Brazil’s recently opened reinsurance market could benefit the whole industry, says Franklin Santarelli.

During December 2007 the Brazilian insurance regulator published several resolutions complementing the regulatory model of the recently opened reinsurance market. It also defined the scope of reinsurance and retrocession in Brazil in an environment of increased competition and capital and operational requirements.

In general, the opening of the Brazilian insurance market should benefit the insurance industry as a whole.

In 2008 the market is expected to post growth slightly above that of recent years – the compound annual growth rate was 8.5% from 2002 to 2006 – due to greater development of the market.

However, this expected trend will mainly depend on accelerated economic growth and greater use of insurance by private companies and individuals. In the latter case, action will be required to increase its popular appeal.

The intention of local authorities is to promote an ordered opening of the market. Given the dominant position of IRB Brasil Re, the national reinsurance company, which was a monopoly until these regulations came into effect, the reinsurance market will remain only partially liberalised.

“Sixty percent of total ceded premiums must be first assigned to local reinsurers, although this will decrease to 40% by 2010.

Franklin Santarelli Senior director in Fitch Ratings’ Insurance Group

Sixty percent of total ceded premiums must be first assigned to local reinsurers, although this will decrease to 40% by 2010. This is almost unique for most of the Latin American reinsurance market, where the decision to select a local or a foreign company is completely in the hands of the individual insurance company, promoting competition in the market.

Fitch believes that as the sector develops further, local regulators may well review the legal framework and allow greater liberalisation in the long run. This will be of added benefit to the industry.

IRB has been adopting measures to adjust to a competitive environment and may in the future benefit further from a possible decision by the main private shareholders to retain their holdings.

Fitch believes that this, along with modernisation of the reinsurance market, should substantially benefit IRB’s credit profile and prepare it for greater competition with large international players in the long run.

Franklin Santarelli
Senior director in Fitch Ratings’ Insurance Group