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Moody's: Renewed contract with CNP will likely boost Caixa's capitalization

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Moody's: Renewed contract with CNP will likely boost Caixa's capitalization

The extension of Caixa Econômica Federal's insurance distribution agreement with France-based CNP Assurances SA is a credit positive for the Brazilian state-owned development bank, which will see more robust capitalization and increased earnings, Moody's said.

Under a 25-year joint venture, CNP Assurances will pay 7 billion Brazilian reais upfront to Caixa in exchange for a 40% stake, of which the state-owned bank will hold the other 60%. The agreement, which involves life, pension plans and consumer credit life insurance through 2046, also holds an incentive mechanism of up to 800 million reais linked to performance and profitability.

The French insurer's payments to Caixa until 2020 would benefit the Brazilian bank through stronger capitalization and a supported debt amortization schedule until 2022, Moody's said. Healthier capital levels would also allow Caixa to sustainably boost its currently low business growth.

The renewed deal would also raise Caixa's earnings generation while providing support to its insurance business, Caixa Seguridade Participações SA, which looks to hold an IPO early next year, Moody's said. The insurance unit's planned public offering highlights Caixa's goal to focus on its core business, which is mortgage lending.

For CNP Assurances, the partnership provides a key source of revenue amid low business volume in Europe and strong growth potential of Brazil's insurance sector, the rating agency said. The deal also boosts the French insurer's distribution capacity, driving more insurance activities in Brazil.

As of Sept. 24, US$1 was equivalent to 4.17 Brazilian reais.