unmodified and are still in force and effect.
B. Circular SUSEP No. 392, dated October 16, 2009
Resolução CNSP No.165/07, dated July 17, 2007, which established the requirements for the issuance of insurance in foreign currency and for contracting insurance abroad, was revoked by Resolução CNSP No. 197/08, dated December 16, 2008. The Resolução CNSP No. 165/07 was self-enforceable, which means that it was not necessary a Circular to regulate it. In contrast, Resolução CNSP No. 197/08 contains only very broad rules, which made it dependant on rulings to be issued by SUSEP. Therefore, SUSEP issued Circular SUSEP No.392/09 in order to determine the requirements to issue an insurance policy in foreign currency and to contract insurance abroad.
B.1. Insurance in Foreign Currency
Article 2 of Circular SUSEP No.392/09 sets forth the branches, sub-branches or modalities in which foreign currency insurance policies are permitted, namely:
(i) export credit;
(ii) aircraft;
(iii) nuclear risks;
(iv) satellites;
(v) international carriage;
(vi) hull, in the case of long-haul vessels, cabotage vessels, river vessels, vessels giving support to oil rigs or vessels owned by Brazilian shipping companies registered in the Brazilian Special Registry (Registro Especial Brasileiro – “REB”);
(vii) oil risks;
(viii) civil liability: (a) for acts practiced by officers and/or directors ("D&O"), when the legal entity that the insured represents issues certificate of deposits of the company´s shares or debt securities abroad, (b) mandatory insurance for vehicles traveling in countries members of the MERCOSUR (carta verde), (c) carrier's liability for international travel (RCTR-VI), (d) general liability for products abroad, (e) general liability for recall of products abroad, and (f) for storage (“hangar”);
(ix) other branches, sub-branches or modalities related to: (a) equipment leased or ceded to others, if the lessor or ceding party is a foreign legal entity, (b) machinery and equipment, in case of long-haul vessels, cabotage vessels, river vessels, vessels giving support to oil rigs or vessels owned by Brazilian shipping companies registered in REB, and (c) construction, renovation or replacement of vessels or aircraft and its components, when performed in Brazil at the request of an individual or legal entity that is resident or domiciled abroad, or of a Brazilian company, provided that it is financed abroad;
(x) comprehensive insurance of port operator;
(xi) insurance for engineering risks regarding civil works in construction contracts and/or installations and assemblies performed in Brazil at the request of an individual or legal entity that is resident or domiciled abroad, or of a Brazilian company, provided that it is financed abroad;
(xii) insurances for the Itaipu hydroelectric power plant, when included in the equal distribution agreement between Brazil and Paraguay;
(xiii) surety bonds, when the principal (tomador) or the insured is domiciled abroad; and
(xiv) insurance of goods which replacement or repair depends on importation.
Insurance in foreign currency may also be issued in branches or sub-branches that are different from those mentioned above, provided that its issuance is justified based on the insured object or insurance’s purpose.
In this sense, the Circular already sets forth the justifications that shall not be considered as acceptable for the issuance of insurance in foreign currency in other branches or sub-branches:
(i) geographic extension of the coverage not limited to the Brazilian territory;
(ii) the beneficiary is an individual or legal entity domiciled abroad;
(iii) in the case of insureds that are multinational companies, a demand from the foreign head offices;
(iv) placing of the relevant reinsurance abroad;
(v) the goods produced in the Brazilian territory are subject to adjustment or negotiated based on foreign currency quotation;
(vi) the production is subject to importation; and
(vii) the intent to avoid depreciation of the goods.
This new Circular also provides that, if the insurance in foreign currency covers simultaneously other risks than imported goods, the issuance of the policy in foreign currency is only permitted when the value of the imported goods covered by the policy represents at least 50% of the insured amount. On the other hand, the insurance may be fully in foreign currency, if it is comprises one or more sub-branches or modalities provided in Article 2 of the Circular, as described above.
If an insurance policy in foreign currency is issued in violation to the rules of such Circular, the insurer shall make the applicable adjustments and issue an endorsement in Brazilian currency, based on the exchange rate of the date of the contract’s execution, without any additional cost to the insured and without prejudice to the applicable penalties.
B.2. Contract of Insurance Abroad
Circular SUSEP No. 392/09 restricts the possibility of contracting insurance abroad to the situations provided by Resolução CNSP No. 197/08, which include the non-existence of insurance in Brazil. SUSEP may, at any time, request the insured and/or the broker to present the documents evidencing that the insurance was contracted abroad in compliance with the applicable regulations.
The main change brought by this Circular regards the number of consultations that shall be made with local insurance companies to evidence that the insurance coverage is not offered in Brazil. Resolução CNSP No. 165/07 previously required letters from three different insurance companies stating that such insurance coverage was not offered by them.
The new Circular now requires letters from ten insurance companies, or five, in case of insurance for vessels registered in REB. Additionally, SUSEP may also request evidence that all consulted insurance companies issued a document in response to such a request.
Circular SUSEP No. 392/09 also foresees the possibility of obtaining a negative letter issued by a professional class association, as long as such class association is recognized by SUSEP according to the requirements contained in such Circular and the relevant association is, therefore, included in the list of acknowledged professional class association published in SUSEP´s website. Therefore, such association shall register itself with SUSEP and evidence that it is in compliance with the requirements imposed by it.
In this case, the professional class association shall consult all Brazilian insurance companies, within 1 business day counted from the request for quotation by the insured. The professional class association may only send a negative letter, if none of the consulted insurers showed interest in taking the risk, or if there are only negative letters issued by Brazilian insurance companies. In this case, the negative letter must be issued by the association within 3 business days. If that is not the case, the association shall issue a report informing which insurers have shown interest in the acceptance of the risk.
B.3. Other provisions
Circular SUSEP No. 392/09 establishes that the insurance company is subject to the penalties provided in SUSEP regulations, if a policy is issued in foreign currency in disagreement to the mentioned Circular.
The insured and/or the insurance broker resident or domiciled in Brazil are also subject to the applicable penalties, in case insurance is contracted abroad disregarding the rules of Circular SUSEP No. 392/09. Such penalties may apply even after the insurance contract has expired.
The documents regarding the initial contracting or renewal of (i) an insurance in foreign currency or (ii) an insurance contracted abroad, even if previously approved by IRB-Brasil Re, must be available to SUSEP for a period of 5 years after its termination date, without prejudice to other rules imposed by other Brazilian agencies.
Finally, this Circular establishes that, provided that the applicable legislation and regulation are respected, the acceptance of risks from abroad, in the branches that the insurer is authorized to operate in Brazil, is not subject to SUSEP´s prior approval.
As usual, we will be closely following up the developments on such matter and we shall keep our clients and partners informed.
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