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The Brazilian reinsurance market has adapted well in the face of a series of difficult conditions, according to A.M. Best's Brazil Reinsurance Market Review.
"The (re) insurance industry in Brazil has proven that, like their global counterparts, they are resilient and capable of weathering difficult market conditions," the ratings agency said.
The review cites Brazil's economic and political crises, the country's health crisis with the emergence of the Zika virus, and the environmental disaster due to the rupturing of the Samarco dam as having big impacts on the industry.
It notes that between 2007 and 2009, Brazil was "in the midst of a surge in economic growth that made it a leading emerging market and hotbed of business activity." During that time, it was named the host of the 2014 World Cup and the 2016 Olympic Games, and it was upgraded to investment grade by Standard & Poor's, leading to an exceptional amount of foreign direct investment.
The country was also "in the process of de-monopolizing the state-controlled reinsurer IRB Brasil Resseguros and opening the reinsurance market to competition, which fueled reinsurers eager to access Latin America's largest economy."
A.M. Best notes that Brazil was even able to weather the storm of the 2008 global financial crisis and held on to enviable GDP growth levels for years.
Things, however, have changed in 2016. The Lava Jato corruption scandal broke in 2014, turning Brazil's political and economic situation upside down. The country's internal turmoil shattered its economic growth, leading to a deep recession, higher inflation and a series of downgrades from ratings agencies.
"The impact of the economic downturn then adversely impacted the (re) insurance sector as Brazil's strong insurance and reinsurance growth stayed positive, but at a significantly lower level when compared to prior years," the A.M. Best report said. "Large government and private sector infrastructure projects have dried up and Brazil's oil and gas industry, impacted not only by the Petrobras investigations but also by low crude prices, shelved many development and exploratory projects and reduced insurance purchasing."
The Zika virus followed, leading to negative headlines about Brazil and creating fear and panic for those planning to visit the country for the Olympics. The country also experienced its largest disaster in recent history when the Samarco mining dam failed, causing damage on an unprecedented scale in the town of Mariana.
But despite all of difficulties Brazil has faced, A.M. Best sees "glimmers of hope" for the country's future as some forecasts point to an economic recovery in 2017 and faster growth in the coming years. "There is also hope that the corruption investigations and trials will ultimately lead to a better government and potential improved 'ease of doing business'."