Risk managers and insurers should not expect to see liberalisation in the Brazilian reinsurance market any time soon.

And while operating in a closed domestic market means that generally Brazilian companies and insurers can incur greater costs associated with the reinsurance they secure, they are also protected from sharply increased rates in the international market driven by major catastrophes such as 9/11, and any related losses.

These were some of major conclusions from a panel of risk management experts brought together to discuss the future of reinsurance in Brazil last week at the ALARYS/IFRIMA 2004 Congress at the Fairmont Southampton Hotel.

The panel members represented some of the major manufacturing and utilities companies in Brazil, all of which have significant insurance and reinsurance requirements.

They, like the rest of the market are restricted to doing business with the State reinsurance monopoly Instituto de Resseguros do Brasil (IRB), which regulates the domestic reinsurance market.

Companies typically maintain a good relationship with the IRB, as was frequently expressed by the panel, and are generally philosophical about working with the realities of having just one source to meet their reinsurance needs.

As panelist Andres Holownia, from Brazil-based international truck, bus and engine manufacturer the Scania Group, put it during the discussion: ?We can function in terms of the constraints placed by the monopoly. We just have a good system for risk control and no indices that can scare the IRB, so we?re doing well.?

However, the issue of if, when and how the Brazilian reinsurance market should be opened up, is a perennial question discussed among insurers, brokers and corporate risk management professionals in that country and the international market. The most recent attempt to do so in 1999 was stalled, with the required legislative changes designed to privatise the IRB and transfer its regulatory responsibilities to the State insurance regulator still pending.

?Brazil remains a monopoly in terms of reinsurance and that does make it hard to use certain methods for risk management purposes,? said Jorge Luzzi, from the global tyre manufacturing company Pirelli, who is based in Brazil. ?It is harder to work with the international market, to transfer risk to a captive overseas or take advantage of alternative risk transfer products in the international market.?

Harder but not impossible according to Mr. Luzzi: ?We have negotiated risk transfers to captives or panels of reinsurers with the IRB, and the IRB of course charges a commission to transfer the risk.?

The additional (loading) fees that insureds end up paying due to the intervention of the IRB and having to go through them to gain access to the international market can have a substantial impact on a company?s worldwide insurance costs. Responding to a question from the audience Mr. Luzzi said that the national risk management association in Brazil once estimated those costs to be as much as 30% higher than they would be in an open market.

?But it fluctuates depending on the type of risk you are looking at,? he said, ?and the fact that we have a monopoly in a way protects us from world realities. For example right now the entire international market will pay for Hurricane Charley and Frances, but not Brazil.?

The closed market also continues to have broader implications for insurers and insureds apart from its impact on costs. For example, any reinsurance requirements in excess of available market capacity are for the most part negotiated by the IRB with the world reinsurance market. And Carlo Carvalho from the Brazilian aircraft manufacturing company Embraer indicated that the monopoly situation presents a barrier to new reinsurance products being introduced to the domestic market.

?What is more difficult for us is to get new coverage and bring it into the market in Brazil,? he said. ?The IRB doesn?t like to accept the more modern features that we can find abroad.?

Liege Casqueiro who represented Telemar Norte Leste SIA, Brazil?s largest telecommunications provider, said that achieving differentiation in the eyes of the regulator is also a challenge.

?People try to do a good job managing risk and get a good risk classification,? she said. ?But they find it hard to break out of the fold and be seen as superior despite that.?

Brazil is the ninth largest economy in the world and the insurance sector has doubled in the last decade but still only accounts for 2 percent of GDP. This compares to the 8 - 10 percent of GDP that the insurance industry represents in more developed markets and leaves a lot of room for growth in Brazil. It is that anticipated growth, once the market is eventually opened up, which international reinsurers see as a compelling business opportunity. ?But consider that (currently) 97percent of total premiums stay in the Brazilian market while only 3 percent goes abroad,? said Mr. Luzzi. ?The government has made it quite clear that they will not be opening up the market for now.?