Fator Seguradora, the financial insurance unit of Brazilian investment bank Banco Fator, sees the current financial crisis and Brazilian court injunctions building the country's appetite for D&O coverage, company underwriting director Carlos Frederico Ferreira told BNamericas.
The case of Brazilian pulp manufacturer Aracruz, which lost US$2.13bn in wrong-way currency-derivatives bets, is an example that will push more companies to contract D&O coverage, Ferreira said. The case has resulted in lawsuits against the company's directors and officers in both Brazil and the US.
Additionally, a Brazilian court action allowing judges to freeze assets in executives' personal accounts when fraud or misconduct is suspected is increasing the latter's perception of the risks they run, the executive said.
"Nobody will accept a position in the market without D&O coverage," he said, noting Fator expects to have premiums of 8mn reais (US$3.36mn) in the segment this year.
In the first 10 months of 2008, the D&O market has seen premiums of 79.6mn reais, up only 3.46% from the same period in 2007, according to regulator Susep. Despite this small growth so far, Fator continues to expect larger growth going forward.
Foreign players started this market in Brazil, Ferreira said, but he sees a role for local companies to perfect the products in Brazil given the uniqueness of the political and legal climate in the country.
"We're discussing with an international player to join us in terms of know-how and new products to bring to the market," he said.
SURETY BONDS, CREDIT INSURANCE SIDES OF THE BUSINESS
Fator is also expecting to end 2008 with 3mn-4mn reais in surety bonds premiums and plans hit close to 12mn reais by end-2009.
"We projected initially for 6mn reais [for 2009], but we'll double that for sure," Ferreira said.
While private investment projects may be slowing, Ferreira believes Fator's business will benefit from public investment from the government's infrastructure growth acceleration plan PAC.
Fator's new office in Rio de Janeiro will give it better access to federal energy company Petrobras (NYSE: PBR), the oil and gas industry generally as well as regulatory agencies based out of the city, he said.
On the credit insurance side, Fator plans to combine its credit protection coverage with its own capital investment lending operations to create a new product. The company also hopes to offer FDIC receivables funds in this line.
Banco Fator ended June this year with 1.18bn reais in total assets, according to its latest financial statements.
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