Nov 27 - Fitch Ratings has affirmed the international and national ratings
of Sul America S.A. (SASA) as follows:
--Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'BBB-',
--Foreign and Local Currency Short-Term IDRs at 'F3';
--National Long-Term Rating at 'AA+(bra)'; Outlook Stable;
--National Short-Term Rating at 'F1+(bra)';
--National Long-Term Rating of BRL500 million debentures due February 2017 at
The affirmation of the ratings reflects SASA's strong franchise led by a
significant presence in the health and auto segments; its consistent and
favourable operating performance throughout economic cycles, good liquidity,
adequate and stable capitalization and the continued enhancements in its risk
An upgrade of SASA's ratings will depend on its ability to further consolidate
the recently expanded distribution network, to diversify its premium base and
lower its leverage as measured by the liabilities to capital ratio. However, a
sustained and material deterioration in its operating performance,
capitalization or leverage, or a significant reduction on its liquidity may
negatively affect the ratings.
SASA is a multi-line insurer with a strong presence in the health and auto
segments, where it was the second and the fourth largest insurer in Brazil as of
June 2012. Despite heavy competition, it has maintained its market share in all
segments and expanded its position with retail clients. Growth in total,
health/dental and auto premiums was 14%, 19% and 4%, respectively, between
September 2011 and September 2012.
SASA's profitability deteriorated slightly through the first nine months of 2012
driven by an increase in the loss ratio of core segments and a decline in
financial income. This performance was consistent with industry trends. These
results were partially offset by lower administrative expenses and acquisition
costs. The resulting combined and operating ratios of 100.9% and 95.6%,
respectively, as of September 2012, are in line with those of similarly rated
insurers in Latin America.
SASA's overall net loss ratio increased to 77.9% as of September 2012, (74.7% in
2011 and 71.2% in 2010) due to increased costs, as well as higher frequency of
thefts in the auto segment. However, third-quarter loss ratios were considerably
better in all segments. Given seasonal factors, Fitch expects there will be
further improvement in overall results as of year-end 2012.
Similar to its competitors, SASA's financial income has fallen throughout 2012
due to the significant decrease in the local interest rates. Further volatility
is expected in financial income given the company's concentration in
floating-rate fixed income instruments. However, Fitch does not expect this to
be material to the ratings in the short-term.
Favorably, Fitch does not expect SASA to post additional technical reserves
following the update of the regulatory reserve calculation effective at year-end
2012. The new guidelines are expected to require insurance companies to
calculate reserves on a fair-value basis, utilizing the new lower interest rate
levels in the country. Fitch believes SASA has sufficient cushion of unrealized
gains in its investment portfolio (more than BRL350 million as at September
SASA's liquidity was further boosted in the first quarter of 2012 with the
issuance of BRL500 million five-year debentures. The proceeds were partially
used to pay back the Eurobonds which matured in February 2012. Despite higher
claims, liquidity remains comfortable with liquid assets-to-technical reserves
ratio at 1.15x at September 2012 (1.20x at YE11).
SASA's capitalization is considered adequate. Operating leverage ratio, as
measured by the liabilities-to-capital ratio was 3.53x as of September 2012,
which is slightly higher than its peers. However, Fitch believes that leverage
will remain stable in the medium term given the expectation for adequate results
and prudent dividend policy.
In 2Q'12, SASA announced that it would acquire 83.27% of the capital of Sul
America Capitalizacao S.A. (Sulacap), a subsidiary of its indirect parent.
Sulacap, with capital of BRL192 million as at September 2012, has a solid
position in the fast growing and relatively high margin capitalization (a
product similar to savings bonds) segment. Fitch views this transaction as
providing a small but diversifying contribution to SASA's overall results.
SASA is 32.8% owned by Sulasapar Participacoes (Sulasapar), 21.2% by ING
Insurance International BV (ING), 6.8% by individuals, 1.9% by the treasury of
the company and a further 37.3% is in market float. ING is currently in the
process of divesting its global insurance operations. To date, ING has sold all
Latin American insurance holdings, except Brazil, to Grupo Suramerica. Fitch
will continue to monitor changes in SASA's shareholder composition and the
possible impacts on its ratings. ING support is not factored into Fitch's SASA
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
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended