All roads lead to Rio
The Brazilian Reinsurance Institute (Instituto de Resseguros do Brasil SA - IRB) was founded in 1939 and is jointly owned by the insurance companies that are licensed to do business in Brazil (non-voting shares) and by the Government of Brazil (voting shares). For more than 70 years, all reinsurance business had been transacted via the IRB but all this has now changed. January 2008 saw the transition to an open market.
A milestone of this process was the sanctioning of the Complementary Law No. 126 (dated 15 January 2007) that regulates the reinsurance market. This effectively opens the market to competition and has renewed and heightened the interest both from foreign reinsurers and local financial groups. In order to ensure that the resulting legislation is best suited for the Brazilian market, the Supervisor of Insurance (SUSEP) invited comments relating to the proposed regulation until 16 November 2007.
The proposed legislation is an excellent start, but significant work still needs to be done to refine the final document in order to attract key players and facilitate a competitive market. After this phase is over, the next decision will be regarding the choice of Brazilian city in which a reinsurer should establish its headquarters. The main options are Rio de Janeiro or São Paulo. The decision is fundamental since it’s likely that a reinsurer's Brazilian office may develop into its regional centre for Latin America.
Government authorities in both cities and states have been actively trying to capture the attention of those reinsurers that are in the process of assessing local conditions. Already based in Rio de Janeiro are 84% of the reinsurance brokers (there are currently 28) and 50% of the reinsurers` representative offices. Therefore it would certainly appear that all roads lead to Rio.
The IRB’s headquarters have been in Rio de Janeiro since its creation in 1930; hence Rio de Janeiro has the history, experience and tradition. Other industry bodies that are based in the city include:
>> SUSEP
>> Fenaseg (Federação Nacional das Empresas Seguradoras – National Federation of Insurance Companies)
>> ANS (Agência Nacional de Saúde – National Health Agency)
>> CVM (Comissão de Valores Mobiliários – Securities and Exchange Commission)
>> Fenacor (Federação Nacional dos Corretores de Seguros – National Federation of Insurance Brokers)
>> ABER (Associação Brasileira de Resseguradores – Brazilian Association of Reinsurers).
These represent all of the regulatory, supervisory and industry representatives both of the insurance and reinsurance sectors.
Due to its long-standing tradition in insurance and reinsurance, Rio de Janeiro has Brazil's largest and most experienced pool of qualified insurance professionals. This source of talent has been nurtured by the industry’s traditional and influential educational institutions. These include:
>> Funenseg (Escola Nacional de Seguros – National Insurance School)
>> UFRJ (Federal University of Rio de Janeiro) - the oldest and most respected insurance faculty which has offered undergraduate courses in actuarial science for over 50 years
>> PUC - IAPUC faculty (Instituto de Administração de Riscos Financeiros e Atuariais – Financial and Actuarial Risks Management Institute), which offered the first Masters Degree in actuarial science in Latin America
>> IBA (Instituto Brasileiro de Atuária – Brazilian Actuarial Institute).
The state of Rio de Janeiro is also a principal market for reinsurers both in terms of premium from ceding companies and large industrial risks. According to the IRB, 50% of ceded premiums of large industrial risks originate in the area. The reason is simple – many large companies and industrial plants are located here, including Petrobras, Eletrobras, Nuclebras, Vale do Rio Doce, the shipbuilding industry, steel mills, telecommunications companies, and so on. Major new investments include Companhia Siderúrgica do Atlântico and the petrochemical conglomerate (COMPERJ).
An unexplored and yet untapped risk market is the country’s largest pension funds. The biggest of these, such as Previ and Petros, are also based in Rio de Janeiro. Such companies would greatly benefit from risk transfer solutions to offset their embedded life risks but such solutions are not currently available in Brazil.
We believe that the final decision should not be swayed by short-term offers of incentives or subsidies. Rather there needs to be a deep analysis and understanding of economic rationality and decentralisation of activities. In conclusion, based on these facts and data, we certainly believe that Rio de Janeiro is by far the best option for reinsurers to establish their headquarters.
Dr. Maria Silvia Bastos Marques is the CEO and president of Icatu Hartford Seguros and vice president of The Rio de Janeiro Business Association. Copyright 2008 by the Society of Actuaries, Schaumburg, Illinois. Reprinted with permission.
Dr. Maria Silvia Bastos Marques
