February 13, 2017 / 10:20 AM / 6 months ago

UPDATE 3-Brazilian insurer BB Seguridade forecasts slower profit growth

(Adds management comments throughout)

By Aluísio Alves and Guillermo Parra-Bernal

SAO PAULO, Feb 13 (Reuters) - State-controlled insurance holding company BB Seguridade Participações SA on Monday forecast slower profit growth this year, reflecting the impact of Brazil's harshest recession ever and a rapid decline in interest rates.

BB Seguridade projected an increase of 1 percent to 5 percent in 2017 recurring net income, which excludes one-time items, compared with its forecast of a 4 percent to 8 percent rise in 2016. It increased 4.1 percent last year.

For the insurer of state-controlled lender Banco do Brasil SA, the new forecast implies full-year recurring profit of 4.13 billion reais to 4.29 billion reais ($1.32 billion to $1.37 billion), within the consensus projection of 4.15 billion reais compiled by Thomson Reuters and up from 4.1 billion reais last year.

The outlook reflects Chief Executive Officer Jose Mauricio Coelho's challenge of increasing BB Seguridade's revenue as Banco do Brasil downsizes branches and other sales channels to cut costs. Estimates are the lowest for recurring profit growth since the insurer went public almost four years ago.

"We hope that we can improve operational performance to the extent that it offsets a drop in financial income," which is expected to account for about 18 percent of annual earnings, a drop of almost 50 percent from last year, Coelho said at an event to discuss fourth-quarter results.

Brasilia-based BB Seguridade almost met analysts' fourth-quarter profit estimates as robust distribution and reinsurance underwriting revenue helped offset the impact of a wave of central bank-led reductions in borrowing costs that started late last year.

Recurring net income rose to 1.074 billion reais last quarter from 988 million reais in the prior three months. The number was just below the consensus estimate of 1.077 billion reais.

'CHALLENGING'

BB Seguridade's common shares rose 0.9 percent to 27.81 reais in mid-morning trading on Monday. The stock is down 2.2 percent this year.

Coelho said income from insurance premium underwriting should rise at a faster pace than that of the company's rivals this year, while claims in auto insurance contracts could fall.

"For BB Seguridade, 2017 will be challenging, with earnings pressured by weak premium growth and lower financial results in light of declining rates," said Mariana Taddeo, a financial services analyst with UBS Securities in São Paulo.

Return on equity rose to 52.2 percent last quarter from 48.9 percent in the third quarter. The number, which was roughly in line with a Reuters poll of 52.1 percent, fell from 54 percent a year earlier.

A surge in reinsurance and dental insurance premium underwriting offset declining life and property and auto insurance sales last quarter, the statement said. Revenue at BB Seguridade's distribution unit rose faster than analysts expected due to a jump in brokerage fees.

Financial income more than doubled from the third quarter, reflecting a decision to increase cash and equivalents in light of the central bank's recent interest rate cuts.

$1 = 3.1204 reais Editing by Lisa Von Ahn and Paul Simao

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