RESOLUTION CNSP N° 396, OF 11 December 2020 (versão em inglês/LegisMap)

RESOLUTION CNSP N° 396, OF 11 December 2020(*)

Provides for the local reinsurer whose exclusive purpose is the risk acceptance by means of reinsurance or retrocession operations, and their financing through debt linked to (re)insurance risks, and sets forth other provisions.

THE PRIVATE INSURANCE SUPERINTENDENCY – SUSEP, in accordance with the provisions set forth in Art. 34, Item XI, of Decree 60.459, of 13 March 1967, makes it public that the NATIONAL COUNCIL FOR PRIVATE INSURANCE - CNSP, following a special session on 10 December 2020, considering Art. 32, Item II, of Decree-Law 73, of 21 November 1966, and Art. 2 of Complementary Law 126, of 15 January 2007, and the contents of File Susep 15414.606722/2020-30, resolves:

CHAPTER I
SUBJECT MATTER

Art. 1 Provides for the local reinsurer whose exclusive purpose is the risk acceptance by means of reinsurance or retrocession operations, and their financing through debt linked to (re)insurance risks.

Art. 2 For the purposes of this Resolution, following definitions apply:

I - Maximum Risk Exposure - EMR: total nominal value of the maximum possible loss originating from the reinsurance or retrocession contract, added of the loss expenses the RPE may sustain;

II - Insurance-Linked Security - ILS: corporate bond, commercial note or other debt instrument issued by the RPE, linked to (re)insurance risks, that has the features described in this Resolution;

III - (re)insurance risks: risks ceded in reinsurance or retrocession to the RPE coming from insurance, pensions, health, reinsurance or retrocession portfolios;

IV - RPE: the local reinsurer described in Art. 1 of this Resolution; and

V - slip: a document containing at least the main terms of the reinsurance or retrocession contract such as contract period, covered and excluded risks, geographic scope, capacity, coverage limits and premium, for the purposes of its association to the ILS and transparency to the parties interested in its acquisition.

Art. 3 The RPE shall raise the funds necessary to guarantee the accepted (re)insurance risks by means of ILS issuance.

Art. 4 The ILS should maintain a biunivocal relation to the risks ceded to the RPE.

§ 1 Further to the remuneration due to the risk accepted by the RPE, the ILS may provide for additional remunerations, as long as they are connected and limited, to the remuneration of the backing assets.

§ 2 The reinsurance or retrocession contract, or its slip, must be made available by the RPE to the parties interested in acquiring the ILS.

§ 3 The maximum expiration time of the ILS is 10 (ten) years.

Art. 5 The RPE cannot retrocede risks.

CHAPTER II
AUTHORIZATION

Art. 6 In order to obtain authorization to operate, the RPE must comply with the requirements set forth by the regulations in force for local reinsurers.  

CHAPTER III
FUNCTIONING

Art. 7 The RPE must maintain backing assets in an amount equivalent to the EMR, as a minimum, that shall be used in the risks coverage and in the performance of the obligations represented by the issued ILS.

§ 1 The backing assets to the technical provisions and to the debt linked to (re)insurance risks referred to in this Article have to be registered at Susep and must not be disposed of, promised to dispose of, or encumbered in any way without Susep's prior and explicit authorization, being null without judicial declaration the disposals carried out or the encumbrances constituted in violation to this Paragraph.

§ 2 Susep may grant authorization to the RPE in good standing before Susep concerning its economic and financial situation and the coverage and adequacy of the EMR to freely move the backing assets mentioned in this Article provided that:

I - the marketable bonds and securities backing assets of the technical provisions and of the debt linked to (re)insurance risks are registered or deposited in an escrow account to Susep, held at institutions authorized to render these services by the Central Bank of Brazil - BCB or by the Securities Commission of Brazil - CVM and that have a cooperation agreement with Susep; and

II - for each sale or redemption of marketable bonds and securities, an immediate purchase or investment of an equal or higher amount shall correspond, except for the cases where there is a surplus of coverage of the EMR.

§ 3 During the term of coverage of the risks ceded to the RPE, any paid losses will result in a lower need of guarantee in a sum equivalent to the paid amount and, from then on the EMR will reflect the exposure to the remaining risk.

