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Brazilian regulator to end special inspection of IRB Brasil Re

7th April 2021 - Author: Luke Gallin

The Board of Directors of SUSEP, the Brazilian insurance regulator, has unanimously decided to end the special inspection of IRB Brasil Re it commenced in May of last year, the reinsurer has announced.

irb brasil reReports emerged towards the end of May 2020 that the Brazilian reinsurer was to be investigated by SUSEP over concerns it lacked sufficient reserves, after the company reinstated earnings and noted accounting issues.

2020 was an interesting year for the company. In early March, it replaced its President and Chief Financial Officer (CFO) after confusion about a possible investment by Berkshire Hathaway caused its shares to decline by 32%.

This resulted in AM Best placing the Financial Strength Rating and the Long-Term Issuer Credit Rating of the company under review with negative implications.

In the weeks that followed, the reinsurer appointed its incoming Chairman, Antonio Cassio dos Santos, as interim CEO of the company.

Gallagher Re

Then, in April, IRB Brasil Re announced that certain members of its Board had resigned amid the impacts of the COVID-19 pandemic, which continues to ravage the country. Days later, the firm withdrew its profit guidance for the year owing to the pandemic, before eventually delaying the release of its Q1 2020 results.

All of this resulted in both the investigation by regulators in the country and also the downgrading of its credit ratings by AM Best.

In June, the reinsurer further delayed the release of its Q1 results amid reports it must come up with 1 billion reais ($194 million) to settle a court dispute that arose after a drop in IRB’s share price earlier in the year.

In the end, the São Paulo Court of Justice ruled in favour of IRB Brasil Re in the public citizen suit filed against the company.

A month later, IRB Brasil Re successfully raised $380 million via an issuance of 300,083,857 common shares.

This capital raise was followed by a $125 million loss in the second-quarter of the year and then a narrower, albeit still negative performance in the third-quarter of the year.

In December of 2020, A.M Best removed IRB Brasil Re’s ‘under review with negative implications’ status following improvements in the company’s enterprise risk management (ERM) and underwriting practices.

The latest twist in the saga took place on February 18th, 2021, when SUSEP informed the reinsurer that based on the financial statements of December 31st, 2021, “it had reached the regulatory framework regarding the liquidity ratios and coverage of technical provisions.”

Throughout the inspection period, IRB Brasil Re says that it adopted all necessary measures to solve the issue as soon as possible.

“The closure of the Special Inspection installed by SUSEP represents a fundamental milestone in the recovery process of the Company, with more than 80 years of existence, as a result of the intense work of the entire IRB Brasil RE Management, together with the support of its employees, partners, customers, shareholders and other stakeholders,” says the reinsurer.

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