Brazil Q3 Market Dynamics


Landscape

Brazil was hit in the first half of 2021 by an escalation of the COVID-19 pandemic, although reported cases have trended down since June 2021. By mid-September the country’s vaccination efforts had seen around one third of the population receive two doses. The escalating crisis and resulting lockdown measures in the first half of the year have weighed on Brazil’s economic recovery: the second quarter saw an unexpected drop in GDP of 0.1%, although the country’s economists still forecast overall growth through the year of over 5%. Inflation has risen, hitting 9.7% over the 12 months prior to August, and the central bank has accordingly raised its interest rate target for October to 6.25%.


Extreme droughts in June added to the challenges the country is facing. With a general election scheduled for October 2022, former president Lula is eligible to run and is polling ahead of the incumbent Jair Bolsonaro; the latter has, however, challenged the voting system and suggested that he might not accept the results.

Key Indices - Brazil


Market Dynamics

Brazil Featured Products Q3 2021


Q3 Automobile Summary

Overall (Stable) Given the reduced exposure driven by COVID-19 impacts, many insureds are exploring options to achieve the most favorable renewal outcomes. The pandemic has accelerated the discussion on pay-per-use insurance, however, there is still little appetite from insurers in this model. The Superintendent of Insurance has been working on new regulations to offer insurers greater flexibility to create new products with the aim of encouraging the purchase of automotive insurance in Brazil.

Rates (Down) Price decreases are emerging as insurers make every effort to retain existing business. However, decreases are tempered by an awareness that risk is again increasing as economic recovery continues.

Capacity (Abundant) Capacity is abundant as insurers have strong appetite in this area.

Underwriting (Stringent) Underwriting is rigorous, and extensive information is required.

Limits (Stable) Expiring limits can be achieved in most cases.

Deductibles (Stable) Expiring deductibles can be achieved in most cases.

Coverages (Broadening) There is an increased trend to offer broaden coverage, following recent regulatory changes.

A Look Ahead (Stable) New regulation aimed at increasing innovation in this space is expected to bring new insurers to the auto market and further increase appetite.


Q3 Cyber Summary

Overall (Challenging) Market conditions are challenging. Capacity is insufficient to meet the current, growing demand, driving pricing up.

Rates (>+30%) Extreme price adjustments have become common.

Capacity (Constrained) Capacity is very constrained, leading to an increased need for coinsurance, reinsurance and layer structures.

Underwriting (Stringent) Underwriting has become more rigorous and demanding. Extensive, detailed information is required.

Limits (Decreasing) Insurers are offering reduced limits, and the participation of many insurers is often required to complete a placement. There is a growing trend for insurers to impose new sub-limits, and to reduce those that already existed.

Deductibles (Increasing) Deductibles are increasing considerably due to high loss ratios across the region.

Coverages (Restricting) Ransomware coverage has become very difficult to obtain.

A Look Ahead (Challenging) Current market conditions are expected to continue as the frequency and severity of cyber incidents grows.


Q3 Directors & Officers Summary

Overall (Challenging) The market is challenging, driven by poor performance and a continued transition to central underwriting teams. Pricing - especially for listed companies – is experiencing significant price adjustment. Capacity is tight but generally available, depending on exposure and insurer placement/layer position.

Rates (+11-30%) Pricing in general is challenging, with listed companies facing the most difficult conditions. Companies that are not publicly traded, have good financial liquidity and have not experienced substantial COVID-19 impacts are experiencing more modest rate increases.

Capacity (Constrained) Local insurers have withdrawn capacity, most notably, for companies with US exposure, claims history and/or bankruptcy / judicial reorganization, as well as financial institutions and health care companies.

Underwriting (Stringent) Underwriting is rigorous and taking longer.

Limits (Decreasing) Insurers are offering reduced limits, and prefer to participate in Excess layers. At the same time, insureds are exploring limits reductions in order to better control costs.

Deductibles (Stable) For listed companies, especially those with US exposure, deductibles on Side C coverage have been increased significantly, driven largely by class action lawsuits. Other deductibles generally remain flat.

Coverages (Restricting) Exclusions related to COVID-19 and Cyber Risk continue to be mandated.

A Look Ahead (Challenging) Current market conditions are expected to continue. Robust, detailed underwriting information will be even more crucial as a potential differentiator, to help elevate underwriter risk confidence and achieve better placement results.


