Fitch: Brazilian Insurance Companies Prepare to Face Market Challenges

RIO DE JANEIRO & NEW YORK--(Business Wire)--
The Brazilian insurance market continues to be the largest in Latin America,
with a total of BRL96.2 billion in premiums written in 2008, followed by Mexico,
Argentina and Colombia. Despite its low participation in GDP (only 3.5% at
first-quarter 2009), a time of regulatory transition and deterioration in the
macroeconomic environment in the short term, it still presents significant
potential for greater development once a consistent recovery in economic growth
is observed, according to the Fitch Ratings report published today.

The 'bancassurance' process has predominated in the market, as well as the
strong presence of large national financial conglomerates, with a relevant
participation of the main foreign insurance and reinsurance groups active in
Brazil. The growth of the Brazilian market has been favored by greater economic
stability and the increase in corporate and personal incomes, which has altered
the consumption and savings habits of the population.

'Advances in the regulatory framework have been cautious,' observed Maria Rita
Goncalves and Renato Aguiar, both Fitch analysts. In their opinion, the
effective breakup of the IRB-Brasil Resseguros (IRB) monopoly in the reinsurance
market in 2008 is expected to bring progressive benefits and modernization to
the industry over the medium and long term. Fitch believes that sector
performance will continue to be affected by the slower resumption of local
economic growth, due to deterioration of the investment environment and the
economy, and the impact of the global financial crisis. In addition, the effects
of smaller financial gains due to the return of the declining interest rate
cycle are expected to negatively affect the earnings generated by insurers, even
though they have maintained high ROA and ROE, around 3% and 20% at the end of
2008, respectively.

To mitigate these effects, the main Brazilian insurers have accelerated their
search for greater operational efficiency, reorganizing their main processes and
supplier cost controls, as well as streamlining their underwriting models. This
has led to better and lower combined and operating margins, with the average of
the 10 largest insurance companies having reached 96% and 84% in 2008.

Fitch also expects competition to intensify in some segments going forward,
including those that are more relevant, such as pension funds, further
pressuring the insurers' generation of earnings.

The special report 'Brazilian Insurance Sector: Annual Results and Prospects' is
available on the Fitch Ratings web site www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Maria Rita Goncalves or Renato Aguiar, 55-21-4503-2600 (Rio de Janeiro)
Franklin Santarelli, +1-212-908-0739
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
Jaqueline Carvalho, +55 21 4503 2623 (Rio de Janeiro)
jaqueline.carvalho@fitchratings.com
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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