Insurance and reinsurance in Brazil: overview

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.

To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.

This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.

Ilan Goldberg and Pedro Bacellar, Chalfin, Goldberg, Vainboim & Fichtner Advogados Associados
Contents

Market trends and regulatory framework

1. What were the main trends in the insurance and reinsurance markets over the last 12 months?

Insurance

A number of issues affected the insurance market in Brazil over the last year, including:

  • A new cap of BRL3 million for fines imposed by the Brazilian Superintendence of Private Insurance (SUSEP) was established. The new cap was created by Law No. 13.195/2015, and will come into force on 25 November 2016.

  • The minimum capital requirements for insurance companies were established. Resolution CNSP No. 321/2015 established the minimum capital requirements for insurance companies to operate. The minimum capital is comprised of two sides: the base capital and the risk capital. The base capital varies in accordance with the region of the Brazilian territory in which the company wishes to operate. To operate in Brazil as a whole, the base capital must be:

    • BRL15 million for insurance companies;

    • BRL10.8 million for capitalisation companies; and

    • BRL15 million for private pension companies.

    The risk capital is calculated based on a formula that takes into account the underwritten risks of credit and of market. For insurance companies that operate exclusively in micro-insurance, the minimum capital must be 20% of the capital required for ordinary insurance.

  • According to experts, the environmental disaster that followed the collapse of a dam at a Brazilian mine, on 5 November 2015, caused enormous damage in that region and will produce irreversible negative effects on the local human health and on the environment. The accident buried the small historic town of Bento Rodrigues, spreading mud over cities in the states of Minas Gerais, Espírito Santo and Bahia. At least 11 people died and more than 600 were displaced. In addition to this serious damage, the water supply of more than 250,000 people in the area was interrupted, as it was contaminated with heavy metals. The contaminated mud, in which the Minas Gerais Institute of Water Management found toxic substances like mercury, arsenic, chromium and manganese at levels exceeding drinking water limits, reached the coast of the state of Espírito Santo. It could potentially impact the wider marine ecosystem. The risks go beyond the particular chemical elements found in this mud. Dam water was also contaminated with harmful bacteria.

Reinsurance

The reinsurance market was affected by the following issues:

  • The restriction on intra-group transfers of (re)insurance and retrocession liabilities. In 2011, Resolution No. 232 introduced the restriction for an insurance company or local reinsurer to transfer no more than 20% of premiums corresponding to the coverage it contracted to related companies, or to companies belonging to the same financial conglomerate.

  • For admitted and occasional reinsurers, including Lloyd's underwriters, the new Resolution No. 322, amended by Resolution No. 325, gradually relaxed the limits on premiums which may be contracted to related companies, or to companies belonging to the same financial conglomerate headquartered abroad. The new limits will be as follows:

    • 20% until 31 December 2016;

    • 30% from 1 January 2017 until 31 December 2017;

    • 45% from 1 January 2018 until 31 December 2018;

    • 60% from 1 January 2019 until 31 December 2019; and

    • 75% from 1 January 2020.

  • Resolution No. 322 additionally revises the provisions of Resolution No. 225, whereby insurance companies in Brazil were required to cede at least 40% of each reinsurance cession to local reinsurers. The preferential offer of 40% of each reinsurance cession to local reinsurers remains unchanged; however the minimum mandatory cession to local reinsurers will be gradually reduced as follows:

    • 40% until 31 December 2016;

    • 30% from 1 January 2017 until 31 December 2017;

    • 25% from 1 January 2018 until 31 December 2018;

    • 20% from 1 January 2019 until 31 December 2019; and

    • 15% from 1 January 2020.

  • Circular SUSEP 524/2016 clarifies that the acceptance of the terms and conditions of the reinsurance contract by the reinsurance broker does not replace the express agreement by the cedant, and also establishes that the coverage note issued by the reinsurance broker does not override the reinsurance contract.

 
2. What is the regulatory framework for insurance/reinsurance activities?

Regulatory framework

Insurance. The insurance market is regulated by the:

  • National Private Insurance Council (CNSP), with responsibility for formulating overall policies.

  • Superintendence of Private Insurance (SUSEP), the agency responsible for regulating the insurance market, consisting of insurers, reinsurers, insurance or reinsurance brokers, private pension plan and health plan operators and capitalisation companies.

These two entities were created by Decree-Law 73/1996, as the members of the National Private Insurance System.

The insurance market is also governed by:

  • Articles 757 to 802 of the Civil Code on questions of insurance in general and insurance of things and persons.

  • Article 39(2) of the Consumer Defence Code, applicable to insurance relations.

Reinsurance. Complementary Law 126 of 2007 (a complementary law (lei complementar) is an enabling law of constitutional provisions), covers the policy on reinsurance, retrocession, coinsurance, contacting of insurance abroad and insurance transactions in foreign currency. It repealed various articles of Decree-Law 73/1966, to transfer responsibility to SUSEP for regulating and overseeing transactions for transfer of risks involving national and foreign companies (matters that were previously under the remit of the Reinsurance Institute of Brazil (Instituto de Resseguros do Brasil) (IRB) as the government monopoly reinsurer). Overall policy is set by the National Board of Private Insurance (CNSP) through the issuance of resolutions. The most important of these applicable to reinsurance are Resolutions 168, 224, 225, 232 and 241.

