Fitch Ratings has affirmed Bradseg ParticipacOes S.A.'s (Bradseg) Long-Term Local Currency Issuer Default Rating (IDR) at 'BB' and its National Long-Term Rating at 'AAA(bra)'.

The Rating Outlook is Stable.

Key Rating Drivers

Support-Driven Ratings: Bradseg's IDRs are aligned with the ratings of its parent, Banco Bradesco S.A. (Bradesco, Long-Term Local Currency IDR BB/Stable Outlook). The Outlook for BradSeg's IDR mirrors Bradesco's, which, in turn, is one notch above Brazil's sovereign ratings (BB-/Stable).

Core Subsidiary: Fitch considers BradSeg a core subsidiary of Bradesco. This reflects the strategic importance of its insurance operations, common branding and BradSeg's high contribution to group profits, with an average of 27.1% from 2019 through 2022.

Robust Market Position: The ratings also reflect the company's leading position, consistent performance and diversified revenue base. Bradseg had a leading position and overall market share of approximately 22.5% as of September 2022. The ratings also consider the company's strong distribution capacity, underpinned by the wide branch network of its parent, good performance and comfortable capitalization ratios.

Diversified Product Mix: The life and pension segments are the largest contributors to gross written premiums (47%) in 2022, followed by health (37%), property/casualty (P/C, 9%) and savings bonds (7%). In 2022, premiums written grew by about 17%, and Bradseg experienced growth in all of its business lines. Pension and life premiums grew 16.4%, healthcare 13.2%, P&C 36.3% and saving bonds 15.9%.

Solid Capitalization: Bradseg's leverage indicators are strong and comfortable. They remained at favorable levels in 2022. Bradseg's operational and asset leverage ratio remained strong at the end of 2022 at 2.1x and 10.9x, respectively, compared with Fitch's international life insurer company benchmark ranges.

Strong Profitability: In 2022, Bradseg showed an improvement in profitability in almost all segments and ROAE was 21%, an increase from 15% the previous year. Net income was boosted by premium growth, loss ratio improvement and the increase in the financial result, given high interest rates and inflation. The company has a solid and consistent record of technical results through the cycles. This reflects its sound underwriting skills, control systems and pricing practices.

Concentration in Government Securities: Bradseg's investment portfolio is concentrated in government securities, which made up 82% of the total exposure in 2022. The company's liquidity remains adequate, with all the regulatory minimum liquidity ratios met easily.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Bradseg' IDR has limited upside potential, as it is equalized to that of Banco Bradesco, whose ratings are constrained by its operating environment. Over the medium term, the ratings could benefit from stabilization and eventual improvement of Fitch's assessment of the operating environment for Brazilian banks.

For the national scale rating, this sensitivity is not applicable, given that the National LT rating of Bradseg was affirmed at 'AAA(bra)'.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Bradseg' ratings are linked to that of Banco Bradesco. Therefore, any negative change in the bank's ratings would affect the issuer's ratings, as would a change in its willingness to provide support, which Fitch considers highly unlikely.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

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