Brazil is seeking Solvency II equivalence for its insurance solvency regime, in a reversal of its initially lukewarm response to the pan-European insurance project.
The country's insurance supervisory authority Susep is applying for a review of its regulatory framework, which will be carried out by the European Insurance and Occupational Pensions Authority (EIOPA). This is the first step in a process that would enable European firms to apply local solvency rules to their Brazilian subsidiaries.
"The board of Susep has voted in favour of an application request in late January", says Danilo Claudio da Silva, a director at Susep, based in Rio de Janeiro. "Our plan is to improve the rules over the next couple of years to coincide with Solvency II coming into force in Europe."
The decision to apply for equivalence recognition comes a few months after the compromise agreement on Omnibus II, which put the Solvency II project on track for a 2016 implementation.
Brazil was not in the first group of countries seeking to be deemed equivalent, after refusing to take a big-bang approach to aligning its rules. But the consecutive delays in Solvency II negotiations gave it time to gradually move towards a more risk-based regime.
Regulation imposing capital charges on credit, underwriting and operational risks has been enacted. The introduction of a market risk is currently under discussion, says Lucio Anacleto, financial risk management partner at KMPG, in São Paulo. Firms were also given the possibility to use an internal model to calculate their regulatory capital.
The Brazilian regulator is now focusing on developing an Own Risk and Solvency Assessment (Orsa). Susep has set up a working group, which is carrying out a review of the rules in place. This group, says Da Silva, will put forward proposals in November and implementation will start in 2015.
The work of Brazil's supervisor will move in parallel with EIOPA's gap analysis of the country's solvency framework. The European Commission has yet to formally request Eiopa carry out its analysis.
Brazil will be granted temporary equivalence status and be required to close regulatory gaps during a five-year period. Australia, Chile, China, Hong Kong, Israel, Mexico, Singapore and South Africa are the other countries applying for this transitional regime.
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