Resolution CMN No. 2693 — Governs the Application of Resources Securing Technical Provisions of Local Reinsurers

RESOLUTION NO. 2693

Governs the application of the resources securing the technical provisions of local reinsurers.

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595 of December 31, 1964, makes public that the MONETARY NATIONAL COUNCIL, in a session held on February 24, 2000, having regard to the provisions of Article 4 of Law No. 9,932 of December 20, 1999,

RESOLVES:

Article 1. It is established that the resources securing the technical provisions of local reinsurers, observed the criteria fixed by the National Council of Private Insurance (CNSP), must be applied in accordance with the guidelines of this Resolution, so that they are granted security, profitability, and liquidity.

Article 2. The resources securing the technical provisions of premiums of local reinsurers must be applied as follows:

I - up to 100% (one hundred percent) in securities issued by the National Treasury and/or the Central Bank of Brazil;

II - 80% (eighty percent), at most, isolated or cumulatively, in the following fixed income investments:

a) time deposits, with or without the issuance of a certificate, exchange letters accepted by financial institutions, debentures of public issuance, and quotas of financial investment funds and funds applied in quotas of investment funds, provided that they are predominantly directed towards investments in financial assets and/or fixed income operational modalities;

b) debenture certificates, mortgage certificates, mortgage letters, Real Estate Receivable Certificates (CRI), as provided for in Article 6 of Law No. 9,514 of November 20, 1997, promissory notes issued by joint-stock companies, intended for public offering, and other obligations of open companies of public distribution, quotas and obligations of the National Fund for Development (FND), securities issued or co-obligated by the National Bank for Economic and Social Development (BNDES), deposits in savings accounts, quotas of investment funds abroad, and physical gold in the standard traded on commodity and futures exchanges, observed the maximum of 10% (ten percent) of the amount of resources referred to in the caput per investment modality;

III - 50% (fifty percent), at most, isolated or cumulatively, in the following variable income investments:

a) shares issued by open companies, subscription bonuses of shares issued by open companies, quotas of investment funds in modalities regulated by the Securities and Exchange Commission (CVM), and quotas of financial investment funds and funds applied in quotas of investment funds, provided that they are predominantly directed towards investments in financial assets and/or variable income operational modalities;

b) shares issued by closed companies acquired within the scope of the National Privatization Program (PND) and deposit certificates of shares whose distribution has been approved by the Securities and Exchange Commission (CVM), observed the maximum of 10% (ten percent) of the amount of resources referred to in the caput per investment modality;

IV - 10% (ten percent), at most, isolated or cumulatively, in built-up urban real estate, rights resulting from the sale of these real estate properties, and quotas of real estate investment funds.

Article 3. The resources securing the technical provisions of claims of local reinsurers must be applied as follows:

I - up to 100% (one hundred percent) in securities issued by the National Treasury and/or the Central Bank of Brazil;

II - 60% (sixty percent), at most, isolated or cumulatively, in the following fixed income investments:

a) time deposits, with or without the issuance of a certificate, and quotas of financial investment funds and funds applied in quotas of investment funds, provided that they are predominantly directed towards investments in financial assets and/or fixed income operational modalities;

b) deposits in savings accounts, quotas of investment funds abroad, and physical gold in the standard traded on commodity and futures exchanges, observed the maximum of 10% (ten percent) of the amount of resources referred to in the caput per investment modality;

III - 40% (forty percent), at most, isolated or cumulatively, in variable income investments, represented by shares issued by open companies, quotas of equity investment funds regulated by the Securities and Exchange Commission (CVM), and quotas of financial investment funds and funds applied in quotas of investment funds, provided that they are predominantly directed towards investments in financial assets and/or variable income operational modalities, observed the maximum of 10% (ten percent) of the amount of resources referred to in the caput per investment modality.

Article 4. Local reinsurers are permitted to carry out operations with derivatives in organized markets for future settlement administered by stock exchanges or commodity and futures exchanges, in the manner to be regulated by the Superintendence of Private Insurance (SUSEP), jointly with the Central Bank of Brazil or with the Securities and Exchange Commission (CVM), in their respective areas of competence.

Sole Paragraph. Derivatives operations in organized markets for future settlement must be carried out observing the following conditions:

I - they must be referenced in assets capable of integrating the respective portfolios;

II - their exclusive objective must be the protection of positions held spot, up to the limit of these positions;

III - their contracting is permitted only in modalities with guarantee.

Article 5. The securities and securities included in the portfolios of local reinsurers:

I - must be duly registered, as appropriate, in the Special Settlement and Custody System (SELIC) or in a registration and financial settlement system administered by the Custody and Financial Settlement Center for Securities - CETIP;

II - must be custodied, when applicable, in an institution or entity authorized to provide this service by the Central Bank of Brazil or by the Securities and Exchange Commission (CVM).

Paragraph 1. The provisions of item I are exempted for applications in quotas of investment funds, in variable income securities, and in gold.

Paragraph 2. The resources, when in cash, must be maintained in the form of demand deposits in banking financial institutions.

