- For the second consecutive quarter, the company reports a positive result. Positive variation of R$393.4 million compared to 2Q22.
- The Company records net profit of R$28.7 million in 1H23. Growth of R$321.6 million compared to 1H22.
- Underwriting result, also for the second consecutive quarter, is positive: R$35.4 million. Positive variation of R$696 million compared to 2Q22.
- Loss ratio closes 2Q23 at 73.6%, down 51.6 p.p. compared to 2Q22.
- Combined ratio evolves to 108.3%, a decrease of 46 p.p. compared to 2Q22, and a reduction of 2.6 p.p. compared to 1Q23.
IRB(Re) closed the second quarter of 2023 (2Q23) with net profit of R$20.1 million. The numbers released today (08/14) show the evolution of the reinsurer, with a positive result for the second consecutive quarter. There was an increase of R$393.4 million, reversing the net loss of R$373.3 recorded in 2Q22. Compared to the first quarter of this year, the growth is 57%. In the year to date, the company obtained a net profit of R$ 28.7 million, an increase of R$ 321.6 million compared to 1H22.
“We closed 1H23 presenting numbers that show the company’s continuous evolution. Little by little, we are returning to ‘normality’. As I said earlier, we are living in a ‘strangely normal’ company. The IRB(Re) of the future is managed based on financial discipline, excellence in underwriting and agility in performance. The growth capacity of our sector is enormous and, after the adjustment process, which brought balance to our portfolio, we are prepared to compete and grow, as we have knowledge, capacity and qualified professionals as our competitive advantage”, comments Marcos Falcão, CEO of IRB (Re).
Positive underwriting result
The subscription result in 2Q23 was positive by R$35.4 million, an increase of R$696 million compared to 2Q22, with a negative amount of R$661 million. It is worth mentioning that, in this 2Q23, as well as in the 1Q23, the subscription result in Brazil was positive: from a negative result of R$536 million, in the 2Q22, to a positive result of R$18.1 million. The same happened abroad: from a negative result of R$125.3 million, in 2Q22, to a positive result of R$17.3 million. As a result, the accumulated underwriting result in 1H23 is R$39.1 million, compared to a negative result of R$757.4 million recorded in the first six months of 2022.
In line with the company’s strategy to improve the underwriting quality, the total written premium fell 17.3% in 2Q23 compared to the same period of 2022, reaching R$1.39 billion. In 2Q23, the share of deals signed in Brazil increased, reaching 71% of the portfolio. Regarding volume, there was a decrease of 13.8% compared to 2Q22, to R$994.3 million. Premiums written abroad, which represented 29% of the portfolio, totaled R$ 400 million in 2Q23, a decrease of 24.7% compared to 1Q22.
“The composition of our portfolio is closer to what we consider optimal in the company’s strategy, with a reduction in the share of business abroad. In 2Q23, 16% of the business were carried out abroad. In 2Q21, it was 30% and, in 2Q22, 18%. This account excludes Latin America, where volume was virtually flat at 13%. At the same time, business in Brazil grew from 57% in 2Q21 to 71% in 2Q23”, explains Daniel Castillo, Vice-President of Reinsurance at IRB(Re).
“We also continued with the portfolio cleaning process, which was accelerated in the business renewal of 2Q23 and was reflected in the reduction of the total premium. In this renewal of 2Q23, although we accepted new businesses, we declined some that were not profitable and reduced our interest in others, always with the objective of having a better quality and more profitable portfolio. We renewed 80% of the target contracts”, says Daniel Castillo.
Loss ratio drops 51.6 p.p.
In 2Q23, the total retained claims fell 54.8% compared to 2Q22, closing at R$751.5 million. The loss ratio went from 124.2% to 73.6%, a decrease of 51.6 p.p., already demonstrating the effects of portfolio cleaning. In the year to date, the loss ratio is 75.6%.
The company improved the combined ratio – which includes claims, commissions and other expenses – by 46 p.p., from 154.3% in 2Q22 to 108.3% in 2Q23. Compared to 1Q23, there was a decrease of 2.6 p.p. Considering the 1H23, the combined ratio also shows evolution, from 137.8%, in the 1H22, to 109.7% now.
“This result demonstrates that we are on the right way, working on several parallel directions such as: more selective underwriting, expense control and closer ties with business partners”, says Rodrigo Botti, Technical and Operations Director at IRB(Re).
Cash flow evolution
Regarding operating cash, in 2Q23, there was an evolution in cash flow, with lower consumption of R$171.6 million, compared to consumption of R$475.6 million in 2Q22. The cash result in this quarter was mainly due to the lower receipt of premiums. In the last 12 months to date, consumption was R$1.2 billion, considering 2Q23 as the cut-off date.
“With the strategy of cleaning up the portfolio and, therefore, reducing the premiums received, and still honoring large claims related to risks assumed in previous years, this cash consumption is expected. The reversal of this movement should accompany the reduction in loss ratio and the increase in premiums. Operating cash flow remains in line with our expectations”, says Rodrigo Botti.
General and administrative expenses in 2Q23 totaled R$86.7 million, an increase of 9.1%, which includes a non-recurring expense of R$7.9 million due to the Voluntary Resignation Program (PDV) ended in May. Excluding its effect, the expense in 2Q23 would be in line with that in 2Q22. In 1H23, excluding the PDV and the agreement signed in 1Q23 with DoJ and SEC, in the amount of R$25.4 million, this expense totals R$142 million, a slight improvement over the R$150 million in 1H22.
The financial and equity result in 2Q23 was positive by R$95.7 million, closing 1H23 at R$241.2 million. “This quarter, there was a reduction of 8.3% in the financial result, compared to 2Q22, due to the appreciation of the real. Regarding the financial assets portfolio, we closed 2Q23 with R$8.5 billion against R$8.6 billion in 1Q23. This variation stems from the evolution of cash flow”, explains Paulo Valle, director general of IRBASset, the reinsurer’s investment arm.
Sufficiency in regulatory indicators
IRB(Re) must observe two regulatory indicators, as per Susep regulations, the institution responsible for supervising the insurance and reinsurance sector: Adjusted Shareholders’ Equity Sufficiency Ratio in relation to the Minimum Capital Required (MCR) and the Coverage Ratio of Technical Provisions. In 2Q23, the company presented sufficiency in both ratios.
“The first indicator ended 2Q23 with a surplus of R$323 million, that is, 22% above the minimum capital required. The Technical Provisions Coverage Ratio ended the quarter with a sufficiency of R$519 million”, says Thais Peters, Director of Internal Controls, Risks and Compliance at IRB(Re).
The complete Performance Analysis is available on the company’s Investor Relations website (www.ri.irbre.com).