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% of reinsurance business with local Brazilian
reinsurers, and the other, Resolution 232, prohibits local insurers
and reinsurers from ceding more than 20% of their insurance premium
to an affiliated, intra-group reinsurer located abroad.

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% reinsurance with local reinsurers, it is
unlikely to be able to accept risks.

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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.

“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.