Brazilian reinsurer aims at global player status and defends new rules

IRB Brasil Re, the company that held a monopoly of the Brazilian reinsurance market until 2008, is already setting up operations in neighbouring Argentina and developing contacts in other Latin American and African markets. It plans to start working in Asia as a partner on retrocession contracts, with a view to accepting risks directly from Asian insurers at some point in the future. Current expansion plans are based on organic growth, but acquisitions are far from out of the question, according to Leonardo Paixão, IRB Brasil Re's Chairman. “So far, we have focused on growing organically,” he told Commercial Risk Europe in an exclusive interview. “But if acquisition opportunities come up, we will take a look at it.”hideThe strong appreciation of the Brazilian currency, the real, has also made acquisitions abroad a more realistic proposition, he said. IRB Brasil Re wants to grow in order to diversify its own risks. As of today 90% of the firm's premium revenues come from Brazil. This is not surprising as less than four years ago the company was the only option for Brazilian insurers looking to transfer their risks. But the belated liberalisation of the Brazilian reinsurance market has convinced the firm that the time has come to operate more in line with global reinsurers. “We have a good dispersion of risks in terms of insurance lines,” said Mr Paixão. “But now we are trying to diversify our business at the international level too.” IRB Brasil Re, which is co-owned by the Brazilian government and the three largest financial groups in the country, has seen its market share gradually reduce in Brazil since the reinsurance laws governing overseas companies were relaxed. New entrants such as ACE, XL and Mapfre have made a dent in the company's dominant position. IRB Brasil Re’s initial plans are for Argentina, where IRB Brasil is taking advantage of new regulatory rules to set up a subsidiary in the country. Starting on 1 September Argentine insurers will only be able to buy coverage from reinsurers that have been granted a local status by the country’s government. One of the few companies to already enjoy this status is IRB Brasil, as reinsurers based in the Mercosur trade area find it easier to meet capital requirements imposed by the new rules. “Argentina has an educated population, and a culture of purchasing insurance,” Mr Paixão said. “And it is the closest market to Brazil, as we are partners in the Mercosur. Insurance supervisors are even discussing whether to implement tighter cooperation, with the goal of exchanging information about companies of one country operating in the other.” In general Mr Paixão says that his company’s expansion will follow that of Brazil's growing number of multinational companies. As such it will be focused mainly on Latin American and African countries, with Asia as a target in the longer term. Mr Paixão also countered the complaints made by many insurance buyers over two resolutions adopted by the Brazilian government earlier this year that restricted the ability of local insurers to buy reinsurance abroad. One of the rules forces insurers to place at least 40% of their reinsurance coverage with local reinsurers. Entities like Ferma, the Federation of European Risk Management Associations, warned that the rules would likely affect reinsurance capacity in Brazil just as the country is engaged in huge investments in infrastructure. But Mr Paixão said that the doomsayers badly missed the point. “They were clearly wrong on that,” he argued. “It was even an illogical claim. If when only one reinsurer operated in the country there was no dearth of capacity, how would there be a lack of capacity with eight firms established here? It was a weird argument. People who said capacity would disappear after the resolutions must be struggling to explain themselves, as there is more capacity available than what the market demands." If anything, Mr Paixão says that the resolutions have had a salutary effect on the market. It has forced foreign reinsurers with local status to truly operate operate as such, as well as convincing other firms to look for the appropriate licenses in the country, he said. By the end of the year, Brazil should have 12 companies with local reinsurer status, he said.

Brazilian reinsurer aims at global player status and defends new rules

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