Swiss Re Wants Local Reinsurance License in Brazil

Posted on Sep 05, 2011 by Sergio Ulloa (G+)  | Tags: Brazil, Brazil Insurance

Swiss Re announced this past week that it had submitted its application to Brazil's industry regulator, the Superintendence of Private Insurance (SUSEP), for a local reinsurance registration in the populous South American country. A local license would enable the world's second largest reinsurance firm to better participate in the emerging Brazilian insurance industry, servicing a more comprehensive range of clients and risks, and lending its vast international experience towards future market development in the country. Brazil's insurance industry has undergone a significant evolution in the past few years, delivering sound growth as a result of improving macroeconomic conditions and the loosening of market regulations in the country. In 1996 the Brazilian insurance market was first opened up to foreign participants, who have since brought substantial investment and the introduction of new products, technologies and expertise to the domestic industry. In 2007, the country's reinsurance market underwent similar reforms with the elimination of the 70 year state monopoly that the Instituto de Resseguros do Brasil S.A. held over the industry. The goal of these reforms has been to open the local insurance markets to increased competition and to improve the availability of coverage and lower the costs for Brazilian citizens. Despite this noted progress, international firms have found their capacity to invest in the Brazilian reinsurance market curtailed by a resurgent regulatory effort by the national government to rollback market liberalization, which has added to the cost of doing business in the country substantially. Through two new regulations that came into effect March 31st 2011, 40 percent of all reinsurance business must be allocated to local Brazilian companies and these same local insurers are prohibited from ceding more than 20 percent of premium, related to coverage provided, to affiliated intra-company reinsurers located abroad. Many insurance industry observers are concerned that arbitrarily reducing foreign insurance capacity for handling large commercial risks in Brazil will drive up prices and it will be become more difficult and expensive for Brazilian insurers to diversify and access foreign reinsurers. Swiss Re has been involved in the Brazilian insurance market since 1924 and opened its first branch in Sao Paulo in 1996. The Zurich-based reinsurance group has decided to adapt to recent government regulation by applying to become a local reinsurer under the reinsurance registration for its operations in Brazil. Swiss Re's Region Head for Brazil and Southern Cone Reinsurance Rolf Steiner, explained in a company news release that the South American country's continued economic development together with the impending infrastructure projects surrounding the World Cup and Olympic Games have increased the need for their services to be more readily available in the region. "Brazil is a key growth area for Swiss Re. The economic expansion coupled with large infrastructure projects to support this growth, the World Cup, and Olympics have increased the need for risk management support," Steiner said, adding "As a global re/insurance leader, Swiss Re has the expertise and capacity to serve the growing demand in this thriving region. With 100 years of service to the Latin American market, we have seen Brazil evolve as a leader and we view the local registration status as further evidence of our support for our clients." Insurance companies have been competing for lucrative contracts that will cover the massive infrastructure projects planned by Brazil to host the 2014 FIFA World Cup. Over 1 million people are expected to visit the country for the month-long soccer tournament and an estimated US$ 29.4 billion is being spent on major construction projects in 12 Brazilian cities to accommodate them. This investment, largely through public money, could provide a huge boost to the local insurance market. Outside the World Cup and Oylmpics, Brazil presents an attractive opportunity for insurers as well. Brazil's real GDP grew by 30 percent in 2010. Domestic insurers have benefited from the strong level of economic activity, higher availability of credit, and growth in employment; all factors that have driven strong internal demand for coverage. In 2010 the Brazilian insurance industry outpaced the country's GDP and grew 16.6 percent, with gross written premiums totaling R$ 99.4 billion (US$ 62.7 billion). The Brazilian insurance market is the largest in South America, and offers the potential to become a more prominent global insurance market across all disciplines. Recent economic stability, positive credit trends, and regulatory reforms that have stabilized the currency and promoted domestic savings, are producing sound growth across the insurance industry in Brazil. Despite continued regulatory hurdles, large multinational insurers cannot ignore the market's size and growth potential and will be looking to invest themselves further in Brazil, and other emerging economies, to offset the continued static performance of the established North American and Western European markets. Swiss Re, like many, has identified that increased life expectancy and healthcare expectations in conjunction with the rising cost of long term care, has been a chief proponent in dragging down performance in more mature insurance markets. In a new report, titled "A Window into the Future: Understanding and Predicting Longevity," the company addresses how and why rising life expectancy has been consistently underestimated and what insurance companies can do to develop advanced models to better understand the issue. While modern medical advances in technology have helped increase life expectancy worldwide, a large healthy elderly population provides a significant challenge in retirement financing. According to figures released by the European Commission, currently for one person aged over 65 there are four people of working age compensating pension funds, insurers and government social safety nets. By 2060, this ratio could be down to one retiree for every two persons of prime working age. A report from the OECD issued earlier in the year confirmed that aging populations will cause overall global spending on long-term care to double or maybe even triple by that time. A collaborative approach between governments, businesses and insurers is recommended by Swiss Re to collectively develop a long-term sustainable infrastructure for retirement financing, which would need to include the appropriate sharing of longevity risk. Insurance actuaries meanwhile need to update their mortality models to encompass the most up-to-date medical advances and disease related risks, and to discard historical information that has made the industry slow to react to the increase in life expectancy and long-term care costs in the past. "The future is highly uncertain, but a key benefit of predictive approaches is that they can increase confidence in the pricing and funding of future retirement income solutions," the report states, concluding that "However, holding longevity risk continues to be a major challenge for pension funds, insurers and governments and better methods need to be developed to share the risk appropriately." Companies Mentioned Swiss Re Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines - such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.