Market to maintain pressure on Brazil government over reinsurance rules

But, ultimately, it may require legal action by the insurance and reinsurance industry that could go as far as the Supreme Federal Court–the highest court in Brazil–to force a further compromise, said Jorge Luzzi, chairman of IFRIMA, the International Federation of Risk and Insurance Management Associations, and a vice president of FERMA, the Federation of European Risk Management Associations.

“I do not think the Brazilian government will allow it to finish that way; most probably before that there will be conversations with the reinsurers and insurers,” said Mr Luzzi, director, group risk management at Italian multinational Pirelli, in an interview.

International reinsurers invested heavily in Brazil following the parliament’s approval of a law that opened up the local reinsurance market in 2007. Now the industry could argue that local insurance authorities are changing the rules originally approved by parliament, putting them at a disadvantage, Mr Luzzi explained.

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“The Brazilian government is intelligent enough to know that [legal action] would not be good for its reputation, and this will be changed,” said Mr Luzzi. As federations of associations, IFRIMA and FERMA would not be part of a law suit, but would continue to press for changes in the knowledge that many of the multinational corporations they represent are major investors in Brazil, Mr Luzzi said.

Until now, they have been partially successful. The Brazilian government recently aborted Resolution 224–a rule imposed by the country’s National Board of Private Insurance–that was to completely prohibit insurance companies from making intra-company cessions from 31 March.

Instead the government introduced Resolution 232, which allows insurers to transfer up to 20% of each reinsurance treaty to companies based abroad that are linked with, or belong to, the same financial conglomerate.

The move came in response to complaints and concerns from corporate insurance buyers and national and international reinsurance markets about restrictive executive orders rolling back the liberalisation of the market.

In remarks at the Czech risk management association’s annual conference on 13 April, FERMA president Peter den Dekker touted the important role European corporate risk managers played in influencing officials in Brazil to revoke the rule–even though the changes did not go far enough.

“A couple of weeks ago, we issued a very strong statement asking the Brazilian government to withdraw their proposals, some of which were of a protective nature,” Mr Den Dekker told the members of ASPAR CZ and other market representatives.

And although corporate risk managers were not the only ones raising concerns, “we came from a different angle,” Mr Den Dekker said. “We talked about the economy, because we represent the real economy, as we say, and the employees–and that sometimes helps in convincing governments.

“We were reasonably successful,” Mr Den Dekker said of the outcome. “We are now working on getting an answer to the not entirely satisfactory changes they made.”

IFRIMA issued its own statement last week saying that it ‘welcomes the flexibility and understanding of the Brazilian government in responding to the world-wide concern about its new reinsurance regulations’.

Resolution 232 is ‘an important step in maintaining the development of the Brazilian market,’ IFRIMA continued in its statement. “Unfortunately, it is still not enough. The restrictions that remain, plus a second resolution that mandates placement of business with local reinsurers, still create the danger of reduced capacity, especially for large risks, and higher costs for industry.”

Mr Luzzi added that FERMA and IFRIMA are also working on a response to potential changes to the insurance law in Argentina, slated to go into effect in September, that are ‘even more drastic’ than those in Brazil.

Argentina wants all the capacity to pay reinsurance claims based in the country, which ‘would be almost impossible, in my opinion,’ said Mr Luzzi, who is preparing an analysis of the situation for both federations.

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