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SAO PAULO, BrazilYears of attempts to gradually open Brazil's reinsurance market to foreign competition may finally succeed.
The nation's senate late last month sent a bill to President Luiz Inacio Lula da Silva that would gradually increase competition against the IRB-Brasil Resseguros S.A, the government-controlled reinsurer that has held a monopoly for decades.
Because the Bill of Complementary Law No. 249/05 originally emerged from President da Silva and his Workers Party, the president is likely to sign it, while perhaps vetoing a portion of it, explained Henrique Oliveira, office head of Swiss Re Brasil, a Sao Paulo, Brazil-based unit of Zurich, Switzerland-based Swiss Reinsurance Co.
Under Brazilian law, the president may veto portions of a bill while putting the rest into effect.
President da Silva's signing of the legislation would benefit insurance buyers, as it would boost international capital available for the development of new insurance products, Mr. Oliveira said. A competitive reinsurance market is also likely to introduce efficiencies now lacking, he added.
Those benefits would outweigh reductions in pricing that might follow, Mr. Oliveira said.
Meanwhile, the IRB is expected to remain a strong competitor. Created in 1939, the IRBLatin America's largest reinsurerwill remain strong because of its intimate knowledge of the country's insurance arrangements, the ceding companies and their treaties, Mr. Oliveira said.
There is a high probability, though not certainty, that the legislation will be adopted, added Jorge Luzzi, director of corporate risk management in Sao Paulo and Milan, Italy, for tire manufacturer Pirelli S.p.A.
While it would take time for Brazil's insurance market to adapt to the substantial changes called for under the bill, it would present risk managers with greater freedom of choice, Mr. Luzzi said.
Among other provisions, the legislation would create three types of reinsurers, according to a bill analysis provided by Brazil-based Mattos Filho Advogados, a law firm with a reinsurance practice.
"Local reinsurers" would have headquarters in Brazil and form exclusively to provide reinsurance. "Admitted reinsurers" would include companies with headquarters abroad and a representative office in Brazil, while "eventual reinsurers" would not have an office in Brazil but would have authority to carry out transactions within the country.
The bill also states that the IRB would maintain first right of refusal for three years for 60% of the insurance business generated in Brazil, decreasing to 40% for three years beyond that, Mr. Oliveira said.
President da Silva has until mid-January to sign or veto the bill, Mr. Oliveira said. If he takes no action, the bill automatically becomes law.
One part of the bill that might face a veto is a provision allowing insurers, which own 50% of the IRB's capital, to use their share to create new reinsurers. That portion of the bill was added by Brazil's lower house and was not part of President da Silva's original intent, Mr. Oliveira said.
That the legislation could become law is a "very nice surprise," Mr. Oliveira said.
Brazil adopted a law in 1999 to open its reinsurance market, but it was struck down by the nation's Supreme Court, which led to constitutional amendments to prevent hampering of further efforts.