Article 6. It is prohibited to apply the resources securing the technical provisions of premiums and claims of local reinsurers in securities, securities, and quotas of investment funds issued, co-obligated, or administered by affiliated companies, considering as affiliated companies:

I - those in which the reinsurer participates with 10% (ten percent) or more of the capital, directly or indirectly;

II - those in which administrators of the reinsurer and their relatives up to the second degree participate, jointly or individually, with 10% (ten percent) or more of the capital, directly or indirectly;

III - those in which shareholders with 10% (ten percent) or more of the capital of the reinsurer participate with 10% (ten percent) or more of the capital, directly or indirectly;

IV - those that participate with 10% (ten percent) or more of the capital of the reinsurer, directly or indirectly;

V - those whose administrators and their relatives up to the second degree participate, jointly or individually, with 10% (ten percent) or more of the capital of the reinsurer, directly or indirectly;

VI - those whose administrators, in whole or in part, are the same as those of the reinsurer, except for positions held in collegiate bodies, provided for in the statute or internal regulations of the latter, provided that their holders do not exercise executive functions, previously consulted SUSEP.

Sole Paragraph. The provisions of the caput are exempted for applications in quotas of investment funds directed exclusively to local reinsurers, administered by a company affiliated with them, provided that the portfolios of said funds do not contain securities issued by the administrator institution itself, its controller, societies directly or indirectly controlled by it, and its affiliates under common control.

Article 7. The evaluation of investments carried out by local reinsurers must observe the criteria established by SUSEP.

Article 8. It is prohibited for local reinsurers:

I - to act as a financial institution, granting loans or advances to individuals or legal entities, or opening credit in any modality, except for the exceptions expressly provided for in the current regulation;

II - to provide suretyship, guarantee, acceptance, or co-obligate in any other form;

III - to negotiate with duplicate bills or other credit titles other than those provided for in this Resolution;

IV - to directly apply abroad the resources securing technical provisions of premiums and claims of reinsurance contracts or retrocession of Brazilian cedents;

V - to lease, lend, pledge, or mortgage securities and securities included in their portfolios, except in cases expressly authorized by SUSEP, jointly with the Central Bank of Brazil or with the Securities and Exchange Commission (CVM), in their respective areas of competence.

Sole Paragraph. The prohibition on co-obligation referred to in item II does not apply to local reinsurers when exercising their corporate purpose.

Article 9. Local reinsurers may only offer, as security for the technical provisions of premiums and claims, assets referred to in this Resolution that are associated with the respective rights and provided that they are free and clear of any judicial or extrajudicial encumbrances or liens of any nature.

Article 10. The application of the resources securing the technical provisions of premiums and claims of local reinsurers must be subject to the following diversification requirements:

I - the total issuance and/or co-obligation of the same legal entity, its controller, societies directly or indirectly controlled by it, and its affiliates under common control cannot exceed 10% (ten percent) of the sum of the resources referred to in Articles 2 and 3;

II - the total issuance and/or co-obligation of the same financial institution, its controller, societies directly or indirectly controlled by it, and its affiliates under common control may exceed the percentage referred to in item I, observed the maximum of 20% (twenty percent) of the sum of the resources referred to in Articles 2 and 3;

III - applications in shares and subscription bonuses of a single company cannot exceed 15% (fifteen percent) of the voting capital of said company;

IV - applications in debentures of a single company cannot exceed 10% (ten percent) of the resources referred to in Article 2.

Paragraph 1. For the purpose of the limits established in items I and II, titles that have been the object of repurchase agreements must be computed, as appropriate.

Paragraph 2. For the purpose of the limit established in item II, the values of deposits in savings accounts made in the same financial institution and applications in quotas of investment funds under its administration and/or administered by institutions belonging to the same financial conglomerate must be computed.

Paragraph 3. In the case of applications in quotas of investment funds predominantly directed towards investments in financial assets and/or variable income operational modalities, the limit of 10% (ten percent) of the sum of the resources referred to in Articles 2 and 3 for quotas of funds administered by the same institution and/or by an institution belonging to the same financial conglomerate must also be observed, applying said percentage to funds administered by individuals.

Paragraph 4. For the determination of the diversification limits established in this article, shares received as bonus or resulting from the conversion of debentures and convertible shares or debentures resulting from the exercise of the right of preference will not be considered, provided that the excesses are eliminated within a period of six months, extendable for an equal period, at the discretion of SUSEP.

Article 11. The application of the resources securing the technical provisions of premiums and claims of local reinsurers in quotas of financial investment funds specifically constituted for this purpose is not subject to the provisions of Article 10, paragraph 2.

Sole Paragraph. The financial investment funds referred to in the caput will be governed, insofar as applicable, by the norms issued by the Central Bank of Brazil, observed that their applications must be represented by securities, securities, financial assets, and/or operational modalities admitted under Article 3, respecting the diversification requirements provided in Article 10.

Article 12. Shares issued by closed companies acquired by local reinsurers within the scope of the PND, when representing a percentage equal to or greater than 0.5% (five tenths of a percent) of the social capital of the privatized company, can only be alienated through a special auction on a stock exchange, observing the conditions established by the Securities and Exchange Commission (CVM).

Article 13. The adaptation of the applications of IRB-Brasil Resseguros S.A. - IRB-Brasil Re to the guidelines established in this Resolution must occur within a period of one year, counted from the effective transfer of its shareholding control in the privatization process.

Article 14. Non-observance of the provisions of this Resolution will subject local reinsurers and their administrators to the sanctions provided for in the legislation and regulation in force.

Article 15. The Central Bank of Brazil, the Securities and Exchange Commission (CVM), and SUSEP are authorized, in their respective areas of competence, to adopt the measures and issue the norms necessary for the execution of the provisions of this Resolution.

Article 16. This Resolution enters into force on the date of its publication.

Brasilia, February 24, 2000

Arminio Fraga Neto
President