Brazil's expansion fuels active insurance market

As befits one of the world's expanding economies, Brazil enjoys a vibrant insurance market, observers say.

In 2010, premium volume in Brazil reached $64.09 billion, according to data by the New York-based Insurance Information Institute. Nonlife premiums accounted for slightly less than half of the total at $30.85 billion.

Luis Maurette, CEO of Willis Latin America in São Paulo, said about 80 insurers operate in Brazil. The top five account for about 60% of the market and the top 10 account for about 75%, he said.

The two largest insurance companies—Itau Seguros S.A. and Bradesco Seguros S.A.—are controlled by the country's two largest banks, said Eduardo Marques, technical director at Marsh Brazil in São Paulo. But he said there are many international companies and, depending on the line of business, there may be five to 10 markets.

“The level of competition is good,” he said. “We don't feel there is premium control or price control.”

“There are very strong domestic insurers there,” said Howard Mills, director and chief adviser at Deloitte L.L.P.'s insurance industry group in New York. “It's a big investment in terms of marketing and building name recognition in order to compete.”

Mr. Maurette said Brazil's insurance market is dominated by banks.

“Brazil's insurance market has experienced significant consolidation among the leading domestic firms, especially bank-affiliated groups, as well as increased participation by international insurance organizations,” he said. “This trend will likely continue, leading to further consolidation and rationalization in market structure.”

Placing insurance is “exactly as in the U.S. or Europe,” said Marsh's Mr. Marques: The buyer comes to the broker and the broker identifies the insurance program the company needs.

“In Brazil, it is mandatory that all insurance must be sold by insurance brokers, whether a person or legal entity,” said Mr. Maurette. He said Willis Brazil has more than 1,600 clients, most of them local companies or Brazilian multinationals.

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Foreign brokers can operate freely in Brazil without the need for joint ventures, said Nicolau Daudt, CEO of JLT Re in Rio de Janeiro, a unit of Jardine Lloyd Thompson Group P.L.C.

“There are some 60,000 insurance brokers in Brazil; however, they do not all offer the same levels of service as would be expected in the U.S.,” he said.

The Brazilian insurance market is strictly regulated, said Anna Tavares de Mello, a partner at law firm Trench, Rossi e Watanabe Advogados in Rio de Janeiro. To transact business in Brazil, insurance and reinsurance companies and brokers must be licensed by the nation's regulator, Superintêndencia de Seguros Privados.

Insurers have to file policy wording and premium ratings with SUSEP. Insurance policies also have to be written in Portuguese and poor translations can result in litigation, said Mr. Daudt.

Foreign companies that need coverage for operations in Brazil need to buy compliant policies if they want true protection, said Hugh Burgess, New York-based chief executive of the Americas region for Allianz Global Corporate & Specialty, part of Munich-based Allianz. S.E. Failure to comply could invalidate insurance, he said.

Insurance companies need to be incorporated in Brazil in the form of a Sociedade Anônima, and all insurance products must be registered with SUSEP, Ms. Tavares de Mello said. Insurers also must observe the nation's consumer protection law, she said.

Risk managers of non-Brazilian companies cannot rely on nonadmitted insurance and there are strict controls and limitations on insurers, said Mr. Marques.

“For multinational companies with global programs and captive arrangements, each case will be different and require its own solution. But it is possible for an insurer's overseas subsidiary to be part of a global program and cede to a global program whilst respecting local insurance laws, Mr. Marques said.

“Regulation in Brazil is changing, as in most of the insurance markets in Latin America, moving toward global trends,” including a risk-based capital scheme, said Marcela Abraham, Mexico City-based division leader for Towers Watson Risk & Consulting Services Latin America.

Brazil's regulatory body is following its own particular approach, and risk-based factors are being developed by lines of business and for the different risks at different stages, said Ms. Abraham.

“I am trying to say a general one-time change on capital requirements is not going to take place,” she said. “Instead, factors have already been issued for nonlife operations, credit and reinsurance risks, and regulators are working on risk factors to calculate capital requirements for life and annuities to be implemented in 2013.”

In Brazil, there is a lot of “engagement with global regulators” by the International Assn. of Insurance Supervisors, said Deloitte's Mr. Mills, a former New York superintendent of insurance.

“The Brazilian insurance market has recently gone through deregulation,” said Jon Hall, executive vp of Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. He said the reforms included ending the state-owned IRB's monopoly over reinsurance.

“However, the implementation of these changes will take years to take effect,” he said, “Unlike China, the (Brazil) market is fragmented with a number of domestic and international carriers.”

Brazilian insurance policies use similar concepts and clauses as those found in the US or Europe, said Mr. Daudt. But there are some differences, he said. For example, Brazilian policies must include an intermediary clause that defines the duties of a broker as well as an arbitration clause, he said.