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Pressure Forces Brazil to Partially Repeal Reinsurance Rules

Source: Commerical Risk Europe

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Posted on 04 Apr 2011

The Brazilian government has partially backtracked on two heavily criticized reinsurance regulations that many fear would reduce capacity in the country, according to Brazil’s official federal newspaper.

Diário Oficial da União has reported that Brazil’s national private insurance council (CNSP) revoked the deeply unpopular resolution 224 following pressure from FERMA and other risk management and insurance associations. In its place a new resolution 232 sets a 20% risk transfer limit to international parent companies and establishes exceptions to the 20% limit for certain coverages.

Resolution 224, was to forbid reinsurers established in Brazil to cede business to other companies of the same group based abroad. “This ban would greatly affect foreign players who have obtained licenses or set up local operations to write Brazilian risks and cede them back to a group company for greater capacity,” noted FERMA in a statement.

The equally unpopular resolution 225 and the new resolution 232 are still set to be implemented on 31 March, the newspaper reports.
Resolution 225, states that insurers must place at least 40% of their reinsurance coverage with local reinsurers.

Currently local reinsurers enjoy much less of an advantage, as insurers have to give them the right of first refusal for 40% of their placements.

Buyers had feared that a potential capacity crunch could force up prices and restrict cover for multinationals operating in Brazil. Foreign reinsurers that invested to set a foothold in the potentially large Brazilian market have cried foul, complaining that the government is changing the rules of the game after the match has already started.

The International Federation of Risk and Insurance Management Associations (IFRIMA) became the latest industry body to call for a reconsideration of the resolutions on Friday.

“The Laws will not favour the insurance's consumers who are the ones who will pay all the additional bills,” it said. “We are confident that the Brazilian Federal Government will display sensibility in revoking these two resolutions, as they are harmful to Brazil's interests in having a modern insurance system, taking into consideration the international reinsurance and insurance context.”

Peter den Dekker, President of FERMA & Corporate Insurance Risk Manager at Stork BV, last week called for the Brazilian government to withdraw the two contentious bills. "We believe that these regulations will damage the interests of our members and the development of the insurance and reinsurance market in Brazil," he said.

The laws had previously faced criticism from the Brazilian risk management association ABGR and the Latin American risk management association ALARYS.


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