Regulatory bodies

The National Private Insurance System, established by Decree-Law 73/1966, consists of the Ministry of Finance as the overall regulatory body. The work of the CNSP comes under the Ministry of Finance, and the CNSP is responsible for the work of SUSEP.

The insurance market consists of the segments of insurance, reinsurance, private pension plans, health plans, capitalisation and brokerage. SUSEP is responsible for overseeing these agents, with powers to:

  • Issue rules.

  • Resolve disputes through administrative proceedings.

  • Enforce rules by imposing penalties.

In turn, the CNSP formulates overall policies for the insurance and reinsurance markets.

 

Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

Article 757 of the Brazilian Civil Code establishes that "by the insurance contract, the insurer undertakes, against payment of a premium, to guarantee a legitimate interest of the insured regarding a person or thing against predetermined risks". The subject matter of insurance contracts is not the thing or person, but rather the pecuniary interest of the insured over the person or thing described in the policy. The contract serves to transfer the risk from the insured to the insurer.

The rules on reinsurance contracts are contained in Complementary Law 126/2007 and the National Board of Private Insurance (CNSP) Resolutions CNSP 168, 224, 225, 232 and 241, among others. The subject matter of reinsurance contracts is the transfer of risk from the insurer to the reinsurer.

 
4. Are all contracts of insurance/reinsurance regulated?

All insurance and reinsurance contracts are regulated, with the former being more affected. This particularly applies to the business-to-consumer context because consumers are considered to be the weaker party in the relationship and, therefore, in need of special protection, including by the:

  • Consumer Defence Code.

  • Superintendence of Private Insurance (SUSEP) through the issuance of rules, oversight and judgment of disputes in the administrative sphere.

The regulation of reinsurance contracts is less intense, because the parties involved are both companies (B-to-B relationship), which are assumed to be on a relatively equal footing when entering into contracts. As is the global practice, the parties are considered to have the maturity and expertise to look after their own interests.

 

Corporate structure

5. What form of corporate organisation can insurers take?

Insurance companies by law must be organised as corporations (sociedades anonimas), according to Article 72, sole paragraph, of Decree-Law 73/1966 combined with Article 25 of Law 4,595/1964.

 

Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated? Are they all regulated in the same way?

Insurers and reinsurers are both subject to regulation, but to differing degrees, with insurers coming under stronger regulation.

 
7. Can insurers and reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Insurers cannot engage in any other area of commerce or industry (Article 73, Decree-Law 73/1966). They must operate within the confines of their business purpose, as defined in their bye-laws, which must be approved in advance by the Superintendence of Private Insurance (SUSEP). Reinsurers that are authorised to operate in Brazil can only engage in reinsurance and retrocession activities in the fields of business authorised by SUSEP. This framework is established by Decree-Law 73/1966 and Complementary Law 126/2007.

 
8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

There is no restriction or market reserve for insurance. Insurers, whether privately controlled or under government control (for example, Banco do Brasil' s various insurance subsidiaries), compete equally, with the winner being the company that offers the best services, products and prices.

On the reinsurance side, reinsurers registered in Brazil must comply with the following requirements:

  • Until 31 December 2016, the cedant company must contract with local reinsurance companies at least 40% of each reinsurance cession, in treaty and facultative reinsurance agreements. The remainder (60%) can be subscribed to foreign-admitted or occasional reinsurers. Resolution CNSP No. 325 of 2015 modified the percentage mentioned above to 30% as of 2017, 25% as of 2018, 20% as of 2019 and 15% as of 2020.

  • The cedant company must not cede more than 10% of the aggregate value of the premiums ceded in reinsurance to occasional reinsurers, considering all of their operations in each calendar year.

  • The cedant company must not cede more than 20% of the premium corresponding to each contracted coverage to related companies or companies of the same economic group headquartered abroad. Related companies are those directly or indirectly related to each other due to:

    • ownership of 10% or more of the corporate capital;

    • actual corporate control; or

    • operations under the same trade name.

    Again, It is important to point out the Resolution CNSP No. 325 of 2015 modified the assignable percentage for 30% as of 2017, 45% as of 2018, 60% as of 2019 and 75% as of 2020.

The insurer or reinsurer must inform the Superintendence of Private Insurance (SUSEP) every time it concentrates, in one single admitted or occasional reinsurer, its reinsurance operations above certain percentages of assigned premium in relation to shareholders' equity and recoverable losses in relation to shareholders equity. The percentages vary depending on the risk classification of the reinsurers. There are exceptions to these rules for certain lines of insurance, including for surety bonds, export credit insurance, rural insurance and domestic credit insurance.

 

Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed?

Insurance/reinsurance providers

Insurers, reinsurers and brokers must obtain prior authorisation from the Superintendence of Private Insurance (SUSEP) to operate in Brazil. They must also obtain the same local business permits as required from all companies.

Other providers of insurance/reinsurance-related activities

Claims adjusters, along with lawyers and technical experts, that provide services to insurers and reinsurers, are not regulated and do not need any special authorisation to render services.

