FERMA Pushes Brazil to Relax Reinsurance Regulatory Restrictions

November 14, 2011

The Federation of European Risk Management Associations (FERMA) announced that it has sent “specific recommendations to the Brazilian insurance regulator SUSEP to limit the impact of regulations 225 and 232 on market capacity and security in the interest of business and insurance buyers. FERMA’s action follows an offer from SUSEP to open discussion with critics of the regulations which went into effect earlier this year.”

The ongoing controversy began shortly after the Brazilian government lifted restrictions on foreign reinsurers doing business in the country in 2007. A wave of foreign companies set up in Brazil. But in 2010 the country’s National Board of Private Insurance (CNSP) enacted two new resolutions, which placed restrictions on “intra-group transactions,” and required placing 40 percent of any reissuance contract with local companies.

FERMA has been campaigning for a relaxation of aspects of the regulations on behalf of its many members (European multinationals) who have business interests in Brazil and in support of the Brazilian risk management association, the Associação Brasileira de Gerência de Riscos (ABGR).

The changes the risk management organization wants Brazil to adopt were listed as follows:
• Elimination or substantial redesign of the 20 percent limit on inter-group operations;
• A five or ten day time limit for reinsurers classed as local to accept or refuse a mandatory 40 percent cession before business can be placed with reinsurers in the admitted or eventual reinsurer categories.
• Requests for further information on this mandatory cession to be limited to one with a further three working days from the date that it received the offer for consideration.
• In all cases, the insurer to be responsible for claims negotiations and settlement.

FERMA President Jorge Luzzi detailed the recommendations in a letter sent Nov. 10 to SUSEP. He noted that FERMA has received many representations of concern from risk managers, especially about the possible limits on capacity and threat to insurer security posed by the limits on the spreading of risk created by the regulations.

“We thank and welcome the offer by SUSEP of open discussion on regulations 225 and 232,” Luzzi wrote. “The 20 percent limit on inter-group cessions could be very risky. If reinsurance which cannot be ceded to group companies goes straight into the international market, where similar risks are placed, there will be extra costs. These are likely to be passed on to the insurance buyer and there is the possibility of losing the mutuality concept.”

He also pointed out that FERMA has accepted the regulation that requires a “40 percent compulsory cession to the eight local reinsurers will remain, but its members believe that this should be on a prompt first refusal basis to avoid unexpected changes in terms and conditions.”

In conclusion Luzzi explained why FERMA has requested for SUSEP to agree that the insurer must have responsibility for claims negotiation and settlement, stating: “The relationship must be between the insurance buyer and the insurer, not what reinsurers are involved in the risk.”

Source: Federation of European Risk Management Associations

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