The Insurance Disputes Law Review: Brazil


Brazil is the sixth most populous country in the world and among the biggest in terms of territory. These facts speak for themselves, making Brazil one of the most promising insurance markets globally, especially given the percentage of the national gross domestic product (GDP) accounted for by the Brazilian insurance market (close to 4 per cent, according to recent surveys conducted by the Brazilian Private Insurance Authority (SUSEP)).

Hence, there is plenty of room for growth when compared to other markets. In addition to the above, new legislation enacted by the National Congress, such as the Brazilian Data Protection Law (BDPL) and Law No. 13,874/2019 (the Economic Freedom Law), certainly anticipate significant changes in the manner in which local and foreign accredited players in the Brazilian insurance market do business. Despite 2020 being a challenging year so far, the Brazilian insurance sector continues to thrive and innovate.

The legal framework

i Sources of insurance law and regulation

Unlike some other countries in Latin America, Brazil has a highly regulated insurance sector. Basic insurance legislation is composed of several laws, as well as regulations enacted by the following federal authorities: the National Council of Private Insurance (CNSP) and SUSEP.

Decree-Law No. 73/1966, known as the Brazilian Insurance Law, created the Brazilian Private Insurance System (SNSP), which is formed by CNSP, SUSEP, accredited reinsurance and insurance companies, open private pension entities and savings companies, as well as insurance and reinsurance brokers. Open private pension entities are subject to the provisions of Supplementary Law No. 109/2001, whereas savings companies are governed by Decree-Law No. 261/1967.

The SNSP is composed of two governmental authorities, both of which are part of the Ministry of Finance. While CNSP has the authority to set out the general guidelines and rules of the Brazilian local insurance and reinsurance market, SUSEP has oversight over the activities of all players in this market, monitoring their respective businesses and, when applicable, granting prior approval to certain transactions involving regulated entities.

Reinsurers are classified into: (1) local (headquartered in Brazil), such as IRB-Brasil Resseguros SA (IRB); (2) admitted (headquartered abroad, but with a representative office in Brazil); and (3) occasional (headquartered abroad, without any representative office in Brazil). Insurance companies must be duly authorised to operate by SUSEP.

Insurance and reinsurance brokers must be duly enrolled as such with SUSEP before intermediating the sale of any insurance policy or conducting the intermediation of reinsurance treaties or contracts. In addition, reinsurance brokers' corporate purpose must be exclusive, meaning that they cannot conduct any activity other than acting as a reinsurance broker.

It is also worth stressing the following laws, which – in one way or another – either apply directly to the entities that are part of the SNSP or otherwise have an impact on them:

  1. Supplementary Law No. 126/2007, which dismantled the IRB's monopoly in the reinsurance market, sets out the ground rules that must be met by each type of reinsurer (as previously explained), and rules for residents in Brazil and companies headquartered in the country taking out insurance abroad.
  2. the Brazilian Civil Code (BCC), which dedicates an entire chapter to insurance contracts and the main principles that regulate the insured–insurer relationship;
  3. the Brazilian Consumer Protection Code, since the insured is considered a 'consumer' for legal purposes;
  4. The Code of Civil Procedure (Law No 13,105/2015), which attempts to make litigation less time-consuming by developing and enhancing the rules related to alternative dispute resolution mechanisms (especially arbitration and mediation), rendering former court decisions by the superior courts binding and making a decision in a single case the model or precedent for other similar cases.
  5. The BDPL, which regulates the commercial use of personal data by legal entities, adopting similar regulatory standards to those set by the European General Data Protection Regulation. In July 2019, the National Congress enacted an amendment to the BDPL to create the National Data Protection Authority, in charge of supervising and regulating the enforcement of the terms and conditions of the BDPL. This authority will have powers to, among others, (1) request information regarding the processing of personal data by companies; (2) receive and process data breach notifications; and (3) impose administrative penalties for violations of the BDPL. Penalties or fines arising from breaches to the BDPL might reach 50 million Brazilian reais per violation (see Section V.ii).
  6. Bill of Law No. 29/2017, which sets out a whole new legal framework for SNSP players, triggering the need for new legislation to be enacted by the CNSP and SUSEP. Scrutiny of this bill by the National Congress continues during this year. (See Section V.iii.)
  7. The Economic Freedom Law, which significantly reduces bureaucracy for setting up businesses in Brazil, as well as state interference in this process. This law changes the relationship between market players and regulators and governmental authorities, improving the environment for doing business in Brazil. (See Section V.iv.)
  8. Bill of Law No. 1,292/1995, which changes public procurement in Brazil and directly affects performance bonds in public works. (See Section V.v.)
  9. Law No. 14,010/2020 (the Emergency and Transitional Legal Framework for Private Law Relations) (RJET) also brings important changes to insurance, reinsurance and private pension entities in view of statute of limitations. (See Section V.i.)

