Opening up of market would help infrastructure projects like 2016 Olympics
The success of the Rio 2016 Olympics may be economically linked to reform of the Brazilian reinsurance industry, IUA Chief Executive Dave Matcham has stated at a seminar in Rio de Janeiro.
Addressing delegates at the Reactions 5th Anniversary Brazilian Reinsurance Conference, he called for an end to trade barriers that limit the amount of reinsurance capacity available to local markets in the country.
Mr Matcham declared that without significant involvement from the world’s major reinsurance markets, domestic companies do not have the capability to cover exposures generated by the expanding Brazilian economy. International support is necessary to facilitate growth and underwrite a wide range of infrastructure projects.
“Free and open access to global reinsurance markets is essential if Brazil is to protect its long-term investments in its future, ” commented Mr Matcham.
“The London 2012 Olympics represented one of the most complex risks ever seen by international insurance markets. There is no reason to believe that Rio 2016 will be any simpler to manage from a risk exposure perspective. Global events require global insurance solutions.”
Two controversial and protectionist rules were enacted in the Brazilian reinsurance market in March 2011. They required 40% of reinsurance business to be placed with local reinsurers and banned companies from ceding more than 20% of their insurance premiums to an affiliated, intra-group reinsurer located abroad.
These measures have placed Brazil under the microscope of governmental bodies such as the International Monetary Fund and the G20, both of which have clearly identified reinsurance as an area where the country needs to eliminate trade barriers and inefficiency. Easing regulations in the reinsurance market would promote economic growth and encourage a greater spread of risk.
Mr Matcham stated: “In 2011 more than $105bn of insured worldwide catastrophe losses were incurred from hurricane, earthquake, flood, brushfire, and other natural disaster events. Nearly 45% of these insured losses will be paid by global reinsurers, almost all of which were not located in the jurisdiction in which the event occurred.
“As insurance for insurance companies, reinsurance is a way to diversify and distribute losses globally. Brazil is not immune from catastrophe potential. It may not be known to be exposed to earthquakes or hurricanes, but it is exposed to catastrophic loss from crop failure, flooding and catastrophes that could occur to infrastructure, oil and industrial production facilities, from fire, explosion, terrorism or other man-made causes.
“Brazil has had a number of catastrophic floods in recent years, and elsewhere in the world such flood insurance losses are largely reinsured to prevent an accumulation of losses that might overwhelm domestic insurers.”
The International Underwriting Association remains committed to working with the Brazilian government and regulators to introduce changes to the reinsurance environment.
About the IUA
The International Underwriting Association of London (IUA) represents international and wholesale insurance and reinsurance companies operating in or through London. It exists to promote and enhance the business environment for its members.
The IUA’s London Company Market Statistics Report shows that premium income for the company market in 2011 was £17.261bn with a further £5.052bn controlled by London but written elsewhere. These results are based on a comprehensive survey of 57 companies and give an overall intellectual and economic premium total of £22.313bn for the London company market.