LU

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AIDA WORLD CONGRESS PARIS - 2010

• REINSURANCE WORKING PARTY
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•  THE NEW REINSURANCE MARKET IN BRAZIL
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• WHAT HAS CHANGED IN TWO YEARS THIRD -

• LUÍS FELIPE PELLON

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The opening
In 2007, a new law opened the Brazilian
reinsurance market to interested companies. Until
then, the market was exclusively in the hands of
IRB, a state-owned company that works as a
monopoly. The changes arising in the market are
deep, affecting contracts, commercial practices,
claims adjustment, as well legal and regulatory
aspects, and require training of personnel and
restructuration of companies.  
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The business opportunities
The legislators objectives are gradually being
achieved by modernization in products and
services and several business opportunities for
companies and professionals dealing with this
sector have arisen, specially for lawyers.
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The different kinds of reinsurance companies  
The law authorizes three different kinds of
reinsurers, namely (i) the local, (ii) the
admitted, and (iii) the occasional. All of them
needs an authorization of the Brazilian Insurance
Commissioner (SUSEP) before the operations
starts. Local reinsures must be incorporated in
the country with a minimum capital of US 60
million, while the admitted require just an
office representation and has to provide local
guaranties in the amount of US 5 million. The
occasional ones needs only to be authorized by
SUSEP but has a limit of 10 of the local
cedents business.
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The local capacities
Today Brazil has 6 local, 22 admitted and 58
occasional reinsurers and 32 reinsurance brokers.
There is capacity to absorb more companies, given
the needs of the local insurance market and the
strong development of the country, which are
growing at a rate of 5 per year. One of the most
attractive aspects of the new reinsurance market
in Brazil is the preferential offer of 40 to the
local reinsurers and the fact that the exceeding
part of those cessions can only be offered to
reinsures that are registered as admitted or
occasional.
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The changes in two years
Two years after the opening, IRB still appears
statistically on the top, but a degree of
competition has been noted. After a 69-years
monopoly and a domination of a 100 of the
market, it holds now only 70 of the collected
reinsurance premiums. Regarding the world crises,
that affected several international reinsurers,
the Brazilian insurance companies prefers to
place their business totally by local reinsurers,
instead to look for better prices in retail by
admitted or occasional ones, to avoid direct
credit risks.
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Some problems of the new market
There is no much certainty about the reinsurance
taxations activity in Brazil, which has
increased the premium and indemnifications
payments. There are also doubts about who is
responsible for the taxes payments. One should be
aware of this situation when giving a reinsurance
premium quotation. The Brazilian insurance market
has been resisting strongly in accepting the
claims control clause. Leaving the decisions to
the international reinsurer, which is away from
the Brazilian reality, can cause damage to the
national insurers image or to its commercial
interests. However, the cooperation clause is
pretty well accepted in Brazil. The local market
also demands that the Follow the Fortune clause
includes always the extra-contractual
indemnifications payments, applied by the
Brazilian Courts.
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Future perspectives for the reinsurance market
Brazil suffered few consequences from the world
sub prime crisis and local firms, financial
institutions and insurance companies are solid
and active. Terrorism and natural catastrophes
are not a great risk in the country. Otherwise
Brazil will be the seat of the Soccer World Cup
2014 and Rio de Janeiro will host the 2016
Olympic Games. Besides that the countrys
infrastructure needs to be widely and quickly
extended to match the strong national
development. These circumstances will require
huge investments, so the public and private
programs for the next three years will reach US
30 billion in logistic, US 140 billions in
electric energy, oil, natural gas and renewable
fuel, as well US 70 billions in sanitation,
urban and rural electrification, housing and
transportation. All together, these factors
assure an auspicious future for the insurance and
reinsurance industry in Brazil.
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THANK YOU VERY MUCH