Best’s Market Segment Report: AM Best Maintains Negative Outlook on Brazil Reinsurance Market

Although some improvement has been seen in Brazil’s reinsurance market, AM Best is maintaining a negative market segment outlook on the segment until favorable performance trends can be sustained.

In its Best’s Market Segment Report, titled, “Market Segment Outlook: Brazil Reinsurance,” AM Best cites regulatory restrictions on foreign assets that have limited domestic reinsurers’ growth abroad as a factor in the negative outlook. Domestic reinsurers have a competitive advantage by being somewhat insulated from currency fluctuations; however, for domestic reinsurers to be able to have a stronger global business profile, regulation needs to allow more significant holdings in foreign currency to prevent a currency mismatch between investments and reserves.

Additionally, reinsurance premiums (net of commissions) continue to grow annually, driven primarily by the transportation, property, special risks and health lines. Due to the 2022 drought in southern Brazil, (re)insurance companies have diminished their exposures in the agribusiness, ceding more than 50% of premium.

Brazil’s interest rate also remains at a historical high. As a result, the country’s (re)insurance segment has benefited from higher interest rates paid on its invested reserves. Overall, investment income has contributed significantly to the profitability of Brazil’s reinsurance industry and led to positive bottom-line results for 2023. At the same time, AM Best is of the view that reinsurers have been overly reliant on investment income since the pandemic to bolster profitability in recent years.

“Brazil’s reinsurers recorded positive bottom-line results in 2023, but this was due mainly to investment income,” said Ricardo Rodriguez Perez, financial analyst, AM Best. “For the outlook to be revised to stable, the volatility of the industry’s technical and bottom-line results would need to decline, coupled with positive technical income.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=345294.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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