Global Corporate Insurance & Regulatory Bulletin - December 2011

Originally published 21 December 2011

Keywords: insurance, corporate, reinsurance, EIOPA, Omnibus II, Test-Achats judgement, swap regulation,

Brazil - Brazilian Reinsurance Market Outlook

A year after the enactment of Resolutions 223/2010 and 224/2010 by the Brazilian National Private Insurance Council ("CNSP"), Brazilian insurance regulators are pointing out that the number of local reinsurers (licensed to carryout reinsurance in Brazil) has doubled from 6 to 12.

This set of controversial regulations, initially scheduled to become effective on 31 March 2010, directly affected the reinsurance market, including foreign reinsurers with branches in Brazil. The regulations provided two significant changes: (i) local reinsurers would no longer have the right of first offer on 40% of reinsurance cession, instead there would be the obligation to contract at least 40% of any reinsurance risk with local reinsurers; and (ii) local reinsurers could no longer transfer any liability under insurance, reinsurance or retrocession undertaken in Brazil to any parent or affiliated reinsurance company abroad.

The market reacted with strong complaints, challenging the validity of such rules and claiming that both the CNSP and the Brazilian Superintendence of Private Insurance ("SUSEP") did not hold a public consultation prior to enacting such rules – a breach of the routine procedure which caught the various members of the market by surprise. The intense debate in the media that followed forced the government to finally publish Resolution CNSP 232/2011 (on 28 March 2011) that revoked Resolution 224/2010 and permitted local insurers to transfer 20% of their risks undertaken in Brazil to parent or affiliated companies based abroad. Furthermore, each insurance and reinsurance company is now responsible for monitoring compliance with the 20% threshold. However, risks associated with performance bonds, exportation credits, internal credits, nuclear risks and rural are not subject to the 20% limit, and may be transferred freely. The obligation to contract 40% of reinsurance risks with local reinsurers, however, remains valid.

The increase in the number of local reinsurers celebrated by the Brazilian Government is openly recognised by major players, who are stating that the costs of accessing the 40% exclusive market is worth it in relation to the largely increasing Brazilian insurance market. 2012 is expect to inaugurate an even greater number of local reinsurers who have already applied for licensing with SUSEP.

EU – European Commission letter to EIOPA regarding equivalence

On 22 November 2011 the European Commission (the "Commission") wrote to the European Insurance and Occupational Pensions Authority ("EIOPA") thanking them for their assessments on the equivalence of the Swiss, Bermudan and Japanese solvency and prudential regimes. The letter can be accessed here.

The Commission commended "the quality of EIOPA's reports" and welcomed EIOPA's commitment to revisit the reports once the final level 2 implementing measures have been agreed in order to verify whether any amendments are needed, and to consider, at the same time, whether any changes made to the regimes in the relevant countries affect the conclusions in their initial reports.

The Commission commented that it expects its decision on the equivalence of the countries will be made during the first half of 2013.

The Commission went on to state what it saw EIOPA's role to be in relation to transitional measures for Solvency II equivalence, being:

carrying out an assessment of whether persons working for, or on behalf of, the supervisory authorities are bound by obligations of professional secrecy equivalent to those under Solvency II; and identifying the areas where the third country supervisory regime does not meet the equivalence criteria at present (here, the Commission only expects a high level analysis, to include steps that would need to be taken by the third country supervisory regime in order for the equivalence criteria to be met). The Commission has identified 16 third countries that are potential candidates for a transitional regime and, once they have gauged their interest in being part of such a regime, will provide EIOPA with a final list of third countries for which assessments should be carried out. This list is expected by the end of January 2012, and the Commission will require assessments to be completed by the end of 2012.

EU – EIOPA letter to European Parliament regarding reporting

EIOPA has published a letter to the European Parliament ("EP") dated 16 December 2011 in relation to reporting under Solvency II (the "Letter").

EIOPA has...

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