Brazilian reinsurance market grows 29%

The Brazilian reinsurance market has grown at a cumulative real growth rate of 29 percent since the opening of Brazil’s reinsurance market to competition in 2008, following the break of state-controlled IRB Brasil Resseguros' (IRB) former monopoly.

This is according to a new report by Moody’s which found that the sector continues to present growth opportunities for new entrants, but an increasingly competitive environment has led to heightened price competition among reinsurers which has 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,” said the rating agency.

Moody’s said that expansion in the market has been supported by Brazil's economic growth, multiple infrastructure development projects, as well as the underlying growth of the Brazilian insurance market and regulatory constraints benefiting locally-domiciled reinsurers. In 2013, the total premiums written by reinsurance industry was BRL7.0 billion ($2.9 billion).

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. Combined with aggressive pricing strategies from some new entrants seeking to gain market share, excess capacity in the market, has depressed prices. This is most notable in the surety segment, resulting in a declining trend in profitability for local Brazilian reinsurers, said the report.

The rating agency added that a shift in focus to underwriting results and underwriting policies and controls will be essential for improvement in profitability in the coming periods.

Brazil is becoming a regional hub for reinsurance in the Latin America region with some reinsurers established in Brazil beginning to expand operations in other Latin America countries, which provides diversification in risk and earnings. However Moody’s warns that operations in Pacific coastal countries, which are more highly exposed to seismic and weather storm activity, could introduce additional risks.