Catastrophe re/insurance demand in Brazil to grow following Rio Grande do Sul floods: S&P

Demand for reinsurance and insurance catastrophic coverage in Brazil is expected to grow following the floods that struck the Brazilian state of Rio Grande do Sul earlier this year, says S&P Global Ratings.

In a new report, S&P noted that while it does not expect the floods to significantly dent Brazilian insurers’ profits, they have however, brought attention to the issue of natural catastrophes in Brazil.

“The severity of the floods in southern Brazil was unprecedented, and natural disasters could become more frequent in the country. While insurers have been taking extra care in their exposure, some could benefit from the blooming catastrophic risk market in Brazil,” analysts said.

Due to Brazilian insurers having to deal with severe climate events, insurers have become more cautious about their exposure, with some firms even reducing coverage for sectors that are more vulnerable to climate-related events.

However, as S&P highlights, increasing concerns regarding natural disasters could wind up boosting demand for coverage against catastrophic risks in Brazil.

The agency explains that the nat cat insurance market in Brazil is less developed compared to other developing countries, which can partly be attributed towards the historically lower severity of natural events in Brazil. Relative to other countries, Brazil tends to usually experience lower seismic activity and fewer tropical cyclones, for example.

“While insurers and reinsurers have been taking extra care in their exposure, some could benefit from the blooming catastrophic risk coverage market in Brazil, which has plenty of room to develop,” said S&P Global Ratings Associate Director Henrique Sznire.

S&P also stated that insurers and reinsurers with growth appetite could increase their exposure to catastrophic risk in Brazil if demand were to increase and if pricing and terms are sufficiently attractive.

“We therefore anticipate that the floods in Rio Grande do Sul could lead to higher property insurance prices–even in other states–as insurers raise prices to compensate for the higher perceived risk,” analysts added.

Looking ahead, S&P estimates that full-year claims in Brazil will be 10%-15% higher due to the floods in Rio
Grande do Sul. Therefore meaning, that claims should represent less than 10% of the estimated Brazilian real (R$) 90 billion of economic damage caused by the floods, the firm noted.

In spite of the severity of the floods and the resulting damage, limited flood insurance coverage softened the impact on insurers’ gross claims.

According to the Brazilian Insurance Confederation (CNseg), claim requests related to the floods reached R$6.0 billion by the end of September-equivalent to approximately 10% of the total P&C claims reported in 2023.

In fact, S&P noted how the property insurance sector was the most affected by the floods earlier this year, with large risks being the primary source of claims within this segment.

As well as this, the auto insurance segment, which represents around 50% of P&C premiums issued in Brazil, also saw higher claims from the floods. But, these claims were much more milder in comparison to property claims, due to the fact that auto policies typically don’t cover car damage caused by floods.

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