First ILS structure in Brazil could be Andrina Seguros from IRB RE

The first insurance-linked securities (ILS) structure under Brazil’s regulations for “Letra de Risco de Seguro”, or LRS which translates to Letter of Insurance Risk, could be named Andrina Seguros and sponsored by local reinsurance company IRB RE, according to a report.

Brazil has designed its legislative and regulatory framework with domestic market activity first in mind, but the ILS structures can also be used by other sponsors or investors that want to transact in Brazil using capital markets funding as well.

Notably, as a result, the first special purpose reinsurance vehicle Brazil is likely to approve for issuing ILS, an Sociedades Seguradoras de Propósito Específico (SSPE), has been cited as an IRB RE sponsored vehicle named Andrina Seguros.

Brazil’s strategy with its venture into insurance-linked securities (ILS) has always been to develop something that meets its domestic market needs, delivering on the benefits of efficient risk transfer and capital markets funding that ILS are known for.

SSPE’s are set to be regulated by the Private Insurance Superintendence (Susep) and the National Private Insurance Council (CNSP), while Brazil’s Securities and Exchange Commission will issue and distribute LRS’s to investors.

Already, as we had reported, two applications for SSPE’s were said to be pending.

Now, a blog post from local insurance journalist Denise Bueno reports that IRB RE is one of those applying for an SSPE vehicle to issue LRS’, according to her sources.

IRB RE is the largest Brazilian reinsurance company, writing business across the country and more widely.

ILS market capital has been used to support risks in Brazil before, with some ILS funds participating in the retrocession and reinsurance programs of major re/insurers there.

In addition, Terra Brasis Resseguros had been the beneficiary of three private catastrophe bonds transacted with and backed by what was Validus’ ILS manager unit AlphaCat.

The appetite for access to efficient risk capital remains in Brazil’s insurance and reinsurance industry, while the countries exposure to climate, weather and catastrophe events means reinsurance and retro are critical.

As a result, the LRS notes and SSPE structures are a welcome risk management options, to help companies in Brazil access the capital and ILS markets more directly.