Brazilian reinsurance witnessing strong growth

The Brazilian reinsurance market has grown at a cumulative real growth rate of 29 percent since its opening to competition in 2008.

This is according to a new report by Moody’s, which found that, following the break of state-controlled IRB Brasil Resseguros' former monopoly, the sector continues to present growth opportunities for new entrants, despite an increasingly competitive environment that has led to heightened price competition among reinsurers, causing eroded profit margins.

“More than 100 reinsurers have been granted authorisation from Superintendência de Seguros Privados (SUSEP) to operate in Brazil. However, following an initial expansion immediately after the industry's opening, the number of new entrants has started to taper over the last two years, suggesting the market is beginning to consolidate,” says the rating agency.

In 2013, the total premiums written by the reinsurance industry was $2.9 billion.

Moody’s says that expansion in the market has been supported by Brazil's economic growth, as well as multiple infrastructure development projects and the underlying growth of the Brazilian insurance market. It also found that regulatory constraints have been benefiting locally-domiciled reinsurers.

Although new market entrants have provided growth in capacity to support insurers, they have also increased competition, as reinsurance capital deployed has exceeded business growth opportunities. Excess capacity in the market, combined with aggressive pricing strategies from some new entrants seeking to gain market share, has depressed prices. This is a most notable factor in the surety segment, resulting in a declining trend in profitability for local Brazilian reinsurers, the report says.

Moody’s believes that a shift in focus to underwriting results, underwriting policies and controls will be essential for profitability improvement in the coming periods.

Brazil is becoming a regional hub for reinsurance in the Latin America region with some Brazil-based reinsurers beginning to expand operations in other Latin America countries, which provides diversification in risk and earnings. The rating agency warns however that operations in Pacific coastal countries, more highly exposed to seismic and weather storm activity, could introduce additional risks.