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Fitch Affirms Sul America S.A.'s Ratings; Outlook Stable
June 7, 2013 / 5:51 PM / in 4 years

Fitch Affirms Sul America S.A.'s Ratings; Outlook Stable

(The following statement was released by the rating agency) RIO DE JANEIRO/NEW YORK, June 07 (Fitch) 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-', Outlook Stable; --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 'AA(bra)'. KEY RATING DRIVERS The affirmation of the ratings reflects SASA's strong franchise led by a significant presence in the health and auto segments, its consistent and adequate operating performance throughout economic cycles, good liquidity, adequate capitalization and solid and continuously evolving risk management practices. SASA registered total premium and contribution growth of 13.5% in 2012 (13.7% in 2011) and maintained its market share through the first quarter of 2013 (1Q'13). In terms of premiums underwritten, it was the second and the fourth largest insurer in the health (third, if health care operators are considered) and auto segments, respectively, at year-end 2012. SASA's net loss ratio improved considerably in the second half of 2012 (2H'12) as a result of favorable price adjustments in the health segment, implementation of enhanced underwriting and analysis tools, and increased focus on profitability. However, it worsened again in 1Q'13 in all segments, except auto. Further volatility in net loss ratios is likely, but they should move in tandem with Brazilian sector averages. Similar to its competitors, SASA's financial income fell in 2012 and 1Q'13, due to the significant decrease in local interest rates. Further volatility is expected in financial income considering the concentration of exposure in floating-rate fixed-income instruments. Fitch expects combined and operating ratios to remain adequate for the ratings, despite the considerably lower first-quarter results, and expectations that financial income will remain low compared to previous years. SASA did not make any extraordinary adjustment to its technical reserves in 2012 or 1Q'13. The unrealized gains in its securities portfolio (11% of capital in 1Q'13) could be used to compensate for any additional technical reserves, if required. SASA's liquidity remains adequate, with its liquid-assets-to-technical-reserves ratio at 1.16x at year-end 2012. The acquisition of the capitalization company, Sul America Capitalizacao S.A., concluded in April 2013, has not had a material effect on liquidity. The total payment made for this company was less than 2% of the liquid assets at year-end 2012. The effect of the updated local regulatory rules on SASA's regulatory capital is relatively small; in Fitch's view, SASA and its subsidiaries will be able to comply comfortably with them. SASA's leverage ratios are slightly higher than its peers, but are in line with its ratings. Fitch does not anticipate a significant increase in leverage, considering its expectations for stable results and the company's prudent dividend policy. SASA is 32.8% owned by Sulasapar Participacoes (SULASAPAR), 21.2% by ING Insurance International BV (ING), 6.7% by individuals, 1.9% by the treasury of the company and a further 37.3% is in market float. In February 2013, SASA announced ING would sell its 45% stake in SULASAPAR to SULASA (SULASAPAR's controlling company). In May 2013 it was announced that ING would sell another 7.9% of its remaining stake to International Finance Corporation (IFC). Following the completion of the two transactions, which are currently pending approval from regulatory authorities in Brazil and the Netherlands, ING will be left with only a direct share in SASA and its overall participation in its capital will fall from 36.0% to 21.1%. At the same time, the Larragoiti family's direct and indirect participation will increase from 24.8% to 31.9%. SASA will stop using the 'ING' brand. IFC will gain the right to designate one member to the board of directors, which will replace one of the two members designated by ING. The change in the shareholder structure is neutral to SASA's ratings, as these are based on the company's stand-alone profile and do not incorporate potential support from ING. The transactions are not expected to have any financial, operational, or commercial effect on SASA at this stage. RATING SENSITIVITIES Positive Rating Action: Diversification of the premium base, a sustained decline in the operating ratio to below 85%, and a decline in the net earned premiums/capital ratio to below 250%, could lead to an upgrade. Negative Rating Action: A sustained and material deterioration in profitability, characterized by an ROA below 0.5%; the deterioration of the liabilities/capital ratio to above 4.0x; a fall in the operating income/interest expense ratio to below 2.0x; or a significant reduction in the holding's liquidity, could negatively affect the ratings. Contact: Primary Analyst Esin Celasun Associate Director +55-21-4503-2626 Fitch Ratings Brasil Ltda., Praca XV de Novembro, 20 - 401 B, Rio de Janeiro, RJ, Brazil Secondary Analyst Maria Rita Goncalves Senior Director +55-21-4503-2621 Committee Chairperson Julie Burke Managing Director +1-312-368-3158 Media Relations: Jaqueline Carvalho, Rio de Janeiro, Tel: +55 21 4503 2623, Email:; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information available at '' or ''. Applicable Criteria and Related Research: --'Insurance Rating Methodology -- Amended' (Jan. 11, 2013), --'National Ratings Methodology' (Jan. 19, 2011). Applicable Criteria and Related Research: National Ratings Criteria here Insurance Rating Methodology — Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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