Fitch expects Bradesco Seguros’ profitability to remain sound. In line
with Fitch’s expectations, Bradesco Seguros’ net loss and combined
ratios returned to historical levels (68% and 91% in June 2013), after
having peaked in 2012 due to a one-off adjustment to technical reserves.
Similar to its competitors, its financial income fell significantly in
the first half 2013, although it is likely to recover given the rise in
interest rates since April 2013.

In June 2013, there was a significant decline in Bradesco Seguros’
equity (BRL15.0 billion and BRL18.5 billion, in June 2013 and 2012,
respectively), due to negative mark-to-market (MTM) adjustments to its
available for sale securities, which fully reversed the positive MTM
adjustments of 2012. In the short term, recoveries will be limited given
the expectations of further interest rate rises. Volatility in equity is
likely to continue, but Fitch expects liquidity to remain adequate.

Fitch Ratings has affirmed the International and National Insurer
Financial Strength (IFS) ratings for Bradesco Seguros S.A. (Bradesco
Seguros) as follows:

Fitch considers Bradesco Seguros as a ‘core subsidiary’ of Bradesco,
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 (30% and 31% in
September 2013 and 2012, respectively).

Fitch expects Bradesco Seguros’ premiums and contributions to continue
to grow solidly in 2014, even though there was a slight deceleration as
of September 2013 (13% year on year and 18% in 2012). The slowdown was
in the pension segment, which was affected by the capital market
volatility in the third quarter, which has also been the case for its
peers. Bradesco Seguros’ market share remained broadly stable until
September 2013, when life and pension segment continued to be the
largest contributor to net earnings (61%), followed by health (17%),
capitalization plans (saving bonds with a lottery feature) (12%), and
others (10%).

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