 
10. What are the main exemptions or exclusions from authorisation or licensing?

National Board of Private Insurance (CNSP) Resolution 241/2011 allows the Superintendence of Private Insurance (SUSEP), in exceptional situations, to authorise the transfer of risks to companies not registered in Brazil, provided a justifiable technical reason is provided to SUSEP.

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

Insurance/reinsurance providers

Direct equity stakes that imply control of insurers can only be held by (Articles 13 et seq, National Board of Private Insurance (CNSP) Resolution 166/2007):

  • Individuals approved by the Superintendence of Private Insurance (SUSEP).

  • Entities authorised to function by SUSEP.

  • Legal entities whose stated purpose is exclusively to hold equity stakes in companies authorised to function by SUSEP and that adopt the legally required corporate governance standards.

The entrance of a new member of the controlling group of an insurer must satisfy these conditions. The individual beneficial owners of legal entities holding controlling stakes or qualified participations (defined as an equity holding of 5% or more), or that are members of the controlling block of insurers, must be identified.

Local reinsurers are subject to the provisions of Decree-Law 73/1966 and the other legal and regulatory rules applicable to insurance companies, including those on:

  • Incorporation.

  • Authorisation to operate.

  • Transfer of control.

  • Corporate restructuring.

  • Cancellation of authorisation.

  • Election or appointment of directors and officers.

There are no restrictions on admitted and occasional reinsurers, as their decisions are taken by the parent companies located abroad.

Insurance/reinsurance intermediaries

For reinsurance brokers, authorisation to operate is subject to the following conditions, as decided by SUSEP (Articles 32 and 37, CNSP Resolution 330/2015 and Article 3 of Circular SUSEP 528/2016):

  • The reinsurance brokerage must be undersigned by the representative's claim.

  • There must be a checklist of all forwarded documents.

  • Articles of association or amendments to articles of association must be included.

  • There must be a charter and minutes of the meeting.

  • There must be a constitution or amendments to the constitution.

  • A business plan must be in place.

  • There must be an organisational chart complete with economic groups, with a list of all companies and their company registration numbers (CNPJ), or, in the case of a foreign company, the country where the head office is located and the respective share capital and the total working capital, or declaration that the entity does not belong to any particular economic group.

  • There must be indication of how the controlling partners of the group will perform.

  • There must be proof of origin and evidence of the transactions used in the operation.

  • There must be a spread sheet of the newspapers in which the declaration of intent to operate has been published.

  • Members of the controlling group and those with legal participation must be identified, along with the share capital of each member.

  • Annual tax returns must be provided for the following:

    • private individuals, with a controlling stake either directly or indirectly;

    • those who had, during the last year, share capital in the company.

      There must also be evidence that the tax returns had been submitted to the Brazilian Federal tax authorities, or equivalent documents, and for those resident abroad, proof of annual income and a list of all assets, rights and private liabilities, and their respective amounts.

  • There must be a declaration of any other investments in Brazil or with other Brazilian companies by the direct and indirect directors of the company, or a declaration that no such investments exist.

  • The registration form must be completed.

  • Under Resolution 330/2015:

    • there must be a declaration of a full list of the members of the controlling group and those with legal participation and their respective holdings. This must be accompanied by a declaration that the group conforms to the requirements under article 2 of annex II of Resolution 330/2015 (Resolution 330/2015, subsection VII, article 23, attachment I).

    • there must be authorisation from the federal Brazilian tax authorities, to submit to SUSEP (for the sole purpose of gaining authorisation), all tax returns, assets and rights, and debts and liabilities for the previous two financial years (Resolution 330/ 2015, subparagraph "a" of subsection IX, article 23, attachment I).

    • there must be authorisation for SUSEP to access all information related to any public or private registrations, including judicial or administrative cases or proceedings (for the sole purpose of gaining authorisation) (Resolution 330/ 2015, subparagraph "b" of subsection IX, article 23, attachment I).

 
12. Must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

Insurance/reinsurance providers

Any transfer of control, either direct or indirect, requires previous authorisation of the Superintendence of Private Insurance (SUSEP) (National Board of Private Insurance (CNSP) Resolution 166/2007 and Decree-Law 73/1966). The same applies to any transaction or series of related transactions that leads to an acquisition of a qualified participation (5% or more of the equity).

Insurance/reinsurance intermediaries

Under CNSP Resolution 173/2007, any transfer of control or alteration in the controlling group of reinsurance brokerage firms must be notified to SUSEP within 60 days of the date of the corresponding corporate act.

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

To obtain authorisation to operate in Brazil, and to obtain renewal of authorisation, insurance and reinsurance, companies must demonstrate that they have satisfied the following requirements to the Superintendence of Private Insurance (SUSEP):

  • Sufficient capitalisation as required for the activity.

  • Formulation of a business plan.

  • Indication of the controlling group.

  • Respect for the percentage of intra-group transactions.

  • Formulation of internal controls.

  • Demonstration of the absence of problems that can affect the reputation of the controllers and holders of qualified participations.

  • Demonstration that the company's investments meet the standards of safety, profitability, solvency and liquidity.

