Brazilian (Re)insurance Market: Outlook And Opportunities

Reinsurance in Brazil had always been a monopoly of the

Brazilian Reinsurance Institute1 (IRB) until April

17, 2008, when SUSEP's2 regulations and

Supplementary Law 2007 began yielding more visible effects,

permitting the entry of private competition into the market. As

a result, now insurance-market risks may be transferred in

Brazil to three types of reinsurers:

"local"3, "admitted"4

and "occasional"5. The purpose of this

article is to discuss the outlook for these markets in light of

this new situation.

Sustained growth of the insurance market only became

possible as of 1994, with economic stabilization and control of

inflation. From then on, the insurance market began accounting

for a more significant share of Brazilian GDP. By the end of

the fiscal year 2007, the total share of supervised markets

(insurance, private pension-funds, and capitalization) was

2.90%, with 2.30% for insurance premiums, 0.30% for private

pension funds, and 0.30% for capitalization6. The

opening is expected to lead to faster market growth with

respect to this share of GDP.

The opening of the reinsurance market did not take place

overnight nor was it done unexpectedly: domestic insurers were

gradually prepared by SUSEP to cope with the best international

practices. Among the key measures introduced by SUSEP to

prepare the market, the most important have been the

implementation of internal controls and stricter rules for

auditors and actuaries, the requirement of a business plan, the

replacement of technical notes for each product with technical

notes on portfolios, and the requirement of a broader view of

insurer activities. Among those measures with a deep impact in

the market is the creation of new solvency rules, with the

implementation of risk-based capital rules based on

underwriting, credit, market, legal, and operational risks. The

set of risk-based capital standards will not only encourage

insurers to take advantage of enterprise risk management, but

also require infusions of capital for many insurers.

In light of this favorable regulatory environment, the

direct outlook is that of a market in transition, in which the

following consequences may be expected: (i) market

consolidation (due to greater capital demands, more

sophisticated corporate-governance rules, and the need for

integration into the international reinsurance market); (ii) a

greater homogeneity in the market and higher competition

standards resulting from the consolidation of companies (e.g.

through mergers or acquisitions), whose structures turn out to

be incompatible with this new environment; (iii) a more

attractive market to incorporation of new foreign insurers in

Brazil; (iv) local reinsurers using Brazil as a platform for

underwriting risks throughout Latin America; and (vi) the

transfer of experience and technologies to the market by

reinsurers, including...