Profits still elusive in Brazil’s growing market

Brazil can offer international reinsurers robust opportunities for growth but they should also be aware that profitability on this business could be elusive for many years to come, according to Standard & Poor's.

In a report, the rating agency notes that as developed economies' growth slowed in recent years and some fell back into recession, emerging markets' economies performed comparatively well. In response, many global reinsurers incorporated the emerging economies in Latin America, the Middle East, Africa, and Asia-Pacific into their growth and diversification strategies.

Many reinsurers, particularly Bermudian and European, identified Brazil as a land of opportunity, the report said. But these companies have often found tangible profits hard to come by.

“We view intelligent and profitable diversification as a positive factor in assessing a reinsurer's competitive position. However, profitability in emerging markets could be evasive, especially for companies entering new lines of business, exposing themselves to unknown or unmodeled risks, in regions where prices may not adequately reflect risk,” said Standard & Poor's credit analyst Taoufik Gharib.

The report, titled The Brazilian Reinsurance Market: Breaking The Monopoly, also notes that while Brazil will likely enjoy a third year of modest economic growth, the Brazilian insurance and reinsurance markets continue to soar.

It also welcomes the liberalisation of the Brazilian reinsurance market after a number of false starts but warns that the Brazilian regulatory authority has adopted an approach to deregulation that global re/insurance trade organisations qualify as protectionist.

“In spite of the limitations on a full liberalisation of the Brazilian reinsurance market, global reinsurers, starving for growth, are still flocking to the count,” the rating agency said.