  • Reporting of monthly information to SUSEP, through an online programme called FIP.

  • Observance of the deadlines to apply for renewal of authorisation.

  • Payment of the annual oversight fee to SUSEP.

In addition, National Board of Private Insurance (CNSP) Resolution 243/2011 details various infractions that can be committed by regulated companies and individuals, including:

  • Unauthorised transactions.

  • Infractions of corporate law or accounting standards.

  • Infractions regarding the products and services offered and their marketing.

  • Situations that can affect solvency.

  • Infractions involving intermediation and provision of services.

  • Negligent actuarial practices.

Insurance/reinsurance intermediaries

Insurance and reinsurance brokers must inform SUSEP of any alteration in their ownership structure, change of address or other relevant changes that can affect their business activities.

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

The companies supervised by the Superintendence of Private Insurance (SUSEP) are subject to the following penalties (National Board of Private Insurance (CNSP) Resolution 243/2011):

  • Warnings.

  • A fine of BRL5,000 to BRL1 million, depending on the infraction committed.

  • A fine equal to the amount insured or reinsured in the case of insurance, coinsurance or reinsurance transactions without authorisation.

  • Suspension of the exercise of the activity for 30 to 180 days (or of the profession for executives found guilty).

  • For executives, disqualification from exercising a position or function in the public service, government-controlled or owned company, private pension plan operator, capitalisation company, financial institution, insurer or reinsurer for two to ten years. This penalty is applied to a person that has been punished with suspension in the past five years for an infraction of the same nature, or of any act classified as a crime when the offender has been found guilty in a final judgment for a transgression committed in the exercise of the profession.

  • Cancellation of authorisation to operate for companies found guilty of involvement in money laundering more than once in any five-year period.

The penalties can be applied cumulatively. The accused person or company can present an administrative defence to SUSEP. An unfavourable decision can be appealed to the Appeals Council of the National Private Insurance System, which is the highest administrative instance. A party found guilty at this level can take the case to court.

SUSEP and the accused can enter into administrative consent decrees, called "commitments to adjust conduct", setting:

  • Fines.

  • Time limits for compliance.

  • The penalties for failure to correct the problems.

Signing such a commitment does not imply admission of guilt.

Prospective policyholders should ensure the company they intend to do business with has authorisation from SUSEP to avoid future problems, because the only recourse would be to sue the company, which is a risky proposition.

Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

Insurance or reinsurance services and contracts can be marketed to legally constituted companies and persons aged 18 years or older and of sound mind (not legally interdicted or declared incapable of managing their own affairs).

 

Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

A reinsurer can participate in the adjustment of the claim, without prejudice to the responsibility of the insurer to the insured (Article 39, National Board of Private Insurance (CNSP) Resolution 168/2007).

Since there are distinct contractual relationships between the insured and insurer (cedant) and the insurer (cedant) and reinsurer, the regulatory text provides that the insurer remains liable to the insured, regardless of the participation of the reinsurer in the claim adjustment process.

However, under the subsequent CNSP Resolution 225/2010, reinsurance contracts, either automatic or facultative, can contain a clause for control of the claim process in favour of the local reinsurer when it retains the largest proportional participation in the risk. Despite this provision, which allows the reinsurer to control rather than just participate in the claim adjustment process, the key position remains the same: the final responsibility to the insured for the outcome of the claim process rests with the reinsurer.

 
17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

There is no specific provision in the legislation on disclosure or notification obligations, but in general the obligation to disclose information and the ways and time limits to do so are mentioned in the reinsurance slip in the section on notices.

 

Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

The launch of new policies requires prior approval by the Superintendence of Private Insurance (SUSEP), respecting the minimum conditions set by it. Any subsequent change in the contract must also be approved by SUSEP.

Commonly found clauses

Various clauses commonly found in insurance contracts include:

  • Delimitation of the risk and restrictive clauses.

  • Intentional misconduct by the insured as cause for denial of coverage.

  • Utmost good faith and the consequences of its non-observance.

  • Aggravation of risk as cause to deny or reduce coverage.

  • Prompt notification of loss events.

 
19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

Facultative/treaty reinsurance

Currently, since the market is soft and there is considerable capacity for retention by insurers, treaty reinsurance is more prominent than facultative contracts. This question is sensitive to the circumstances of the market.

Commonly found clauses

Reinsurance contracts (slips) are freely negotiated between the parties without any need for prior approval of the Superintendence of Private Insurance (SUSEP). However, certain clauses and stipulations are compulsory (Articles 33 to 41, National Board of Private Insurance (CNSP) Resolution 168/2007):

  • Insolvency clause (Article 33, CNSP Resolution 168/2007).

  • Intermediation clause if a broker is involved (Article 35 and Article 16, Complementary Law 126/2007).

  • The contractual formalisation must occur within 270 days of the start of the coverage, and must state the (Article 37, CNSP Resolution 168/2007):

    • date of the proposal and acceptance;

    • starting date;

    • place for use as a time zone reference of the starting and ending times.

  • Reinsurance of risks in Brazilian territory is subject to Brazilian legislation and judicial resolution of disputes, unless the parties expressly stipulate another method such as arbitration (Article 38, CNSP Resolution 168/2007).

