Pandemic-ridden Brazil inserts itself in the international context of reinsurance

RIO DE JANEIRO, BRAZIL – The pandemic brought significant losses for reinsurers, responsible for paying the excess losses of insurers. And this results in higher rates, deductibles, and tougher conditions, with exclusions. In Brazil, besides the impacts of the international scenario, the regulatory framework is under revision by the Superintendency of Private Insurance (SUSEP).

“In almost all of the reinsurance contracts that we are renewing, there is a request for the inclusion of a clause that excludes transmissible diseases, increases in rates, and in deductibles,” says Juliana Kazumi Chen, responsible for reinsurance at Fator Seguradora. The main readjustments are in financial and professional liability insurance, mainly in D&O and cyber.

“In segments such as power generation, transmission, distribution, and trading, as well as manufacturing, these increases have been quite significant,” reports Paul Conolly, director of reinsurance at Marsh.

No one can yet say for sure how much the pandemic will cost the industry. Lloyd’s of London, the world’s largest insurance market, has estimated worldwide losses of more than US$200 billion across the industry. The two major reinsurers, Swiss Re and Munich Re, have each reported losses of nearly US$4 billion from the pandemic in 2020.

The group has set aside reserves to pay claims arising mainly from losses on event cancellation insurance, health, life, aviation, and loss of profits, among the main ones,” says Fred Knapp, responsible for reinsurance in Brazil and the Southern Cone at Swiss Re.

However, 2021 is a year viewed with optimism, especially in Brazil, in view of the perspectives of new business, such as cyber insurance, parametric insurance, which are on the agenda of the Ministry of Agriculture, and the offer of capital for insurtechs to advance in the sector.

Reinsurance in Brazil, with sales of R$11.6 billion in 2020, up from R$9.7 billion in 2019, is going through many changes, including regulatory ones. Behind the scenes at the Superintendency of Private Insurance (Susep) there is intense movement, with the prospect of reviewing the entire infralegal framework of reinsurance, in line with what is established by Complementary Law No. 126/2007 and Law No. 13,874/19 (Economic Freedom Law).

In this context, Susep has been implementing modernizations and simplifications. Thus, issues such as cession limits in reinsurance and retrocession, differentiation between local, admitted and occasional and other points, are on the review agenda, says Susep’s director, Igor Lourenço.

One of the sector’s concerns is whether the preference for locals will end. “This issue is being discussed within Susep and the federal government and, currently, there is a consensus in relation to the need to review the law that deals with reinsurance, which includes making the preferential offer regime more flexible. However, the matter depends on the appreciation and deliberation of the National Congress”, informs Lourenço.

In addition to regulation, Brazil’s main reinsurer is undergoing a profound transformation. IRB Brasil Re reported a loss of R$ 1.5 billion last year after accounting fraud and changes in the entire management body. For 2021, the perspective is to return to profit. “No coronavirus-related impact on IRB operations was observed,” says the executive vice president of reinsurance, Isabel Solano.

“In 2021, our first important date for renewals was in January. Within the re-underwriting strategy, the IRB requalified its portfolio, with the exit of several unprofitable contracts and the adjustment of terms and conditions in renewals. As a result, 11% of the portfolio in the property, rural, and aviation segments was cancelled, and 87% of the target contracts were renewed. In addition, new contracts represented 13% of the new portfolio,” says Isabel.

According to Bruno Freire, CEO of Austral Re, an increase in demand is expected in the energy segment due to investments in infrastructure and new regulations, such as the Gas Law. “In addition, the strategic redirection of Petrobras, which has been underway for at least two years, also makes coverage needs available to the market that were previously absorbed by the company itself.” Cyber risk insurance, he says, has also been drawing more attention from companies.

Source: Valor