OREANDA-NEWS. December 23, 2015. Fitch Ratings has downgraded Bradesco Seguros S.A.'s (Bradesco Seguros) Insurer Financial Strength (IFS) rating to 'BBB-' from 'BBB'. At the same time, Fitch has downgraded Sul America S.A.'s (SASA) long-term local- and foreign-currency Issuer Default Ratings (IDRs) to 'BB-' from 'BB'. The Rating Outlook on Bradesco Seguros' IFS and SASA's long-term IDRs is Negative. A full list of rating actions follows at the end of the release.

The rating actions on Bradesco Seguros and SASA follow the downgrade of Brazil's long-term IDRs to 'BB+' from 'BBB-'/ Negative Outlook (for further information, see 'Fitch Downgrades Brazil to 'BB+'; Outlook Negative', dated Dec. 16, 2015, at 'www.fitchratings.com').

KEY RATING DRIVERS
Bradesco Seguros

The downgrade of Bradesco Seguros' IFS rating results from the downgrade of the long-term Local Currency IDR of its parent Banco Bradesco S.A. (Bradesco, long-term local currency IDR 'BBB-'/Outlook Negative; for further information, see Fitch Takes Actions on Financial Institutions Following Brazilian Sovereign Downgrade', dated Dec. 17, 2015, at 'www.fitchratings.com'), which in turn reflects the downgrade of Brazil's sovereign ratings. The Negative Outlook on Bradesco Seguros' IFS mirrors that on its parent's long-term local currency IDR. The downgrade reflects the reduced capacity of Bradesco to support Bradesco Seguros if needed.

Fitch considers Bradesco Seguros as a 'core subsidiary' of Bradesco, and therefore its ratings are equalized to those of its parent. This is based on the strategic importance of the insurance operations, which are a key and integral part of the group's business, common branding, and high contribution of Bradesco Seguros to group profits (29% in the first six months of 2015 and in 2014, and 31% in 2013). Bradesco Seguros has maintained solid profitability through the cycles, thanks to good technical results and solid financial income. Its average operating ratio and average ROA were 76.0% and 2.5%, respectively, in 2014 and the first half of 2015.

SASA

SASA's IDRs are constrained by Brazil's ratings, therefore the downgrade of the sovereign ratings have led to their downgrade. The close link between the ratings of SASA and the sovereign is a result of the full concentration of SASA's operations in Brazil and its very large Brazilian government securities holdings, which made up almost 67% of its total securities and corresponded to 1.8x its total equity at September 2015. Exceptional notching for a ring-fenced regulatory environment was applied between the implied insurance operating company and holding company IDRs. Notching was compressed by one relative to standard notching, as sovereign-related risks have so far not affected SASA's key credit metrics, which remain stable and adequate for its ratings. As of September 2015, SASA's profitability remained solid, as evidenced by an average operating ratio and an average ROA of 94.6% and 2.9%, respectively, broadly unchanged from 2014. During the same period, leverage remained relatively high but stable, with operating leverage averaging 3.6x, the same as in 2014.

RATING SENSITIVITIES

Bradesco Seguros: Bradesco Seguros' ratings are linked to those of Bradesco. Therefore, any change in the bank's ratings would affect the insurer's ratings, as would a change in the bank's willingness to provide support, which Fitch considers highly unlikely.

SASA: In case of an additional downgrade to Brazil's sovereign ratings, SASA's IDRs would be subject to a review that could result in a range of rating actions from affirmation to a two-notch downgrade based on Fitch's insurance rating criteria that allows flexibility as to how sovereign considerations are factored into insurance rating notching. The ultimate decision would be driven by the rationale for the sovereign rating action and Fitch's view of how this impacts SASA's operating environment, investment risk and overall creditworthiness. In addition, a sustained and material deterioration in profitability, characterized by an ROA below 0.5%; the deterioration of the liabilities/equity ratio to above 5.0x; an increase in the financial leverage (financial debt/equity) to above 25% for a sustained period; a fall in the interest coverage ratio to below 2.0x; or a significant reduction in the holding's liquidity, could negatively affect the ratings.

FULL LIST OF RATING ACTIONS

Fitch has taken the following rating actions:

Bradesco Seguros
--IFS downgraded to 'BBB-' from 'BBB', Outlook Negative.

SASA
--Foreign and local currency long-term IDRs downgraded to 'BB-' from 'BB', Outlook Negative;
--Foreign- and local-currency short-term IDRs affirmed at 'B'.