  • Starting and ending date of the rights and obligations of each party.

  • Precise stipulation of the risks covered and excluded.

  • Criteria and procedures for cancellation.

  • A clause calling for direct payment of the reinsurer to the insured (cut-through clause) (Article 34, main section and sole paragraph, CNSP Resolution 168/2007).

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

Generally, under the legal system it is implicit that the courts' interpretation of a contract is the one most favourable to the insured (consumer). Although insurance contracts are inherently based on utmost good faith, caution should be taken to avoid ambiguities and imbalances, because the pendulum of judicial interpretation almost always swings in favour of the insured.

This principle applies to all aspects of the insurance relationship, such as rules on:

  • Claims adjustment.

  • Limitation of risks.

  • Establishment of insured capital.

Customer protections

21. How do customer protections in the general law affect insurance contracts? What customer protections are generally included in insurance policies to supplement this?

General law

Brazil has a specific law on consumer relations, Law 8,078/1990 (Consumer Defence Code (CDC)), which covers the supply of goods and services to end users. Insurance services are expressly included among the list of activities that can be covered when the insured is a consumer (Article 3(2), CDC). Therefore, the CDC applies to the majority of insurance contracts.

Insurance policies

While the application of the CDC is clear for insurance policies covering individuals, its application to insurance contracted by companies, although sometimes argued in lawsuits based on the idea that they are consumers (particularly in the case of small firms), is questionable.

The CDC contains a series of protections that benefit consumers, including, among others:

  • Inversion of the burden of proof.

  • Interpretation of ambiguous clauses in favour of the consumer.

  • Nullity of abusive clauses.

  • Prohibition of tie-in sales.

  • Transparent wording of contracts in clear language and without excessive fine print.

Therefore, the general and specific conditions of insurance contracts should be as clear and transparent as possible, to avoid ambiguities and situations that overly favour insurers to the detriment of consumers.

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

The standard clauses are specified by the Superintendence of Private Insurance (SUSEP) and are available at its website (www.susep.gov.br/menu/informacoes-ao-publico/planos-e-produtos/seguros/). However, each insurer can draft its own contracts, as long as the clauses do not run counter to those specified by the regulator.

 

Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger a claim under an insurance policy?

Essentially, the occurrence of the loss triggers the claim. For example:

  • Under a life insurance policy, the trigger is the death of the person whose life is covered.

  • Under a personal accident policy, the trigger is the moment the insured learns of his state of disability.

  • In fire insurance, the trigger is moment the fire occurred.

  • In insurance against theft, the trigger is moment the insured becomes aware of the crime.

In civil liability insurance, identification of the trigger can be more complex and difficult, since the knowledge of the insured depends on factors outside their control. Take for example a hypothetical case of contamination of a lake by pollution released by the policyholder's factory, where a local fishing community depends on the lake both for food and income from selling the excess catch. It is very hard to predict when and under what circumstances a single collective claim or individual claims will be lodged against the insured, and the extent of the damage, since each human can react differently to ingestion of intoxicated fish. To add to the complexity, the public authorities can separately seek redress for damage to public health or the environment and to force the polluter to pay for clean up (under the law, strict liability applies to environmental damages). For this reason, it is the normal practice to adopt claims-made basis policies with limitation periods. Therefore, the identification of the trigger under an occurrence basis policy should be distinct from that under a claims-made basis policy.

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

The Superior Tribunal of Justice recently decided that direct claims by third parties against an insurer are possible, provided the plaintiff (third party) also includes the insured as a co-defendant in the suit. Therefore, a direct suit against the insurer is not possible without the participation of the insured (STJ, Special Appeal 962230/RS, Reporting Judge Luis Felipe Salomão, 2nd Section, judged on 8 February 2012).

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

Under the law, a victim's right to sue arises at the time their right is violated, which marks the starting point of the limitation period. As in most civil law countries, there are two types of time-bar mechanisms:

  • By prescription (prescrição).

  • By pre-emption (decadência).

The basic difference is that prescription bars the filing of lawsuits, while under pre-emption the underlying claim itself becomes extinct.

This system is subject to variation according to the type of insurance in question. As a rule, for insurance against damages, the limitation period starts to run when the insurer denies coverage, by notifying the insured. For insurance of persons (specifically personal accidents) the limitation period starts when the insured learns of the state of health causing the disability (total or partial). This is the starting date of the time limit within which the insured must notify the event to the insurer. On such notification, the time-bar is suspended until the question is resolved of whether or not the event is covered by the policy.

The general time limit to file an insurance claim is one year (Article 206, Civil Code). It is very important to exercise care regarding the starting date of the limitation period, which is not detailed in law, leaving it up to the courts to decide, because recognition of prescription is equivalent to a judgment on the merit (with prejudice), preventing new discussion in other suits.

In relation to reinsurance, the Superior Tribunal of Justice, in a recent controversial decision (Special Appeal 1.170.057/MG, Reporting Judge Ricardo Villas Bôas Cueva, 3rd Panel, published on 13 February 2014) held that the time-bar is one year, under the interpretation that the reinsurance contract is a type of insurance contract and, therefore, is subject to the same limitation period.

