By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
Insurance industry representatives and risk managers the world over have called for reconsideration of Brazilian regulations that went into effect March 31, 2011, which, they believe, will impede their ability to do business in the country.
David Snyder, assistant vice president for the Washington, D.C.-based American Insurance Association, called the actions "self-defeating."
"Brazil has tried to establish itself as a world leader on insurance issues and yet the action is contrary to the most fundamental notions of the positive role of insurance in the United States and globally," he said.
According to the rules established by the Brazilian Superintendency of Private Insurance, carriers in Brazil must cede at least 40 percent of each reinsurance cession to local reinsurers.
The rule applies to both treaty and facultative reinsurance contracts and converts the previous requirement whereby local reinsurers had the right of first refusal to at least 40 percent of the cessions.
Moreover, according to a rule in effect since Jan. 31, 2011, liabilities assumed in insurance, reinsurance or retrocession contracts in Brazil cannot be transferred to companies within the same financial conglomerate established abroad.
Tracey Laws, general counsel of the Washington, D.C.-based Reinsurance Association of America, said that the regulations sharply differ from how reinsurance is supervised in virtually every other industrialized country.
"We are concerned the regulations will severely circumscribe the development of the Brazilian insurance industry and will undermine the reinsurance of important infrastructure projects planned for the next decade," she said.
Brad Kading, president of the Association of Bermuda and Insurers and Reinsurers, said the regulations will jeopardize recent investments that leading global groups have made in insurance and reinsurance operations, in addition to reducing the globalization of Brazil's risk.
"The new regulation is a big problem and will act as restraint on trade and investment," he said.
Large banks that had backed the reinsurance monopoly that was broken up in Brazil in 2007 were concerned that falling market share was threatening their investment and pushed regulators for the new restrictions, according to Kading. As for the restriction on interconglomerate transfers, he said, "this was just an attempt to decap them by cutting them off at the knees."
A coalition including the RAA, American Council of Life Insurers, American Insurance Association, ABIR and Association of British Insurers criticized both the fact that the Brazilian regulators did not seek industry or public comment, and the brevity of the period between the announcement and effective dates. It called for suspension of the regulations for 180 days for further study.
Risk managers from around the globe also criticized the regulations.
Peter den Dekker, president of the Federation of European Risk Management Associations, said the rules will damage the interests of his group's members as well as impede development of the country's insurance market.
The International Federation of Risk and Insurance Management Associations has called for Brazil to reconsider the rules, contending they will increase insurance costs that will then be passed on to consumers. They could also threaten development projects in the country due to lack of reinsurance capacity.
One of the most significant global players in Brazil, Chicago-based Allianz Global Corporate & Specialty Americas took a wait-and-see attitude.
"We are closely monitoring and reviewing the regulatory landscape in Brazil and ensuring that AGCS clients have continuity of coverage, but it is too early to comment on the impact of the new regulations," said Tara Giuliano, a spokeswoman for AGCS.
April 1, 2011
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