By DAN REYNOLDS, senior editor of Risk & Insurance®
Many eyes were on Brazil this week, and it wasn't just because Rio de Janeiro was chosen to host the 2016 Summer Olympics.
Two global reinsurance companies also lent their focus to the massive South American country, which is slowly opening its reinsurance and insurance market after years of a state monopoly.
With its eye on Brazil's sizable agricultural sector, Zurich-based Swiss Re issued a report that in the main pointed out that Brazil's farming industry is underserved by insurance.
Two days after Swiss Re released its study, Johnston, R.I.-based FM Global announced that it had become an admitted reinsurer in Brazil's nonlife segment.
"From a commercial property perspective, we're seeing steady growth in most industries in Brazil," said Marc Ragazzi, a vice president and Latin American operations manager for FM Global in an e-mailed statement.
"Today, large Brazilian companies in the chemical, metals, mining and pulp and paper sector are expanding their operations all over the world to become leading suppliers--despite a sluggish economy. Given their inherent property risks, like fire and natural disasters, for example, reinsurance needs will also continue to grow," he added.
The developments come more than two years after Brazil passed a law in January 2007, which opened its reinsurance market to outsiders after decades of monopoly rule on the part of the government's Brazilian Institute of Reinsurance.
Insurers that are writing business in Brazil's agricultural sector include Seguradora Brasileira Rural, Alianca do Brasil, Mapfre Seguros, Allianz, Nobre Seguros and Porto Seguros, according to Brazil's insurance regulator, the Rio de Janiero-based Superintendence of Private Insurance.
MORE COVERAGE OPTIONS
A lot of ground is going to have to be made up in the agricultural sector, according to Swiss Re, for the government of Brazil and the private sector to create the regulation and infrastructure necessary to give farmers more coverage options.
Swiss Re stipulated that a lack of insurance is stifling the amount of credit that can be extended to farmers, with the end result that much of Brazil's arable land, excluding rainforests, isn't being farmed.
There are 190 million farmed acres in Brazil, leaving an additional 261 million workable acres, outside of rain forests and other conservation areas, that aren't being farmed, according to Swiss Re's estimates.
Although many of Brazil's farmers are organized into co-ops that do have insurance, only 21 percent of that country's large farms and 15 percent of its corporate farms are covered for natural perils and commodity price volatility, risks that Swiss Re has concluded are among the most pressing for Brazil's farmers.
Commodity price risk coverage is one product in which Brazilian farmers have expressed an interest, said Juerg Trueb, Swiss Re's head of environmental and commodity markets.
"We believe that a broadening of the existing coverage by including a commodity price risk component is appealing to Brazilian farmers and would address some of the concerns they expressed during our risk survey," Trueb said in an e-mailed response to Risk & Insurance® on Oct. 2.
"Using the U.S. Federal Crop Insurance Program (FCIP) as an example of what could happen, we note that over the last few years, U.S. farmers increasingly shifted their insurance coverage from multiperil crop insurance (MPCI) addressing purely volume risks to revenue coverages addressing both volume and price risks," Trueb wrote.
Swiss Re estimates total premium volume in 2008 for crop insurance to be about $182.99 million. About 50 percent of this is subsidized. Swiss Re further estimates that the amount of premium coming from unsubsidized insurance products makes up for less than 1 percent of the market. These premium numbers do not include the premiums from the government program (ProAgro).
October 5, 2009
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