On June 15, 2021, the Superintendence of Private Insurance (SUSEP) placed for public consultation Public Notice No. 23/2021, presenting a draft Resolution (“Draft”) that aims to refine the regulatory framework concerning the contracting of reinsurance and retrocession of nuclear risks, looking to definitively resolve the issue of supply shortage for the risk allocation of this line of insurance and reinsurance in Brazil by encouraging the entry of new players.
The Draft establishes amendments to CNSP Resolutions No. 194/2008, 197/2008, 241/2011, 330/2015 and 366/2018.
SUSEP has identified the need for new adjustments to the current regulation on the placement of insurance, reinsurance and retrocession risks, considering mainly:
- The requirement to contract insurance for nuclear risks, pursuant to Law No. 6.453/1977, in order to guarantee the continuity of operation of nuclear plants in the country;
- The low adherence of the primary and reinsurance market for nuclear risks, due to the very low frequency and high severity, in addition to the high limits on the coverage contracted;
- The extreme dependence on local reinsurance for the issuance of insurance policies, typical of nuclear risks;
- The minimal retention of the local reinsurer in the risk, using, via retrocession, the capacity of the international market for nuclear risk pools; and
- The lack of interest of other registered reinsurers (local and foreign) in taking any portion of the risk.
Therefore, the current Draft aims to: (i) make the market environment more favorable to the Insured for taking out insurance; (ii) refine the insurance offer, with the expectation of a reduction in coverage costs; and (iii) make the market more attractive for the entry of new players, resulting in an effective solution for obtaining the capacity necessary for the placement to these risks.
For this purpose, the main changes are:
- CNSP Resolution No. 197/2008 (sets forth provisions for contracting insurance in foreign currency and for contracting insurance abroad)
Inclusion of paragraphs 5 and 6: for the purposes of (i) enabling the contracting of insurance abroad when only one insurance proposal is presented in nuclear risk bidding processes; and (ii) clarifying that, for the purposes of the provisions of paragraph 1, obtaining denials of coverage, even when made prior to the corresponding bidding process, already constitutes an absence of the offer provided for in the provision.
- CNSP Resolution no. 241/2011 (risk transferences and reinsurance and retrocession operations)
Amendment to article 2: proposes to broaden the scope of the objective of paragraph 3 of this article, allowing the placement of nuclear risk reinsurance in the international market, giving the possibility exemption from consultation of the authorized market, given the lack of reinsurers specialized in nuclear risk registered in the country.
- CNSP Resolution No. 33/2015 (establishes requirements and procedures for incorporation, authorization to operate, registration, changes in control, corporate reorganizations)
Inclusion in article 2: concept of (i) lack of competition, based on the definition by Brazil’s Administrative Council for Economic Defense (CADE), which will serve as a parameter so that SUSEP will be able to, exceptionally, define differentiated values of net worth required for the registration of foreign reinsurers, which may be reduced up to 50%; and (ii) foreign reinsurer specializing in nuclear risks, aiming to improve the legislation of the segment, in order to expand the supply of capacity.
Inclusion of article 8-A: to establish flexibility in the rules applicable to foreign reinsurers specializing in nuclear risks constituted in the form of a consortium or mutual association.
Furthermore, the Draft provides for the repeal of articles 3 to 5 and 8 of CNSP Resolution No. 194/2008, as well as article 2 of CNSP Resolution No. 366/2018.
The full Draft can be accessed at this link. Interested parties can send comments or suggestions to the text through an electronic message addressed to email@example.com, until June 30, 2021, using the specific standardized table available on the SUSEP page.
Demarest’s Insurance and Reinsurance team will monitor the development of this public consultation up to the publication of the final version of the text, remaining at your disposal to provide any clarifications on the matter.