Legislative changes set to boost growth in Brazil

The re/insurance market in Brazil is turning a corner as the government makes changes that will nurture growth, according to Marcelo Raposo, General Representative Brazil, Tokio Marine Kiln.

“If you asked about the political, regulatory and economic factors a year ago, the answer would be very negative, but today we are much more optimistic,” he said.

“The current Brazilian finance minister, Joaquim Levy, has been doing a great job at reforming the insurance industry. He’s making changes which should help to resolve issues that have held back market growth. Limits on intra-group per-risk retention, for example, have in the past been a barrier to growth for Tokio Marine Kiln and other companies, but the limits are set to rise incrementally, all the way up to 70 percent by 2020.”

Another front where Raposo is pleased with developments is in planned changes to foreign cessions. Since the state-owned reinsurer lost its monopoly in 2008, the local regulator has licensed roughly 100 reinsurers, most of them foreign. As a corrective, to give the local sector a boost, in 2010 they limited foreign cessions to 60 percent of any risk.

“That means some local companies don’t have the capital to take on large risks, so the former monopoly held on to a huge slug of its market share. It obviously limited foreign reinsurers too. Happily the mandatory local market share number is set to decrease gradually, under the reforms.”

The sheer size of Brazil’s economy makes it a lucrative market for business, said Raposo. The country is a regional powerhouse, even with the recent economic and political problems: it accounts for half of South America’s people, economy, and land. Insurance penetration is at a low level, but the size of the potential market makes it very attractive for insurers.

“There’s the liberalisation of protectionist measures, and another thing that makes the market attractive is the strength of the broking community. There is a strong, experienced distribution network.”

At FIDES he hopes discussions will look beyond the current challenges in the region.

“Sometimes at conferences it is easy to look at the short term economic and political factors, however the region has huge potential for Lloyd’s, and we need to discuss how to increase appetite for specialist insurance products.”