Q3 Employers Liability/Workers Compensation Summary

Overall (Stable) Employers Liability Coverage is typically contracted in Third Party Liability policies as an additional coverage, and poor performance in this space is leading to heightened underwriter concern. In addition, Brazilian courts are setting higher indemnity requirements aimed at compensating victims and their families. Underwriters are reacting by increasing pricing and raising deductibles for specific industries and risk types.

Rates (+1-10%) Modest rate increases – aimed at construction, mining, agricultural and steel industry risks – have become the norm. Other industries are largely experiencing flat renewal pricing.

Capacity (Abundant) Capacity is abundant, with the exception of some industries with higher exposure, where capacity is more limited.

Underwriting (Prudent) Underwriting remains flexible for Third Party Liability policies; however, it is very cautious for Employers Liability coverage.

Limits (Stable) Expiring limits remain generally available, although some sub-limits are being applied for poor performing industries.

Deductibles (Increasing) Deductibles have increased and, in some cases, are applied per victim rather than per event, which can have a material impact on insureds’ out-of-pocket costs.

Coverages (Stable) Coverage is stable, and “as is” renewals are common; however, traditional restrictions for underground or underwater works, aviation (crew), professional, diseases, and construction workers (tunnels and/or dams) continue to be required.

A Look Ahead (Stable) Current market conditions are expected to continue through the remainder of 2021.


Q3 Products Liability Summary

Overall (Challenging) As an additional coverage on Third Party Liability policies, Products Liability has gained visibility due to recent and complex claims. Some industries have been more affected due to the nature of their operations (e.g., Automotive, Raw Material, Chemicals, Pharmaceuticals and Food and Beverage). For these risks, capacity has contracted and underwriting appetite is focused on quality risks. Extensive, detailed underwriting information – particularly concerning production procedures, product traceability and recall plans - is being required.

Rates (+11-30%) Pricing is increasing for poor performing industries, and mainly for Product Recall coverage. Pricing for high-end consumer goods continues to be favourable.

Capacity (Constrained) Capacity is stable for some risks, but constrained for others - especially related to Product Recall coverage.

Underwriting (Prudent) Specific, detailed underwriting information is critical to achieving favourable renewal outcomes. With additional information to review, underwriters are taking longer to complete the underwriting process.

Limits (Decreasing) Sub-limits are being applied to reduce insurer exposure.

Deductibles (Increasing) Deductible increases are being mandated as insurers look to balance their exposure.

Coverages (Stable) Coverage remains generally stable.

A Look Ahead (Challenging) Current market conditions are expected to continue through the remainder of 2021. The underwriting process is expected to continue to become more onerous and time-consuming.


Q3 Property Summary

Overall (Stable) Market conditions vary widely based on industry, claim records, exposure type, local authority, and risk management maturity. Conditions are challenging for risks with high hazard exposure such as energy, heavy chemical, pulp/paper, logistical warehouse and other complexities. These conditions are exacerbated when high limits are requested. On the other hand, well-performing risk types are experiencing more moderate market conditions.

Rates (+1-10%) Modest rate increases continue for high hazard and/or complex risks, driven by global insurer guidelines and reinsurance pressure, even for well performing placements.

Capacity (Ample) Capacity remains available with the key exceptions of high hazard and complex risks such energy, pulp/paper, heavy chemical, logistical warehouses and other restricted risks, where local underwriters have limited authority.

Underwriting (Stringent) Local underwriters have become more cautious and stringent, and are requiring extensive information and risk management improvements.

Limits (Stable) Expiring limits can be achieved in most cases.

Deductibles (Stable) Expiring deductibles can be achieved in most cases; however, poor performing risks are experiencing mandatory increases aimed at controlling insurer exposure to “working layer” claims. High hazard and complex risks are also subject to global guidelines, which may require deductible increases. In some cases, insureds are electing to increase their deductibles to help offset price increases.

Coverages (Stable) While coverage is stable overall, negotiations have become more challenging related to Strikes, Riots, & Civil Commotion, Contingent Business Interruption, and Natural Catastrophe coverages.

A Look Ahead (Stable) Current market conditions are expected to continue. Robust underwriting information and an early start to the placement process, will allow the best results.