Brazilian reinsurers stand firm despite wider economic woes

Brazil’s reinsurance market has remained strong in spite of an unfavourable operating market and hobbled economic growth, according to a report from AM Best.

Factors such as corruption in the country’s state oil company, the drying up of infrastructure projects and fears over the Zika virus have depressed Brazil’s economic woes even further than the damage done by the financial crisis, the report said.

In spite of this, the majority of local reinsurers reported positive net income in 2015.

The largest reinsurance company in Brazil, IRB Brasil Resseguros (IRB), reported 35 percent year-over-year growth in gross premiums in 2015, with 76 percent of its premiums sourced in Brazil and 24 percent from abroad, mainly in the property, rural and life lines.

IRB’s return on equity in 2015 was 29 percent, almost double the 15 percent reported in 2014.

IRB represented 85 percent of the reinsurance underwriting profit in the country in 2015, and its market share was nearly half of the entire local market.

Although other reinsurance market participants’ local balance sheets are much smaller than IRB, AM Best suggests the competitive landscape will change and competition will increase.

The rating agency suggested that economists’ estimates vary, but some are predicting GDP to be positive in 2017, including the International Monetary Fund, which has forecast 0.5 percent growth in 2017, with more robust growth in subsequent years.

AM Best said: “The Brazilian re/insurance market remains highly competitive and despite some niche opportunities, market conditions could hardly be described as hard or hardening.

“There are indications that proposed regulatory changes could steadily liberalize the Brazilian reinsurance market and potentially help to spread risk more organically and with fewer restrictions.

“Nevertheless, given the difficulties that exist in Brazil and when combined with the challenging overall global reinsurance conditions, the current reinsurance environment for Brazil remains adverse.”