IRB-Brasil Resseguros S.A. Consolidated interim financial statements for the six-month period ended June 30, 2017 and independent auditor s report

Transcription

1 Consolidated interim financial statements for the six-month period ended and independent auditor s report

2 MANAGEMENT REPORT JANUARY TO JUNE Dear Shareholders: The Management Report and the Financial Statements of IRB Brasil RE for the period from January to June comply with the rules of the Brazilian Corporation Law, the Superintendence of Private Insurance (SUSEP) and the National Council of Private Insurance (CNSP). The information contained herein is available at the Investor Relations (IR) website of IRB Brasil RE ( and at the Brazilian Securities and Exchange Commission - CVM website ( Message from Management The initial public offering (IPO) held in July was a milestone for IRB Brasil RE. An intensive journey initiated at the end of April and ended last July 31, when the Company s shares began to be traded at the Brazilian stock exchange, B3. Our shares are listed at the highest corporate governance level, the Novo Mercado (New Market), and we are already ranked amongst the world s top 10 largest reinsurers in terms of market cap. The IPO crowned the Company s turnaround initiated in 2014 right after its privatization and evidenced investors confidence in our history and project. Amid the cycle of several Brazilian companies IPOs during this first half of, we managed to attract the 10 largest global equities investors. With a professional management team, we have been preparing ourselves over the past three years to meet the governance and transparency standards required by our regulators, and proceed with our sustainable growth strategy. Over the last years, we have been delivering sound and consistent results, which undoubtedly contributed to the investor s decision-making process. In Brazil, we perform in an environment which every year has been more open to competitiveness every year and in which we have increased our leadership. Internationally speaking, we carried on our expansion strategy by means of partnerships, which aim at enhancing our presence in strategic markets, especially in property, life, aviation and agriculture lines. Thus, our share in the international market already accounts for 32% of premiums written by the Company in the first half of. Our premiums portfolio will continue highly diversified among the segments we operate, thus, mitigating the risks to which we are exposed. Despite a challenging economic scenario, we were successful in our strategy of mitigating the interest rate drop, thus our financial income decrease, with higher Underwriting results. In 1H17, written premiums came to R$2.9 billion, up 13% yearon-year, while our Underwriting result climbed 74%, positively contributing to 10% growth of net income, which came to R$454 million, with a return on average equity (ROAE) of 28% in the first half of. Therefore, we continue capitalized and well positioned to execute our long-term plans and deliver sound results. Our team, which led IRB s turnaround since its privatization, is ready to lead the Company to a new cycle of expansion, aiming at generating value to all shareholders and stakeholders in the long term. 1

3 Highlights Written premiums reached R$1.5 billion in 2Q17, up 12% from 2Q16 and R$2.9 billion in 1H17, up 13% compared to the 1H16. Underwriting result was up 85% to R$174 million in 2Q17 and R$365 million in 1H17, up 74% year-on-year. Administrative expenses went down 26% to R$56 million in 2Q17. In 1H17, administrative expenses decreased by 2% to R$119 million, compared to 1H16. Investment portfolio profitability increased from 134% of CDI in 2Q16 to 136% of CDI in 2Q17. In 1H17, performance was 132% of CDI. Net income was up 15% in 2Q17 and 10% in 1H17, to R$232 million and R$454 million, respectively. ROAE in 1H17 was 28%, up 2-percentage points year-on-year. Main Financial Indicators As reported in Note 3.1 Statements of Income per Segment to the Financial Statements, the Company s Management adopts, for the purposes of calculating its performance ratios, in line with the practices adopted by global reinsurers, a conciliation of book accounts referred to as Business Vision, as presented in the analysis of this document. QUARTER FIRST HALF (R$ million) 2Q17 2Q16 Change(%) 1H17 1H16 Change(%) Gross Written Premium % % Local % % International % % Retained Premium % % Earned Premium % % Retained Claims (542) (560) -3% (1.015) (1.130) -10% Underwriting Results % % Administrative Expenses (56) (75) -26% (119) (121) -2% Financial Income % % Net Income % % Ratios 2Q17 2Q16 Change(%) 1H17 1H16 Change(%) Combined Ratio 86,6% 97,7% -11 p.p. 86,0% 94,7% -9 p.p. Amplified Combined Ratio 68,6% 72,2% -3 p.p. 69,0% 72,4% -3 p.p. Loss Ratio 61,3% 68,2% -7 p.p. 57,5% 65,8% -8 p.p. Administrative Expenses Ratio 6,3% 9,2% -3 p.p. 6,7% 7,0% 0 p.p. ROAE 30% 27% 3 p.p. 28% 26% 2 p.p. Note: ROAE of 1H17 - Return on average equity calculated: net income for the period (R$454,379,591.59: 125 business days June) x 252 business days in / (Shareholders equity of (R$3,328,216,525.55) + Shareholders Equity of June (R$3,271,515,591.59)) / 2 Recent Events Initial Public Offering (IPO): on July 28,, we announced the commencement of the secondary tender offer of IRB Brasil RE s shares. The total amount of the offering came to R$1.7 billion or 63.9 million common shares of the base offer at R$27.24 per share. On July 31,, IRB Brasil RE s common shares started to be traded under the ticker symbol IRBR3, at the Novo Mercado, B3 s special listing segment which sets forth special rules on corporate governance and disclosure of information to the market to be observed by the Company. 2

