U.S. Insurers Rally To Get Brazil To Drop Reinsurance Restrictions

The Brazilian Parliament sent the matter to the Brazilian justice department, which is expected to rule  on it soon, hopefully invalidating the measure, Smith said. Smith said the resolution appears on its face as unconstitutional.

Reinsurance risk is concentrated in the country due to the new resolutions, and capacity is shrunk as a result of the resolutions, insurers are concerned, more so now because reinsurance contracts are up for renewal at the beginning of the year.

Dave Snyder, general counsel for the American Insurance Association (AIA), noted there is a “significant sense of urgency here.”

Brazil liberalized its insurance markets in 2007 and started phasing out the state-run enterprise, and insurers readily came in to accept the depth and breadth of coverage opening up there, with city-defining world events to be hosted like the World Cup (2014) and the Olympics (2016), and rapidly developing energy and transportation infrastructure.

However, Brazil Finance Minister Guido Mantega in 2010 took action to reverse the market trend, insurers complained, and moved insurers back to the now semi-privatized  reinsurance enterprise, the Reinsurance Institute of Brazil (IRB) and instead of reversing the requirements, the government’s insurance regulator, the National Private Insurance Council (CNSP), earlier this year “unexpectedly promulgated two new regulations that will dramatically restrict the ability of private insurers and reinsurers – both Brazilian and foreign — to do business in Brazil,” according to life and property-casualty insurers.

The requirements will be applied retroactively to existing reinsurance contracts that extend beyond March 31, 2012. This, the insurers argue, constitutes an abrogation of contract terms and is illegal under Brazilian law, the U.S. insurance industry had written to the chief of staff to Brazil’s president in the spring.

“Insurers have invested significant resources in Brazil’s insurance market only to have the clock turned back on market access,” Snyder stated.  “The two previously adopted resolutions will virtually cut off Brazil from the foreign reinsurance market and the globalization of risk that characterizes it and should be reversed,”  he said.

Shrinking capacity all around harms insurers and potential buyers, Snyder noted.

A call to the office of the U.S. Trade Representative, which has been involved in the issue, was not returned by press-time.