§ 4 The restatement after the loss payment is subject to the permanent fulfilment of the provision contained in this Article by the RPE.

Art. 8 As for the operations mentioned in this Resolution, a time limit for loss advices by the cedent after the reinsurance or retrocession contract expiration may be established and in consequence, expressed in the ILS issuance document.

Sole Paragraph. The time limit above referred means that losses advised by the cedent after the time limit shall not be recognized by the RPE, in accordance with the reinsurance or retrocession contract.

Art. 9 The administrators of the RPE, as well as those of any services provider companies contracted should be independent from the cedent and from the acquirors of the ILS.

Art. 10. The clauses of the ILS issuance document should prescribe at least that:

I - no payment shall be made to the acquirors of the ILS in case this results in a situation where the backing assets are lower than the EMR;

II - the acquirors of the ILS do not hold any rights on the assets of the cedent(s) of the risks to the RPE;

III - the acquirors of the ILS cannot request the liquidation of the RPE; and

IV - the rights of the acquirors of the ILS are subordinate to the obligations arising from the contract of risks cession to the RPE.

Sole Paragraph. The ILS issuance document should be clear and transparent regarding terms and features of the securities including, as a minimum, the conditions of the (re)insurance risks coverage, loss definition, value of the maximum possible loss and its related expenses if any, separately, and the time limit for the loss advices if this is set forth as per Art. 8 of this Resolution.

Art. 11. The RPE will have to obtain Susep's prior approval to each operation of risk acceptance and ensuing ILS issuance.

§ 1 The approval will be granted subject to the correspondent capital raising through the ILS issuance, in accordance with this Resolution.

§ 2 The reinsurance or retrocession risks cession contract, as well as the specifications of the debt linked to the (re)insurance risks should be clear and conclusive about the conditions of coverage and the effective risks transfer to the RPE.

Art. 12. The RPE can only accept (re)insurance risks related to operations that are registered by the cedent voluntarily or by operation of regulation, in registry systems previously validated by Susep and managed by registry entities duly accredited in accordance with its specific regulation.

Art. 13. In case the capital raising through the ILS issuance does not meet the necessary amount for the coverage of the EMR originally set forth in the reinsurance or retrocession contract, the EMR may be adjusted in order that its terms match the amount actually raised.

Sole Paragraph. In this case, the RPE should inform Susep of such adjustment.

Art. 14. The (re)insurance risk transfer to the RPE only becomes effective after the capital raising through the ILS issuance.

§ 1 The RPE can only move to a new issuance once the previous one is fully settled, that is, with no risks to expire, no outstanding losses and no funds pending of return to the ILS acquirors.

§ 2 The provision of § 1 does not apply in the event of a restatement as set forth in § 4 of Art. 7 of this Resolution.

Art. 15. In an operation comprised by this Resolution, premium should be forwarded to the RPE prior to the effective date of coverage of the risks.

Sole Paragraph. The premium can be forwarded to the RPE after the effective date of the risks ceded to the RPE only if both the requirements below are met:

I - it is forwarded to the RPE up to the expiration of the ILS or up to the settlement in the event of a loss, whichever comes first; and

II - the provision of Art. 7 of this Resolution is fulfilled at all times.

Art. 16. The RPE should carry out the registry of the reinsurance or retrocession operation in registry systems previously validated by Susep and managed by duly accredited registry entities, in accordance with the regulation in force.

§ 1 In order to comply with this provision, the co-validation carried out by the RPE in the registry of the reinsurance or retrocession operation performed by the cedent is recognized.

§ 2 Alternatively to the registry mentioned in this Article, the RPE may perform the recording of the reinsurance or retrocession operation in registry systems previously validated by Susep and managed by duly accredited registry entities.

Art. 17. The RPE should execute the registry of the ILS in registry systems approved by the BCB or by the CVM.

