NU Online News Service, Dec. 20, 3:55 p.m. EST

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Local reinsurers are expected to benefit from new regulations inBrazil that require local insurance companies to cede 40 percent ofreinsured risk to local reinsurers, according to Moody's CreditOutlook.

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"In our view the new regulations provide considerablecompetitive advantage to local reinsurers, as they will effectivelybe competing only amongst themselves for at least 40 percent ofeach and every risk," wrote Rodolfo Nobrega, vice president andsenior analyst.

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The remaining risk can be written by so-called "admitted" and"occasional" reinsurers.

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Brazil, in early 2007, opened its reinsurance market, which hadpreviously been solely the domain of the government via theBrazilian Institute of Reinsurance (IRB). As part of its plan,Brazil--the largest insurance market in Latin America--establishedthree types of reinsurers:

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o "Local" reinsurers are incorporated in Brazil. Subsidiaries ofMunich Re, Mapfre Re, XL Re, J. Malucelli and Ace received localreinsurer status.

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o "Admitted" reinsurers have registered offices abroad butmaintain an office in Brazil.

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o "Occasional" or "eventual" reinsurers are foreign reinsurerswith no offices in Brazil.

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The IRB continues as a local reinsurer and maintains the topposition in the local reinsurance market with a 63 percent share asof last August. But market share has decreased from 91 percent in2008.

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According to Moody's, local insurers will have to accept therates and conditions that are offered by the local reinsurers. Ascompetition is cut, "there may be less flexibility in providingrequired coverage to insureds and higher rates," wrote Mr. Nobrega,who added that the new regulations make it more difficult forforeign reinsurers and insurers to take advantage of intercompanyrisk-transfer arrangements.

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The regulations "could bring about some moral hazard andcredibility risk to the Brazilian insurance market and hence reduceinternational company and investor interest in the sector," Mr.Nobrega wrote.

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