Brazil plans state insurer to bolster investment

Brazil’s government plans to create a state-controlled insurer to bolster massive infrastructure projects and export financing in a move that highlights the growing trend of state intervention in Latin America’s largest economy.

The insurer will be tasked with offering insurance to companies participating in President Luiz Inacio Lula da Silva’s $400 billion infrastructure program, which ranges from homebuilding to export financing and lending for small and medium-sized enterprises, Finance Minister Guido Mantega said on Tuesday.

The new insurer, likely to be named EBS, for Empresa Brasileira de Seguros, will be formed by merging the existing contracts held by state guarantee funds. It will also seek to boost insurance coverage for trade financing by the state-controlled export-import bank that was recently created, Mantega said.

According to Mantega, EBS could provide a solution to what the government sees as insufficient policy coverage of risky infrastructure plans by private insurers. The decision comes more than three years after the government, in a bid to lure more reinsurance coverage for the massive investments, ended a 69-year monopoly held by a state reinsurer.

“Why are we creating this company? So that it supports all of the investment projects we are doing, all of which need insurance,” Mantega told reporters in Brasilia, adding that the private sector has not yet been able to meet that demand.

Brazil is poised for massive investment in infrastructure before hosting the World Cup in 2014 and the Olympic Games in 2016. It also has ambitious plans for the oil industry as the country seeks to explore its massive deep-water oil reserves.

State-controlled bank Banco do Brasil has been seeking to expand its share of the local insurance market, valued at about $50 billion a year.

Latin America’s biggest bank by assets, Banco do Brasil has bought pension funds, reorganized its insurance unit and is seeking a stake in state-controlled reinsurer IRB. By expanding into reinsurance, the lender would tap a market that is expected to double in terms of underwritten policies by 2013.

Reinsurers help primary insurers shoulder the risks assumed for clients in the riskiest, most expensive projects like oil exploration, heavy construction and defense.

EBS would also lend support to exporters as the government seeks to boost foreign sales at a time when appetite is curtailed by an ongoing crisis in the euro zone. In May the government announced measures to boost exports, including the creation of EXIM Brasil.

“Exim (Brasil) would not be viable without export insurance. That is how the big countries compete,” said Mantega.

Private sector companies in the industry say a state insurer would enjoy unfair advantages and seek to lower the cost of policies artificially to win market share.

The largest insurer in Brazil is Banco Bradesco, with more than one-fifth of underwritten policies in the personal, corporate and annuity businesses. Rivals Itau Unibanco and Banco do Brasil are also large insurers in Brazil.