AM Best maintains negative outlook for Brazil reinsurance market

AM Best is maintaining a Negative segment outlook for Brazil’s reinsurance market until favourable performance trends can be sustained.

AM Best’s recent report identifies strict regulations on foreign assets as a major factor contributing to this negative outlook. These restrictions have limited the growth of domestic reinsurers internationally.

Although domestic reinsurers are somewhat protected from currency fluctuations, regulations need to allow for more significant foreign currency holdings to avoid mismatches between investments and reserves, which would help strengthen their global business profile.

Reinsurance premiums (net of commissions) continue to grow annually, driven mainly by the transportation, property, special risks, and health sectors. However, due to the 2022 drought in southern Brazil, re/insurance companies have diminished their exposures in agribusiness, ceding more than 50% of the premiums.

Despite economic uncertainty, Brazil experienced strong GDP growth in 2023, though it plateaued in the last quarter. The country’s historically high interest rates have also benefited the re/insurance sector by higher interest rates paid on its invested reserves. Investment income significantly contributed to positive financial results for 2023. Additionally, new initiatives in reinsurance and retrocession, along with high underwriting prices, continue to support industry growth.

AM Best noted, “Brazil’s reinsurance market has started recovering, but a favourable trend needs to be sustained. The outlook will be considered Stable when the volatility of the industry’s technical and bottom line results decline, coupled with positive technical income.”

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