SUSEP Public Consultations No. 8, 9, 10 and 11: New rules on liquidity of supervised entities and assets held abroad

Through Public Notices No. 8, 9, 10 and 11, the Superintendence of Private Insurance (SUSEP) has placed for public consultation a draft Circular and Resolution on liquidity management and assets held abroad, establishing changes to SUSEP Circular No. 517/2015 and CNSP Resolution No. 321/2015, as proposed below:

• Notice No. 8/2021: proposes the amendment of SUSEP Circular No. 517/2015, aiming to establish a new approach for the management of liquidity risk of supervised entities, to regulate the quality adjustments in the measurement of adjusted net equity (PLA) and articles No. 87 and 78 of Decree Law No. 73/66.
• Notice No. 9/2021: proposes the amendment of CNSP Resolution No. 321/2015, aiming to establish a new approach for the management of liquidity risk of supervised entities, to regulate the quality adjustments in the measurement of adjusted net equity (PLA), articles No. 87 and 78 of Decree Law No. 73/66 and to exclude the approval of the amount of the retention limit (LR) by SUSEP.
• Notice No. 10/2021: proposes the amendment of SUSEP Circular No. 517/2015, to include assets held abroad in the list of assets, reducing the need to cover technical provisions by guarantee assets.
• Notice No. 11/2021: proposes the amendment of CNSP Resolution No. 321/2015, to include assets held abroad in the list of assets to reducing cover technical provisions by guarantee assets.

Last year, the referred Circular and Resolution had already been submitted for Public Consultation through Notices No. 21 and 22 and, following the proposed amendments, SUSEP held new technical discussions to incorporate relevant improvements in the proposed rules, which culminated in the present public consultations.

Among the amendments proposed in Notices No. 8 and 9, there are: (i) exclusion of the current quantitative requirement for liquidity risk and implementation of the qualitative and risk-based requirements; (ii) regulation of adjusted net equity (PLA) levels and quality requirements to cover minimum capital; (iii) implementation of a plan to regularize the coverage sufficiency and exclusion from the solvency regularizations plan (due to the substitution of quantitative criteria for qualitative liquidity criteria); (iv) one-off adjustments in the calculation of the PLA; (v) prohibition on the distribution of profits or any funds corresponding to equity reserves, in the event of losses in mandatory capital investments and provision; and (vi) revision of the regulation that deals with retention limit.

The amendments proposed in Notices No. 10 and 11 aim to adjust the regulations so that certain foreign assets due to guarantee operations (such as Reinsurance Trust and Letter of Credit) are considered assets that reduce the need for coverage by guarantee assets, eliminating the need for duplication of assets to support such guarantee operations within the scope of international markets. Therefore, the proposed amendments determine the need to comply with the following requirements:

1. The assets held abroad must be used to guarantee, exclusively, reinsurance and retrocession operations with foreign assignor companies, under the terms of the regulation in force in the country of the assignor;
2. The guarantee structure can be carried out directly, with assets deposited as collateral with the foreign assignor companies, or, indirectly, as in the case of contracting a credit letter, in which the collateral assets are deposited with third parties to enable the guarantee to the assignor company by means of another instrument;
3. The reduction in the need for coverage is limited to the amount of technical provisions directly related to guaranteed reinsurance or retrocession operations;
4. Only assets accepted as guarantee assets may be used, according the guidelines established by the National Monetary Council;
5. Assets that will act to reduce the need for coverage must be registered in a centralized registration and deposit system, in a custody center, or regularly recorded, in all cases, in institutions authorized by the competent authority in the country where they are issued;
6. a copy of the documents related to the assets that deal with the minutes containing, at least, their characteristics, their values ​​and the institutions in which they are deposited must be kept at the disposal of SUSEP; and
7. the deposited assets must be automatically reverted to reinsurers when the object of the contract referred to in the guarantee structure is exhausted.

The full text of the draft Circular and Resolution can be accessed through this link. Interested parties may send comments or suggestions on the text through email to corec.rj@susep.gov.br until May 19, 2021, by filling out the specific standardized form.

Demarest’s Insurance & Reinsurance team will monitor developments regarding these public consultations up to the publication of the final text, and is available to provide any clarifications on the matter.