Sole Paragraph. The registry mentioned in this Article should contain at least the:

I - name and corporate taxpayer code - CNPJ of the issuing RPE;

II - name of the holder;

III - name(s) and CNPJ(s) of the cedent(s) that cede the (re)insurance risks to the issuing RPE;

IV - sequential number, local, date of issuance and effective date of coverage of the (re)insurance risks;

V - expiration date of the ILS and the expiration date of the (re)insurance risks coverage;

VI - coverage(s) type(s) and branch(es);

VII - description of the risks ceded by the cedent(s), including its(their) local(s);

VIII - issued nominal value;

IX - maximum possible loss amount;

X - maximum amount of related expenses, if any;

XI - currency of the issued nominal value;

XII - holder's name;

XIII - interest rate;

XIV - premium paid by the cedent(s) and the payment(s) date(s);

XV - remuneration of the operation payable to the RPE;

XVI - description of the backing assets securing the ILS; and

XVII - identification of the relevant ILS issuance document.

Art. 18. A Susep manual will point out the guidelines for the submission, frequency and set of information to be forwarded by the RPE.

§ 1 The RPE should inform Susep as a minimum, the set of information about the ILS as described in Art. 17, Sole Paragraph, Items III through XVII of this Resolution.

§ 2 Susep may at any time request the RPE to provide additional information as deemed necessary for the supervision and overseeing of the concerned operations.

CHAPTER IV
PRUDENTIAL REQUIREMENTS

Art. 19. The RPE should maintain a risks management, governance and internal controls structure consistent with its exposure and compatible with the nature, scale and complexity of its operations, under the provisions of the Paragraphs of this Article.

§ 1 The RPE should maintain a Risks Management Policy made available also to the ILS acquirors, formally describing its risks management structure and generally describing how such structure is incorporated into its operations and internal control systems.

§ 2 The Risks Management Policy should define strategies and guidelines for the management of the most relevant risks or the ones deemed as priorities, associated with the main work processes of the RPE.

§ 3 The Executive Board and its Board of Directors if existent, should approve the policy set forth in § 1 of this Article.

§ 4 The governance structure should include the separation of responsibilities and the mitigation of potential conflicts of interest, among other provisions.

§ 5 The RPE should appoint an officer responsible for the compliance with the provision of this Article.

Art. 20. The reinsurance or retrocession contract may be expressed in foreign currency provided that the RPE hedges against changes in exchange rates.

Art. 21. When the reinsurance or retrocession contract is expressed in the Brazilian currency and the RPE adopts as its investments policy that the totality of its backing assets are invested exclusively in federal government bonds with floating interest rate linked to the base interest rate SELIC, only the following provisions of Resolution CNSP 321 of 15 July 2015, or other replacing regulation apply:

I - Title I, Chapter I, Section III, Subsections I and II; and

II - Title III, Chapters I and III.

§ 1 The option for the investments policy defined in this Article should be informed to Susep in conjunction with what is set forth in Art. 11 of this Resolution.

§ 2 In case the RPE opts for the investments policy mentioned in this Article and the reinsurance or retrocession contract is expressed in the Brazilian currency the RPE is exempt from:

I - producing and sending to Susep those reports and other documents related to the financial statements of 30 June listed in the Items I, II and III of Art. 139 of the Resolution CNSP 321 of 15 July 2015, or other replacing regulation; and

II - forwarding the Prudential Questionnaire set forth in Resolution CNSP 321 of 15 July 2015.

Art. 22. Exclusively in the case of Art. 21 of this Resolution the risk capital that the RPE should maintain at any time is equal to 0.67% (sixty-seven hundredths per cent) of the amount in gross premium ceded arising from the reinsurance or retrocession contract.

Art. 23. In case the RPE does not fit in Art. 21 of this Resolution, the risk capital it should maintain at any time will be calculated in accordance with Resolution CNSP 321 of 15 July 2015, or other replacing regulation, without taking into account the underwriting risk.

Sole Paragraph. The cash flow amounts of the debt linked to (re)insurance risks should be taken into account in the market risk capital calculation of the RPE.

Art. 24. The regulation that establishes the segmentation of the insurance companies, saving bonds companies, local reinsurers and open complementary pension companies (EAPCs) for the purposes of the proportional application of the prudential regulation does not apply to the RPE if the contract of reinsurance or retrocession is expressed in the Brazilian currency and its backing assets are restricted exclusively to federal government bonds with floating interest rate linked to the base interest rate SELIC.

Art. 25. The minimum required capital (CMR) that the RPE should maintain is equivalent to the maximum between the base capital and the risk capital.

