(Re)insurance Claims in Brazil

Transcription

1 (Re)insurance Claims in Brazil Marcelo Mansur Haddad London November 2, 2017

2 Agenda Importance of local expertise Impacts of Car Wash investigations Main local issues Litigating claims 2

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 3

4 Impacts of Car Wash Investigations ( ) 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 4

5 Impacts of Car Wash Investigations ( ) Loss ratio : SUSEP s Statistic's System (SES 2012/ sept. 2017) D&O Loss Ratio General Civil Liability Loss Ratio E&O Loss Ratio , , , , , , , , , , , , , , , , , , Private Surety Loss Ratio Public Surety Loss Ratio Property* Loss Ratio , , , , , , , , , , , , , , , , , ,45 * 0111, 0112, 0114, 0116, 0118, 0167, 0171, 0176,

6 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0,23 0,32 0,53 D&O D&O 0,47 0,38 0,

7 GENERAL CIVIL LIABILITY General Civil Liability 1,2 1,13 1 0,96 0,8 0,6 0,4 0,43 0,53 0,65 0,44 0,

8 E&O E&O 0,7 0,6 0,61 0,5 0,48 0,49 0,52 0,4 0,3 0,38 0,38 0,2 0,

9 PRIVATE SURETY Private Surety 1,2 1 0,8 0,93 0,89 0,98 0,78 0,6 0,4 0,2 0-0,2 0,12-0,

10 PUBLIC SURETY Public Surety 0,4 0,35 0,35 0,3 0,25 0,2 0,19 0,15 0,1 0,05 0,05 0,06 0,08 0,

11 PROPERTY Property 0,7 0,6 0,5 0,4 0,3 0,33 0,4 0,56 0,6 0,37 0,45 0,2 0,

12 1,2 Loss Ratio Comparison 1 0,8 0,6 0,4 0,2 0-0, D&O GCL E&O PrivS PubS PP 12

13 Impacts of the Car Wash Investigations ( ) 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 13

14 Impacts of the Car Wash Investigations ( ) 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 14

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? 15

16 Main local issues Overview - FAQs Late notice Misrepresentation (attention: risk of direct relationship between reinsurers and insureds) Conditions precedent Reservation of rights Claims cooperation/control ECO/XPL 16

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 17

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? 18

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 19

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 20

21 Litigating claims - arbitration in Brazil Expertise of the Arbitrators. Especially important for the insurance market, given that claims adjustment procedures generally 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 than what we can expect from the Brazilian Judiciary (where the expectation lies between 5 to 10 years for the conclusion of the dispute) Confidentiality. There is a principle of publicity in the Brazilian Judiciary, thus for a suit to be granted secrecy it demands further 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 21

22 Litigating claims - why arbitration in Brazil? Higher costs Arbitration Lower costs Litigation There is no appeal Parties can choose the arbitrators Arbitrators are experts on the matter in dispute Lower caseload Flexibility of the procedural rules Average of 1-3 years until the arbitration award is rendered There are many different types of appeals, which usually increase the duration of the lawsuit The judge is chosen by a random drawing Judges are not necessarily experts on the matters they judge Judges have thousand of cases to decide There is no flexibility at all 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 22

23 Marcelo Mansur Haddad SÃO PAULO PAULISTA Al. Joaquim Eugênio de Lima São Paulo SP Brasil T SÃO PAULO FARIA LIMA Rua Campo Verde 61 3º andar São Paulo SP Brasil T BRASÍLIA SHS Q6 Bloco C Cj. A sala Brasília DF Brasil T RIO DE JANEIRO Praia do Flamengo º andar Rio de Janeiro RJ Brasil T NEW YORK 712 Fifth Avenue 26 th floor New York NY USA T LONDON 5 th floor, 32 Cornhill London UK EC3V 3SG T 44 (0)