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FERMA protests Brazil's new reinsurance rules

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BRUSSELS—The Federation of European Risk Management Assns. on Friday called for the withdrawal of new reinsurance regulations in Brazil that FERMA says will reduce capacity, drive up insurance costs and potentially threaten coverage of major infrastructure projects for the 2014 FIFA World Cup and 2016 Summer Olympic Games.

The regulations that are to go into effect March 31 would prohibit insurers from ceding business to affiliated, intragroup reinsurers, a move that 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,” FERMA said in a statement.

Under the rules, 40% of reinsurance business would have to be written with local reinsurers rather than allowing them the right of first refusal, as now is the case. Local reinsurers would be allowed to change coverage terms and conditions, FERMA said.

FERMA President Peter den Dekker said the association believes “these regulations will damage the interests of our members and the development of the insurance and reinsurance market in Brazil. We therefore ask the Brazilian government to rescind them,” he said in the statement.

FERMA said the new regulations were approved in December by Brazil’s National Board of Private Insurance without public consultation.

The regulations will set up obstacles to foreign capacity, and that could hinder large programs that rely heavily on reinsurance “such as the vast infrastructure projects for the 2014 FIFA World Cup and 2016 Olympics in Brazil,” FERMA said.

“It can also affect reinsurance contracts currently in force and create a vacuum of coverage while ceding companies try to adapt to the new measures,” FERMA said. “More players and more transactions would also be required, increasing costs with a direct impact on insurance premiums to be paid by Brazilian insureds.”

FERMA said it took the unusual step as a way to support its members that have invested in Brazil and to strengthen the lobbying efforts of the national and regional risk management associations, the Asociación Brasilera de Gerencia de Riesgos and the Asociación Latinoamerica de Administradores de Riesgos y Seguros.

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