Sole Paragraph. The base capital is the fixed amount of capital that the RPE should maintain, at any time, in the amount of R$ 100,000.00 (one-hundred thousand Reals).

Art. 26. The RPE should hold at any time an adjusted shareholders' equity equal to or higher than the CMR.

§ 1 In case of a new risks acceptance operation by means of reinsurance or retrocession, and its financing through ILS issuance following the settlement of a previous debt, the RPE should hold an adjusted shareholders' equity equal to or higher to the CMR in order to execute that new operation.

§ 2 Exclusively in the case set forth in Art. 21 of this Resolution, the RPE's adjusted shareholders' equity should be calculated considering the shareholders' equity deducted of the assets non-classified as internal Federal Government-Bond Debt, except in the event of a premium to be earned, in accordance with Sole Paragraph of Art. 15 of this Resolution.

Art. 27. The RPE is prohibited, directly or indirectly:

I - to carry out derivatives operations, with the exception of executed contracts to hedge accepted risks coverage expressed in foreign currency:

a) with central counterparty guarantee; or

b) in over-the-counter market without central counterparty guarantee, provided that with investment-grade financial institutions classified as such by a rating agency registered in the Securities Commission of Brazil;

II - to invest in investment funds whose direct or indirect operation in derivatives markets generate the possibility of a loss higher than such investment fund's shareholders' equity value, or that may cause members to contribute with additional amounts to cover the fund's loss;

III - to perform option short-selling operations;

IV - to invest resources in portfolios that are managed by individuals, as well as in investment funds whose portfolios are managed by individuals;

V - to invest resources abroad, except for the following cases:

a) those expressly set forth in a National Monetary Council - CMN regulation;

b) those investments carried out through investment funds expressly provided for in a Securities Commission of Brazil regulation and that are not opposed to CMN's rule which deals with the investment of the technical provisions resources, of the provisions and of the funds of the companies supervised by Susep;

VI - to invest in investment funds that do not have procedures for the assessment and risk measuring of the investments portfolio;

VII - to post suretyship, guarantee, acceptance or to co-bind;

VIII - to grant loans or cash advances, or to grant credit of any kind to individuals or legal entities;

IX - to execute any commercial, financial or real estate operation:

a) directly or indirectly with its administrators, members of the board of directors, members of the executive board and respective spouses, common-law spouses and relatives up to the second degree; or

b) having as counterparties its controllers, other corporate parties under common control or connected companies.

X - to invest in marketable bonds and securities issued by or co-bound to, its controllers, of other corporate parties under common control and connected companies;

XI - to invest in investment funds whose portfolio contains marketable bonds and securities issued and/or co-bound of insurance company, open complementary pension company, saving bonds company or local reinsurer, of their controllers, of other companies under common control and connected companies; and

XII - to invest in assets issued, co-bound or by any means guaranteed by individuals.

§ 1 Connected companies are:

I - affiliated companies, controlled or equivalent to affiliated or controlled companies;

II - legal entities related by direct or indirect participation of 10% (ten per cent) or more by administrators and respective relatives up to the second degree in one of them jointly or individually, in the other company's capital;

III - legal entities related by direct or indirect participation of 10% (ten per cent) or more by associate controllers (in the case of the non-profit open complementary pension companies) or shareholders of one of them jointly or individually, in the other company's capital or shareholders' equity, as it may be the case;

IV - legal entities whose administrators, in whole or part, are the same as of the RPE, except for the positions held in collective boards as set forth by articles of incorporation or bylaws, and provided that their holders do not serve functions with management powers; or

V - legal entities related by market activities under the same brand name or trade name.

§ 2 The prohibition of the co-binding referred to Item VII of this Article does not apply to its ILS issuance operation.

§ 3 The prohibitions dealt with by Item IX of this Article do not apply:

I - to the operations referring to the incorporation or to the disincorporation of assets for the purposes of stockholders' capital increase or decrease;

II - to the operations of services provider, provided that the agreed remuneration is compatible with the market practices and the respective contracts are approved and monitored by the board of directors and by the executive board of the RPE; and

III - to the risk transfer contract entered into by the cedent and the RPE.

§ 4 The RPE cannot issue ILS to connected companies.

