IUA Calls for Reform to Reinsurance Regulations in Brazil

The success of the Rio 2016 Olympics may be economically linked to reform of the Brazilian reinsurance industry, the International Underwriting Association’s (IUA) chief executive officer (CEO), Dave Matcham, stated at a recent seminar in Rio de Janeiro.

Matcham called for an end to trade barriers that limit the amount of reinsurance capacity available to local markets in the country. He said that without significant involvement from the world’s major reinsurance markets, domestic companies do not have the capability to cover exposures generated by the expanding Brazilian economy. International support is necessary to facilitate growth and underwrite a wide range of infrastructure projects.

“Free and open access to global reinsurance markets is essential if Brazil is to protect its long-term investments in its future,” said Matcham. “The London 2012 Olympics represented one of the most complex risks ever seen by international insurance markets. There is no reason to believe that Rio 2016 will be any simpler to manage from a risk exposure perspective. Global events require global insurance solutions.” 

The IUA added that two controversial and protectionist rules were enacted in the Brazilian reinsurance market in March 2011. They required 40% of reinsurance business to be placed with local reinsurers and banned companies from ceding more than 20% of their insurance premiums to an affiliated, intra-group reinsurer located abroad.

These measures have placed Brazil under the microscope of governmental bodies such as the International Monetary Fund (IMF) and the Group of Twenty (G20) finance ministers, both of which have clearly identified reinsurance as an area where the country needs to eliminate trade barriers and inefficiency. Easing regulations in the reinsurance market would promote economic growth and encourage a greater spread of risk.

Matcham added: “In 2011 more than US$105bn of insured worldwide catastrophe losses were incurred from hurricane, earthquake, flood, brushfire, and other natural disaster events. Nearly 45% of these insured losses will be paid by global reinsurers, almost all of which were not located in the jurisdiction in which the event occurred. 

“As insurance for insurance companies, reinsurance is a way to diversify and distribute losses globally.  Brazil is not immune from catastrophe potential.  It may not be known to be exposed to earthquakes or hurricanes, but it is exposed to catastrophic loss from crop failure, flooding and catastrophes that could occur to infrastructure, oil and industrial production facilities, from fire, explosion, terrorism or other man-made causes.” 

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