In addition to growing, the practice of reinsurance diversifies to meet new needs
Nothing new: reinsurance is a common and widely known practice in the insurance market. Popularly called “the insurance of the insurer,” it basically consists of taking out insurance to partially cover the risk that an insurance company assumes within policies involving large sums.
What happens, however, is that this practice, once more widespread, is now recognized as a business strategy for insurers. With the increase in environmental disasters in Brazil, widely evidenced by the flood that devastated the State of Rio Grande do Sul, companies raise a yellow flag for portfolios that revolve around massive losses and high decapitalization.
According to data released by the Confederation of Insurers (CNseg), the financial consequences for companies, owing to the devastating flood, are estimated at BRL 4 billion, of which BRL 1.3 billion pertains to the automobile industry alone.
The increase in contracting in the reinsurance area was already proven by the sector figures, even before the recent catastrophes. Data from the IRB+Inteligência platform point out that the amount of premiums received by reinsurers exceeded BRL 25 billion in 2023, an increase of almost 9% vis-à-vis the previous year. Also in January 2024, there were almost BRL 3 billion in reinsurance contracts, thus posting an increase of 3.6% for the same month in the previous year, and the highest amount ever recorded in the modality.
In addition to natural tragedies, the reinsurance market faces new challenges, such as cyber insurance, which expose companies to unpredictable risks and significant financial losses. According to the Global Data Protection Index (GDPI), 6 out of 10 Brazilian companies underwent cyberattacks in 2023. In this period, the insurance sector disbursed BRL 18.2 million in compensations to the insured companies. Owing to the increased penetration of this type of insurance and the escalation of digital risks, these costs are expected to continue to rise.
On the other hand, the rise in claims directly impacts the cost of reinsurance, resulting in higher prices due to the additional risks. The reinsurance is calculated based on an individual approach, taking into account the specific conditions of each insured policy and the factors of concern that led the insurance company to seek this additional coverage.
For these reasons, the reinsurance market is in a phase of portfolio remodeling. The area that was previously much more focused on coverage against risks in the rural industry (still quite significant), sees its demand grow and increase in complexity in the face of new technological advances, as well as the higher number of risks, either in volatile markets or due to climate issues.
By Gaya Schneider, partner at Ernesto Borges Advogados and president of the Special Insurance Law Commission of National OAB (Brazilian Bar Association)
Autor: Gaya Lehn Schneider Paulino • email: gaya@ernestoborges.com.br • Tel.: +55 67 3389 0123
