News Column

Fitch Affirms Bradesco Seguros S.A.'s Ratings; Outlook Stable

July 21, 2014

RIO DE JANEIRO & NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the International and National Insurer Financial Strength (IFS) ratings for Bradesco Seguros S.A. (Bradesco Seguros) as follows:

--International IFS at 'A-'; Outlook Stable;

--National IFS at 'AAA(bra)'; Outlook Stable.

KEY RATING DRIVERS

The IFS ratings of Bradesco Seguros are linked to the ratings of its parent, Banco Bradesco S.A. (Bradesco, long-term local currency [LT LC] Issuer Default Rating [IDR] of 'A-'; Outlook Stable). Fitch believes the probability of support by Bradesco would be high, should it be required.

Fitch considers Bradesco Seguros as a 'core subsidiary' of Bradesco, therefore its ratings are equalized to those of its parent. This is based on the strategic importance of the insurance operations, which are a key and integral part of the group's business, common branding, and high contribution of Bradesco Seguros to group profits (31% in both 2013 and 2012).

The ratings also reflect the company's leading position in the Brazilian insurance market, consistent performance, diversified revenue base, strong distribution capacity underpinned by the wide agency network of Bradesco, and comfortable liquidity and capitalization ratios.

In 2013, total premiums and contributions grew 12% (18% in 2012), which allowed the company to maintain its leading position and overall market share (24.2% and 24.8% in 2013 and 2012, respectively). In the same period, life and pension segments continued to be the largest contributors to net earnings (60%), followed by health (17%), capitalization plans (which are a type of savings plan with a lottery feature) (12%), and others including auto and property/casualty (11%).

In 2013, Bradesco Seguros reversed BRL1.8 billion of technical reserves in its health, pension and life segments (1.3% of total technical reserves at end-2013), following the upward adjustment of the discount rates utilized in technical reserve calculations. The adjustment was made as per the regulator's (Superintendencia de Seguros Privados; Susep) requirement for insurance companies to use the interest rate term structure that it updates monthly, and reflects the increase in the local interest rates in the second half of 2013. This did not affect earnings, as Bradesco Seguros realized a loss of a similar amount by selling a portion of its securities in the available-for-sale book. In 2012, Bradesco Seguros made the reverse adjustment following the fall in local interest rates that year.

Bradesco Seguros' profitability remains sound and technical results remain good. In 2013, financial income was lower due to both lower interest income and the loss in the available-for-sale book. As of end-2013, combined ratio improved to 81.4% (101% at end-2012) due to the technical reserve reversal, while operating ratio and ROA were good at 78.5% and 2.4%, respectively (71.3% and 2.5%, at end-2012).

In 2013, Bradesco Seguros' equity fell 15% due to a decline in the mark-to-market revaluation reserves of available-for-sale securities from BRL4.7 billion in the previous year to negative BRL47 million. The fall in reserves was a result of the increase in interest rates in 2013. In 2012, the reverse happened as revaluation reserves were up due to the fall in interest rates. In the short term, recoveries will be limited given that interest rates are unlikely to fall. Meanwhile, the group's regulatory capital base remained comfortably in line with minimum requirements, despite their tightening in 2013.

Leverage, as measured by the liabilities-to-capital ratio, at 9.1x, remains higher than that of its peers, because of the significant technical reserves for the life and pension products, which made up 88% of the total at year-end 2013. Fitch feels comfortable about the strength and conservatism of the reserving policy of Bradesco Seguros, despite the higher leverage ratio.

RATING SENSITIVITIES

Bradesco Seguros' ratings are linked to those of Bradesco. Therefore, any change in the bank's ratings would affect the insurer's ratings, as would a change in its willingness to provide support, which Fitch considers highly unlikely.

Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'.

Applicable Criteria and Related Research:

--Insurance Rating Methodology (November 2013),

--National Scale Ratings Criteria (October 2013),

--Rating FI Subsidiaries and Holding Companies (August 2012).

Applicable Criteria and Related Research:

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

National Scale Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840760

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Esin Celasun

Director

+55-21-4503-2626

Fitch Ratings Brasil Ltda.

Praca XV de Novembro, 20 - 401 B, Rio de Janeiro, RJ, Brazil

or

Secondary Analyst

Rodrigo Salas

Senior Director

+56-2-2499-3309

or

Committee Chairperson

Franklin Santarelli

Managing Director

+1-212-908-0364

or

Media Relations

Jaqueline Carvalho, Rio de Janeiro, +55 21 4503 2623

jaqueline.carvalho@fitchratings.com

or

Elizabeth Fogerty, New York, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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