(re)insurance claims in brazilre)insurance claims - … · average of 1-3 years until the...

(Re)insurance Claims in Brazil

Marcelo Mansur Haddad

LondonNovember 2, 2017

2

Agenda

• Importance of local expertise

• Impacts of Car Wash investigations

• Main local issues

• Litigating claims

Claims Overview in Brazil – 2017

3

Importance of local expertise

• Where can local expertise be helpful

• Knowledge of local players

• Knowledge of local customs & practices and their consistency/inconsistency with market/global customs & practices

• Local (re)insurance legal expertise

• Local expertise on underlying legal matters

• Local litigation/arbitration


4

Impacts of Car Wash Investigations (2014-2017)

• What has happened to investigated companies

• Interruption of governmental payments

• Investigations on over payments

• Interdiction to enter into further governmental contracts

• Difficulties in obtaining (re)financing/credit

• Stagnation of works

• Lack of funds to pay suppliers

• Focus on their defense and of their D&O

• Negotiation of leniency agreements/plea bargaining

• Need to sell assets

https://www.youtube.com/watch?v=6eyBWX3hVaE


5Claims Overview in Brazil – 2017

Loss ratio : SUSEP’s Statistic's System (SES – 2012/ sept. 2017)

* 0111, 0112, 0114, 0116, 0118, 0167, 0171, 0176, 0196

0310 - D&O Loss Ratio0351 - General Civil

LiabilityLoss Ratio 0378 - E&O Loss Ratio

2012 0,23 2012 0,43 2012 0,38

2013 0,32 2013 0,53 2013 0,48

2014 0,53 2014 0,65 2014 0,49

2015 0,47 2015 1,13 2015 0,61

2016 0,38 2016 0,96 2016 0,38

2017 0,64 2017 0,44 2017 0,52

0776 - Private

SuretyLoss Ratio 0775 - Public Surety Loss Ratio Property* Loss Ratio

2012 0,12 2012 0,05 2012 0,33

2013 -0,02 2013 0,06 2013 0,4

2014 0,93 2014 0,19 2014 0,56

2015 0,89 2015 0,08 2015 0,6

2016 0,98 2016 0,12 2016 0,37

2017 0,78 2017 0,35 2017 0,45

Impacts of Car Wash Investigations (2014-2017)


0,23

0,32

0,53

0,47

0,38

0,64

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

2012 2013 2014 2015 2016 2017

D&OD&O


0,43

0,53

0,65

1,13

0,96

0,44

0

0,2

0,4

0,6

0,8

1

1,2

2012 2013 2014 2015 2016 2017

GENERAL CIVIL LIABILITYGeneral Civil Liability


0,38

0,48 0,49

0,61

0,38

0,52

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

2012 2013 2014 2015 2016 2017

E&OE&O


0,12

-0,02

0,930,89

0,98

0,78

-0,2

0

0,2

0,4

0,6

0,8

1

1,2

2012 2013 2014 2015 2016 2017

PRIVATE SURETYPrivate Surety


0,05 0,06

0,19

0,08

0,12

0,35

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

2012 2013 2014 2015 2016 2017

PUBLIC SURETYPublic Surety


0,33

0,4

0,560,6

0,37

0,45

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

2012 2013 2014 2015 2016 2017

PROPERTYProperty


-0,2

0

0,2

0,4

0,6

0,8

1

1,2

2012 2013 2014 2015 2016 2017

Loss Ratio Comparison

D&O GCL E&O PrivS PubS PP

13

Impacts of the Car Wash Investigations (2014-2017)

D&O – existing policies

• Broad wordings• Low premiums• High limits• Increased loss (mostly from criminal

investigations)• Final conviction exclusion dilemma

D&O – new/renewed policies

• High demand• Increased premiums• Increased exclusions• Restrictive wordings


14

Impacts of the Car Wash Investigations (2014-2017)

Surety bonds

• Most affected ecomonic sectors

• Oil & Gas - Schahin, Alumni, Jaraguá, RNEST

• Construction - PDG, OAS, ODEBRECHT, UTC (Viracopos)

• Hydro & Wind Power – WPE, IMPSA

• Shipbuilding – EISA, Atlântico Sul


15

Main local issues

Overview

• Lack of regulation on claims handling in Brazil

• Lack of personnel in claims departments

• Inexperienced courts and paternalistic approach

• New law?! – Who benefits?


