Brazil ‘Protectionism’ Could Hurt Economy
Brazil’s booming economy could be severely affected if a catastrophe occurs due to “protectionist” reinsurance regulation, industry trade groups including the Association of Bermuda Insurers & Reinsurers [ABIR] have warned.
In a statement released, earlier this month, representatives from ABIR, the European insurance and reinsurance federation [CEA], the Reinsurance Association of America [RAA] and the International Underwriting Association [IUA] of London cited the record natural catastrophe losses of 2011 as evidence that the recent regulatory changes in Brazil — which requires 40 percent of all risk to be placed with local insurers and limits intra-group risk transfer to a foreign parent to 20 percent — will have a negative impact on the region.
ABIR is the public policy arm of Bermuda’s global reinsurance industry, with offices in Hamilton and Washington DC.
“The impact of the Brazilian regulations is to compel mega event losses to be contained within the Brazilian economy, meaning that Brazil would not receive the economic boost from reinsurance recoveries that were received in 2011 in Australia, Japan New Zealand and Thailand; and in 2010 in Chile,” said Frank Nutter, president, Reinsurance Association of America, in an analysis of the global reinsurers’ concerns published in the “Latin America Insurance Review” today [Jan. 23]
“Brazil has had a number of catastrophic floods in recent years, and elsewhere in the world such flood insurance losses are largely reinsured to prevent an accumulation of losses that might overwhelm domestic insurers,” added David Matcham, CEO, International Underwriting Association of London.
More than $105 billion insured losses were incurred from catastrophic events around the world in 2011, with nearly 45 percent of said losses to be paid by global reinsurers, nearly all of which were not located in the jurisdictions in questions.
The associations are, however, still optimistic that the prospect of substantial future investment into the region will help effect a change in the Brazilian insurance regulator’s stance on the rules.
“With Brazil due to host the World Cup in 2014 and the summer Olympics in 2016, the CEA remains hopeful that the Brazilian government will rethink and ensure that the experience … of international reinsurers is available both during the preparations for the events and during the events themselves” a CEA spokesperson told “LatAm Insurance Review”.
Already this year, the prospect of Brazil liberalising its regulatory regime has led both Bermuda-headquartered Alterra and Bermuda- and Dublin-based XL to announce plans for major operations in that country.