ii Insurable risk

Section 757 of the BCC defines insurable risk as the legitimate interest of the insured in protecting a given asset, object or right against predetermined risks.

The legitimate interest must: (1) be licit, since the BCC prohibits any transaction concerning illicit purposes (including, but not limited to, agreements of any nature); (2) have a specific economic value attributed to it, since the insurance coverage taken out by the person retaining insurance will be either limited to the sum of the value of the insured object, asset or right (when dealing with non-life insurance), or freely established pursuant to the will of the insured (when dealing with life insurance); and (3) precede (i.e., exist before) the contract and remain effective throughout its term of effectiveness.

As a result of the requirements related to the legitimate interest, illicit activities are not insurable and, as such, wilful misconduct or unlawful enrichment are standard excluded risks to all life and non-life products (BCC, Section 762). Regarding liability insurance, there is no concept of punitive damages in Brazil, since the BCC limits compensation in tort to the extent of actual damages inflicted on the victim (BCC, Section 944).

In terms of the regulation of insurable risk, in spite of legislation prohibiting coverage for illicit purposes, SUSEP allows coverage of civil and administrative sanctions in directors and officers (D&O) insurance (SUSEP Circular No. 553/2017). The term 'civil and administrative sanctions' means any penalty except for those arising from criminal offences (such as imprisonment). In this type of insurance, there is no restriction on anticipating defence costs, given that litigation in criminal cases is common and widely used. SUSEP has also stated that coverage for ransoms does not breach applicable law, as long as the insurance product has previously been approved by SUSEP (pursuant to SUSEP DETEC Letter No. 07/2008).

iii Fora and dispute resolution mechanisms

Insurance disputes in Brazil are heard before ordinary courts of the judiciary system or arbitration courts.

The judiciary system is divided into specialised courts and ordinary courts. Specialised courts include military, electoral and labour courts, while ordinary courts have jurisdiction to adjudicate all other issues. Since specialised courts do not exist for insurance matters, ordinary courts have jurisdiction over insurance disputes.

The ordinary courts are subdivided into federal and state courts. The jurisdiction to hear insurance disputes depends on the parties involved: federal courts have jurisdiction to hear cases involving the government and government-controlled corporations, and state courts adjudicate cases that do not fall within the jurisdiction of federal courts.

It is important to consider that both federal and state courts have two levels: (1) trial, where cases are filed and ruled by a single judge; and (2) appellate, where appeals are taken by panels usually comprising up to three justices, who are free to assess matters of fact and law.

Trial judges take office after passing a public examination. Justices are appointed to appellate courts based on criteria such as merit and length of service. One-fifth of appellate court seats are mandatorily fulfilled by members of the public prosecutor's office and practising attorneys.

There are 27 state appellate courts (one for each state and the federal district) and five federal appellate courts in Brazil. Appeals against appellate court decisions may be filed with the Superior Court of Justice or the Federal Supreme Court, or both. If an appellate court decision arguably violates the federal law or the Federal Constitution, it may be challenged by appeals filed before the Superior Court of Justice or the Supreme Court.

The Superior Court of Justice is restricted to evaluating matters of law and it rules appeals against appellate court decisions that have arguably violated federal law or have given federal law an interpretation that differs from that handed down by another appellate court.

The Superior Court of Justice comprises 33 justices who are appointed by the President upon approval by the Senate, observing the following rules: (1) one-third of the justices must come from federal appellate courts; (2) one-third of the justices must come from state appellate courts; and (3) one-third of the justices must be private practitioners or public prosecutors.

