New rules of the National Monetary Council on investment of resources by insurance companies and supplementary private pension entities

Resolutions No. 4.993 and 4.994, edited by the National Monetary Council (“CMN”) and published by the Central Bank of Brazil (”BACEN”), came into force on May 2, 2022 and establish the guidelines for investment of resources from technical reserves, provisions and funds of insurance companies, reinsurers and open and closed supplementary pension entities.

CMN maintained the guidelines for investment of existing resources in the wording of Resolution No. 4,993, namely:

1. observing the principles of security, profitability, solvency, liquidity and diversification; performing activities in good faith; ensuring ethical standards; adopting practices aimed at complying with obligations;
2. and, as a novelty, observing aspects related to the economic, environmental, social and governance aspects of investments.

As for the modalities of investment of resources, the new regulation maintained the following provisions:

1. fixed income;
2. variable income;
3. properties;
4. investments subject to exchange rate variation; and
5. others (multimarket or equity funds, COE with Protected Nominal Value or at Risk, etc.).

In addition, the new Resolution establishes the limits for the allocation of resources invested by modalities for each segment, in addition to the limits per issuer and per investment.

Regarding Resolution No. 4,994, the CMN’s proposal is to continue improving the regulatory environment, seeking to adapt regulations to the administrative reality of pension funds and to improve the supplementary pension plan segment concerning the investment of resources. The following items show the main changes in regard to repealed regulations:

• Exclusion of information on “clients and suppliers”, due to its scope and unfeasibility in terms of operational compliance, depending on the sponsor of the benefit plan. This change seeks to enable operational conditions of closed supplementary private pension entities (“EFPC”) so they comply with the obligation and improve the regulatory cost-benefit ratio.
• Possibility of purchasing external debt securities directly, in order to correct an inconsistency in the previous rule. As the issuer of this security is the National Treasury, considered by the regulations the lowest risk issuer, the prohibition of the direct purchase of federal public debt securities demonstrated an inconsistency.
• Amendments regarding the concentration limit, in the following terms:

1. 1. clarifying that the concentration limit for fixed income financial assets (mostly debentures) applies to the series, and the credit rights investment fund (“FIDC”) applies to quota classes; and
   2. establishing that investment funds in quotas may be exclusive as long as the funds invested respect the limit, that is, the EFPC may hold 100% of the net equity of the Quota Investment Fund (“FIC”), provided that the investments of the FICs are limited to until 25% of the Investment Fund’s net worth.

• Amendment of the provision concerning the performance fee applied to investment funds contracted by the EFPC, to determine compliance with the rules stipulated by the CVM.

Finally, the Resolution maintained the other guidelines for investment of funds, as well as the segments and allocation limits by issuer and by investment.

The new regulations repealed CMN Resolution No. 4444/2015, 4449/2015, 4633/2018, 4670/2018, 4769/20149, 4661/2018, 4695/2018, 4873/2020 and the article 1 of Resolution No. 4484/2016, in order to consolidate the guidelines and requirements for the investment of resources in just two acts.

Demarest’s Insurance, Reinsurance, Health and Private Pension team is available to provide further information on this and other related topics.