Brazil – Hiring of Insurance Abroad; Regulations and Restrictions

The possibility of hiring insurance abroad by Brazilian individuals or companies is restricted according to Brazilian Federal Legislation, rules of the Superintendence of Private Insurance (“SUSEP”) and the Private Insurance National Board (Conselho Nacional de Seguros Privados) (“CNSP”), normative entity of insurance activities in Brazil.

Federal Regulations

Currently, the terms and conditions for hiring of insurance abroad by Brazilian domiciled individuals or entities are regulated by Complementary Law No. 126, dated January 15^th, 2007 (“LCP No. 126”).

From a Brazilian legal perspective, it is of utmost importance to review the terms and conditions of the respective insurance agreement in order to determine whether or not Brazilian regulations which foresee restrictions on the hiring of insurance abroad are applicable to a specific case.

When reviewing an insurance agreement to be hired abroad it is relevant to analyze the following issues: (i) if the insurance contractor is domiciled in Brazil, (ii) if the insurance agreement is formalized with an insurance company that does not operate in Brazil, and (iii) if the subject-matter of the insurance is related to a person resident and domiciled in Brazil, as well as the risks covered.

Article 19 of LCP No. 126 determines that certain types of insurance must be exclusively hired in Brazil, such as (i) mandatory insurance foreseen under Brazilian laws and regulations; and (ii) insurance hired by individuals or entities resident in Brazil which subject-matter is the protection against local risks.

Exception to such general rules is made to the events foreseen under article 20 of said Law, as follows:

• “Article 20:  The hiring of insurances abroad by individuals resident in Brazil or by entities domiciled in national territory is restricted to the following situations:
  
• I – coverage of risks to which no insurance is offered in Brazil, considering that such hiring does not represent violation of the applicable regulations;
• II – coverage of risks abroad in which the insured party is an individual resident in Brazil, to whom the effectiveness of the hired insurance is limited, exclusively, to the period in which the insured party is abroad;
• III – insurances which are the subject-matter of international agreements and treaties acknowledged by the National Congress; and
• IV – insurance which have already been hired abroad, according to the then applicable regulations, on the date of publication of this Complementary Law.
•  Sole paragraph.  Entities may hire insurance abroad to cover risks abroad, informing such hiring to the Brazilian insurance supervising entity within the term and under conditions specified by the respective Brazilian regulatory insurance entity.”

CNSP, through Resolution No. 197/2008, ratified the exceptions for the hiring of insurances abroad, foreseen in article 20 of LCP No. 126 and mentioned-above and, still, authorized the hiring, abroad, of insurances covering hulls, machinery and civil liability for vessels registered under the so-called Brazilian Special Registry (Registro Especial Brasileiro – REB).

A Brazilian entity or individual must first search for an available insurance offered in Brazil before hiring insurance abroad. Lack of coverage for the risks in Brazil must be evidenced by the Brazilian individual or entity upon obtaining denial by local insurance companies for the risk coverage, according to SUSEP´s applicable regulations, or upon issuance of a denial letter by a class representative entity.

As a general rule, only if there is no similar insurance coverage available in Brazil may the individual or entity resident in Brazil hire the insurance abroad to cover risks in Brazil.

Compliance and Inspection

CNSP Resolution No. 197/2008 mentioned above is regulated by the Circular No. 392 of 2009 issued by SUSEP, which regulated, among other issues, the possibility of hiring insurance in foreign currency, which is limited to certain risks; the inspection of compliance with the applicable rules and the existence of penalties applicable to entities which fail to comply therewith.

SUSEP, as a supervisory institution may, according to articles 10 to 16 of its Circular No. 392, demand, at any time, certain documents described in these articles in order to assure that the risks cannot be covered by insurances offered in Brazil, among other legal requirements. This “supervisory power” is described in article 10 of the Circular No. 392, as follows:

• “Article 10 : As set forth in the above article, SUSEP will be able to, at any time, require to the insured and / or to the respective insurance broker the documents that prove the compliance with the current regulations for the hiring of insurance abroad.
• Sole paragraph: The non-presentation of documentation described in the above article subjects the insured and / or his intermediary, when resident and domiciled in Brazil, the applicable penalties, in the terms of the current legislation and regulation.”  

Among the documents which may be required by SUSEP are copies of the formal consultations submitted to 10 (ten) Brazilian insurance companies which operate in the respective insurance segment and the answers obtained from such insurance companies. Alternatively, SUSEP may accept consultations made by the class representative entity to all Brazilian insurance companies containing all the necessary information related to the risk to be covered. Issuance of the denial letter by the referred representative entity may only be issued if no Brazilian insurance company formalizes its intention to cover the risk or if the entity only receives negative answers from the insurance companies.

For purposes of the insurance hired abroad for hulls, machinery and civil liability for vessels registered under the Brazilian Special Registry (Registro Especial Brasileiro – REB) foreseen under item V, article 5, of CNSP Resolution No. 197/2008, whenever the Brazilian insurance market does not offer prices compatible with the international market, SUSEP may, at any time, require copies of the formal consultations submitted to 5 (five) Brazilian insurance companies which operate in the respective insurance segment, the answers obtained from such insurance companies and the answers from foreign insurance companies and their respective prices for the insurance to be hired abroad.

Penalties

The Law Decree No. 73 of 1966, amended by LCP No. 126 has established what penalties will be applied if an insurance is hired in violation of the insurance, coinsurance and reinsurance regulations.

Article 113 of said Law Decree states that: “the individual or entity that performed operations of insurance, coinsurance or reinsurance without proper authorization in the Country or abroad will be subject to a penalty equal to the amount insured or reinsured”.

Therefore, any Brazilian resident – individual or entity — who hired insurance abroad for covering risks in Brazil in violation of the applicable regulations shall be subject to a fine in an amount corresponding to the amount insured.