Fitch Affirms BTG Pactual Seguradora and BTG Pactual Resseguradora IFS Ratings; Outlook to Positive

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of BTG Pactual Seguradora S.A. (BTG Seguradora) and BTG Pactual Resseguradora S.A. (BTG Resseguradora), and revised the Outlooks on the ratings to Positive from Stable.

The rating action follows the recent revision of the outlook on the ratings of their parent Banco BTG Pactual S.A. (BTG Pactual; local currency long-term IDR 'BBB-'/Outlook Positive). For further details, please see the press release titled 'Fitch Affirms BTG Pactual Group's Ratings; Outlook Revised to Positive' published on Fitch's website on Jan. 27. A full list of the actions is detailed at the end of this release.

KEY RATING DRIVERS

The IFS ratings of BTG Seguradora and BTG Resseguradora are based on support from their ultimate parent, BTG Pactual. Both companies are wholly owned subsidiaries of BTG Pactual Holding de Seguros S.A., which is fully owned by BTG Pactual.

As per its rating criteria 'Rating FI Subsidiaries and Holding Companies', Fitch considers both BTG Seguradora and BTG Resseguradora as strategically important subsidiaries of BTG Pactual, due to the strong synergies and high level of management and operational integration, largely fungible capital, full ownership, and common branding. In assessing support, Fitch views positively the close alignment of the current and target client base of the new insurance operations to that of BTG Pactual, and the fact that they are part of its strategy to provide full range of services to its customer base.

BTG Seguradora and BTG Resseguradora operate from BTG's main offices and are considered a division of the bank. Therefore, they benefit from expense synergies, the bank's information technology platform, internal controls and corporate governance structure, as well as its solid local and international reputation. The ownership structure also provides potential access to the parent's wide range of clients and cross selling opportunities for the group.

BTG Seguradora

BTG Seguradora started underwriting in February 2013. Its main focus is on surety (60 percent of premiums in November 2013), which is complemented by engineering risks (10 percent). It also participates in the DPVAT (mandatory third-party liability for road accidents) consortium (30 percent). In November 2013, with BRL58 million surety premiums underwritten, its market share in the segment was 6 percent (ranking 6th).

The insurer plans to start underwriting in other segments related to infrastructure (such as hull and petroleum) over the short to medium term, but the core focus will remain surety.

According to preliminary figures, BTG Seguradora accumulated a loss of BRL3 million through November 2013. The negative result was due to both technical and financial income losses. The former is normal at the early stage of operations due to heavy technical reserve accumulation, while the latter is explained by the unrealized mark-to-market losses on the long term securities in the investment portfolio. Claims in the surety and engineering segment were well below the market averages.

Fitch expects technical results to gradually improve in 2014 with the stabilization of technical reserve development, however, given the expectations for further interest rate increases, there could be more losses in the investment portfolio.

BTG Resseguradora

BTG Resseguradora is BTG Seguradora's captive reinsurer. It started operations in May 2013, with BRL100 million capital. It has one statutory employee and only reinsures premiums ceded by BTG Seguradora. As a reinsurer, BTG Resseguradora is not subject to regulatory maximum retention limits per risk, and therefore offers a significant growth potential for the group.

BTG Resseguradora's growth will be directly linked to BTG Seguradora in the short term. Thereafter, within the next one to two years, the reinsurer plans to obtain licenses from the authorities in Colombia, Peru, Chile and Argentina, offering reinsurance services for Brazilian companies operating in these countries. In the next stage of its business plan, in three to four years, it aims to become a full reinsurance company reinsuring premiums from all segments in Brazil. BTG Pactual'sBRL250 million capital injection in August 2013 demonstrates its commitment to the future development of the reinsurance company.

According to preliminary figures, in November 2013, BTG Resseguradora's reinsurance premiums (net of commissions) reached BRL36 million (about 1 percent of local reinsurance market premiums) and leverage remains very low (net liabilities/equity was about 10 percent). The reinsurer accumulated profits of BRL8.1 million through November 2013, mainly stemming from the financial income in the investment portfolio.

RATING SENSITIVITIES

Changes in parent's ratings: Changes in BTG Pactual's ratings or propensity to support its subsidiaries would affect the ratings of BTG Seguradora and BTG Resseguradora.

Changes in strategic importance: Changes in Fitch's evaluation of the strategic importance of BTG Seguradora and BTG Resseguradora could lead to changes in their ratings.

Fitch has taken the following rating actions:

BTG Seguradora:

--National IFS affirmed at 'AA-(bra)'; Outlook revised to Positive from Stable.

BTG Resseguradora:

--International IFS affirmed at 'BB+'; Outlook revised to Positive from Stable;

--National IFS affirmed at 'AA-(bra)'; Outlook revised to Positive from Stable.

Additional information available at 'fitchratings.com' or 'fitchratings.com.br'.

Applicable Criteria and Related Research:

-- Insurance Rating Methodology (November 2013);

-- National Ratings Methodology (October 2013);

-- Rating FI Subsidiaries and Holding Companies (August 2012);

-- Fitch Affirms BTG Pactual Group's Ratings; Outlook Revised to Positive (January 2014);

-- BTG Pactual Resseguradora (September 2013);

-- BTG Pactual Seguradora (September 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=723072

Rating FI Subsidiaries and Holding Companies

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=679209

BTG Pactual Resseguradora S.A.

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=717539

BTG Pactual Seguradora S.A.

fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=717704

Additional Disclosure

Solicitation Status

fitchratings.com/gws/en/disclosure/solicitation?pr_id=819170

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