One of Brazil’s largest insurers, Porto Seguro S.A. (“Porto Seguro”), and one of the country’s leading private banks, Itau Unibanco Holding S.A. (“Itau Unibanco”), recently announced an agreement to merge their residential and auto-insurance operations. The merged entity, which will retain the Porto Seguro name, will be controlled by a new holding company to be called Porto Seguro Itau Unibanco Participacoes (PSIUPAR). It would become Brazil’s largest auto and residential insurer, with more than three million auto policies and more than one million residential policies, and the third largest Brazilian insurer overall, behind Itau Unibanco’s life-insurance unit and the insurance units of private bank Bradesco.

The merger occurred despite the fact that Porto Seguro had just ended similar merger negotiations with Bradesco in a dispute over who would control the venture. At a news conference announcing the merger on Monday, August 24, 2009, Jayme Garfinkel, President of Porto Seguro told reporters “What made talks advance with Itau Unibanco in record time was the fact that they shared our management views.”

Under terms of the merger agreement, the current controlling shareholders of Porto Seguro will hold a 57% stake in PSIUPAR. Itau Unibanco will hold the remaining 43%. According to President of Itau Unibanco Roberto Setubal, his company is “quite satisfied to see Jayme Garfinkel leading the business.”

PSIUPAR will retain a 70% stake in Porto Seguro, with the remaining 30% to be made available to the market. To view the new ownership structure after the completion of the restructuring, click here.

Announcement of the deal drove up the share price of rival insurer Sul America on speculation that it would be involved in the next major Brazilian insurance merger, possibly with Bradesco