The Supreme Court rules appeals against appellate court decisions that have arguably violated the Federal Constitution and to be given leave to appeal the appellant is required to provide evidence that the constitutional issues addressed in the appeal would have widespread repercussions.

The Supreme Court comprises 11 justices appointed by the President upon approval by the Senate.

It should be noted that Brazilian civil courts do not hold jury trials, as juries are only permitted in specific criminal proceedings, so insurance disputes are not subject to juries. Insurance disputes may be also subject to arbitration procedures, as they involve rights that can be the object of a transaction (see Section 1 of the Brazilian Arbitration Law).

The Brazilian Arbitration Law was inspired by the UNCITRAL Model Law, adopting a regime favourable to arbitration and following international standards, such as the separability of the arbitration agreement, the Kompetenz-Kompetenz principle and the impossibility of reviewing the arbitral award on the merits. Also, Brazilian courts have been very supportive to arbitration, offering a safe and favourable environment to its adoption. Domestic arbitral awards are considered final and binding on the parties and do not require recognition or confirmation by a court to be immediately enforced by the parties.

The annulment of domestic awards may be sought under very limited circumstances, within 90 days of the receipt of an award or a decision clarifying the award. Among the reasons for annulment or setting aside an arbitral award, we highlight the following:

  1. the arbitration agreement is null and void;
  2. the award was rendered by a biased arbitrator;
  3. the award exceeds the limits of the arbitration agreement;
  4. the award was rendered under nonfeasance, extortion or corruption;
  5. the award was rendered after the time limit; and
  6. due process was not observed during the arbitral proceedings.

Therefore, arbitration has been increasingly adopted in Brazil as a dispute resolution method compatible with insurance disputes.

Besides the judicial claims, there are administrative insurance disputes pending before regulatory agencies, such as SUSEP, the Consumer Protection Office (PROCON) and the National Supplementary Health Agency (ANS), which is the regulatory agency for private health insurance and private health plans. These agencies are responsible for reviewing administrative procedures concerning breaches of their respective regulations by the players that each of them regulate or supervise, triggering the imposition of penalties and other sanctions, as the case may be.

Recent cases

The public concession for the management, maintenance and expansion of Viracopos International Airport resulted in a prominent case for surety bonds and judicial reorganisation for public and private partnership companies in Brazil. It involves (1) the effects of judicial reorganisation procedures over surety bonds tied to concession agreements; and (2) the offsetting of the concessionaire's debts and credits as a condition for liquidation/indemnification payments of surety bonds.

As background, in 2012, a joint venture between public and private companies won the public bid to manage and exploit the Viracopos Airport. The Brazilian National Agency of Civil Aviation (ANAC) based the invitation to bid on a study over the airport's financial projections for the following 30 years. As consideration for the revenue in exploiting the airport area, the concessionaire would have to pay fixed and variable contributions to ANAC, besides carrying out a project to expand and renovate the airport infrastructure.

To secure the obligations in the concession agreement, the concessionaire retained a surety bond valued at approximately 450 million reais, to be renewed annually throughout the concession period. The surety bond covered losses arising from defaults of the concessionaire on the concession agreement and any penalties imposed on the concessionaire as a result of this default, as assessed in an administrative proceeding conducted by ANAC. In Brazil, public federal agencies such as ANAC have administrative autonomy to judge and impose penalties arising from defaults in public agreements, subject to specific legislation and regulation.

In addition, the terms and conditions of the surety bond taken out by the concessionaire who won the above-mentioned public bid provided that the balance of the principal or policyholder's credits should be utilised to offset the losses or penalties claimed by the insured and only after such compensation was carried out would there be an indemnification payment under the surety bond related to said concession agreement. A similar provision is set out by Law No. 8,987/1995 (public concessions), under which (in the event of an early termination of the concession), the concessionaire should be compensated by the reversible investments after the offset of that credit with debts, penalties and losses arising from its defaults. The concession agreement also contained a similar provision in this sense.

