Brazilian regulator calls for greater transparency to support ILS ambitions

The South American nation of Brazil aims to develop a legal and regulatory environment to allow for the issuance of insurance-linked securities (ILS) in the country, but its regulator Susep is calling for the local insurance and reinsurance sector to embrace transparency to support these ambitions.

As we explained back in August, a consultation process is underway in the country, on a proposed set of legislation to allow insurance and reinsurance companies operating in Brazil to issue insurance-linked securities (ILS), such as catastrophe bonds, using capital market debt issuances linked to the underlying risks as a way to bring in funding, secure reinsurance and offer an attractive investment opportunity at the same time.

The Resolution proposes the creation of a fully collateralised locally domiciled reinsurance entity (an RPE) in Brazil, whose mandate would be to accept risks, through reinsurance or retrocession agreements, but to finance its obligations through the issuance of debt securities linked to the underlying risks.

Brazilian regulator the Superintendência de Seguros Privados (Susep) believes the cost of ILS capital will be more efficient than financing through equity means, hoping this can help the Brazilian insurance and reinsurance industry to be more competitive and also provide reduced cost products to end-customers.

Now, Susep has called for greater transparency in the industry, urging re/insurers to register in a new digital tool, partly to help digitize the Brazilian re/insurance market, but also to promote transparency and to aid in fundraising processes.

The Operations Registration System (SRO) is a supervisory tool, but by registering in it Susep hopes that Brazil’s re/insurers can enhance their transparency towards the capital markets and enhance their profile, which should help to attract investor interest for any securities issuances in future, such as ILS or private insurance debt.

By providing greater transparency, both to the regulator and capital market investors, Susep hopes that Brazil’s re/insurers can generate greater confidence in their financing efforts.

Susep wants to encourage the Brazilian industry to look to external capital sources to help support their business models, with the capital markets a particular target and ILS or other securities seen as a way to achieve this.

But promoting the stability and quality of companies in the space is going to be key and so the regulator believes that by becoming more transparent and registering themselves in its supervisory system, Brazil’s re/insurers can more easily expose relevant information to capital market investors in an effort to build confidence in the sector as it moves towards a framework that enables ILS issuance.