Bloomberg News

Brazil Insurers Can Invest Reserves in Letras Financeiras

October 27, 2011

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Oct. 27 (Bloomberg) -- Brazil’s Monetary Council will allow insurers, reinsurers and pension funds to use up to 80 percent of their technical reserves to buy notes known as letras financeiras.

About 26 billion reais ($15.2 billion) can now be invested in letras financeiras, Dyogo de Oliveira, deputy executive secretary of the Finance Ministry, said to reporters in Brasilia. Previously such firms were not permitted to buy these notes.

“Letras financeiras are good quality bonds issued by financial institutions and they address the objective of companies to invest in long-term debt,” he said.

Banks have issued close to 120 billion reais of the notes since the central bank approved the offerings last year, Oliveira said.

“They have had good reception in the market and they are taking on the role of lengthening funding in Brazil,” he said.

Technical reserves for insurers and pension funds are the equivalent of minimum capital requirements for banks.

There was already a limit allowing insurers to invest 80 percent of technical reserves in financial company debt, but it included other types of bonds, principally certificates of deposit, or CDBs, and deposit receipts, or RDBs.

Technical reserves total 300 billion reais, of which 26 billion reais are invested mainly in CDBs and RDBs.

“Less than 10 percent of technical reserves are currently used by these companies,” he said.

--With assistance from Gabrielle Coppola in New York. Editors: Glenn Kalinoski, Carlos Caminada

To contact the reporter on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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