As of 2016, in a scenario of economic recession and political uncertainty, the reality of the airport's attendance did not meet the prospects set out in the invitation bid, and the concessionaire failed to meet the financial contributions and other obligations established in the concession agreement (including, for instance, expanding the Airport terminals). The defaults led ANAC to commence administrative procedures to sanction the concessionaire, as latter sought to rebalance the concession agreement via administrative requests alleging that those obligations were based on unrealistic projections.

In 2018, ANAC started an administrative procedure to declare the early termination of the concession agreement. It also notified the surety insurers to pay for penalties and the sum equivalent to the concessionaire's unpaid financial contributions, plus interests and monetary restatement to be counted from the default. The concessionaire subsequently motioned the State Court of Campinas for a judicial reorganisation, a procedure that seeks to stall and rearrange debt enforcement according to a plan prepared by the company in financial distress, pursuant to Brazilian Judicial Reorganisation Act (Law No. 11,101/2005).

Since 2018 litigation ensued over the enforceability of the surety bond between ANAC and insurers and ANAC versus the concessionaire. Insurers argued that, if any payment under the surety bond was made, they would have recovery rights against the concessionaire via collaterals (contragarantias), which are not subject to the judicial reorganisation plan. This could jeopardise the feasibility of the envisaged judicial reorganisation plan. In other words, ANAC should first offset the concessionaire's credits (via the envisaged judicial reorganisation plan) and related debts and only then cash out any remaining balance through the surety bonds retained by the concessionaire. So far, this argument has been accepted by the Federal Court in Brasilia and insurers have succeeded in stalling the collection of the surety bond by ANAC, as the Court has recognised that ANAC must offset all debts with the concessionaire's credits prior to collecting any amount from insurers.

Meanwhile, considering the progress in negotiations within the above-mentioned Bankruptcy Court, the concessionaire was successful in stalling enforcement measures by informing the Federal Court that any surety cash out could harm the framework over which the judicial organisation plan was being designed. The Federal Court weighed that it was within public interest that the airport operation should be preserved in detriment of the financial arguments brought in by ANAC (considering that, should the judicial reorganisation plan fail, the alternative would be bankruptcy).

While the above-mentioned litigation ensued, the Federal Government enacted Decree No. 9,957/2019, regulating the procedure to submit existing public concessions with private partnerships to new bids (or 'rebidding', such as the concession of Viracopos). It shifted the tide by regulating the path for third parties to assume the public concession of the Airport and all existing and pending contingencies with the related public counterparties (such as ANAC).

The negotiations within the Bankruptcy Court progressed to a point in which ANAC and the airport concessionaire agreed to submit pending litigation to arbitration and rebid the concession. These conditions were set out at the final version of the concessionaire's judicial reorganisation plan and, at the end, opened a path to the surety bond insurers' claim to close all the pending claims with the 'offset argument' and to be released from obligations tied with the surety.

Although still ongoing, a few key remarks are relevant from a legal standpoint: (1) public interest should always be preserved in terms of enforcing surety bonds tied to public agreements, concessions and permits; (2) courts recognised that illiquidity of surety bonds does not allow direct enforcement; which (3) adds an extra step to enforce surety bonds in the event of judicial reorganisation. As the matter stands today, the airport operation was maintained, the concession will be renegotiated, and parties will be compensated for their investments without the unnecessary liquidation of surety bonds.

The international arena

Two main issues stand out in the international arena: (1) the application of foreign law to insurance disputes in Brazil and (2) the enforcement of foreign arbitral awards in Brazil.

i Application of foreign law to insurance disputes in Brazil

First, it is worth stressing that Brazilian insurance law and regulation have a very paternalistic approach when it comes to the possibility of residents in Brazil or companies headquartered in the country reaching out to the international insurance market for the purposes of taking out insurance products. The general rule is to restrict this practice as much as possible to prevent the local market being overrun by foreign competitors.

This was the principal justification for IRB's monopoly in the reinsurance market between 1939 and 2007. Even though this monopoly ceased to exist upon the enactment of Supplementary Law No. 126/2007, there still are numerous restrictions on taking out insurance abroad, which ultimately significantly reduce the chances of any controversy regarding the application of foreign law to insurance disputes that take place in Brazil, since insurance policies issued locally are governed by Brazilian law.

This matter becomes more debatable in relation to reinsurance agreements and treaties. According to the Law of Introduction to the Norms of Brazilian Law, the main statute on conflicts of laws, obligations to be met in Brazil are subject to Brazilian law and therefore reinsurance obligations would be subject to Brazilian law. On the other hand, CNSP Resolution No. 168/2007 provides that reinsurance contracts related to risks in Brazil must establish a clause granting jurisdiction to Brazilian courts to decide disputes under Brazilian law, except when the parties to the contract agree to submit the dispute to arbitration.

It is worth mentioning that if Bill of Law No. 29/2017 is enacted, the insurance market in Brazil will be governed by a new law requiring the application of Brazilian law to all contracts (including, but not limited to, reinsurance contracts) and disputes (in the judiciary system or arbitration courts) related to insurance in Brazil.

Many scholars and experts argue that reinsurance agreements or treaties have to be governed by Brazilian law, since all undertakings set out in such agreements are bound to insurance policies or bonds issued by a local accredited insurer and governed by local law. The scale of this debacle will only increase upon the enactment of Bill of Law No. 29/2017, the progress of which is being closely followed by many reinsurers that do business in Brazil.

ii Enforcement of foreign arbitral awards

Regarding the enforcement of foreign arbitral awards, the Brazilian Arbitration Law distinguishes between two types of arbitral awards: domestic and foreign.

Foreign arbitral awards are those rendered outside Brazil that require recognition before enforcement in Brazil. Domestic arbitral awards are those rendered in Brazil that can be enforced as a domestic court judgment without any need for court confirmation. Therefore, for the purposes of recognition of foreign awards, the seat of arbitration plays an important role in defining where the award is rendered and whether it needs confirmation before enforcement.

To enforce a foreign arbitral award in Brazil, it must first be submitted to a recognition procedure before the Superior Court of Justice. Furthermore, the applicant must present evidence that the award:

  1. was issued by a competent authority;
  2. was issued only after the parties to the proceedings had been duly summoned, or with proof that a default judgment was the only option; and
  3. has become final and definitive, and not subject to any appeal.

Brazilian law limits the grounds that can be raised by a respondent against whom recognition is sought. The respondent will only be able to raise a limited range of defence arguments to object recognition and prevent it from being granted.

The defence arguments that can be raised do not include whether the merits of the arbitral award are correct. The Superior Court of Justice will not discuss whether the arbitral tribunal has reached an adequate decision on matters of law and facts. In fact, the Superior Court of Justice has been very careful in not making an analysis or revision of the merits of the decision.

Therefore, the arbitral award may be challenged only if:

  1. there is a lack of standing of the parties to the arbitration agreement;
  2. the arbitration agreement is not valid;
  3. the respondent was not given notice of the appointment of the arbitrator or of the arbitral proceedings;
  4. the respondent was not able to present its case;
  5. the award deals with a dispute outside the scope agreed by the parties;
  6. the arbitral tribunal was not composed according to the parties' agreement or the applicable law;
  7. the arbitral procedure did not observe the parties' agreement or the applicable law;
  8. the arbitral award is not binding on the parties, or it was set aside or suspended;
  9. the subject matter of the dispute cannot be resolved by arbitration under Brazilian law; or
  10. recognition or enforcement of the arbitral award is contrary to national sovereignty, human dignity or Brazilian public policy.

If the application for recognition is presented with all the required documents and no objection is raised, the recognition procedure should take from six months to a year. If an objection is raised, or there are missing documents, this could be expanded to more than two years, depending on the complexity of the case and the Superior Court of Justice's agenda.

Once recognised by the Superior Court of Justice, the award becomes a judgment with enforceable title in Brazil. After that, any party may seek enforcement with the competent federal court, which, as a general rule, is the court with jurisdiction over the place where the award debtor has its place of business.

An enforcement procedure typically takes up to two years if there is opposition to it. This may vary a great deal depending on the difficulties in summoning the debtor and finding enough assets to satisfy the debt if the debtor does not respond immediately.

Trends and outlook

Among the trends of the local insurance market, we highlight the following.

i Impacts of the covid-19 pandemic

The covid-19 pandemic heavily affected Brazil, leading to the enactment of Law No. 13,979/2020, which set out several measures to face the international public health emergency due to the covid-19 outbreak. Additionally, in June 2020 Law No. 14,010/2020 (RJET) was published. This Law provides for emergency measures similar to the ones adopted by other countries, such as the United States, the United Kingdom and Germany. Pursuant to its Section 3, the statute of limitation periods are suspended or prevented from being counted as from the enactment of this Law (12 June 2020) until 30 October 2020, except for specific cases set forth by Brazilian law. Consequently, among other things:

  1. it suspended the statute of limitation for insureds to claim losses that have occurred, but were not yet reported, until 30 October 2020; and
  2. it suspended the statute of limitation period for insureds to claim losses duly notified to the insurer, but whose adjustment or regulation procedure was not yet concluded, until 30 October 2020, after which the remaining term flows regularly.

RJET provisions are also applicable to private pension plans, suspending or preventing the five-year statute of limitation period from being counted regarding the beneficiaries' rights to claim for unpaid benefits or benefits paid in an untimely manner.

The pandemic is expected to heavily impact many other insurance lines, such as engineering risks, operational risks, D&O, E&O, civil liability and rental surety insurance, including requests for advance payments, need of adoption of risk and damage mitigation measures and critical analysis of the suffered damages and losses.

ii Brazilian General Data Protection Law (BDPL)

The Brazilian General Data Protection Law (Law No. 13,709/2018) regulates the processing of personal data, irrespective of the related means (digital or not), by individuals and public or private legal entities. In terms of territorial application, the statute applies to any operation involving personal data if: (1) the operation is carried out in the Brazilian territory; (2) the purpose of the processing activity is the offer or supply of goods or services in Brazil or the processing of data of individuals located therein; or (3) the processed personal data is collected in the Brazilian territory. The BDPL construes that personal data collected in Brazil would be those whose subject is located in national territory at the time of collection.

The BDPL has been valid and effective since 18 September 2020, same date on which a Decree regulating the governance structure of the Brazilian Data Protection Authority (ANPD) was issued by the President. Hence, the ANPD will be operational once its chair is duly appointed. It is worth stressing that the ANPD can only impose the fines and other penalties set forth in the BDPL as from 1 August 2021. Market experts understand that once the ANPD is able to impose the above-mentioned penalties, set forth in the BDPL, there will be an increase in the volume of claims concering cyber risks and D&O insurance policies.

iii Bill of Law No. 29/2017

Intended to become the 'New Brazilian Insurance Law', Bill of Law No. 29/2017 introduced various innovations that will significantly alter the way insurers do business, leading to adaptations to operational aspects (e.g., the requirement to obtain the insureds' prior consent to implement certain transactions, such as portfolio transfers), changes in the wording of insurance policies and modification of loss adjustment procedures. In February 2019, the Bill of Law was submitted for scrutiny by the Senate's Constitution, Justice and Citizenship Committee. In August 2019, the Bill of Law received favourable opinion within the above-mentioned Committee and is still being examined by the National Congress.

iv The Economic Freedom Law

On 30 April 2019, the Brazilian President executed and published Provisional Measure No. 881/2019, also dubbed the 'Provisional Measure of Economic Freedom'. Applicable to entrepreneurs who do (or would like to do) business in Brazil, and in relation to contracts and civil and business obligations, the Provisional Measure establishes principles and general guidelines that are mandatory for the government regarding economic activities, namely (1) the presumption of freedom in the exercise of economic activities; (2) the presumption of good faith on the part of private enterprises; (3) subsidiary, minimum and exceptional intervention of the state in the exercise of economic activities; and (4) vulnerability of people before the state. As regards its impact in the insurance sector, this Provisional Measure (1) ensures equal treatment by public administration bodies; (2) reinforces the prevalence of the free will of the parties and the principle of venire contra factum proprium; (3) encourages innovation if regulation is outdated in relation to technology being used in the market; (4) forbids governmental authorities from adopting contradictory approaches on issues or with different players in the same regulated markets, ensuring equal treatment for local and foreign players; (5) sets forth a fixed term for public authorities to approve or deny a specific request made by private parties (whenever law or regulation has not already established a fixed term) and that such request will be deemed approved if the public authority has not positioned itself within such term; and (6) allows digital storage of documents. The Provisional Measure was approved, with some amendments thereto, by the National Congress and was sanctioned by the President on 20 September 2019, becoming Law No. 13,874/2019.

