Fitch Affirms Brazil’s Sul America’s Ratings; Outlook Stable

Fitch Ratings Has affirmed today the following International and National ratings assigned to Sul America S.A. (Sasa), the holding company of Sul America Seguros (SAS):
–Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at ‘BB+’;
–Foreign and Local Currency Short-Term IDRs at ‘B’;
–National Long-Term Ratings at ‘AA (bra)’;
–National Short-Term rating at ‘F1+ (bra)’.
–$200 million senior notes due February 2012 Foreign Currency Long-Term Rating at ‘BB’.

The rating outlook for the long-term ratings is Stable.

The affirmation of Sasa’s ratings “reflects its consistent performance throughout the global financial crisis in 2008 and 2009 and following the termination of the company’s partnership with Banco do Brasil S.A. (BdB) in the auto and health businesses,” Fitch explained.

“Sasa has maintained a combined ratio of less than 100 percent, sustaining an adequate liabilities/equity ratio of around 3.2 times, in line with its international peers with similar ratings. The ratings also incorporate the company’s declining indebtedness and the expectation of satisfactory efficiency ratios due to measures that have been implemented since 2008, which allows Sasa to maintain adequate profitability, even considering a higher competitive environment in the upcoming years.”

In addition Fitch noted that “potential upgrades of Sasa’s ratings would depend on the strengthening of its franchise, which implies a more diversified distribution channel base, as well as the continued progress in its operational performance and the maintenance of adequate capital and liquidity structures in the near term. In addition, a substantial increase in leveraging, coupled with greater commitment of its liquidity, could negatively affect its ratings.

“Sasa has maintained a higher growth in its main business segments, such as health and auto, as a result of good distribution with brokers and other agreements with financial groups, which are expected to allow partial rebuilt of the premiums composition generated through the banking channel. Furthermore, with the sale of participations in Brasilveiculos and some real estate, net liquidity assets is expected to remain close to BRL1 billion [$592 million] at YE2010, which is equivalent to some three times the company’s total debt, providing sufficient liquidity for the investments needed for its organic growth. The insurance company has adopted more expressive differentiation initiatives in the market and developed closer relationships with independent brokers, its main distribution channel.

“Even estimating an environment in which its main local competitors may consolidate going forward, Sasa’s return on assets ratio is expected to be positioned close to a favorable 4 percent, benefited by growth during 2010, adequate financial results and cost management. Sasa is expected to maintain good performance in 2011 and will have the challenges of maintaining its good results in pricing insurance, given expectations for greater competition in the market.”

Fitch also pointed out that “Sasa is the second largest health insurance provider in Brazil, the third largest in auto and the largest independent insurance group. Sasa is 33.1 percent controlled by Sulasapar Participacoes (Sulasapar), 21.49 percent by ING Insurance International BV and other 38.39 percent represents the market float with 6.81 percent held by affiliated shareholders, which include management, members of the board and other individuals. ING’s group support was not incorporated into the company’s ratings.

“Recently, ING has announced publicly that it is reviewing its global business strategy and intends to sell its insurance operations around the world. Fitch is closely monitoring the development of Sasa’s shareholding composition, and the possible impacts on its ratings; however, the benefit of ING’s support is not incorporated into the company’s ratings.

Source: Fitch Ratings