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The economies of Brazil and India are two of the largest and fastest-growing in the world. Brazil is the ninth largest economy in the world with a GDP of around $1.5 trillion. India is the sixth largest with a GDP of around $3 trillion. Both countries have diverse economies with strong construction, trade, and manufacturing sectors. In this blog, we will compare the surety bond industries in Brazil and India and discuss the potential for growth in India.
Surety Bonds across industries in Brazil & India
Construction Industry
The construction industry in Brazil is a major contributor to the country’s economy, accounting for around 5% of its GDP. The industry has seen significant growth in recent years, driven by large infrastructure projects. Some of these projects were the 2016 Olympic Games and the 2014 FIFA World Cup. This growth has also led to an increase in demand for surety bonds, which are required for most construction projects in Brazil.
In India, the construction industry is also a major contributor to the country’s economy. It accounts for around 8% of India’s GDP. The industry has seen significant growth in recent years, driven by large infrastructure projects. Some of which are the Delhi-Mumbai Industrial Corridor and the Golden Quadrilateral highway network. However, until recently, surety bonds were not available for issuance in India. With the recent amendments made to the Insurance Act, 1938, the Indian construction industry can now benefit from surety bonds, which provide protection against non-performance and other risks.
Trade Industry
The trade industry in Brazil is a significant contributor to the country’s economy, accounting for around 10% of its GDP. The industry is dominated by the export of commodities, such as soybeans, iron ore, and crude oil. However, the trade industry is also subject to risks such as non-payment, which can be mitigated through the use of surety bonds.
The manufacturing industry in Brazil is a major contributor to the country’s economy, accounting for around 22% of its GDP. The industry is dominated by the production of automobiles, electronics, and food products. However, the industry is subject to risks such as non-performance and defective products, which can be mitigated through the use of surety bonds.
The surety bond industry in Brazil is estimated to be around $13.4 billion, according to a report by Swiss Re. The industry has seen significant growth over the past few years. This growth is driven by demand from the construction, trade, and manufacturing sectors. The surety bond market in Brazil is dominated by a few large insurance companies, including Porto Seguro, SulAmérica, and Mapfre.
In India, the surety bond market is still in its early stages. According to a report by the Indian Surety Association, the market is estimated to be around $500 million. However, with the recent amendments made to the Insurance Act, 1938, the market is expected to grow significantly in the coming years. To support this growth, Indian surety bond providers will need to work closely with reinsurance companies to manage
Market Size and Players
In Brazil, the surety bond market is dominated by a few key players such as Mapfre, Porto Seguro, and SulAmerica. According to the Brazilian Association of Surety Companies (SINCOR-SP), the surety bond market in Brazil has grown by more than 13% annually in recent years. A total value of around R$16 billion (approximately $3 billion USD) in 2020.
On the other hand, in India, the surety bond market is still in its nascent stage. There are almost no players in the Surety Bond market. According to a report by the Insurance Regulatory and Development Association of India (IRDAI), the surety bond market in India has the potential to reach $8 billion USD (INR 650 billion) by 2027. The limited size of the market can be attributed to the fact that the issuance of surety bonds were only allowed in February 2022 (in the Union Budget 2022). However, the market is expected to grow rapidly in the coming years. This is due to the increasing demand for surety bonds in various industries. Furthermore, difficulty in obtaining Bank Guarantees in India has pushed the demand for Surety Bonds.
Reinsurance
Reinsurance is an integral part of the surety bond market. It provides a safety net for surety bond companies in the event of large losses. In Brazil, the surety bond market is well-supported by a strong reinsurance industry, with international reinsurers such as Swiss Re, Munich Re, and Scor providing support to local surety bond companies. This has enabled local players to offer large surety bond limits, thereby attracting more business from clients.
In India, there is a need for greater support from reinsurers to help the surety bond market grow. With limited players in the market, the availability of reinsurance support is crucial to enable local surety bond companies to offer large surety bond limits and compete with international players. However, it is expected that more reinsurers will enter the market in the coming years.
Expected Loss Ratios
Expected loss ratios are a key indicator of the profitability of the surety bond market. In Brazil, the expected loss ratios for surety bond companies have been low in recent years. Some players reporting ratios as low as 0.5%. This can be attributed to the strong underwriting practices and risk management strategies adopted by local surety bond companies, as well as the support provided by reinsurers.
In India, it is still too early to predict the expected loss ratios for surety bond companies. The loss ratios in India, however, can be considered about 20% worse than the average loss ratios for Surety Bonds which are 18-20%. This makes the predicted loss ratio about 25% in worst case scenario. Additionaly, with the regulatory framework in place and the availability of international expertise, it is expected that local players will adopt best practices to manage risks effectively and maintain low expected loss ratios.
Conclusion: Surety Bonds in INDIA on the growth path as in brazil
In conclusion, the surety bond markets in Brazil and India have some similarities and differences. While Brazil has a well-established surety bond market with strong support from reinsurers and a large number of players, India’s market is still in its nascent stage. However, with the increasing demand for surety bonds in various industries in India, the market is expected to grow rapidly in the coming years.
To replicate the success of Brazil’s surety bond market, India needs to attract more players to the market. Further, India needs to establish strong partnerships with reinsurers, and adopt best practices to manage risks effectively. G20 summit in India in 2023 is a good opportunity for India to learn from Brazil about the Surety Bonds. With the right support and regulatory framework in place, India’s surety bond market has the potential to become a major player in the global surety bond industry.