Enforcement

26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

In principle, the insured or other third party cannot directly sue the reinsurer, as insurance and reinsurance contracts have different parties:

  • Insurer and insured for insurance contracts.

  • Reinsurer and insurer (cedant) for reinsurance contracts.

There are two exceptions to this general rule:

  • Where the reinsurance contract contains a cut-through clause allowing direct payment.

  • The second applies if the insurer (cedant) becomes insolvent, which allows the insured to seek indemnification directly from the reinsurer.

The second possibility, insolvency of the insurer (cedant), is fraught with complications under the law, because of the application of the rules on bankruptcy and reorganisation, under which a set of creditors' claims is formed on insolvency that are subject to satisfaction in the order of priority provided in bankruptcy law. These rules give priority to labour and tax creditors. Therefore, any payment made by the reinsurer outside the bankruptcy proceeding, not obeying the order of priority, can be challenged. Both of these possibilities are established in Articles 13 and 14 of the Complementary Law 126/2007.

Where the reinsurer takes it on itself to adjust the claim and denies coverage, causing losses and damages to the insured, it is possible for the insured to sue the company, under the legal mechanism of extra-contractual civil liability (Article 186, Civil Code).

Remedies

27. What remedies are available for breach of an insurance policy?

There is a remedy for the loss of the guarantee when an insured or its representative makes a false or inexact declaration or fails to disclose a circumstance that would have influenced the acceptance of the proposal or the premium rate, because this is considered to be a violation of the principle of utmost good faith that applies to insurance contracts (Article 766, Civil Code). The burden of proving the omission or inaccuracy rests with the insurance company.

Punitive damage claims

28. Are punitive damages insurable? Can punitive damages be reinsured if they are covered by an underlying policy?

The law does not contain any provision for punitive damages, so it is not possible to offer insurance policies and, therefore, reinsurance contracts, to cover punitive damages. However, the jurisprudence from the courts, supported by the doctrine from legal scholars, allows the awarding of what amounts to punitive damages, under the title of moral damages (mental anguish or harm to reputation). This is based on the principle of deterrence. Generally, an insurance contract can cover moral damages caused by the insured and, therefore, punitive damages can be reinsured in the guise of moral damages.

 

Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

There are some companies that, due to their importance to the economy and society, are supervised by governmental bodies and can even be subject to administrative (extrajudicial) liquidation. This is the case for:

  • Insurers and private pension plan operators (overseen by the Superintendence of Private Insurance (SUSEP)).

  • Banks and other financial institutions (overseen by the Central Bank).

  • Health plan operators (overseen by the National Health Agency).

When such a company starts to show signs of financial distress, the regulator that monitors it can order its extrajudicial liquidation.

The insured and beneficiaries that are creditors of insurance companies have a special privilege over the technical reserves, special funds and guarantee provisions for insurance, reinsurance and retrocession transactions (wording given by the Complementary Law 126/2007) (Article 86, Decree-Law 73/1966). After the credits of the insured and beneficiaries are paid, insurers and then reinsurers are next in line regarding calls on those reserves, funds or provisions.

Additionally, insolvency of the insurer, if it has contracted reinsurance, can engender direct payment by the reinsurer (Article 14, Complementary Law 126/2007).

 
30. Can excess insurance policies "drop down" to provide coverage if the primary insurer goes into insolvency?

There is no provision in Brazilian legislation covering this matter.

 
31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

This procedure is not usually permitted.

 

Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

The tax powers of the three levels of government (federal, state and municipal) are established in the Federal Constitution of 1988. In addition to taxes, the federal government can also, by enactment of a law (principle of legality of taxes), establish what are called social contributions. The difference between these contributions (contribuições sociais) and taxes (impostos) is that the revenues from the former levies are reserved for specific uses while the money from the latter goes into the general fund. Since the money in the general fund is subject to several mandatory set-asides (such as health and education) and revenue sharing with the state and municipal governments, the creation of contributions allows the federal government to have greater discretionary spending power.

There are three income tax regimes that apply to companies:

  • The real profit regime (for large firms).

  • The presumed profit regime (for small- and mid-sized companies).

  • The Simples Nacional regime (for micro and small enterprises).

Applicable tax rates on insurance providers

For insurers, the following taxes apply:

  • Tax on financial transactions insurance (Decree 6,306/07):

    • paid by the insured or insurer;

    • calculated as an amount of the premium;

    • at a rate of 0% to 7.38%;

    • with an effective rate of 0% to 7.38%.

  • Contribution to the social integration programme (PIS) and contribution to finance social security on gross revenue (Cofins) (Law 9,718/98):

    • paid by the insurer;

    • calculated from the revenue after exclusions and deductions allowed by law; o at a rate of 0.65% (PIS) and 4% (Cofins);

    • with an effective rate of 0.65% (PIS) and 4% (Cofins).

  • Corporate income tax (Decree 3,000/99):

    • paid by the insurer;

    • calculated on the adjusted net income;

    • at a rate of 15% + 10% surcharge on profits over BRL240 million per year;

    • with an effective rate of approximately 25%.

