In late October Susep opened a consultation process with the market to discuss rules implemented last March that partially reverted the liberalisation of the Brazilian reinsurance market following seven decades of a reinsurance monopoly.

The consultation was launched after the state of the reinsurance market was hotly discussed during ABGR's bi-annual conference, which took place in São Paulo in October and which Mr Luzzi attended. “During the conference it became clear that ABGR members have been really angered by the new rules,” he said.

The two resolutions that have caused concern are known by the numbers 225 and 232. They are seen by many as protectionist measures aimed to help Instituto de Resseguros do Brasil (IRB), the former monopolistic reinsurer, keep a large share of the market for itself.

Resolution 232, for instance, created an obligation for buyers to place 40% of their risks with Brazilian-based reinsurers. For its part, among other measures, resolution 232 restricted to 20% the amount of risk that local and admitted reinsurers that are part of global companies can transfer to other subsidiaries of the same group based abroad.

In the letter it sent to Susep, ABGR does not reject the 40% local retention threshold, but asks for more flexible ways to place risks in the cases where no local reinsurers want to take them.

The association has also asked for clearer rules on how prices and conditions are negotiated with local reinsurers and other firms authorised to operate in the country, known as admitted and eventual reinsurers.

It also requests that firm deadlines be set for contract negotiations between buyers and sellers of reinsurance to reach a conclusion. Finally, ABGR argues that the 20% transfer rule should be either scrapped or at least applied to all the operations made by a local reinsurer in the course of a year, instead of affecting every individual transaction.

Mr Luzzi noted that the new rules do not seem to have affected the offer of reinsurance in Brazil so far, but they have created new layers of procedures that imply extra costs to reinsurance contracts that, in the end, are paid for by insurance buyers.

He bemoaned the complex arrangements that insurers and reinsurers are being forced to devise in order to adapt themselves to complex risk transference and retrocession rules.

The protectionist vein of the measures has also been highlighted by the fact that the rules create more favourable conditions for reinsurers with a strong presence in other business areas, especially mass products like motor insurance.

Among the most important players in Brazil’s mass insurance market are Banco do Brasil and Itaú and Bradesco, the country’s large banking groups, which have powerful insurance operations and are partners of the government at the IRB.

For his part, Bruno Laval, Regional Manager for Iberia and Latin America at XL Insurance, warned that the 40% local retention rule is set to increase rates in Brazil. He also said that the full impact of the two resolutions will only be known in April 2012, when large reinsurance contracts will have been renewed in the country. “There will be more costs and less competition in the reinsurance market,” he said.

Mr Laval also stressed other problems created by the regulations, such as a widespread inability of the industry to fully understand the rules. They are not clearly specified in the resolutions and it is not clear how measures like the 20% limit for transfer of risks within reinsurance groups is going to work, he continued.

He also said that local subsidiaries of foreign reinsurers will find themselves forced to work with Brazilian reinsurers in order to respect such limits, and it is not clear to what extent the few local players will be able to adapt to this role.

Out of eight local reinsurers working in Brazil today, only three are Brazilian: IRB, J. Malucelli and Austral, he pointed out.

“It is all very complicated and sometimes it seems that this is actually the intention,” he noted. “But such challenges can be overcome in Brazil.”

Before tackling the difficult question of the reinsurance market, Mr Luzzi highlighted in his presentation the huge potential of the Brazilian economy and the rapid ascension of the country to one of the largest economies on the planet and an important voice in global politics.

Mr Laval and other participants at the seminar, of whom many already have to deal with the challenges presented by Brazil and other countries in the region, echoed the upbeat view.

“It was not long ago that companies like ours were penalised for the investments we had in Latin America,” remarked Daniel San Millán, the chairman of IGREA, Spain's risk management association, who is also the Corporate Risk Officer at Ferrovial. “Now it is the opposite. We are well valued for those investments,” he added. IGREA and the Portuguese risk management association APOGERIS were co-organisers of the seminar alongside CRE.

For its sheer size and business opportunities, Brazil was the main focus of the event. But participants also discussed at length the ever-changing regulation of the insurance industry in Argentina.

Just like its Brazilian counterpart, the Argentinian government adopted protectionist sounding reinsurance rules earlier this year. But it went much further than Brazil by demanding that all reinsurance contracts are signed with companies based in the country.

The measure has generated capacity crunch fears among insurance buyers. In October, the government took another jab at the insurance sector by demanding that all investments made by Argentinian insurers abroad must be repatriated before the year is over. “If you thought Brazil was complicated, just wait to see this,” Mr Luzzi said jokingly while introducing the Argentinian section of his presentation.

The main concern appears to be the apparent ease with which the Argentinian government sees fit to change the rules.

Mr Luzzi, for instance, said the law that implemented the new reinsurance rules in September contains a ‘terrible’ clause that implies that exceptions to the restrictive rules can be discussed on a case-by-case basis with the authorities.

This creates uncertainty in the market and could prevent international insurance companies from making the investments needed to meet the capital requirements now demanded from local reinsurers.

But it was also suggested that the recent rule changes in the Argentinian reinsurance and insurance market are only temporary measures that aim to improve the short-term financial position of Argentina, and slow down the flight of dozens of billions of dollars out of the country that has been observed in recent months.

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