Best’s Market Segment Report: AM Best Maintains Negative Outlook on Brazil Reinsurance Market

OLDWICK, N.J.--(BUSINESS WIRE)--Due to the macroeconomic volatility resulting from the COVID-19 pandemic and political environment, AM Best is maintaining a negative market segment outlook on the Brazilian reinsurance market.

In its Best’s Market Segment Report, titled, “Market Segment Outlook: Brazil Reinsurance,” AM Best states that despite the prolonged effect of the COVID-19 pandemic, the country’s (re)insurance market still grew in 2021. However, macroeconomic and political uncertainties have re-emerged, heightening instability. Given the recent increase in inflation caused by high commodities prices and domestic currency devaluation, the Brazil’s Central Bank quickly raised interest rates. While high interest rates typically are beneficial for the (re)insurance segment, loss-cost inflation may minimize any actual benefit. The report also notes that loss-cost inflation also may slow the benefits of premium momentum carriers are seeing due to a hard market, as losses cost more.

“Overall, the segment’s growth is likely to face headwinds due to capacity limitations to underwrite risks, as the financial flexibility provided by the local capital markets dries up, and to global risk aversion, as international investors and players reconsider their domestic markets,” said Guilherme Monteiro Simoes, senior financial analyst, AM Best.

Currency devaluation also will shrink the size and profile of the Brazilian local reinsurance market, and potentially diminish its attractiveness to global reinsurance players. Additionally, regulatory restrictions on foreign assets have limited domestic reinsurers’ growth abroad. Moreover, according to the report, persistently high government debt has the potential to crowd out investment opportunities in the private sector when interest rates go up. The large fiscal deficit, magnified by the upcoming presidential elections, is likely to persist and bring volatility to the local currency.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=317378.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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