Report - Risk Management in Brazilian Agriculture

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Risk Management in Brazilian Agriculture: Instruments, Public Policy, and Perspectives Figure 24 shows the evolution of risk premiums by reinsurance firm in Brazil for the period 2010-2019. The importance of IBR Brasil Resseguros S/A concerning reinsurance premiums is notable (69% of market share in 2019). In 2019, there are 13 reinsurance firms, but only two companies hold more than 80% of the market (IBR Brasil Resseguros S/A and SCOR Brasil Resseguros S/A). The low availability of reinsurance options, as indicated by the low number of firms in the market, inhibits the expansion of rural insurance for farmers. Figure 24. Evolution of Risk Premiums by Reinsurance Firm in Brazil, 2010-2019 Note: Data considers all rural insurances. December 2019 constant values (inflation adjusted by IPCA). Source: Climate Policy Initiative with data from SUSEP 34
4. Reinsurance 4.2 RURAL INSURANCE STABILITY FUND The Rural Insurance Stability Fund (Fundo de Estabilidade do Seguro Rural - FESR) was created in 1966 to preserve insurance operations’ stability and enhance protection against risks from catastrophes in rural activity. FESR works as a special public fund administered by the Brazilian Guarantees and Fund Management Agency (Agência Brasileira Gestora de Fundos Garantidores e Garantias -ABGF), a public enterprise linked to the Ministry of the Economy that manages guarantee funds and provides guarantees to risky operations in areas of social and economic interest. FESR functions as reinsurance, working with insurance and reinsurance providers that operate crop, livestock, aquaculture, forest, and rural pledge insurance. Insurance and reinsurance firms contribute to FESR when they have positive results at the end of their fiscal years. FESR also receives special credit from the federal government in case of resource scarcity. Contributions are 30% of the collected premiums for crop, livestock, aquaculture, and forest insurance, and 50% for rural pledge insurance. Insurance companies can access FESR when their loss ratio is larger than 100% (that is, when costs exceeds revenues). The insurance company receives the quota of its insurance claims that are between 100% and 150% of the loss ratio, and the part that is beyond 250%. FESR does not assist with the part between 150% and 250%, which can be supported by a reinsurance contract. The exception is for firms that work with rural pledge insurance for which FESR covers any quota of insurance claims above 100%. The same rules for accessing FESR also apply to reinsurance firms in the case of proportional reinsurance. 15 Figure 25 shows received values from insurance and reinsurance firms’ contributions for the 2017/18 agricultural year (ABGF, 2018). Companhia de Seguros Aliança do Brasil was responsible for 90% of the R$216.60 million contributed value in the period. 16 Figure 25. Contributions of Local Insurance Companies to Brazil’s FESR, 2017/18 Note: Data considers crop, livestock, aquaculture, forestry, and rural pledge insurance. Source: Climate Policy Initiative with data from Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A., 2018 15 Reinsurance agreements can be structured on a “pro-rata” (proportional) or “excess-of-loss” (nonproportional) basis, depending on the arrangement by which losses are apportioned between the two insurers. In the first case, the premium and the losses are shared by the reinsurer and the direct insurer. In the other case, the direct insurer assumes part of the liability for losses, and the reinsurer receives a fee for coverage above that amount. 16 Companhia de Seguros Aliança do Brasil, after a corporate restructuring of the partnership maintained between BB Seguros, the holding company that concentrates Banco do Brasil’s insurance business, and MAPFRE Brasil, is now part of Brasilseg Companhia de Seguros. Brasilseg, through its insurance companies, operates in the Life, Housing, Rural and Massified (Residential, Corporate and Condominium) segments with products sold mainly at Banco do Brasil branches and on its digital channels. 35
Page 1 and 2: Risk Management in Brazilian Agricu
Page 3 and 4: CONTENTS List of Figures, Tables an
Page 5 and 6: LIST OF ACRONYMS ABGF - Brazilian G
Page 7 and 8: EXECUTIVE SUMMARY Rural producers f
Page 9 and 10: Executive Summary BOX 1. BRAZIL’S
Page 11 and 12: 1. RISK MANAGEMENT IN BRAZIL: OVERV
Page 13 and 14: 1. Risk Management in Brazil: Overv
Page 15 and 16: 1. Risk Management in Brazil: Overv
Page 17 and 18: 2. BRAZIL’S PRIMARY RISK MANAGEME
Page 19 and 20: 2. Brazil’s Primary Risk Manageme
Page 25 and 26: 2006 2018 2. Brazil’s Primary Ris
Page 39: 4. Reinsurance 4. REINSURANCE 4.1 R
Page 43 and 44: 5. How Risk Management Instruments
Page 45 and 46: 6. International Comparison of Agri
Page 47 and 48: 6. International Comparison of Agri
Page 49 and 50: 7. Improving Risk Management and Ag
Page 51 and 52: Bibliography BIBLIOGRAPHY Agência
Page 53: Bibliography SUSEP. Sistema de Esta

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