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Chapter 9 Reinsurance market 9/15

As Australia is prone to natural perils, it is a heavy buyer of catastrophe reinsurance and that market
Heavy buyer of
hardened considerably following the spate of natural disasters in the region in 2010 and 2011. catastrophe
Reinsurance capacity is provided mainly by local subsidiaries of European and North American reinsurance
reinsurance companies, the London Market and Bermudian reinsurers. Australia’s only top 40 global
reinsurer is QBE. Practically all the reinsurance programmes are placed by brokers. There are no special
pools for natural catastrophe reinsurance. The Australian Government did, however, establish a
terrorism pool for commercial risks in 2003.

Question 9.5
What threat do you believe that bushfires pose to the local reinsurance market?

B6B Brazil
Following the abolition of the State reinsurance monopoly in 2007 with the enactment of Law 126/07,
registered foreign reinsurers may now carry out reinsurance business in Brazil. IRB, the former holder of
the monopoly, is now a ‘local’ reinsurer, and its regulatory functions have passed to The
Superintendence of Private Insurance (SUSEP). IRB is the continent’s only top 40 global reinsurer.

According to the legislation, there are three classes of registration: local, admitted or occasional. Each
Three classes of
classification requires different levels of capital and allows access to varying amounts of ceded risk. registration
After what had been seen by many (including the International Monetary Fund) as protectionist
amendments to the original legislation to protect IRB’s rapid loss of market share, local reinsurers had to
be offered at least 40% of each cession, and could cede no more than 20% of premiums to affiliated,
intragroup reinsurers abroad. Such companies must also be established in Brazil with a minimum
capital of BRL 60m, and are regulated by SUSEP. Admitted and occasional reinsurers must also meet
minimum requirements, including a stipulated rating from an agency.
While the recent measures may have been criticised as, among other things, hindering market access,
local economic growth and the healthy spread of risk, Brazil continues to be an attractive prospect for
new business opportunities and many of the world’s largest reinsurance groups are either registered, or
have plans to register, as local reinsurers in one of the world’s ten largest economies. Itau, Mapfre and Reference copy for CII Face to Face Training
Bradesco are the largest local (insurance) carriers by premium income. The reinsurance market is
dominated by local reinsurers, such as IRB, Munich Re and Mapfre Re.
Unexpectedly, the Brazilian National Council of Private Insurance (CNSP) issued a new resolution in 2015
which provided for a five year timeframe for scaling down the intra-group prohibition and mandatory
cession rule from the beginning of 2017. It was planned that by 2020 the intra-group prohibition will
move out from 20% to 75% and the mandatory cession rule will have reduced from 40% to 15%. This
resolution represents a significant step towards a further liberalisation of the Brazilian insurance and
reinsurance market.

However, in late December 2017, the CNSP issued two new rules (CNSP Resolution 353/2017 and SUSEP
Circular 562/2017), which remove certain barriers limiting international reinsurers’ access to the
Brazilian reinsurance market. These two rules supersedes information on minimum retention
requirements, mandatory reinsurance cessions requirements, and restrictions on intra-group cessions.
Lloyd’s Market Bulletin Y5152 details these rules and can be found in the Lloyd’s Market Bulletin archive:
www.lloyds.com/market-resources/market-communications/market-bulletins/market-bulletins.

C Captive insurance companies Chapter

In this section, we take a brief look at captive insurance companies, which were introduced in chapter 1, 9
section B6.

C1 What is a captive?

A captive is a special purpose vehicle created to manage and to finance risks emanating from its
Provides insurance to
non-insurance parent company. In its simplest form, it provides insurance to its parent and, once its parent
established, operates like any commercial insurer. It operates on an independent or ‘arm’s length’ basis
as it collects premiums, issues policies and pays claims. It requires capital and will be regulated – as a
captive, not an insurer – where domiciled. Captives are essentially a form of self-insurance whereby the
insurer is wholly owned by the insured.