Through Public Notice No. 40/2021, the Superintendence of Private Insurance (SUSEP) has placed for public consultation a draft Circular, establishing new rules applicable to surety bond insurance.
The topic was already subject to Public Consultation No. 24/2021, closed on July 31, 2021. However, considering the large volume of contributions received from the market at that time, as well as the changes implemented following the public consultation, SUSEP decided to update the draft of the Circular with the suggestions received on that occasion and enable interested parties to submit new considerations before the publication of the Circular’s final text.
In addition to the innovations brought about during the first public consultation – commented on by Demarest at the time -, we highlight below the complementary changes proposed by SUSEP, which modify or repeal some of the provisions set forth in the preliminary version of the Circular:
- Possibility for the insured to define which obligations of the main purpose will be covered by the insurance, provided that, if the policy does not cover the totality of the obligations set forth in the contract, it contains express indication to that effect in the contractual conditions and describes the exact obligations that are guaranteed, in order to grant greater transparency and comply with the duty of the insured to provide information;
- Provision that the term of the policy must be equal to the term of the main obligation, except in cases in which the term of the surety obligation is not previously defined or is longer than 5 years. In these cases, a different term can be stipulated, as long as there is an express request or agreement from the insured, and the coverage is maintained as long as there is risk to be covered;
- In cases where the term of the insurance is different from the term of the main obligation, the Insurance Company must (i) specify, in the contractual conditions, the criteria to maintain the coverage during the entire risk period and the procedure to renew the policy – whereby such criteria are prohibited from generating any damage to the maintenance of the insurance guarantee and the insured’s rights; and (ii) ensure that the procedures and maintenance of the coverage and/or renewal of the policy occurs before the expiration of the policy term;
- If the insured fails to inform the insurance company of the change in the purpose of the insurance, losses or damages will only be generated against him/her if there is aggravation of the risk and the insurance company proves that such omission was done in bad faith;
- The Policyholder will be liable for the payment of any additional premium, when there are changes in the Policy;
- Definition of ‘loss expectation’ as the fact or the act that indicates the possibility of characterizing the loss and the initiation of procedures and/or verification of criteria for proving default. If a loss expectation is provided for, there is a need for a clear description of the act or fact that defines it and to establish whether or not there will be a requirement for its communication to the insurer;
- Provision that the characterization of the loss may occur immediately, as soon as non-payment is identified, or may require the carrying out of procedures and/or verification of criteria for proof of default, which must be set forth in the purpose of the policy and are the responsibility of the insured, for which there must be no interference by the insurer in this process, unless otherwise provided for;
- Indication that, in the execution of the surety obligation, the choice of the individual or legal entity to continue and conclude the obligation will occur by agreement between the insured and the insurer, subject to the terms of the insurance or specific legislation.
In general, the proposed new rules aim to bring greater transparency to the operations involving surety bond insurance, as well as to reduce the asymmetry of information between the contracting parties, making it possible to simplify the regulatory framework and reinforce the insured party’s confidence in contracting such line of insurance.
The complete Draft Circular can be accessed through this link, and interested parties may send comments or suggestions on the text until December 10, 2021, by means of electronic message addressed to email@example.com, along with the specific comparative table, duly filled out.
Demarest’s Insurance and Reinsurance team will monitor the development of this public consultation until the publication of the final text, and is available to provide any clarifications on the matter.