|
Market Update
|
Regional - Brazil
Printable Version
|
The Challenge of the Credit Insurance Market in Brazil
Many commentators have mentioned the strength of the Brazilian economy recently, which passed through the world financial crisis largely undamaged. Although, economically speaking, Brazil was indeed one of the less-affected countries—it is approaching the status of the fifth-largest economy in the world status in the next decade—such steadiness was certainly not the view of its domestic credit insurers.
According to Coface, which is responsible for more than 55 percent of the Brazilian credit insurance market, Brazil experienced the largest credit losses in Latin America.
The loss ratio of all insurers that underwrite this line of insurance far exceeded 100 percent during the worst months of the crisis, which, combined with the severe losses in Europe and the U.S., caused these international insurers to undertake an extremely conservative analysis of Brazil’s economy as well as those in other countries most affected by the crisis.
This impact has been felt both by companies with credit insurance policies already in place and those willing to enter the market. Policyholders fortunate enough to renew their policies suffered from a sharp reduction of credit limits and from marked price increases.
New members wishing to join this select club of companies whose receivables were duly insured found it rather difficult: some insurers decided not to write new businesses for a while; others were offering narrower coverage terms with partial credit limits and at a higher cost.
To partially explain why the Brazilian credit insurance market was so badly hit by the crisis is related to its history.
The product is very young in Brazil. It was only about ten years ago that credit insurance was properly regulated and the first private insurance companies started their operations. There are still few players in the market, all of them underwriting whole-turnover, short-term policies only. They are struggling to propagate a culture conducive to enlarging a small market, particularly compared to the number of policies and volume of premiums written in more mature markets, such as Europe, for instance.
To create a market in Brazil, these insurers were forced to apply low premium rates and offer aggressive coverage terms, counting on the country’s economic growth. When the financial crisis exploded on the scene with such violence, the local model that had previously existed was shown to be unrealistic.
At present we are seeing signs of recovery in the market and insurers are close to operating at optimum pace again, albeit at a different level than they had got used to in the last few years.
The great challenge now is to operate on a tightrope where market conditions are attractive to the vast number of potential clients that view credit insurance as a very interesting credit enhancement tool but which is sustainable from an insurer’s point of view.
And herein lies the difference and added value that a specialized credit insurance broker such as Lockton can bring to the table, by harmonizing counter parties and smoothing out the inevitable conflicts that sometimes arise where there can be conflicting interests.
|
Please contact your Lockton Representative for further information regarding any information contained in this
market update.
|
|
|
|
