Downgrading as Growth Headwinds Persist and Valuations Look Stretched

Research evidence excerpt

Downgrading as Growth Headwinds Persist and Valuations Look Stretched

Idea

July 26, 2026 10:36 PM GMT

Morgan Stanley & Co. LLCMBrazil Insurers | Latin America Jorge Echevarria

Equity Analyst

Downgrading as Growth Jorge.Echevarria@morganstanley.comJorge Kuri +1 212 761-8015

Jorge.Kuri@morganstanley.com +1 212 761-6341

Headwinds Persist and

Brazil Financial Institutions

Latin America

Industry View No RatingValuations Look Stretched

What’s Changed

Downgrading Brazilian insurers (BBSE to UW from EW, CXSE to BB Seguridade Participacoes

S.A. (BBSE3.SA) From To

UW from OW, and PSSA to EW from OW) as strong share price Rating Equal-weight Underweight

performance YTD has pushed valuations to less attractive levels. Price Target R$33.00 R$31.00

We also remain cautious on earnings growth, given slower CaixaParticipacoesSeguridadeS.A. (CXSE3.SA) From To

economic activity and high-for-long interest rates. Rating Overweight Underweight

Price Target R$20.00 R$19.00

A key debate for Brazilian insurers has been whether high interest rates are

Porto Seguro (PSSA3.SA) From To

ultimately positive or negative for earnings. While elevated rates support financial Rating Overweight Equal-weight

income, they also slow economic activity, weaken credit origination, and reduce Price Target R$58.00 R$59.00

demand for several insurance products. We believe the market has focused primarily

on the benefit to investment income while underestimating the growing pressure on

operating fundamentals. Importantly, insurers benefit most when rates are rising —

not when they remain high-for-long.

With the Selic expected to stay at restrictive levels, investment income should

remain strong, but the incremental earnings tailwind is fading. Our Economics