Itau Unibanco Holding S.A.
), the largest non-government bank in Brazil, has inked a deal to
sell its corporate insurance division Itau Seguros Solucoes
Corporativas SA ("ISSC"). Global insurance company
) will buy this high-risk unit for around 1.52 billion reais ($684
This divestiture echoes Itau's recent policy of focusing on the
profitable core banking business. It will also help, Zurich,
Switzerland-based ACE to emerge as the biggest property and
casualty insurer in Brazil.
The deal, subject to some customary approvals, is expected to be
completed in first-quarter 2015.
By selling ISSC, which offers coverage mainly to the oil & gas
and infrastructure sectors, Itau expects a pre-tax earnings boost
of around 1.1 billion reais ($497 million). Management of insurance
business in these risky sectors requires a huge capital base and
may put pressure on the balance sheet of Itau. Apart from promoting
the core banking business, Itau's decision to vend the insurance
division might have dawned from the need to de-stress the balance
sheet as well as comfortably meet Basel III capital requirements.
Itau has been shifting its focus to the lower-risk markets for
quite some time as evident from its expansion in mortgages and
Acquisition of ISSC may prove to be a masterstroke for ACE. In
2013, ISSC boasted gross premium written of 2 billion reais along
with a market share of 18%. Moreover, ACE has managed to clinch a
business, which was previously eyed by many insurance giants such
as HDI of Germany and AXA of France.
In fact, Brazil has recently become an important market for
insurance business. High-risk corporate insurance business in
Brazil is expected to grow at a rapid pace over the coming years
and only the specialized are better positioned to adequately
exploit this opportunity. Therefore, ACE will be able to complement
its Brazilian business in a meaningful way through this
Itau currently carries a Zacks Rank #3 (Hold).
Some better-ranked foreign banks include
Banco Bradesco S.A.
BBVA Banco Franc
). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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