Art. 28. In case the RPE makes use of derivatives to hedge its exposure to the coverage of risks accepted in foreign currency, it should calculate, additionally for this operation in accordance with the provisions of the Resolution CNSP 321 of 15 July 2015:

I - if the hedge is executed in accordance with Subitem "a" of Item I of Art. 27 of this Resolution, a market risk capital, as a result of periodic adjustments before the expiration of the hedge; or

II - if the hedge is executed in accordance with Subitem "b" of Item I of Art. 27 of this Resolution, a market risk capital, in case there are periodic adjustments arising from the derivative contract before the expiration of the hedge, and a credit risk capital.

CHAPTER V
SUSPENSION, CANCELLATION AND CLOSURE

Art. 29. The RPE can request the cancellation of its authorization to operate.

§ 1 The suspension can only be executed if there are no risks to expire, no outstanding losses and no funds pending of return to the ILS acquirors.

§ 2 Once the authorization is suspended the RPE can only carry out a new operation if a new authorization from Susep is obtained.

Art. 30. The RPE may have its authorization to operate suspended by Susep if at any time inactivity longer than 18 (eighteen) months it is verified.

§ 1 The suspension of the authorization causes the prohibition of new operations.

§ 2 The suspension does not exempt the company from performing the obligations arising from the contracts in force.

Art. 31. Susep may cancel the authorization of the RPE at any time, if the requirements set forth in this Resolution or in specific regulation are not accomplished, being assured the due process of law.

§ 1 Susep can otherwise request the presentation of an action plan from the RPE with a time limit to the correction of detected deficiencies.

§ 2 In the case mentioned in this Article the RPE should present a plan to Susep foreseeing the settlement of potential remaining obligations before the cedent(s) and the acquirors of the ILS.

Art. 32. Once the authorization is cancelled the RPE should request its ordinary liquidation.

Sole Paragraph. Failure to comply with the provision of this Article causes the penalty of ineligibility of the administrators and controllers to position or function in the public service or in state-owned companies, government-controlled companies and their respective subsidiaries, and in insurance, reinsurance and saving bonds companies for ten years and a fine of R$ 1,000,000.00 (one million Reals).

CHAPTER VI
FINAL PROVISIONS

Art. 33. Portfolio transfers can only take place among RPEs, must be approved by Susep and cannot be partial.

Sole Paragraph. In this case, all RPE's backing assets should be transferred and the cessionaire must comply with the provisions of this Resolution.

Art. 34. Susep will grant priority to the approval analysis process concerning the operations dealt with by this Resolution.

Art. 35. Tables 1 and 3 of Art. 3 of the Addendum XIV of Resolution CNSP 321, of 15 July 2015 are changed as follows:

"

	Type 1	Type 2	Type 3	Type 4
Level 1	1.93%	2.53%	3.04%	0.44%
Level 2	-	4.56%	5.48%	-
Level 3	-	11.36%	13.63%	-

Table 1: Risk factors corresponding to counterparties "i" or "j".

...

	Types of counterparty
Type 1	insurance, open complementary pension and saving bonds companies, and local reinsurers.
Type 2	admitted reinsurers.
Type 3	eventual reinsurers.
Type 4	RPE that maintains the totality of its backing assets invested exclusively in federal government bonds with floating interest rate linked to the base interest rate SELIC and whose reinsurance or retrocession contract is expressed in the Brazilian currency.

Table 3: Definition of the types of counterparty.

..."

(New wording)

Art. 36. Susep is hereby authorized to issue the acts deemed as necessary to the execution of the provisions of this Resolution.

Art. 37. This Resolution takes effect on 4 January 2021.

SOLANGE PAIVA VIEIRA

(Official Gazette DOU of 16.12.2020– pages 47 and 48 – Section 1)

(*) The information provided in this publication is general and may not apply to a specific situation or person. Every effort has been made to ensure that matters of concern to readers are covered. Although the information provided is accurate, be advised that this is a developing area. The information contained herein is not intended to be relied upon or to be a substitute for legal advice in relation to particular circumstances. Specific legal advice should always be sought from experienced local advisers. Accordingly, Editora Roncarati accepts no liability for any loss that may arise from reliance upon this publication or the information it contains.

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