The National Council of Private Insurance (CNSP) published, on September 10, 2020, Resolution CNSP No. 388, which establishes the segmentation of insurance companies, capitalization companies, local reinsurers and open supplementary pension funds (EAPCs) (together, “the Supervised”) for the proportional application of prudential regulation.
With the exception of companies participating in the Regulatory Sandbox (Art. 1, § 1), the new Resolution defines that those supervised by the Superintendence of Private Insurance (SUSEP) will be divided into four segments, namely, Segment 1 (S1), Segment 2 (S2), Segment 3 (S3) and Segment 4 (S4).
In summary, according to Art. 3 of the new rule, the classification of the Supervised shall be based on (i) the consolidated assessment parameters of the respective prudential group (group of supervised companies in which a partner or group of partners holds control or participates in a joint control regime) in the event that the supervised company belongs to a prudential group; or (ii) otherwise, the individual assessment parameters of the supervised company, in compliance with the accounting rules and standards established by SUSEP.
The supervised companies will be classified by segment, considering principally aspects related to the value of premiums collected (contributions to the EAPCs and collection from capital investment bonds, in relation to capitalization companies) and technical provisions, relative to the overall amount as a percentage of the Brazilian supervised market.
In order to classify the supervised companies in the S4 segment, in addition to the premium and technical provision criteria, whose amounts should be lower than those of the other segments, it was also determined that certain criteria related to the investments of guarantor assets should be met, such as the allocation of assets exclusively in federal public debt securities and not operations that involve derivatives instruments, as well as limitation of operations to certain insurance lines that include: automotive; housing; property (with the exception of the loss of profits, engineering risks, miscellaneous risks and specified and operational risks lines of business); personal insurance; and pension plans of simple distribution, all with validity of up to 1 year; as well as microinsurance.
The calculation of the values for the purposes of classifying supervised companies will be annual and will have as the base date December 31 of each year.
If, after verification, the Supervised is classified into two or more distinct segments, the lowest sequential numbering segment will be applied, according to Art. 4, § 7.
The supervised companies included in the S3 segment may, spontaneously and provided that they comply with certain requirements described in the Resolution related to the S4 segmentation, request relocation to the S4 segment, by means of (i) formalization of the option in a meeting of the Board of Directors, or, if such Board does not exist, in a meeting of the Board of Officers (ii) adoption of all measures necessary for the effective implementation and maintenance of their option, including the adoption of specific internal controls for this purpose and (iii) communication of their option to SUSEP.
The change of segment of the Supervised may also be carried out by SUSEP itself, at any time, through the occurrence of one of the following situations: (i) transfer of portfolio, merger, demerger, incorporation, control amendments, significant change in the conducting of business or any other situation that indicates the absence of a prospect of a return to compliance with the requirements for classification in the source segment; or (ii) supervisory actions that evidence the better match between the operation of the Supervised and the prudential regulation of the target segment. The change of segment of one of the Supervised belonging to a prudential group will be reflected in all the other Supervised of the group.
In addition, as provided for in Article 11, SUSEP will release annually, up to April 30, the classifications of the Supervised, which may request a review until May 31, for subsequent release by SUSEP of the final list by June 30 of the same year. Also with regard to the deadlines, in accordance with Article 12, § 1 of the new Resolution, SUSEP will release information regarding the initial preliminary classification of the Supervised in the segments defined in such Resolution by October 15, 2020. In the case of disagreement on the part of any of the supervised companies, a review of their preliminary classification may be requested until November 15, 2020.
The final classification will be released by SUSEP on November 30, 2020 and will take effect from January 4, 2021.
In addition to the abovementioned Resolution and, in line with the established segmentation of SUSEP’s supervised companies, Resolution No. 389 was published on September 11, 2020, which amends certain provisions of CNSP Resolution No. 321 to provide for the obligations and duties of each of the new segmentations implemented, which are:
- Constitution of a statutory body called the “Audit Committee” by those supervised within Segment S1 and S2;
- Exemption of the supervised entities of Segment S3 and S4 from producing and sending to SUSEP reports and other documents related to the June 30 financial statements;
- Obligation of those supervised to submit the Prudential Questionnaires evaluated by an independent accounting auditor and to send them to SUSEP twice a year, comprising: (i) questionnaire of the 1st semester: by September 30 of the same year; and (ii) questionnaire of the 2nd semester: by March 31 of the following year. The Supervised from Segment S3 and S4 are exempt from the requirement related to the Prudential Questionnaire of the 1st semester; and
- Specific to the supervised companies of Segment S1, it is established that they may measure their risk capital based on a total or partial internal model previously authorized by SUSEP.
Resolution No. 388/2020 will come into force on October 1, 2020, while Resolution No. 389/2020 will come into force on January 4, 2021.
The Resolutions No. 388 and 389 can be accessed at the following respective links: https://www.in.gov.br/web/dou/-/resolucao-cnsp-n-388-de-8-de-setembro-de-2020-276624009 and https://www.in.gov.br/en/web/dou/-/resolucao-cnsp-n-389-de-8-de-setembro-de-2020-276904649.
Demarest’s Insurance and Reinsurance team is available to assist you in implementing procedures related to the changes brought about by CNSP Resolutions No. 388 and 389, as well as to provide any additional clarifications that may be necessary.