Posted on 04 Jan 11
The Brazilian National Council of Private Insurance approved several resolutions for the Brazilian insurance/reinsurance this month. Among all the resolutions, two will affect all major players in the insurance/reinsurance markets: Resolution 224 and Resolution 225.
According to Resolution 224, which takes effect Jan 31, 2011, insurance and reinsurance companies may keep their regular reinsurance operations, but cessions can only be made to companies that do not belong to the same financial group.
The resolution marks a significant change to the current regulation that has been in place since the opening of the Brazilian reinsurance market, which does not restrict cessions to reinsurers located abroad within the same financial group, and may result in an elevation of total costs or restrictions on coverage, according to Marsh Brazil.
Multinational companies established locally that have their insurance programs integrated into a global program may encounter difficulty, as the local insurer will not be allowed to transfer any risk or premium to the global program, unless this transfer is made to a carrier that does not belong to the same financial group.
Resolution 225, effective March 31, 2011, mandates that local reinsurers must retain at least 40% of the risk. This significantly modifies the current legislation for the reinsurance market, whereby if the local reinsurers do not accept the risk, the full cession (100%) may be accepted by international reinsurers.
Reinsurance terms and conditions, as well as costs, may be negatively affected by the new resolution, according to Marsh Brazil.
Marsh Brazil, through its technical director, Placement and Bowring, will continue to closely monitor all discussions and implications related to these new resolutions, and have already initiated discussions with local insurance and reinsurance players regarding the application of these resolutions in practice.