Over twelve months have passed since the opening of the market last April and at this stage, the following analysis can be made:

Brazil already has 56 reinsurers authorized by SUSEP to operate in the country. 35 of them are eventual, 16 admitted and 5 locals, there are also 28 Reinsurance brokers that are allowed to intermediate reinsurance operations.

According to the law the local, SUSEP Resolution # 168 dated 17th December 2007, reinsurers will have their “1st refusal rights” participation reduced from 60% to 40% in January 2010.

Until April 2008, the Brazilian insurers did not have to worry about reinsurance capacity, neither for their contracts celebrated or for their facultative placements. They were all 100% supported by IRB therefore capacity was never a concern of the local insurers. The security of the reinsurers that offered capacity was also not a problem for the insurers, since the IRB had full responsibility over this risk.

Beginning in April 2008, the matters above started to concern the insurance market. The security matter was even worse after the world economic crisis, which had in its center some of the most important insurers and reinsurers in the world. During the first few months after the opening of the market there was a brief capacity crisis, mainly because of the difficulty faced by SUSEP to register the new reinsurers to the market.

The main insurers in the market began negotiating their contracts and because of the financial capacity of these players; their appetite for risk; the intention of the international reinsurers to participate in the market; and mainly the intention of the IRB to maintain its leadership position, a lot of these contracts have had capacity levels comparable to most of the biggest contracts made by international insurers.  The multinational insurers with subsidiaries in the country brought to their local operation the same level of capacity that they have in the more mature overseas markets.

Therefore, for lines of business mainly like P&C, capacity has not been a complex question and there is a trend to solve bigger risks through coinsurance structures. There was consequently a significant reduction in the need and amount of facultative placements.

In relation to the rates, the higher flexibility offered by the capacity of these contracts has allowed an average reduction on the practiced rates, which in some businesses lines (property for example) were already considerably lower when compared to the international rates.

In activities with profile of intensive investment and capacity needs over USD 750 Millions (Oil, Petrochemical, Steel Industry, High Infrastructures investments, Airlines, and others) there have been difficulties in obtaining support within the registered and authorized reinsurers.

The IRB still plays a very important role in the market, due to the fact that most of the insurers were not prepared to operate in an open market and therefore have found this local reinsurer to be the only solution, despite its operational deficits and due to its historical knowledge of the local clients.

Markets like Construction, Bonds, Liability, despite the crisis have followed a growing trend and are traditionally markets that demand reinsurance.
The Marine Transit and Cargo insurance have suffered the crisis, since there has been a reduction in the number of national shipments, imports and exports however there are signs of improvements.

The new solvency rules must open the market to offer capacity in reinsurance proportionally to retail portfolios (Auto and Residential for example) for those insurers that need to increase assets in order to sustain growth (some IPOs scheduled for 2009 have been postponed).

There is also a growing concern with the climate changes and consequently  Natural Catastrophe losses. This had never been a concern for the local insurers, but events like the floods in Santa Catarina in 2008 and the ones occurring now in the North/Northeast have alerted the insurers about the need to evaluate their risk exposure and protect those risks.

New products and new market practices that were difficult due to the monopoly should also be a developing and opportunity factor in the reinsurance market.

There are also some important aspects that should be solved in the fiscal arena.