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FERMA outlines recommendations for reinsurance in Brazil


BRUSSELS—The Federation of European Risk Management Assns. has written to the Brazilian insurance regulator with a series of recommendations aimed at limiting the impact that recent rules on reinsurance in the country will have on insurance buyers.

FERMA said its recommendations came after an invitation by the Brazilian regulator—the Superintêndencia de Seguros Privados, or SUSEP—to discuss the regulations that went into force this year.

FERMA has been campaigning for a relaxation of some of the regulations, which they say could drastically reduce the amount if capacity available in the country.

Among the changes enacted at the end of March was a requirement that 40% of reinsurance business be placed with local reinsurers and a 20% limit on the amount of reinsurance that can be ceded to an overseas reinsurer that is within the same group as the primary insurer.

Among the specific measures that FERMA has asked SUSEP to consider is the elimination or substantial redesign of the 20% limit on intergroup cessions.

The risk management association also asked the regulator to consider a five- or 10-day time limit for local reinsurers to accept or refuse the mandatory 40% cession before business can be placed with admitted reinsurers or “eventual reinsurers”—overseas reinsurers without representative offices in Brazil.

Among other suggestions, FERMA also asked SUSEP to consider that in all cases insurers should be responsible for claims negotiations and settlement.

Jorge Luzzi, president of FERMA, said the association welcomed the offer by SUSEP of an open discussion on the rules.

“The 20% limit on intergroup cessions could be very risky,” he said. “If reinsurance which cannot be ceded to group companies goes straight into the international market, where similar risks are placed, there will be extra costs. These are likely to be passed onto the insurance buyer and there is the possibility of losing the mutuality concept,” he said.

FERMA accepts that the 40% compulsory cession to local reinsurers will remain but believes this should be done on a “prompt first-refusal basis to avoid changes in terms and conditions,” Mr. Luzzi said.

In addition, Mr. Luzzi noted, insurers must be responsible for claims negotiation and settlement. “The relationship must be between the insurance buyer and the insurer, no matter what reinsurers are involved in the risk,” he said.

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