Itáu Unibanco puts high-risk insurance unit for sale, Valor says

SAO PAULO Wed Jan 22, 2014 7:43am EST

SAO PAULO Jan 22 (Reuters) - Itaú Unibanco Holding SA, Brazil's most profitable lender, is offering its high-risk corporate insurance unit to at least 10 global industry giants, Valor Econômico newspaper reported on Wednesday.

The newspaper, which did not say how the information was obtained, said Itaú Unibanco put the unit on the block because it will likely demand more capital allocations under new Basel III rules. The bank's press office did not comment immediately on the report.

The unit, which specializes in offering insurance coverage for giant corporate projects in high-risk segments such as oil and gas and infrastructure, has revenue of about 1.7 billion reais ($723 million) annually and clients including state-oil company Petróleo Brasileiro SA, Valor said.

The newspaper said Itaú, which did not inform a sought price for the asset, gave valuation guidance of 1.2 times the unit's book value, the same metric used in recent mergers and acquisitions deals in the sector.

Some of the ten insurers to whom Itaú delivered a prospectus for the sale are Germany's Allianz SE, France's Axa SA , Italy's Generali SpA and Swiss insurer Zurich Insurance Group AG, Valor said. Allianz declined to comment. Efforts to reach media staff at Axa, Generali and Zurich in Brazil were unsuccessful.

Itaú plans to keep the retail and personal insurance units, which have more stable revenues and higher returns than the high-risk insurance segment, Valor reported. While return on equity at the high-risk division hovers around 10 percent, ROE at the retail and personal unit is around 30 percent, the newspaper reported.

The sale comes after infrastructure projects related to hosting the World Cup in 2014 and the Olympic Games in 2016 got off to a late start, and the government auctioned rights to operate roads, railways and ports a year later than expected.

Government officials expected policy underwriting in the high-risk and reinsurance segments to grow three times as fast as overall economic growth through 2015. But with economic growth trailing the government's 4.5 percent average target between 2011 and 2014, returns and policy underwriting have suffered.

Itaú also wants to shed the unit because contracts force it to assume policy risks for reinsurers it works with, Valor said. Reinsurers help primary insurers shoulder the risks assumed for clients in the riskiest, most expensive projects - like oil exploration, heavy construction and defense.