IRB Brasil Re downgraded over management shake-up and ERM failure

AM Best has downgraded Brazil's major reinsurer IRB Brasil Re's financial strength rating to A- from A and maintained the  under review with negative implications status, citing concerns over its governance and risk management.

The agency stated that in addition to the ongoing concerns about the effectiveness of IRB’s governance and risk management, the recent high-level departures have created additional uncertainty regarding the strategic direction of the company.

Earlier in March 2020, IRB announced the sudden departure of its senior management due to governance issues, and in April 2020, there were significant changes in the board of directors.

The rating downgrades reflect a revision of AM Best’s view of IRB’s ERM, following the company’s failure to establish adequate risk management tools to ensure meeting appropriate regulatory liquidity metrics calculated by the Superintendência de Seguros Privados (SUSEP), the Brazilian (re)insurance industry regulatory authority, which ultimately resulted in a special regulatory inspection.

AM Best believes that IRB should have resources and management capabilities to avoid such a regulatory breach.

The agency noted that any potential negative finding relating to the special regulatory inspection or IRB’s own internal investigation could impact its view of IRB’s balance sheet strength, operating performance or business profile, which could cause negative rating actions.