Public Consultation on insurance market segmentation criteria opened in Brazil
The draft regulation proposes changes to the classification of prudential groups of supervised entities by the Brazilian Private Insurance Authority
Subjects
On December 19, 2023, Brazil’s Private Insurance Authority (Susep) opened Public Consultation No. 2/2023 to amend classification criteria for prudential o groups made up of Susep-supervised entities (CNSP Resolution No. 388/2020). It also seeks to define rules for implementing the Internal Control System (SCI) and the Risk Management Structure (EGR) for each of these groups (CNSP Resolution No. 416/2021).
According to Susep’s explanatory memorandum, the draft regulation includes additional criteria (i.e., beyond merely whether common or joint control exists) that would be used to analyze the specific characteristics of the supervised entities subject to these SCI and EGR structures. In practice, a lack of synergy means companies currently bear operational and regulatory costs separately from others in the same prudential group.
The draft regulation seeks to provide more flexible requirements for companies that are not structurally integrated with other companies in the same group and that are willing to implement their own SCI and EGR structures. It also aims to establish specific conditions for individual prudential report disclosures by supervised entities belonging to a prudential group that have operational and regulatory differences in relation to the other companies in the group.
These measures align with the idea that joint or shared control does not necessarily mean synergy exists between companies in the same prudential group. Otherwise, each company would be liable for the obligations and regulatory and operating costs of the group as a whole, irrespective of its specific capacity and structure – as such, assigning a company to a group based solely on its control would lead to disproportionate costs and reduced competitiveness.
In this regard, the draft regulation seeks to:
- Establish the idea that companies subject to joint control (i.e., joint ventures) are part of different prudential groups from those of their controllers – and thus classified according to their respective structure and operation;
- Include new criteria for determining a prudential group, such as whether they are under joint management (even if only partially) or operate within the same industry under the same brand or trade name;
- Allow groups to freely define which supervised company will be the prudential group leader;
- Allow Susep to change the segment supervised entities are classified in when there are systemic image, reputation, and contagion risks;
- Allow Susep to rearrange the group structure based on different criteria to reduce costs and mitigate risks for the supervised entities. Accordingly, Susep may consider the supervised entities’ formal or informal structure, their level of strategic or operational integration, and transactions between companies in the same prudential group and the relevance and purpose of transactions between supervised entities, among other factors that it may deem sufficiently important to (re)assign these companies to different groups.
As for internal control structures, supervised companies that adopt a unified SCI/EGR structure will be considered the leader of their groups. Therefore, they must still comply with the relevant obligations in CNSP Resolution No. 416/2021.
For more information on this topic, please contact Mattos Filho’s Insurance, Reinsurance & Private Pensions practice.
*With the collaboration of João Vicente Ribeiro de Freitas.