SulAmérica

Insurance Industry Overview

The Brazilian insurance industry has undergone significant changes since the real was implemented as the legal tender in 1994. The table below shows the annual GDP growth rate and the insurance premium growth rate for the periods indicated.

Sources: SUSEP, FENASEG and IBGE.
⁽¹⁾ Amounts adjusted for inflation using the IPCA index.

According to data from the Private Insurance Superintendence (SUSEP), since 2004, Brazil’s insurance industry has registered annual growth rates of more than 12%. Despite the strong growth in the country’s insurance industry, we believe it has not yet realized its full potential compared with the insurance industries of developed countries, as the table below shows. According to data from Sigma for 2011, the world average for the penetration of insurance premiums in GDP was 3.1% in 2010.

Insurance revenue in Brazil derives from the sale of insurance policies in the segments (i) auto, (ii) other property and casualty, (iii) health and (iv) life (which includes both life and personal injury insurance policies but excludes redeemable life insurance plans). The table presents a breakdown of insurance premiums in Brazil for the periods indicated.

Source: SUSEP and ANS.

The table below shows the total volume of insurance premiums (excluding redeemable life premiums) of the five largest insurance groups in Brazil and their respective market share for the periods indicated.

Source: SUSEP and ANS.

In 2010, the greatest portion of insurance premiums in Brazil (about 65.7%, according to SUSEP) was generated in the Southeast Region, where the largest GDB of the country is concentrated. According to SUSEP, in 2010 the State of São Paulo was responsible for 47.3% of the total volume of insurance premiums, followed by the States of Rio de Janeiro (9,4%), Minas Gerais (7,4%) and Rio Grande do Sul (7,0%). The table below shows the distribution of insurance premiums among the Brazilian States for the periods defined.

Source: SUSEP.

Brazil’s main insurance groups offer a broad portfolio of insurance products and hold relevant market shares in more than one segment. Many of these insurers are subsidiaries of major Brazilian financial groups and distribute products through their network of bank branches.

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Regulatory Overview

Regulatory Framework for the Insurance and Private Pension Industries

Overview

Brazil’s insurance and private pension industries are subject to comprehensive regulation. The National Private Insurance System (Sistema Nacional de Seguros Privados), created by Decree Law 73/66, is composed of (i) National Council for Private Insurance (Conselho Nacional de Seguros Privados - CNSP), (ii) Superintendence for Private Insurance (Superintendência de Seguros Privados - SUSEP), (iii) insurance companies and private pension entities duly authorized to conduct business in the local market, (iv) the reinsurance companies (including IRB), and (v) the duly registered insurance brokers. In addition, the National Monetary Council (CMN) determines guidelines for investment of the technical reserves of insurers and private pension entities.

In Brazil, the regulation of insurance and private pension activities is carried out by the CNSP and SUSEP. Insurers and private pension entities require governmental approval to operate, as well as specific approval from the SUSEP to launch each of their products.

Regulatory Agencies

CNSP

Subordinated to the Ministry of Finance, the CNSP is responsible for (i) determining the general guidelines and policies applicable to entities that are part of the National Private Insurance System, (ii) regulating the constitution, organization, operation and oversight of these entities, and (iii) determining indexes and other technical conditions for premiums, investments and other assets that insurers and private pension entities must observe. The CNSP is composed of one representative from each of the following agencies: Ministry of Social Security, Central Bank of Brazil, Ministry of Finance, Ministry of Justice, Securities and Exchange Commission of Brazil (CVM), and the superintendent of SUSEP.

SUSEP

SUSEP is an autonomous government agency charged with implementing and carrying out the policies established by the CNSP and overseeing the insurance and private pension industries. The superintendent of the SUSEP is appointed by the President of Brazil for an indefinite term of office. SUSEP does not regulate or supervise (i) private pension entities that are regulated by the Private Pension Secretariat (Secretaria de Previdência Complementar), or (ii) private healthcare entities that are regulated by the National Health Agency (ANS).

SUSEP is authorized to:

• examine requests for the authorization, constitution, reorganization, change in control and amendment to bylaws of insurers and private pension companies;
• determine general policy conditions, special coverage conditions and the operational plans of insurers;
• approve, in accordance with the criteria established by the CNSP, the operational limits of insurers and private pension companies;
• examine and approve special coverage conditions, as well as establish the applicable premiums;
• authorize the transfer and release of the assets and amounts obligatorily given as guarantee for technical provisions and pledged capital;
• oversee the execution of the general accounting and statistical rules established by the CNSP for insurers;
• apply the applicable penalties; and
• carry out the liquidation of insurers and private pension companies whose authorization to operate has been revoked.

