LUÍS FELIPE PELLON 1 AIDA WORLD CONGRESS PARIS REINSURANCE WORKING PARTY THE NEW REINSURANCE MARKET IN BRAZIL - WHAT HAS CHANGED IN TWO YEARS THIRD -

2 The opening In 2007, a new law opened the Brazilian reinsurance market to interested companies. Until then, the market was exclusively in the hands of IRB, a state- owned company that works as a monopoly. The changes arising in the market are deep, affecting contracts, commercial practices, claim’s adjustment, as well legal and regulatory aspects, and require training of personnel and restructuration of companies.

3 The business opportunities The legislator’s objectives are gradually being achieved by modernization in products and services and several business opportunities for companies and professionals dealing with this sector have arisen, specially for lawyers.

4 The different kinds of reinsurance companies The law authorizes three different kinds of reinsurers, namely (i) the local, (ii) the admitted, and (iii) the occasional. All of them needs an authorization of the Brazilian Insurance Commissioner (SUSEP) before the operations starts. Local reinsures must be incorporated in the country with a minimum capital of US$ 60 million, while the admitted require just an office representation and has to provide local guaranties in the amount of US$ 5 million. The occasional ones needs only to be authorized by SUSEP but has a limit of 10% of the local cedent’s business.

5 The local capacities Today Brazil has 6 local, 22 admitted and 58 occasional reinsurers and 32 reinsurance brokers. There is capacity to absorb more companies, given the needs of the local insurance market and the strong development of the country, which are growing at a rate of 5% per year. One of the most attractive aspects of the new reinsurance market in Brazil is the preferential offer of 40% to the local reinsurers and the fact that the exceeding part of those cessions can only be offered to reinsures that are registered as admitted or occasional.

6 The changes in two years Two years after the opening, IRB still appears statistically on the top, but a degree of competition has been noted. After a 69-years monopoly and a domination of a 100% of the market, it holds now only 70% of the collected reinsurance premiums. Regarding the world crises, that affected several international reinsurers, the Brazilian insurance companies prefers to place their business totally by local reinsurers, instead to look for better prices in retail by admitted or occasional ones, to avoid direct credit risks.

7 Some problems of the new market There is no much certainty about the reinsurance taxation’s activity in Brazil, which has increased the premium and indemnifications’ payments. There are also doubts about who is responsible for the taxes payments. One should be aware of this situation when giving a reinsurance premium quotation. The Brazilian insurance market has been resisting strongly in accepting the claims control clause. Leaving the decisions to the international reinsurer, which is away from the Brazilian reality, can cause damage to the national insurer’s image or to its commercial interests. However, the cooperation clause is pretty well accepted in Brazil. The local market also demands that the Follow the Fortune clause includes always the extra-contractual indemnification’s payments, applied by the Brazilian Courts.

8 Future perspectives for the reinsurance market Brazil suffered few consequences from the world sub prime crisis and local firms, financial institutions and insurance companies are solid and active. Terrorism and natural catastrophes are not a great risk in the country. Otherwise Brazil will be the seat of the Soccer World Cup 2014 and Rio de Janeiro will host the 2016 Olympic Games. Besides that the country’s infrastructure needs to be widely and quickly extended to match the strong national development. These circumstances will require huge investments, so the public and private programs for the next three years will reach US$ 30 billion in logistic, US$ 140 billions in electric energy, oil, natural gas and renewable fuel, as well US$ 70 billions in sanitation, urban and rural electrification, housing and transportation. All together, these factors assure an auspicious future for the insurance and reinsurance industry in Brazil.

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