In furtherance of the Economic Freedom Law's main goal, Decree No. 10,139/2020 was enacted, determining that rules hierarchically inferior to Decrees and enacted by bodies and entities belonging to the direct public federal administration, autarchies and foundations will be reviewed and consolidated, in a process which will continue until 31 August 2021, after which only three different types of rules inferior to Decrees will exist. This consolidation process has already been initiated by SUSEP, as we could see, by the enactment of recent regulation issued by CNSP and SUSEP accordingly.

v Bill of Law No. 1292/1995

Currently, in Brazil, performance bond limits range from 5 per cent to 10 per cent of the contract amount and there is lack of a legal framework for step-in rights, in view of a scenario where more than 14,000 public works are paralysed. If approved, this Bill of Law, regarded as the 'New Public Procurement Law', would change the guarantee limits as follows:

  1. public works, services and supply contracts: a guarantee limit of 5 per cent of the initial contract amount, which may be increased to a maximum of 10 per cent depending on the complexity of the project and the risks involved; and
  2. public works and engineering contracts of over 200 million reais, or 'contratos de grande vulto' (major contracts): a guarantee limit of up to 30 per cent of the initial contract amount.

For public works or engineering contracts, if the bidding documents establish that in the event of default the insurer must take over and finish the project (step-in obligation), the insurer shall execute the underlying contract and relevant amendments, as intervening party, and will be able to:

  1. freely access the construction facilities;
  2. supervise the performance of the underlying contract;
  3. have access to technical and accounting audits; and
  4. request clarifications from the technical team responsible for the works or supply.

In the event of breach by the principal (triggering the bond), the following alternatives will be available for the insurer:

  1. the insurer may step in, exempted from the obligation to pay the insured amount; or
  2. the insurer may decide not to step in, and will have to pay the insured amount.

In the step-in scenario, the insurer will be able to subcontract, in whole or in part, third parties to finish the works.

The Bill of Law is currently under scrutiny by the National Congress and does not apply to concessions of public services. The next steps are approval by the House of Representatives (Câmara dos Deputados) and subsequently ratification by the Senate (Senado); following approval by the Senate, the Bill of Law may be enacted by the President, who has the power to veto provisions.

vi Regulatory novelties

Since the end of 2019 and throughout the course of 2020, SUSEP enacted and placed on public consultation several rules and drafts of rules, whereby many innovations were introduced to the Brazilian insurance market. Among such novelties, we highlight the following:

  1. the creation of the Operations Registration System (SRO), whereby SUSEP-regulated entities must register all insurance transactions they conduct within operations registration systems managed by legal entities that are accredited by this public authority to register these transactions;
  2. increasing the flexibility of rules enabling the taking out of insurance abroad and issuance of local policies in foreign currency;
  3. increasing the flexibility of rules for storage of documents regarding insurance transactions by SUSEP-regulated entities;
  4. the creation of obligation of SUSEP-regulated entities of having a policy for institutional conduct, setting forth the general guidelines that each of said companies must comply with in its relationship with clients and third party providers;
  5. the creation of obligation of intermediaries in charge of the sale and offer of insurance products to disclose to (prospective) clients several issues that may trigger conflicts of interest with the insurance company (such as, for instance, the brokerage fee and any other type of consideration paid to the intermediary or agent by the insurance company);
  6. the creation of a regulatory sandbox, which is a temporary experimental environment whereby insurance companies with a lower regulatory burden (such as smaller minimum capital requirements), will be organised and help develop innovative projects, focused on technology and reduction of consumer costs. The sandbox is focused on short-term mass consumer products;
  7. the creation of regulatory framework of insurance-linked securities (ILS) whereby local reinsurers with exclusive corporate purpose may accept risks in reinsurance and retrocession via issuance of fully collateralised securities to be traded in regulated markets. If approved, the ILS regulation will bring a new option for the financing and transfer of insurance and reinsurance risks by SUSEP-regulated entities; and
  8. increasing the flexibility of rules concerning retail P&C and large risks insurance products.


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