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Despite Brazil's economic crisis and stronger competition from international firms, local reinsurers have prospered, achieving double-digit premium growth and high returns, and even expanded to other Latin American markets.
High interest rates in Brazil have boosted returns on financial investments of reinsurers, which have a large portfolio in government securities, taking their average ROE to 17%, lower than the 23% of insurers but well above the 11% of other financial institutions and the 7% of other corporations, the rating agency says.
Weaker risk quality of Brazilian reinsurers vis-à-vis international competitors was no obstacle, however, to their expansion into countries such as Mexico and Chile. By the end of 2016 approximately 14% of premiums written by Brazilian reinsurers originated abroad, compared with 5% two years ago, according to S&P.
Local reinsurers represent 75% of the Brazilian market, up from 73% a year ago and 60% in 2012.
New business opportunities for reinsurers could come in the local infrastructure sector, where congress is discussing raising the insurance requirements of public works projects financed by the government to 30% from the current 5% of the project value, so raising demand for reinsurance from the surety sector.
Brazilian companies could have an advantage over international players when it comes to providing reinsurance in many Latin American countries seeking to upgrade their infrastructure.
Finally, according to S&P, increasing concerns over the solvency of insurers in the health segment in Brazil could provide another business opportunity as these companies have very low reinsurance coverage.