16

Main local issues

Overview - FAQs

• Late notice

• Misrepresentation (attention: risk of direct relationship between reinsurers andinsureds)

• Conditions precedent

• Reservation of rights

• Claims cooperation/control

• ECO/XPL


17

Main local issues

Surety Bonds

• Failure to monitor the underlying contract and anticipate issues

• Informal relationship between the principal and the insured as far as the performance of the contract is concerned

• Misunderstanding regarding the concept of “indemnifiable losses”

• Secured contracts and/or insureds involved in corruption scandals. Should the insurer indemnify?

• Legal actions between the constructor and the insured. Should the insurer indemnify?

• Recovery. Week counter-guarantees. Need to act quickly. Disregard of legal entity theories


18

Main local issues

Judicial bonds

• Impressive growth of judicial bonds in view of change in law

• No claims handling. Payment must be made in 15/30 days

• Judicial recovery. Suspension and early termination of the bonds?


19

Main local issues

D&O

• Plea Bargaining and Leniency Agreement. Should the insurer interrupt the payment of defense costs?

• Corruption. Should the insurer pay defense costs?

• Imprisonment before a final decision. Should the insurer interrupt the payment of defense costs?

Property

• Continued discussion on BI and tax consequences

• Long claims adjustement proccedures


20

Litigating claims

• Costs of time: regular lawsuits in Brazil last from 5 to 10 years; monetary correction and delay payment interest (1% per month) can be a serious issue; incentive to settle especially in low interest rate environments

• Sucumbência in favor of the winning party’s counsel

• This burden is composed of (i) legal expenses and (ii) attorney fees (fixed in the award from 10% up to 20% of the value on the action)

• The burden is reciprocal, meaning that unless the award is 100% in favor of one of the parties, the burden will be proportional to the judicial provision to each side


21

Litigating claims - arbitration in Brazil

• Expertise of the Arbitrators. Especially important for the insurance market, given that claims adjustment proceduresgenerally involve highly technical aspects that could possibly be overseen by local courts

• Celerity: Arbitral proceedings usually take 1 to 3 years until the arbitral award is rendered, which is considerably less thanwhat we can expect from the Brazilian Judiciary (where the expectation lies between 5 to 10 years for the conclusion of thedispute)

• Confidentiality. There is a principle of publicity in the Brazilian Judiciary, thus for a suit to be granted secrecy it demandsfurther grounds other than just a request

• Flexibility: The proceeding can be shaped as per parties’ will (deadlines, hearings, etc.)

• Choice of Applicable Law: It is possible to choose the law applicable to the dispute and to the proceedings

• Binding Force of the Arbitral Award: Awards are enforceable as a judicial decision and merits are not subject to review

• Neutrality: Arbitration represents a way to by-pass a possible biased view of the national judicial court systems


22

Litigating claims - why arbitration in Brazil?


Arbitration Litigation

Higher costs Lower costs

There is no appeal There are many different types of appeals, which usually increase the duration of the lawsuit

Parties can choose the arbitrators The judge is chosen by a random drawing

Arbitrators are experts on the matter in dispute Judges are not necessarily experts on the matters they judge

Lower caseload Judges have thousand of cases to decide

Flexibility of the procedural rules There is no flexibility at all

Average of 1-3 years until the arbitration award is rendered Average of 5-10 years until a final sentence is issued (including appeals)

Easiness to enforce a foreign arbitral award Difficulty in the enforcement of a judicial decision abroad

www.mattosfilho.com.br

SÃO PAULO – PAULISTAAl. Joaquim Eugênio de Lima 44701403 001 São Paulo SP BrasilT 55 11 3147 7600

BRASÍLIASHS Q6 Bloco C Cj. A sala 190170322 915 Brasília DF BrasilT 55 61 3218 6000

RIO DE JANEIROPraia do Flamengo 200 11º andar22210 901 Rio de Janeiro RJ BrasilT 55 21 3231 8200

NEW YORK712 Fifth Avenue – 26th floor New York NY USA 10019T 1 646 695 1100

SÃO PAULO – FARIA LIMARua Campo Verde 61 3º andar01456 000 São Paulo SP BrasilT 55 11 3035 4050

LONDON5th floor, 32 Cornhill London UK EC3V 3SGT 44 (0)20 7280 0160

Marcelo Mansur [email protected]

http://www.mattosfilho.com.br/

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