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Published 25 May 2016
Directors and Officers insurance has been an established line of business in most Latin American territories for many years now. Recent developments have, however, seen an increase in the D&O offering in Latin America and general take up in the market, and the main reasons for this are:
Latin America is a huge and diverse region, and although certain trends may be identified as being relevant across the region, a knowledge of the individual jurisdictions is invaluable.
The corruption scandals which plague Brazil are of particular interest to the insurance market at the moment. In the last few weeks, not only has the Brazilian president been impeached, but the former president has now come under suspicion and it seems that there are few high profile figures who have not been involved in some way in the Petrobras scandal.
On the commercial side, we have seen crimes such as corruption and fraud being excluded from coverage in the local market, as a consequence of corruption scandals such as Mensalao and Lava-Jato.
In view of this, insurance companies have also reviewed their wordings as to defence costs coverage. Fees of defence counsel have escalated as companies seek to hire the most reputable law firms available to represent them. Currently, most D&O policies provide coverage for the advance payment of defence costs, exposing insurers to paying inflated fees with a high risk of not being able to recover those fees.
Many insurers are reviewing their wordings to provide reimbursement only after a final and favourable judgment is given, rather than agreeing to advance payments. Alternatively, insurers are imposing sub-limits on defence costs to avoid excessive legal fees.
The deepening recession in Brazil and the increasing number of companies seeking judicial protection from creditors have also raised the awareness of local underwriters as to the need to assess effective compliance programmes within corporations.
In the circumstances, the local Brazilian market which had been considered 'soft' in the past decade, is gradually turning into a 'hard' market, where insurers are limiting coverage and adopting a more cautious stance in their underwriting style. It remains to be seen whether this will be repeated across the Latin American region.
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