IRB Brasil Resseguros S A : RE records net profit of BRL 8.6 million in 1Q23

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IRB Brasil RE records net profit of BRL 8.6 million in 1Q23 Published in: May 25, 2023

>>Positive underwriting result of BRL 3.7 million, the first after seven quarters;
>> Net profit of BRL 8.6 million, already considering the BRL 24.5 million agreement with the United States Justice Department (DoJ);
>> Loss Ratio 4 percentage points (p.p.) lower, at 77.3%, gradually reflecting the new underwriting strategy; and
>> Combined index 7.7 percentage points (p.p.) lower, in line with the effort to negotiate commissions and prices.

IRB Brasil RE reported net profit of BRL 8.6 million in the first quarter of 2023 (1Q23). The figures, released today (05/15), point to the continued evolution of the reinsurer's results, with a return to profitability after three consecutive quarters of net losses and seven consecutive quarters of underwriting losses. The positive result includes the BRL 25.4 million settlement with the United States Justice Department (DoJ), which put an end to the possibility of being prosecuted for publishing untrue information in the US.

"We started 2023 by doing our homework, accelerating internal changes, seeking efficiencies and strengthening the relationship with our customers. The first quarter shows the direction in which the company is heading, with a return to profitability. By the end of June, our turnaround process will be completed. With a more agile and efficient structure, IRB will continue to focus on financial discipline, excellence in underwriting and agility in execution, with simple and clear goals", comments Marcos Falcão, CEO of IRB Brasil RE.

Disregarding the non-recurring effect of the agreement with the US authorities, normalized net profit in 1Q23 was BRL 34 million. In the first quarter of 2022, IRB Brasil RE reported net income of BRL 80.5 million, with non-recurring impacts from gains from lawsuits and LPT (Loss Portfolio Transfer) operations. The normalized net income, at the time, was negative by BRL 54.5 million.

Positive underwriting income
After seven quarters, the underwriting result for IRB Brasil RE was positive by BRL 3.7 million in 1Q23, against a loss of BRL 96.4 million in 1Q22. It is worth mentioning that, in this quarter, there was a reversal of the underwriting result in Brazil, which went from a negative BRL 113 million in 1Q22 to a positive BRL 15.8 million in 1Q23. Abroad, the movement was the opposite, with the underwriting income showing a loss of BRL 12.1 million in 1Q23, compared to a positive result of BRL 16.5 million in 1Q22.

"The income presented reflects the adjustments made to the company's portfolio and is a consequence of the strategic direction of risk dilution and reduction of exposures, aiming at a quality and profitable portfolio. We continue with the goal of reaching 80% of our portfolio in Brazil, reinforcing our competitive advantages, and completing the portfolio with 15% in premiums written in Latin America and 5% in other markets. In the first three months of the year, we renewed 88% of the contracts we wanted to retain and strengthened proximity to our customers", says Daniel Castillo, Vice President of Underwriting at IRB Brasil RE.

In line with the underwriting strategy, the total written premium decreased 21% in 1Q23 compared to the same period of 2022, reaching BRL 1,006.8 million. In 1Q23, the share of deals signed in Brazil increased on an annual basis, reaching 64% of the portfolio. Regarding volume, there was a decrease of 19% compared to 1Q22, to BRL1,000.00 million. Premiums written abroad, which accounted for 36% of the portfolio, totaled BRL577 million in 1Q23, down 25% from 1Q22.

Loss ratio closes at 77.3%
In 1Q23, IRB Brasil RE recorded BRL933 million in total retained claims, in line with 1Q22. The total loss ratio in the first three months of the year was 77.3%, showing a reduction of 3.7 p.p. compared to the same quarter of the previous year, with 81%.

"This quarter, the index could have been even better, were it not for the spike in claims registered by the life segment abroad - arising from non-renewed contracts - and by the aviation segment, both in domestic businesses and those from abroad. It is important to note that we had no relevant effects in the agro segment and very few claims related to covid-19, in life", says Wilson Toneto, Technical and Operations Vice President of IRB Brasil RE.

In line with the effort to negotiate commissions and prices, the company improved the combined ratio - which considers claims, commissions and other costs - by 7.7 percentage points (p.p.), from 118.6% in 1Q22 to 110.9 % in 1Q23.

Positive financial income of BRL146 million
The financial and equity income of IRB Brasil RE in 1Q23 was positive by BRL146 million, showing a decrease of 44% compared to the same period of 2022, mainly due to the non-recurring effect of gains from lawsuits (BRL 150 .2 million) in 1Q22. Disregarding this effect, there would be an increase of 35% in 1Q23.

Cash consumed in the first three months of the year totaled BRL411.2 million, compared to cash consumption of BRL288.1 million in 1Q22. The consumption of cash in this quarter was mainly due to the higher volume of claims payments and the higher transfer of premiums for the assignment of risks, the writeback.

General and administrative expenses in 1Q23 totaled BRL88 million, up 25% from 1Q22. If we exclude the agreement with the US authorities, which impacted administrative expenses by BRL25.4 million, we would have an 11% reduction in expenses. The administrative expense ratio, excluding this agreement, would be 5.2% in 1Q23, in line with the 5.1% ratio in 1Q22.

Sufficiency in regulatory indicators
IRB Brasil RE must observe two regulatory indicators, as provided for by Susep, the body responsible for supervising the insurance and reinsurance sector: Adjusted Shareholders' Equity Sufficiency Ratio in relation to the Minimum Capital Required and the Coverage Ratio of Technical Provisions. On 03/31/2023, the company presented sufficiency in both indices.

"Our adjusted shareholders' equity (ASE) corresponded to 105% of the minimum capital required (MCR) on 03/31/2023, while the technical provisions coverage indicator showed sufficiency of BRL239 million. This last indicator was BRL 17 million in March 2022. It is worth adding that the total solvency, on 03/31/2023, was at levels compatible with large international players: 260%", informs Thais Ricarte Peters, Director of Internal Controls, Risks and Compliance at IRB Brasil RE.

The complete Performance Analysis is available on the company's Investor Relations website (www.ri.irbre.com).