Brazilian corruption probes, bankruptcies spawn insurance boom

viernes 5 de agosto de 2016 17:11 GYT

By Ana Mano

SAO PAULO Aug 5 (Reuters) - Insurers who sell policies limiting executives' liability from lawsuits have seen a surge in business thanks to a sprawling Brazilian corruption probe involving state-controlled Petroleo Brasileiro SA and a rash of corporate bankruptcies.

The country's so-called Directors & Officers (D&O) insurance market has more than doubled in value since 2011 based on the volumes of premiums paid, rising to 370 million reais ($114 million) last year, according to data from industry regulator Susep, the most recent available.

Such policies, which cover claims against senior executives for the decisions and actions they take as part of their management duties, typically cover legal bills arising from a criminal investigation. However, if the defendant is convicted and criminal intent is proven, then the insurer may demand repayment of those costs, says Juliana Casiradzi, D&O manager at Marsh.

Together with the sweeping Petrobras probe, a severe recession has contributed to a surge in claims to about 47 percent of premiums by 2015, Susep data show, up from just 9 percent in 2011. Typically, bankruptcies trigger tax, labor and environmental liabilities against companies and their executives.

But even the higher rate of claims is considered relatively healthy for the industry as it lags the overall claims to premiums ratio of 65 to 70 percent for the domestic market, said Flávio Faggion, owner of Siscorp, a São Paulo-based insurance market analysis firm.

Yet the spike in claims did catch some insurers by surprise.

For example, Zurich AG's local unit saw claims exceed premiums by 53 percent in 2015, according to Susep. Zurich declined to comment on the data.

Some insurers trying to manage soaring claims have resorted to barring firms with severe financial woes or links to corruption probes, said Marsh's Casiradzi, adding that companies with extensive government contracts were seen as particularly hard to insure.   Continuación...