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

Citing adverse over-arching factors that continue to fuel greater uncertainty for Brazil's economy, AM Best is maintaining a negative market segment outlook on the country's reinsurance market.

In its Best's Market Segment Report, titled, "Market Segment Outlook: Brazil Reinsurance," AM Best also notes that Brazil's reinsurance industry remains somewhat insulated, given the regulatory restrictions on foreign assets that have limited domestic reinsurers' growth abroad. However, a persistently high interest rate environment and elevated pricing for risk exposures have helped spur growth.

Reinsurance premiums continue to grow annually (net of commissions), driven primarily driven by automotive, agriculture, individuals, and property lines of business. But that overall growth was offset in part by claims that affected one specific line of reinsurance business.

"The agriculture business, which is the second-largest line of reinsurance business in Brazil, experienced an increase in claims owing to crop disruptions in 2021, followed by a large shock loss from drought in southern Brazil in 2022, which significantly impacted local companies," said Ricardo Rodriguez Perez, financial analyst, AM Best. "As a result, (re)insurance companies have diminished their exposures in this segment, led by offshore players that wanted to minimize their overall risk exposure."

The country's (re)insurance segment has benefited from higher interest rates, given companies' ability to earn more interest as reserves are invested. Investment income has contributed significantly to the profitability of Brazil's reinsurance industry in recent years. Improving fiscal outcomes remains one of the country's principal challenges, as the government's income assistance programs (initiated during the COVID-19 pandemic) contributed to its high debt burden, according to the report.

Currency devaluation has diminished the size and profile of Brazil's local reinsurance market, and could potentially reduce its attractiveness to global reinsurance players. In addition, international companies that send dividends or cede premiums abroad, or are consolidated with operations outside Brazil, are exposed to foreign exchange swings when paying out claims in Brazilian reais.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=330129.

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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