RIO DE JANEIRO & NEW YORK--()--Fitch Ratings has today 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.
The affirmation of the IFS ratings of Bradesco Seguros reflect the continued strong support of its parent, Banco Bradesco S.A. (Bradesco; long-term local currency Issuer Default Rating [IDR] 'A-'/Outlook Stable), given the strategic importance of the insurance operations and the high contribution of Bradesco Seguros to the profits of the group (31% in the third quarter of 2012 [3Q'12], 29% in 2011 and 2010).
Bradesco Seguros is considered by Fitch a 'core' subsidiary of Bradesco and hence its ratings are equalized to those of its parent. The ratings also reflect the company's leading position in the insurance market, consistent performance throughout economic cycles, prudence in constituting technical reserves, and comfortable liquidity and capitalization ratios.
As Bradesco Seguros' ratings are tied to those of Bradesco, an improvement in the bank's international ratings could positively affect Bradesco Seguros' ratings. On the other hand, deterioration in the parent's risk profile could negatively affect its ratings, as would a change in willingness to provide support, which Fitch considers highly unlikely.
Bradesco Seguros' performance is supported by its market leadership in a range of segments and the wide distribution network of Bradesco. At September 2012, life and pension segments continued to be the largest contributors to net results (56%); followed by health (16%); capitalization plans (savings plans with a lottery feature) (11%); and others including autos and property/casualty (16%).
Despite heavy competition, Bradesco Seguros has maintained its market share across all segments. Until September 2012, total premiums and contributions grew in line with the market, by 17% in comparison to the same period in 2011.
Notwithstanding a drop in financial income as of 3Q'12, performance ratios have remained favourable. Unlike most of its competitors, Bradesco Seguros has managed to maintain its loss ratios under control, reflecting its good control systems and mass market product focus. The company aims to compensate the fall in financial income, which is a trend observed in the whole market, through continued focus on cost reduction efforts. Given its good capitalization and liquidity, Fitch does not view the recent fall in financial income as material to the ratings.
In 3Q'12 Bradesco Seguros constituted BRL2.1 billion of additional technical reserves (1.9% of total) in its pension and health segments to adjust its reserves to the current lower interest rates in the country. This was fully compensated by the realization of a gain of an equal amount in the 'available for sale' securities book, and therefore has not had an impact on earnings. Fitch notes that the regulatory requirements regarding the calculation of the addition reserves are yet to be confirmed by the regulators, Superintendencia de Seguros Privados (SUSEP) and Agencia Nacional de Saude Suplementar (ANS), and Bradesco Seguros has been one of the first companies to take action. Fitch believes that any further need to constitute additional reserves will be manageable.
In Fitch's view, Bradesco Seguros' technical reserves have historically been adequate. The fact that Bradesco Seguros has moved ahead of most of its competitors with regards to the additional technical provisions is a reflection of its conservative posture.
Operating leverage, as measured by the liabilities-to-capital ratio at 7.3x, remains relatively high, despite a drop in the first half of 2012 (1H'12). This is explained by the large share of the life and pension segments in the total portfolio, whose technical reserves made up 91% of gross reserves at 3Q'12. These reserves are constituted up-front and correspond to 100% of the net present value of the future payments.
The adjusted capital remains high in relation to the minimum capital requirement (5.9x at 1H'12). Furthermore, during the same period, liquid assets corresponded to an adequate 1.13x of net technical reserves.
Bradesco Seguros, 100% controlled by Bradesco, is an operational holding company active in all segments of insurance, complementary pensions, and capitalization products, with an overall market share of 25% in total industry premiums and contributions in September 2012.
Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended