Fitch Ratings, a global credit ratings agency providing assessments and analysis across financial markets, expects intensifying El Niño conditions to create additional challenges for Brazil’s insurance industry.
The agency said more frequent and severe weather events could result in higher claims and weaker technical performance, particularly among insurers with significant exposure to catastrophe-prone business lines.
However, Fitch does not currently regard the potential impact as sufficient to create a systemic credit event for the sector, although individual insurers could face a meaningful increase in expected losses.
Fitch says the consequences of El Niño will differ significantly between regions because of Brazil’s size and varied climatic conditions. Southern states are expected to face greater exposure to flooding, severe storms, strong winds and hail, potentially increasing claims across property and motor insurance.
Further north, including the North and Northeast, drought and extreme temperatures could affect economic activity and agricultural businesses, with losses potentially extending beyond directly insured assets. Fitch identifies the Central-West as another area of concern, particularly for rural insurers, as unpredictable rainfall and increased climate variability could affect crop yields and insurance claims.
The scale of potential losses was demonstrated by the floods in Rio Grande do Sul in early 2024, which Fitch cites as a significant example of the financial consequences associated with extreme weather. More than 57,000 claims had been reported by September that year, while indemnity requests had surpassed BRL6 billion.
Fitch notes that the damage was spread across several insurance classes, including residential and commercial property, motor, rural insurance and reinsurance, highlighting the broad impact that a major flooding event can have across the market.
According to Fitch, the deterioration in claims experience was also reflected in insurers’ technical results. During May 2024, when the Rio Grande do Sul floods occurred, the combined loss ratio for Brazil’s property and casualty segment increased to approximately 65%, compared with a historical average of 45%.
Motor insurance recorded a loss ratio of 71%, versus an average of 58%. Claims payments across the insurance market also rose considerably, reaching around BRL7.1 billion in May, compared with an average of approximately BRL5.0 billion during the preceding three years. Fitch says the figures demonstrate the speed at which major weather events can affect underwriting performance, particularly in insurance classes exposed to flooding and other natural catastrophes.
Fitch regards agricultural insurance as one of the areas of the Brazilian market most susceptible to El Niño. The agency points to the contrasting effects of the phenomenon, with some parts of the country potentially experiencing prolonged dry conditions while others face excessive rainfall. This creates risks for agricultural production and increases uncertainty for insurers covering crops and rural assets.
Fitch also highlights a decline in the amount of farmland covered by insurance, together with a reduction in the government’s premium subsidy programme, as factors that could leave farmers increasingly exposed to weather-related losses.
Data cited by Fitch indicates that the area of insured farmland reached approximately 14 million hectares in 2021, accounting for around 15% of Brazil’s cultivated land. By 2025, insured acreage had fallen to approximately 3.2 million hectares, equivalent to about 3% of the country’s planted area. Fitch calculates that this represents a reduction of roughly 75% from the 2021 peak, potentially increasing the proportion of agricultural losses that are not transferred to insurers.
Fitch says insurers with more diversified portfolios and limited exposure to weather-sensitive business should experience less direct pressure from El Niño. Nevertheless, the agency notes that such companies could still be affected by secondary consequences, including disruption to businesses and supply chains.
Low insurance penetration also limits the extent to which extreme weather losses are transferred to Brazil’s insurance sector. Fitch estimates that only around 30% of vehicles and approximately 17% of homes in the country currently have insurance coverage. As a result, a large proportion of the financial damage caused by severe weather is absorbed directly by households, companies and the public sector rather than insurers.
Despite the increased climate-related risks, Fitch considers the Brazilian insurance sector to retain a solid underlying position. The agency says insurers continue to generate strong profits and are implementing measures intended to manage their exposure to increasingly severe weather events. These factors should help support the sector’s resilience even if claims increase.
Fitch also points to Brazil’s substantial insurance protection gap. While limited coverage reduces the immediate financial impact of catastrophe losses on insurers, because much of the damage is uninsured, it leaves individuals, businesses and government bodies responsible for a greater share of the resulting costs. Fitch therefore views low insurance penetration as both a constraint on insurers’ direct exposure and a broader economic vulnerability.
From a credit standpoint, Fitch expects El Niño to place the greatest pressure on technical margins at insurers with concentrated geographical exposure or sizeable books in weather-sensitive lines. The agency expects insurers to respond through a combination of higher or more risk-sensitive pricing, changes to policy terms, increased deductibles and stricter underwriting criteria.
Fitch also expects insurers to make greater use of reinsurance to manage catastrophe exposure and to become more selective when writing business in areas or product segments where the potential returns do not adequately compensate for the risks.
The agency anticipates continued investment in catastrophe modelling and measures designed to prevent or reduce losses, which could help insurers better assess climate-related exposures and manage the financial consequences of severe weather events.
