New resolution regulates activity of trustee agent of Insurance Risk Securities

The joint regulation by the Superintendence of Private Insurance (“SUSEP”) and the Central Bank of Brazil (“BACEN”) regulates article 9 of Law No. 14,430/2022

On February 26, 2024, the Superintendence of Private Insurance (“SUSEP”) and the Central Bank of Brazil (“BACEN”) published Joint Resolution No. 9/2024, aimed at regulating the performance, requirements, duties and responsibilities of trust agents in transactions relating to Insurance Risk Securities (“LRS”) issued through a Special Purpose Insurer (“SSPE”).

The LRS are securities created by Law No. 14,430/2022 and inspired by Insurance Linked Securities (ILS), instruments for raising funds from investors which are already used by insurers and reinsurers abroad. The issuance of LRS was previously regulated by the Brazilian Council of Private Insurance (“CNSP”) through CNSP Resolution No. 453/2022, which we addressed in a previous client alert.

The joint resolution is supplemental to the regulation on the matter and provides, above all, for the appointment and duties of the trust agent representing investors holders of the LRS.

Accordingly, the main provisions established by the joint resolution are:

• Regarding the appointment of the trust agent by the SSPE:
  • Appointment of the trust agent is not mandatory.
  • Only financial institutions and other institutions authorized to operate by BACEN whose corporate purpose includes the management or custody of third-party assets can be appointed as trust agents.
  • The trust agent cannot be a party related to the SSPE; a creditor, in any capacity, of the SSPE or of a company controlled by the SSPE; or be in any situation considered a conflict of interest.
  • The LRS must indicate the trust agent and whether the trust agent has accepted to carry out this activity.
  • When the trust agent is appointed by the SSPE, its duties, responsibilities and remuneration must be defined, as well as the hypotheses, conditions and form of dismissal or replacement.
  • The SSPE must provide all the information necessary to carry out the duties and responsibilities of the trust agent.
  • The trust agent must comply with the regulations of the Brazilian Securities and Exchange Commission (“CVM”) for the public distribution of LRS.

• Obligations of the trust agent:
  • Ensuring the protection and enforcement of the rights and interests of the holder investors, carrying out any SSPE due diligence that may be required to maintain the good standing of the risk transfer agreement and the securitization transaction.
  • Overseeing compliance with the conditions of the LRS and the risk transfer agreement.
  • Monitoring the provision of periodic information by the SSPE and alerting investors of any known inconsistencies or omissions.
  • Checking with the SSPE that the accounting and financial control procedures are appropriate to the requirements concerning the management of the assets that make up the independent equity of the securitization transaction and the liabilities of this transaction, and adopting accounting and actuarial control processes suitable to the requirements concerning the establishment of technical provisions for the securitization transaction.
  • Requesting, if necessary, an external audit of the securitization transactions and adopting the judicial or extrajudicial measures necessary to defend the interests of the holder investors.
  • Calling general meetings of LRS holder investors, as necessary.
  • Drafting an annual report describing the material facts relating to the LRS occurred during the financial year, with the minimum information required by the regulation.
  • Publishing an annual report on the SSPE’s website within four months following the end of the respective financial year.
  • Keeping updated information on the assets comprising the independent equity and liabilities of the securitization transaction, as well as the list of investors holding the securities.

Joint Resolution No. 9/2024 entered into force on March 01, 2024.

Demarest’s Insurance, Reinsurance, Health and Private Pension is available to provide any further clarifications that may be necessary.