London and Miami-based reinsurers have seen the biggest increase in demand from Brazilian cedants, with placements increasing significantly over the past year.
Lloyd’s has been one of the major beneficiaries, and is now the second-largest offshore insurer in terms of premiums originating in Brazil, with written premiums for the first 11 months of 2023 up 18 percent year on year to BRL997mn ($199.3mn).
Other European and US companies are also investing in expanding their presence in the market, with reinsurers from Asia and Eastern Europe also showing interest in providing follow capacity on Brazilian contracts.
João Caproni, head of Hannover Re’s representative office in Brazil, told The Insurer expectations are for further growth in the Brazilian market.
“Insurance penetration is still very low when compared to developed economies and the market should keep growing in the next couple of years in areas such as agriculture, life and property, among others,” he said.
“There are quite a lot of big individual risks in Brazil and such risks demand substantial facultative reinsurance capacity, and this should not change in the near future.”
Opportunities for foreign players are closely linked to the performance of the local P&C market. Premiums closed the first 10 months of 2023 almost 11 percent up from the same period the previous year, according to Susep, Brazil’s insurance market supervisor.
Specialty was the fastest-growing segment with a 23.8 percent increase in the period, followed by financial risks and all-risk business insurance, up 18 percent and 27 percent, respectively.
The premium growth is a reflection of both the post-pandemic recovery and a stronger-than-expected performance by the Brazilian economy. GDP closed 2023 around 3 percent higher than the year before, well above market expectations.
The local market was not alone in taking advantage of this trend. Susep data shows that offshore reinsurance placements reached BRL11.160bn ($2.231bn) in the first 11 months of 2023, a 15 percent increase over the same period of 2022. In dollar terms, the growth rate was 18 percent.
Analysts noted that room was opened for international capacity following a retrenchment by IRB(Re), Brazil’s former reinsurance monopoly, which, even after the opening up of the market in 2008, remains a dominant player in the country.
However, an accounting and stock market scandal in recent years forced IRB(Re) to adjust its risk appetite. The firm is also heavily exposed to agricultural risks, a large component of Brazil’s insurance market, which suffered heavy losses in 2021 and 2022.
“The events in Brazil affect the agro sector, which is part of property and as a result drained that capacity locally, increasing demand externally,” said Manuel Moreno, president for US and Latin America at Liberty Specialty Markets.
“We additionally saw an increase in the frequency and severity of several large fire events in some activities with large warehousing so cedant companies are reducing their retention in this type of risk.”
IRB(Re)’s more cautious approach means that its slice of the local reinsurance market dropped from 46 percent to 39 percent in the year to July. Three years before, the firm held a 63 percent market share.
The gap has been occupied to some extent by other local reinsurers, such as the Brazilian subsidiary of Munich Re, which increased its market share from 11.2 percent to 14.5 percent in the year to July, and Austral Re, a local up-and-coming group, which jumped from 8 percent to 12.4 percent. But foreign firms have managed to grab a larger share of the market too.
Offshore cessions reached 37 percent of the total reinsurance market in the first half of the year, according to Austral Re, the highest ratio since 2013. Hannover Re’s Caproni added that legislative changes in 2019 also helped to fuel this trend. That year, Susep increased the possible reinsurance cession to eventual reinsurers from a maximum of 10 percent to 95 percent.
Marjorye Hoejenbos, a partner at reinsurance broker Latin Re, stressed that opportunities have been particularly captured by Miami’s reinsurance hub, which is partly composed of subsidiaries of London-based and European underwriters. But buyers have also increasingly gone directly to London, which motivated the firm not only to have an office in Miami, but to successfully apply for a Lloyd’s licence too.
“There is also appetite from Asian markets and from other places, but much of the knowledge about the region comes from Miami and London,” she added.
Even then, part of her job has been to explain to underwriters the characteristics of Brazilian risk, as many firms have stayed away from the market for a long time. The profile of Brazil as a non-catastrophic market helps to strengthen the case, as well as the proliferation of MGAs in Miami and London that are looking for opportunities to funnel capital to their fields of expertise, noted Paul Conolly, CEO of Carpenter Marsh Fac in Brazil.
“I estimate that some 230 reinsurers are registered to offer capacity in Brazil, and another two dozen operate via fronting and retrocession structures,” he said. “The number of players tends to increase as the market is tested. We are seeing a growing number of players showing interest and making capacity available to Brazilian risks.”
To keep capital coming, though, the market will have to continue to chug along. CNSeg, a trade association, believes that this will indeed be the case. It has forecast that total insurance premiums will grow by 11.7 percent in 2024, with P&C lines leading the way with a 16.8 percent expansion. The market has high hopes, for example, for an expected resumption of infrastructure investments, as a $350bn, multi-year investment plan announced by the government begins to be translated into actual works.
“It will trickle down to demand for several insurance lines, including surety bonds, engineering and liability covers,” commented Ricardo Ciardella, head of specialty at Marsh Brasil.
“Projects that have been bogged down in the past 12 years will come back to the market and there will be plenty of players, both local and international, that will want to provide insurance capacity for them.”
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