Impending reinsurance regulation will “increase the cost of insurance”

The Federation of European Risk Management Associations (FERMA) has called on the Brazilian government to withdraw two new reinsurance regulations due to enter into force on 31 March 2011.

The resolutions, which come into force on 31 March, would prohibit intra-group transactions, stopping insurers ceding business to an affiliated reinsurer, and mandate placement of 40% of reinsurance business with local reinsurers.

The association argues the new rules threaten to reduce the capacity for coverage of large commercial risks and increase the cost of insurance.

"We believe that these regulations will damage the interests of our members and the development of the insurance and reinsurance market in Brazil. We, therefore, ask the Brazilian government to rescind them," said FERMA president Peter den Dekker in a statement.

He added: "We do not believe these two regulations will benefit the Brazilian economy or the country's image as a good place for foreign companies to do business, so we ask the government take advantage of the opportunity to reconsider."

In 2007, Brazil broke up the monopoly of state-owned reinsurer IRB-Brasil Re, opening the market to other foreign and domestic reinsurers. The market now includes six local reinsurers and 25 admitted firms.

In addition, since 16 January 2010, Brazilian insurers have been allowed to place 60% of their reinsurance abroad with pre-approved insurers.

However, in December 2010, the executive branch of Brazil’s National Board of Private Insurance enacted two resolutions which FERMA believes will counteract the reinsurance market liberalisation seen since 2007.

FERMA said that as a result, it has taken the unusual step of making the appeal to support the large number of its members whose companies have invested in Brazil and to strengthen the lobbying efforts of the national and regional risk management associations, the Asociación Brasilera de Gerencia de Riesgos (ABGR) and the Asociación Latinoamerica de Administradores Riesgos y Seguros (ALARYS).