  • Social contribution on net profit (Law 7,689/99):

    • paid by the insurer;

    • based on an adjusted calculation;

    • at a rate of 15%;

    • with an effective rate of 15%.

For admitted and occasional reinsurers, the following taxes apply:

  • Contribution to the social integration programme (PIS) and contribution to finance social security importation (Cofins) (Law 12,249/2010.*1):

    • paid by the insured;

    • calculated on 15% of the amount of the premium;

    • at a rate of 1.65% (PIS) and 7.60% (Cofins);

    • with an effective rate of 1.3875%.

  • Withholding tax (Decree 3,000/99, Provisional Measure 2,158 – 35/01):

    • paid by the cedant;

    • calculated on 8% of the amount of the premium;

    • at a rate of 25%;

    • with an effective rate of 2%.

  • Tax on financial transactions foreign exchange (Decree 6,306/07):

    • paid by the purchaser of foreign currency;

    • calculated based on the amount remitted;

    • at a rate of 0.38%;

    • with an effective rate of 0.38%.

For local reinsurers, the following taxes apply:

  • Tax on financial transactions insurance (Decree 6,306/07):

    • paid by the cedant or insurer;

    • calculated based on the amount of the premium;

    • at a rate of 0%;

    • with an effective rate of 0% to 7.38%.

  • Contribution to the social integration programme (PIS) and contribution to finance social security importation (Cofins) on gross revenue (Law 9,718/98):

    • paid by the reinsurer;

    • calculated based on the revenue after exclusions and deductions allowed by law;

    • at a rate of 0.65% (PIS) and 4% (Cofins);

    • with an effective rate of 0.65% (PIS) and 4% (Cofins).

  • Corporate income tax (Decree 3,000/99):

    • paid by the reinsurer;

    • calculated based on the adjusted net income;

    • at a rate of 15% plus a 10% surcharge on profits over BRL240 million per year;

    • with an effective rate of approximately 25%.

  • Social contribution on net profit (Law 7,689/88):

    • paid by the reinsurer;

    • calculated based on the adjusted net income;

    • at a rate of 15%;

    • with an effective rate of 15%.

 

Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

There are three levels of jurisdiction:

  • The lower courts.

  • Second-instance appellate courts (state courts of appeal and regional federal courts of appeal).

  • The Superior Tribunal of Justice (STJ) and Federal Supreme Court (STF), seated in Brasília.

The STJ is charged with harmonising the interpretation of federal laws by the state and regional federal appellate courts, while the STF is entrusted with deciding constitutional issues. Appeals to both can be filed in the same dispute, depending on the grounds.

Normally disputes involving insurance are decided in the state civil courts. The exceptions are:

  • Cases that involve federal government entities (agencies, controlled companies, and so on), over which the federal courts have jurisdiction.

  • Disputes involving amounts up to 40 times the minimum monthly wage (salário mínimo atual no Brasil) (currently BRL788.00) and that are less complex, which can be filed, at the plaintiff's option, in the small claims courts.

It is rare for insurance cases to be decided in the federal courts.

The use of arbitration is common, particularly for large risks. Brazil has a specific law on arbitration (Law No. 9,307/1996) and the practice is well established in the country (see Question 34).

 
34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

The decision to choose arbitration to resolve disputes rests with the parties, and an arbitral award has the same force as a judicial award. The courts can intervene in arbitration matters to enforce awards and to grant urgent measures. Arbitral awards can be set aside by the courts on certain formal grounds, as well as if the award runs contrary to public policy or good customs, or the arbitration did not observe due legal process. However, the judiciary cannot overturn the merit of the arbitral decision itself.

If the arbitral clause specifies the institution that will manage the proceeding, there is no need to spell out the procedure, because the rules of that institution apply. For ad hoc arbitrations, problems can arise if the parties fail to specify the rules for appointing the arbitrators or other key aspects. In such situations, if the parties cannot agree in the submission instrument then it will be necessary for the claimant to go to court to resolve the form of the arbitration. The Arbitration Law assures the parties the same constitutional guarantees of due legal process (ample defence and rebuttal) that apply in judicial proceedings.

Foreign arbitral awards have the same status as foreign judicial awards, and like the latter, must first be recognised by the Superior Tribunal of Justice before seeking enforcement in the court with jurisdiction over the recalcitrant party or the subject matter.

A bill is currently being considered by Congress that would provide more flexibility to arbitration in Brazil.

 
35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced?

Insurance contracts

In insurance contracts involving individuals (consumers), the forum to resolve disputes is that of the domicile of the insured. It is also possible to specify arbitration in contracts with consumers, providing the clause is in a separate document and is clear and transparent, so that the insured (consumer) can freely adhere. In cases involving companies, the general rule in the Civil Procedure Code applies, according to which the forum is that of domicile of the defendant.

Reinsurance contracts

For risks located in Brazil, the applicable law and jurisdiction is Brazilian, unless the parties choose arbitration or foreign venue, in which case they are free to choose the applicable law and the chamber or forum responsible for conducting the arbitration (Article 38, National Board of Private Insurance (CNSP) Resolution 168/2007).

