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

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SAO PAULO & RIO DE JANEIRO & NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has today affirmed all of Sul America S.A.'s (Sasa) ratings, as follows:

--Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at 'BB+', Outlook Positive;

--Foreign and Local Currency Short-Term IDRs at 'B';

--National Long-Term rating at 'AA(bra)', Outlook Positive;

--National Short-Term rating at 'F1+(bra)';

--USD200 million senior notes due February 2012 Foreign Currency Long-Term rating at 'BB'.

The Positive Outlook on the ratings of Sul America S.A. (Sasa), the holding company of the Brazilian insurance group Sul America Seguros (SAS), reflects its strong franchise and the maintenance of a consistent and adequate operating performance, despite increasing competition and the lower profit as of September 2011, which is mainly due to the peaking of loss ratios in third quarter 2011 (3Q'11), a trend which has also been observed with Sasa's competitors.

A future upgrade of Sasa's ratings will depend on the ability to further consolidate the recently expanded distribution network (mostly partnerships). A stable performance in terms of claims ratio and overall profitability, combined with a conservative approach with regard to leverage and liquidity levels could also trigger a positive rating action. A deterioration in its operating performance, leverage or liquidity may trigger a revision in the Outlook back to Stable, or even negatively affect the ratings depending on the materiality of the deterioration.

SAS has a diversified product mix, led by its strong presence in the health and auto segments in Brazil, where it is the second and the fourth largest insurer, respectively, as of June 2011. Despite greater focus on risk underwriting, Sasa has maintained its market share and strong premium growth in 2011 in its main business segments. This trend is expected to continue in the short to medium term. A sharper than expected slow-down in Brazilian economic growth, coupled with a further increase in competition, would impact premium growth. However, given the low penetration levels in the country and Sasa's established position in the market, the impact is likely to be moderate, as it would be for its peers.

Loss ratios in both core segments increased as of 3Q'11, in line with the market. The deterioration was mainly due to increased costs, leading to a combined ratio above 100%. Fitch believes that the loss ratios have peaked, and will gradually fall in the coming quarters, thanks to price adjustments and intensification of controls and claim management. This should help Sasa's margins to remain stable. The effective cost management and healthy financial returns are also likely to continue to support profitability.

Liquid assets were strengthened with the sale of participations and real estate in 2010 and are expected to remain high, even if SAS intends to take advantage of potential business opportunities and pay its Eurobond which matures in February 2012. Following the payment of dividends, the company's free cash stood at around BRL860 million in September 2011, equivalent to nearly 3.7 times (x) of total financial indebtedness, still comparing well to peers.

Although Sasa's capitalization level is considered as adequate by Fitch, leverage ratios are slightly higher than the peer average. Fitch believes that leverage will be kept under control in the medium term, given the stable results and prudent dividend policy.

Sasa is 33.3% controlled by Sulasapar Participacoes (Sulasapar), 21.5% by ING Insurance International BV (ING) and a further 38.4% is the market float. ING's group support was not incorporated into the company's ratings by Fitch. Recently, ING announced that it is reviewing its global strategy and intends to sell its insurance operations. Fitch is monitoring the progress of changes in Sasa's shareholder composition and the possible impacts on its ratings, even though the benefit of this support has not been incorporated into the ratings.

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 ratings.

Applicable Criteria and Related Research:

-- 'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Fitch Ratings
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