With the enactment of Complementary Law 126/07, the CNSP and SUSEP are responsible for regulating Brazil’s reinsurance market. However, the supplementary law will only come into force after it is regulated by the CNSP and SUSEP

IRB

Prior to January 15, 2007, IRB, a government-controlled corporation, was responsible, together with the CNSP and SUSEP, for regulating reinsurance, coinsurance and retrocession operations, as well as for promoting the development of Brazil’s reinsurance market. In January 2007, Complementary Law 126/07 was enacted, which effectively transferred these responsibilities to the CNSP and SUSEP and terminated IRB’s regulatory jurisdiction over the Brazilian reinsurance industry. However, SUSEP will only be able to exercise these regulatory powers once Complementary Law 126/07 is regulated. On July 17, 2007, CNSP Resolution 164 was issued, establishing temporary rules for the reinsurance and retrocession operations of IRB-Brasil RE involving the contracting of reinsurance in foreign currency.

CRSNSP

The Appellate Council of the National System of Private Insurance and Pension Funds (Conselho de Recursos do Sistema Nacional de Seguros Privados, de Previdência Privada Aberta e de Capitalização - CRSNSP), is a government agency under the supervision of the Ministry of Finance, which is responsible for reviewing appeals of the decisions made by SUSEP and IRB. The administrative decisions of the CRSNSP are final and binding for the parties under its jurisdiction.

Regulatory Framework for the Private Healthcare Industry

Overview

Law 9,656/98 and the other regulations issued by the CONSU and ANS established a comprehensive regulatory framework for private healthcare entities, including the ASO, medical associations, HMOs, dental associations, group dental companies and other private healthcare plan operators, which, until the enactment of said law, were solely subject to the insurance regulatory frameworks of the CNSP and SUSEP. Until 1998, private healthcare plan operators were not subject to a specific regulatory framework.

In 2000, Law 9,961/00 created the ANS to regulate and oversee the private health care services provided by private healthcare plan operators. Executive Order 2177-44/01 created the CONSU with powers to regulate the private healthcare market similarly to the CNSP.

In 2001, Law 10,185/01 established that insurance companies may only operate in the healthcare market if they segregate this activity into a new insurance company set up especially for that purpose and transfer their healthcare portfolio to said companies, which, pursuant to their bylaws, would specialize in health insurance and be prevented from operating in other insurance segments. As a result, insurance companies that operated in the private healthcare segment were no longer regulated by the CNSP and the SUSEP, but subject to the jurisdiction of the CONSU and ANS, which, at that time, regulated only healthcare plan operators. Nevertheless, certain regulations typically applicable to insurers, such as the maintenance and investment of technical provisions, remain applicable to health insurers.

The main provisions of these private healthcare regulations established (i) requirements for operating in the private healthcare segment, (ii) the creation of a reference private healthcare plan that meets the minimum coverage requirements that all private healthcare entities must observe, (iii) the segregation of beneficiaries by age group to determine premium brackets, (iv) mandatory rules for the coverage of pre-existing diseases and conditions, (v) stricter rules for excluding beneficiaries from coverage, (vi) special rules for adjusting premiums, and (vii) penalties for private healthcare entities in the event of noncompliance with the provisions of private healthcare regulations.

Regulatory Agencies

CONSU

CONSU is the agency responsible for formulating policies and under the jurisdiction of the Ministry of Health. It is composed of representatives from the Ministry of Health, Ministry of Finance, Ministry of Justice and Ministry of Planning, Budget and Management, and is chaired by the Minister of Justice. CONSU was created with powers to:

• establish and supervise policies and regulations applicable to private healthcare services;
• approve ANS management contracts;
• supervise and monitor ANS´s acts and operations;
• establish general rules for the constitution, organization, operation and inspection of private healthcare entities; and
• determine minimum capital requirements and accounting, actuarial and statistic criteria, as well the creation of security accounts and reserves to protect consumers from the insolvency of private healthcare entities.

ANS

Under the jurisdiction of the Ministry of Health, the ANS has powers to regulate and supervise private healthcare services, including the relationship between private healthcare entities and consumers, which, in the case of health insurers, were previously subject to the supervision of SUSEP.

ANS is authorized to:

• propose policies and general directives to CONSU;
• establish general contractual terms to be adopted by private healthcare entities;
• set the criteria for accrediting and revoking the accreditation of private healthcare entities;
• establish the quality and coverage standards of private healthcare entities;
• regulate preexisting conditions;
• authorize price increases and adjustments by private healthcare entities;
• set standards for private healthcare entities regarding the economic and financial data to be filed when applying for price increases and adjustments;
• authorize the registration and operation of private healthcare entities and, upon consultation of antitrust agencies, authorize spin-offs, mergers, consolidations and changes in control without prejudice to the provisions of Law 8,884 of June 11, 1994;
• supervise compliance to the applicable rules by private healthcare entities and/or enforce penalties; and
• liquidate private healthcare entities that have had their operating license revoked.