Brazil’s re/insurance sector soldiers on despite headwinds

Brazil’s re/insurance market has remained fairly resilient despite the recent downturn in the general Brazilian economy, according to AM Best.

AM Best’s latest Reinsurance Market Review states that between 2007 and 2009, Brazil was in the midst of a surge in economic growth that made it “a leading emerging market and hotbed of business activity”.

Around the same time, the Brazilian government was in the process of demonopolising the state-controlled reinsurer IRB Brasil Resseguros and opening the reinsurance market to competition, which fuelled reinsurers eager to access Latin America’s largest economy.

“Fast-forward to 2016 and the picture has changed. The global financial crisis in 2008 derailed much of the prospects and progress made in many emerging economies as economic growth ground to a halt and many investors fled to the security of highly rated instruments in the few remaining safe havens,” AM Best said.

In addition, Brazil was rocked by a number of internal problems, including a political crisis that roiled the nation as the result of a corruption investigation.

The Petrobras corruption story broke in 2014 and within a few short months the country was embroiled in a political and economic scandal that touched all of Brazilian society and political affiliations.

The internal turmoil curtailed economic growth: GDP turned negative, inflation spiked, and rating agencies hit the country with a series of downgrades that put Brazil’s sovereign rating below investment grade once again.

AM Best said the impact of the economic downturn then adversely impacted the re/insurance sector as Brazil’s strong insurance and reinsurance growth stayed positive, but at a significantly lower level when compared to prior years.

However, the rating agency said: “Despite all ongoing negatives and uncertainty, glimmers of hope for the future remain. Economists’ estimates vary, but some are predicting GDP to be positive in 2017 and more robust growth in subsequent years—the International Monetary Fund estimates are now for 0.5 percent growth in 2017.

“There is also hope that the corruption investigations and trials will ultimately lead to a better government and improved ease of doing business.

“The re/insurance industry in Brazil has proved that, like their global counterparts, they are resilient and capable of weathering difficult market conditions,” AM Best said.