The move by Brazilian insurance groups J Malucelli, Fator and UBF Seguros to work together to cover surety bonds for the Belo Monte hydro plant project marks the first concrete step to solve the country’s growing capacity problem in this area, according to Luiz Bojunga, a reinsurance consultant with law firm Doria, Jacobina, Rosado e Gondinho Advogados.

“The agreement makes it a very positive step in the market and augments the synergy and knowledge exchange between the companies,” Bojunga told BNamericas of the planned 6.0bn reais (US$3.32bn) in surety bonds to be issued on the project through the arrangement.

“The solution makes covering the Belo Monte project viable,” added the consultant, whose firm handles legal matters involving infrastructure and energy sectors with a focus on insurance and reinsurance consultation for its clients.

ISSUES STILL TO DEAL WITH

However, there is still significant concern about the capacity of the reinsurance market to take on this project, as well as new ones stemming from Brazil’s infrastructure growth acceleration plan (PAC), the second phase of which was due to be launched Monday (Mar 29) by President Luiz Inácio Lula da Silva, he said.

“In any case, the initiative and solution presented by the three biggest surety bond insurers in the country are much more concrete than the government’s idea of creating a fund [to aid the segment] or – even worse – creating a state-owned insurer to provide surety bonds to itself,” Bojunga said.

Armando Vergílio dos Santos Júnior, the now former head of insurance regulator Susep, earlier this month rejected the idea of a state-run surety bond company as unnecessary, despite press reports suggesting that the government was working on one, while suggesting that a fund to incentivize more coverage could be in the works. Vergílio stepped down from his post last week to run for congress.

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