The Country and Economy
Brazil is the largest country in Latin America, slightly smaller than the U.S.A. and borders upon ten of the twelve South American countries. The population is 190 million. The country has vast natural resources and a large labour pool. Brazil is an influential member of the world economy, exporting transport equipment, iron ore, soybeans, footwear, coffee and cars. It imports machinery, oil and chemical products, car parts and electronics.
Brazil is currently experiencing great economic momentum, with a strong currency and controlled inflation. One of the highest interest rates in the world is a challenge to the Government, however.
The Insurance Market
The current economic stability is forcing insurance companies to concentrate more on technical underwriting results rather than to make money out of the financial markets. Therefore, they have been stricter on their underwriting policies and even declining to quote on segments where exposures are higher.
Non-admitted coverage is not permitted and even reinsuring out of the country has been difficult to say the least. Brazil is now facing very interesting times with the forthcoming opening of the reinsurance market, after more than 60 years of the Government reinsurance monopoly: IRB. The law was signed by the president on the 15th January 2007 and it will now be up to the local Superintendent (Susep) to develop regulations which will include all the details regarding rules and guidelines on the necessary ratings, minimum capital, reserves, etc.
Although the law provides a lot of information on how the market will work, there are still a lot of blank spaces which the regulations will clarify. Up till now, it appears that there will be three different types of reinsurers operating in Brazil.
Types of Reinsurer
Local Reinsurer – will have the same rights as the IRB, based on the capital / assets they have in the country. A local operation will be required. A market protection will be applied for local reinsurers (60 % in the first three years and 40 % in the following years)
Admitted Reinsurer – an office in the country will be required, and will require minimum rating and capital. This will mostly refer to big players like Swiss Re and Munich Re (if they do not become local) and specialised reinsurers (companies focussing on particular segments)
Occasional Reinsurer – will not necessarily need to have an office in the country. The regulation will be stricter as regards rating and capital. Apparently, this type of reinsurance will not be recognized within insurance companies’ balance sheets. Presumably this will relate mainly to captives.
There is no timeframe for Susep to implement the new regulations, but once they are in place, the IRB will have a 180-day waiting period to adjust to it.
Although the legislation has already been signed into law, it will take some time for the market to adjust. Even once the regulations are in place some of the more important changes will not take place straight away. For large plants (requiring higher limits) or for some special / particular products (like D&O, crop insurance, E&O, etc) there will be a lot of opportunities to explore. The current difficulties in negotiating cessions to captives, as well as unusual coverages, will be smoothed out considerably.
Besides the reinsurance re-structuring, Susep has also implemented a new solvency regulation for insurance companies which will be far stricter and require more capital for the companies to maintain their existing book of business and also to grow. This will certainly lead to major consolidation in the market, with smaller companies merging or being sold to larger local or multinational ones. Most of the largest P&C players are already in Brazil, such as ACE, AIG, Allianz, Chubb, HDI, Liberty Mutual, Mapfre, Royal & SunAlliance, Tokyo Marine, XL and Zurich. This new legislation presents a great opportunity for them to grow and to secure a more important role in the market place.
Today, although there are around 50 companies in the country, approximately 70% of the GWP is with the first ten. The new regulations may tackle this issue. A great part of the GWP in the country is concentrated in the automobile and private health side, with private pension growing very quickly. We could see other large foreign carriers who specialise in middle market and personal lines cover seeking to open up in Brazil.
In preparing this Spotlight article we received invaluable assistance from the leading broker, Harmonía Corretora de Seguros e Resseguros for which we are grateful.
If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us
Worldwide Risk Solutions has a wide client base of internationally oriented organisations. Utilising the knowledge and experience gained over many years, we can put this capability at your disposal. If you would like us to conduct a swift appraisal of your global activities or if you have questions about international developments, just give us a call +44 (0)1444 450 919 or send us an e-mail and we will be happy to look at some of these questions and to start providing answers.
In our next e-newsletter we will look at Spotlight: Takaful. Something about this Shariah compliant insurance appears in almost every edition of the international insurance media. What is it? Why is it different? For whom is it important? These are some of the questions we shall be looking at in our next edition of WoRdS.
See our Contact Details
George Worsley, Director
Worldwide Risk Solutions
Telephone +44 (0)1444 450 919