Tuesday, June 25, 2024

Brazil closing in on law


Brazil closing in on law that many fear will curtail access to global reinsurance and innovation

The Brazilian Senate has approved a bill set to usher in new insurance legislation that worries both corporate insurance buyers and reinsurance cedants.

The bill, which was first proposed in 2017, will now go through what is expected to be a ceremonial vote in the Lower House before moving on to be sanctioned by President Luiz Inácio Lula da Silva.

Trade associations such as ABGR, which represents Brazilian risk managers, and Fenaber, which represents reinsurers, have repeatedly expressed concern about the contents of the law.

They fear that the new legislation will put at risk recent measures implemented by Susep, the Brazilian insurance regulator, that opened up access to international capacity and increased the freedom of buyers to negotiate wordings with underwriters.

The new bill will introduces several controversial rules. One means that a risk is tacitly accepted by a reinsurer if it does not answer a consultation by a cedent within 25 days. Another says that any disputes regarding insurance or reinsurance contracts involving Brazilian risks must be settled by local arbitration courts. This requirement bypasses the well-regarded Brazilian arbitration system and prevents the settlement of litigation involving Brazilian cedents in jurisdictions such as the UK.

These and other measures contained in the bill, which has a distinct nationalistic flavour, are likely to negatively impact the availability of global reinsurance capacity for Brazilian cedents, Fenaber has warned.

Marcia Cicarelli, a partner at the Demarest law office in São Paulo, said the bill brings an “excess of regulation concerning the duties of insurers and, particularly, reinsurers”.

“Furthermore, the tacit acceptance of reinsurance contracts changes the logic of the deals and creates a complexity that is not really necessary,” she added.

Restrictions to global reinsurance will come at a time when Brazilian companies are increasingly looking to purchase capacity in international markets. Cessions to offshore reinsurers increased by 21.1% in the first quarter of this year compared to the same period of 2023, according to the latest statistics released by Susep.

Another criticism of the bill is that it makes no distinction between retail and large risk insurance buyers, treating all of them as vulnerable consumers that need protection from underwriters.

Market sources fear that this lack of clarity will drive regulators to demand that all covers sold in the country apply for pre-approval before they are negotiated with clients.

This would represent a backward step towards much-derided practices that prevailed in the market until three years ago, when Susep finally removed such restrictions on wordings for commercial insurance policies.

“Without the differentiation between retail and large risks, the state may once again exert a disproportionate level of intervention in the market,” says Walter Polido, a São Paulo-based insurance lawyer.

Before the liberalisation of wordings, insurers were required to file for authorisation from Susep for large risks when adding specific clauses to standard wordings pre-approved by the regulator. As a result, there was little innovation in the market.

That is why the new bill, if finally approved as expected, could stifle the development of the Brazilian insurance industry, warned Cicarelli.

One of the reasons why senators approved the bill is they want the private insurance sector to assume a bigger share of rising losses caused by nat cat events in Brazil. But it remains to be seen how this will be achieved by law that many fear will creates hurdles to the accessing of global reinsurance capacity.