 

Reform

36. What proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services?

A bill was introduced in Congress in 2004 (Bill of Law 3,555), subsequently converted into Bill of Law 8,034/2010, which would create specific rules for insurance and reinsurance in the country, repealing Decree-Law 73/1966 and Articles 757 to 802 of the Civil Code. As can be seen from the year when the bill was first introduced, the legislative process can be very slow, so there is no prognosis over the chances of approval of the bill, much less the time frame.

 

Main insurance/reinsurance trade organisations

National Federation of Reinsurance Companies (Federação Nacional das Empresas de Resseguro) (FENABER)

Main activities. FENABER is a non-profit association that represents reinsurance companies operating in Brazil. In addition to its political aspects, FENABER promotes 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.

W https://fenaber.org.br

National Federation of the Insurance, Reinsurance, Capitalisation and Private Pension Brokers (Federação Nacional dos Corretores de Seguros Privados e de Resseguros, de Capitalização, de Previdência Privada, das Empresas Corretoras de Seguros e de Resseguros) (FENACOR)

Main activities. FENACOR represents 26 state brokerage associations. Its main purpose is to defend the interests of brokers versus private entities and public authorities.

W www.fenacor.com.br

National Confederation of Insurance, Private Pension, Health and Capitalisation Companies (Confederação Nacional das Empresas de Seguros Gerais, Previdência Privada e Vida, Saúde Suplementar e Capitalização) (CNSeg)

Main activities. CNSeg 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 Insurance (Federação Nacional de Previdência Privada e Vida) (FenaPrevi).

  • The National Federation of Supplementary Health Plans (Federação Nacional de Saúde Suplementar) (FenaSaúde).

  • The National Federation of Capitalisation (Federação Nacional de Capitalização) (FenaCap).

CNSeg's purpose is to co-ordinate political actions and design strategic plans for the industry and to represent it with the government, society and national and international entities.

W www.viverseguro.org.br



Contributor profiles

Ilan Goldberg, Partner

Chalfin, Goldberg, Vainboim & Fichtner Advogados Associados

T +55 21 3970 7201
F +55 21 39707211
E ilan@cgvf.com.br
W www.cgvf.com.br

Professional qualifications. Founding partner of Chalfin, Goldberg, Vainboim & Fichtner Advogados Associados, 2000; insurance/reinsurance practice area reference in Who's Who Legal, 2012 to 2014; recommended by Chambers Latin America Guide 2015 and Legal 500 for his insurance/reinsurance expertise.

Areas of practice. Insurance; reinsurance; banking; consumer; real estate law.

Non-professional qualifications. LLB, Rio de Janeiro Federal University Law School, 1998; Postgraduate studies in business law, IBMEC Business School, 2003; Master's degree in Regulation and Competition Law, Candido Mendes University, 2007; PhD (civil law), Rio de Janeiro State University (UERJ), (estimated 2018)

Professional associations/memberships. Brazilian Insurance Law Institute (IBDS); Brazilian Section of the International Association of Insurance Law (AIDA).

Publications

  • Lloyd's Brazilian chapter of a book dedicated to the regulation of the main insurance and reinsurance markets in the world (UK, USA, Japan) and of emerging countries (Brazil, China and South Africa), 2001.
  • "The Transition of Law and Regulation from State Control to Market Freedom", the Research Handbook on International Insurance Law and Regulation, March 2012 (Edward Elgar Publishing and Lloyd's (London)).
  • Author of many other articles, technical notes and commentaries, published in Brazil, Argentina, the UK and the United States.

Pedro Bacellar, Associate Lawyer

Chalfin, Goldberg, Vainboim & Fichtner Advogados Associados

T +55 21 3970 7201
F +55 21 39707211
E pedro.bacellar@cgvf.com.br
W www.cgvf.com.br

Professional qualifications.

Brazilian Bar Exam (OAB/RJ) No. 134.666; seminar on Reinsurance and Contract Wording, Robert W. Strain, New York, USA, July, 2011; extension course in Law of Insurance and Reinsurance, Fundação Getúlio Vargas, 2010; course on Reinsurance Practices, Funenseg, 2009; extension course in Company Law, Fundação Getúlio Vargas, 2007; course in Company Law and Stock Market in the Securities Commission, CVM, 2006.

Areas of practice. Insurance and reinsurance.

Non-professional qualifications. LLB, Universidade Cândido Mendes, 2005.

Recent activities

  • Lawyer and Compliance Officer for JLT BRASIL HOLDINGS, 2009 to 2013.
  • Participated in setting up the legal and compliance activities for both companies and provided assistance in other legal matters.
  • Lawyer for BARBOSA, MUSSNICH E ARAGÃO ADVOGADOS (BM&A), 2007 to 2008.
  • Lawyer for BOCATER, CAMARGO E COSTA E SILVA ADVOGADOS (BCCS), 2006 to 2007.

Languages. Spanish, English (fluent).

Professional associations/memberships. Member of the Brazilian Section of AIDA - International Insurance Law Association (2009).

Publications

  • The International Comparative Legal Guide - Insurance & Reinsurance 2014 and 2015, Brazilian Chapter (with Ilan Goldberg).
  • Getting the Deal Through to Insurance Litigation 2014 and 2015, Brazilian Chapter (with Ilan Goldberg).

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