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* IPO at $2.5 bln could be Brazil's largest this year-bankers
* Unit is fast-growing division of Brazil's No. 1 bank
SAO PAULO, Feb 26 (Reuters) - Banco do Brasil SA filed late on Tuesday to list its insurance and pension unit on the São Paulo Stock Exchange, seeking to tap expected growth in an industry where rivals are also building up their presence.
Bankers have told Reuters the transaction, which they expect to happen by April, could fetch at least 5 billion reais ($2.5 billion) - making it the largest initial public offering planned for Brazil this year.
Under the proposal, which was unveiled in a filing with Brazilian securities regulator CVM, Banco do Brasil will sell as much as 40 percent of its pension, insurance and retirement company, BB Seguridade. The filing did not give details of the size of the deal, the number of shares on offer or a timetable for the transaction.
The decision underscores the growing importance of insurance for Brazilian banks as record low interest rates, stable household income and a strong job market boost demand for retirement packages and health and auto insurance. Currently, only three out of Brazil's 25 largest insurance companies are listed on the São Paulo stock exchange.
The move also comes amid increased merger and acquisition activity in the insurance industry, while the growing appeal of healthcare providers is helping to reprice a sector that was largely ignored by investors for years.
Brazilians spend less than a tenth of the amount Britons or Americans do on insurance products and, as the middle class grows, insurers are luring new clients by transforming traditional, costlier policies into cheaper products.
Premiums underwritten represent only 3 percent of Brazil's gross domestic product -- compared with 14 percent and 12 percent respectively in Britain and the United States.
UnitedHealth Group Inc last year agreed to pay about $5 billion for all of Amil Participações SA, a leading health plans provider, and insurers from SulAmerica SA to Bradesco Seguros, Brazil's biggest, have beefed up their supply of products and staff to meet rising demand.
BB Seguridade's IPO is still subject to "market conditions," the filing said.
The listing will also help Banco do Brasil reduce its fundraising needs. Under new regulatory rules for banks to be implemented in coming years, financial conglomerates would have to deduct the minimum regulatory capital of an insurance subsidiary to calculate their so called core Tier 1 ratio.
A partial sale would reduce the size of the deduction, and if BB Seguridade can sell its shares at a price above book value, Banco do Brasil would be able to lock up capital gains that could also prop up its capital.
Banco do Brasil's investment-banking unit is handling the transaction, with co-managers including Banco Bradesco SA , Itaú Unibanco Holding SA, JPMorgan Chase & Co. Other investment banks hired to help handle the deal include BTG Pactual Group, Banco Votorantim SA , Citigroup Inc and São Paulo-based Brasil Plural Banco Multiplo.