Brazil’s government is under attack from 18 insurance bodies worldwide following its decision to drastically amend regulations governing reinsurance in the country. The decision was taken without prior consultation with insurers and reinsurers.
In brief, the Brazilian government insurance regulator, the National Private Insurance Council, introduced two regulations on 31 March. One, Resolution 225, requires the placement of 40 percent of reinsurance business with local Brazilian reinsurers, and the other, Resolution 232, prohibits local insurers and
reinsurers from ceding more than 20 percent of their insurance premium to an affiliated, intra-group reinsurer located abroad.
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The requirement under Resolution 232 will be applied retroactively to existing reinsurance contracts that extend beyond 31 March 2012. This, the insurance bodies argue in a joint letter to the Brazilian authorities, constitutes an abrogation of contract terms and is illegal under Brazilian law.
The 18 insurance bodies noted that they are "deeply concerned" that the new regulations will severely limit the development of a competitive Brazilian insurance industry and will undermine the ability of local businesses to use insurance and reinsurance for risk management.
The bodies warned the Brazilian government that to the extent that a given insurer is not able to obtain 40 percent reinsurance with local reinsurers, it is unlikely to be able to accept risks.
The insurance industry bodies also emphasised that international insurance groups will not be able to use globally accepted prudent risk management strategies, nor will they be able to fully provide greater insurance capacity to the Brazilian market.
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By GlobalData"The benefits of diversification of risk into the global insurance market will be lost and, as a result, insurance likely will cost more for Brazilian consumers," stated the bodies.
Among signatories to the letter are the American Council on Life Insurers, the European Insurance and Reinsurance Federation, the Association of British Insurers, America’s Health Insurance Plans, the Reinsurance Association of America and the Association of Bermuda Insurers and Reinsurers.
