Offshore Captive Insurance: What Brazilian Law Allows

Captive insurance is an insurer controlled by the very group it insures. For anyone living in Brazil, the first question is a legal one: Complementary Law 126/2007 (LC 126/2007) requires compulsory insurance and insurance of risks in Brazil to be placed in the country, and allows insurance abroad only in the cases of art. 20.

What is captive insurance and how does it fit into Brazilian insurance?

Captive insurance is an insurer created to insure the risks of the economic group, or of a family, that controls it. Instead of paying the premium to a market insurer, the group pays a company that it controls itself.

This guide uses "captive" for that controlled insurer and "captive insurance" for the operation. Brazilian law has no chapter of its own for them. What exists is the general private insurance regime, and that is where the idea has to fit.

Decree-Law 73/1966 says that all private insurance operations carried out in Brazil are subject to its provisions (art. 1). It also says that only legal entities organized as a corporation or a cooperative, previously authorized by Susep (Brazil's insurance regulator, the Superintendence of Private Insurance), may operate in private insurance (art. 24). Susep acts as the supervisory body of the National Private Insurance System (art. 36).

A foreign captive has no Susep authorization. That does not make it illegal in the country where it is licensed, but it limits what it can insure when the insured party is Brazilian.

Does Brazilian law allow buying insurance abroad?

Only in specific situations. LC 126/2007 deals with the subject in Section III, "Insurance in the Country and Abroad."

Art. 19 provides that the following will be placed exclusively in Brazil:

• •compulsory insurance;
• •non-compulsory insurance contracted by individuals resident in Brazil or by legal entities domiciled in the national territory, to cover risks in Brazil.

Art. 20 lists the cases in which contracting abroad is allowed for those same contracting parties:

The practical reading is this. For a Brazilian legal entity, the clearest path is the sole paragraph: a risk located abroad, with notice to the supervisory body. For an individual, the law only describes insurance whose term is limited to the period in which they are outside Brazil.

In both cases, a risk located in Brazil goes back to the rule of art. 19: the insurance is placed in Brazil. The exception in item I requires that there be no offer in Brazil, and whether an offer exists is a question of fact, not of the insured party's preference.

How does a captive work when the risk is abroad?

If the risk is abroad, the design moves. The captive can be licensed in the jurisdiction of the risk or in another that accepts this type of insurer, and the Brazilian group controls it as it controls any other foreign company.

The regulator of the jurisdiction where the captive is licensed regulates and supervises it. Two authorities come up often on this subject, and what their official pages say about them is little, but enough to place the role of each:

• •Bermuda Monetary Authority (BMA): the official page says the BMA supervises all licensed financial services businesses in Bermuda.
• •Cayman Islands Monetary Authority (CIMA): the official page describes CIMA as the principal regulator of the financial services sector of the Cayman Islands, responsible for supervising regulated entities that operate in and from the territory.

Capital, licensing, audit and reporting requirements depend on the rules of each jurisdiction and change over time. This guide sets no amounts or deadlines: they must be confirmed with the regulator and with a local captive manager before any decision.

What is the role of reinsurance?

Reinsurance is the transfer of risk from an insurer (the ceding company) to a reinsurer. LC 126/2007 defines the concept (art. 2, § 1) and distinguishes three types of reinsurer in art. 4, among them the local reinsurer, based in Brazil, and the admitted reinsurer, based abroad with a representative office in Brazil and registered with the supervisory body.

This regime deals with the reinsurance of authorized insurers. It does not turn the foreign captive into an insurer of Brazilian risks. Anyone who wants to cede risk to a foreign reinsurer within an insurance program needs to confirm with the insurer and with a licensed broker how the operation fits within this law.

LC 126/2007 also allows insurance, reinsurance and retrocession to be carried out in Brazil in foreign currency, subject to the rules of the National Monetary Council (CMN) and the regulatory body (art. 18).

And what about taxation in Brazil?

Captive insurance does not bring guaranteed tax savings, and this guide promises none. Taxation depends on who controls the captive and how it is structured.

For a Brazilian legal entity, Law 12,973/2014 deals with the profits earned by foreign subsidiaries and affiliates (arts. 76 et seq.). As a rule, the subsidiary's profit enters the parent's calculation on the December 31 balance sheet of each year, with the adjustment and offset rules provided in the law. The article Taxation of an asset holding company: complete guide explains the logic of taxing the structure and that of taxing the partner.

For an individual, Law No. 14,754/2023 (Lei 14.754/2023) deals with profits earned by controlled foreign entities, taxed on December 31 of each year in the cases of art. 5. Anyone with a personal captive should check whether it fits those cases and what the ancillary obligations are.

Two remarks apply to both cases:

1. •Premium paid to a related party. When the group pays a premium to its own captive, the operation is between related parties and deserves a transfer pricing analysis. The article Transfer Pricing Masterclass Offshore presents the topic. Whether that premium is deductible in Brazil is a conclusion that depends on a tax analysis of the case, and is not asserted here.
2. •International standards. Structures abroad are also tracked by information exchange rules and minimum taxation. The article BEPS and the OECD for Brazilians summarizes this background.

What types of captive are there?

The models most cited in the market are three:

The choice depends on the volume of risk, the ability to absorb losses and the cost of maintaining the structure. These data vary by case, and a captive only makes sense when the group has relevant, known risks that it can quantify with the help of an actuary.

When does the idea not make sense?

Some signs indicate that a captive is not the right tool:

• •the main risk is in Brazil and insurance is offered in Brazil, which leads to art. 19 of LC 126/2007;
• •the group is small and cannot measure its own claims;
• •the main reason for the structure is to pay less tax, not to manage risk;
• •the group cannot maintain administration, audit and reporting abroad;
• •the structure would serve to hide assets, which is not planning and has legal consequences.

In those cases, other solutions are usually more suitable: raising the deductible, buying insurance in the Brazilian market, or reviewing the coverage with a broker. To understand how each piece fits into broader planning, see the international tax planning service.

How do I evaluate the idea in steps?

1. •List the risks. Separate those in Brazil from those abroad.
2. •Check the offer. For a risk in Brazil, check whether insurance is offered in Brazil. If it is, the rule is to insure here (LC 126/2007, art. 19).
3. •Define who contracts. Legal entities and individuals are treated differently in art. 20.
4. •Check the notice. For a legal entity with insurance abroad, confirm the period and conditions for informing the supervisory body (art. 20, sole paragraph).
5. •Choose the jurisdiction. Confirm the license, capital and reporting requirements with the local regulator.
6. •Analyze taxation. Ask for an opinion on Law 12,973 (legal entity) or Law 14,754 (individual), transfer pricing and ancillary obligations.
7. •Plan succession. If the captive belongs to an individual, define what happens to it in succession. The article Valid international will covers assets abroad.