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

Local reinsurers are expected to benefit from new regulations in Brazil that require local insurance companies to cede 40 percent of reinsured risk to local reinsurers, according to Moody's Credit Outlook.

"In our view the new regulations provide considerable competitive advantage to local reinsurers, as they will effectively be competing only amongst themselves for at least 40 percent of each and every risk," wrote Rodolfo Nobrega, vice president and senior analyst.

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

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

o "Local" reinsurers are incorporated in Brazil. Subsidiaries of Munich Re, Mapfre Re, XL Re, J. Malucelli and Ace received local reinsurer status.

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

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

The IRB continues as a local reinsurer and maintains the top position in the local reinsurance market with a 63 percent share as of last August. But market share has decreased from 91 percent in 2008.

According to Moody's, local insurers will have to accept the rates and conditions that are offered by the local reinsurers. As competition is cut, "there may be less flexibility in providing required coverage to insureds and higher rates," wrote Mr. Nobrega, who added that the new regulations make it more difficult for foreign reinsurers and insurers to take advantage of intercompany risk-transfer arrangements.

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

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New Brazilian Regulations Favor Local Reinsurers, Says Moody&#039;s

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