4 Performance Premiums Revenue In 2Q17, IRB Brasil RE s total volume of written premiums came to R$1.5 billion, up 12% from 2Q16. Out of this amount, R$1.0 billion derived from premiums written in Brazil and R$460 million written abroad. In 1H17, the total volume of written premiums came to R$2.9 billion, up 13% year-on-year. Out of this amount, R$1.9 billion were premiums written in Brazil and R$926 million written abroad, increasing its 24% share of written premiums in 1H16 to 32% in 1H17. This increase seen in written premium derives from positive contributions, especially from Property, Agriculture and Life lines, both in Brazil and abroad. In 2Q17, total retained premiums came to R$1.0 billion, up 16% from 2Q16. Such growth is due to higher retention of premiums, whose ratio increased from 65.7% to 68.2%, up 2.5 percentage points. Total retained premiums in 1H17 came to R$1.9 billion, up 7% year-on-year. Such change is due to 13% increase in written premiums, especially in property, agriculture and life lines. Retrocession premiums in the first half were up 28% due to improvements on the retro coverage program, especially in the agriculture line, which had their coverage expanded, due to climate effects occurred in. The earned premiums, both in the second quarter and in the first half maintained the same trend of growth, 8% in 2Q17 and 3% in 1H17, totaling R$884 million in 2Q17 and R$1.8 billion in 1H17. 3

5 Retained Claims In 2Q17 retained claims went down 3% to R$542 million from 2Q16, a 7 percentage-point decrease in the loss ratio which declined from 68.2% in 2Q16 to 61.3% in 2Q17. In 1H17, retained claims were down 10% to R$ 1 billion from R$1.1 billion recorded in 1H16. Such decrease is chiefly, due to (i) continued improvement of claims management; and (ii) increase in the retro coverage program established by the period, aiming at minimizing the impacts of occurring potential losses. Within such context, the loss ratio in 1H17 stood at 57.5% compared to 65.8% recorded in 1H16, a decrease of 8 percentage points in the period. Underwriting Result In 2Q17, underwriting result totaled R$174 million, a hefty 85% over the R$ 94 million recorded in 2Q16, more than offsetting the 20% decrease in financial income. The combined ratio went down 86.6%, a drop of 11 percentage points from 97.7% in 2Q16. In 1H17, underwriting result was up 74% to R$365 million from 1H16. A 10% decrease in claims retained by the Company positively contributed to increase underwriting result in the period. Despite a challenging economic environment, we were successful in our strategy of mitigating the interest rate drop, by increasing Underwriting result. In 1H17, combined ratio went down approximately 9 percentage points, from 94.7% to 86.0%, chiefly due to reduced volume of retained claims in the period. The amplified combined ratio dropped 3 percentage points, from 72.4% to 69.0%, as shown below. 4

6 Financial Income In 2Q17, financial income was down 20% to R$233 million from R$291 million recorded in 2Q16, lower than average SELIC drop from 3.4% in 2Q16 to 2.5% in 2Q17 (-24%). In 1H17, financial income went down 18% to R$438 million from 1H16, in line with average SELIC drop from 6.7% in 1H16 to 5.7% in 1H17 (-16%). At the end of the first half, the investment portfolio reached approximately R$6 billion, with a profitability corresponding to 136% of CDI in 2Q17 and 132% of CDI in 1H17. IRB Brasil RE s performance above CDI was chiefly due to fixed income gains in fixed-rate positions and, also, due to bonds paying coupon + inflation (NTNB). The investment strategy consisted of making allocations when IRB team s technical evaluation indicated adequate premiums in these instruments and divest referred positions when IRB team s technical evaluation indicated to be appropriate. In compliance with provisions of item IV of Article 145 of SUSEP Circular Letter No. 517 of July 30, 2015, IRB Brasil RE declares it has financial capacity compatible with its operations, as well as its intention, of holding to maturity the securities classified under Securities held to maturity category. 5

7 Administrative Expenses In 2Q17, administrative expenses went down 26%, in nominal terms, to R$56 million, from R$75 million in 2Q16; in real terms, adjusted by IPCA (Extended Consumer Price Index), the decrease was 27%, accordingly, the ratio between administrative expenses over earned premiums went down 3 percentage points, from 9.2% in 2Q16 to 6.3% in 2Q17. In 1H17, administrative expenses dropped by 2%, in nominal terms, to R$119 million, from R$121 million in 1H16. In real terms, adjusted by IPCA, the decrease was 3%. In the first half, the ratio between administrative expenses over earned premiums remained, practically, in line from 7.0% in 1H16 to 6.7% in 1H17. Net Income In 2Q17, net income reached R$232 million, up 15% year-on-year. In 1H17, net income was up 10% to R$454 million from 1H6. The return on average equity of 28% increased 2 percentage points from 26% recorded in 1H16. This result was achieved by means of a combination of growth of written premiums volume and operating results, which more than offset the decrease of financial income recorded in the periods. 6

8 Corporate Governance IRB Brasil RE s performance is grounded on high corporate governance standards. Since its transformation into a publiclyheld company in 1997, it has been relying on a Board of Directors and a permanent Fiscal Council. After its privatization in October 2013, several reviews were conducted in its governance practices, and currently the Board of Directors is advised by five committees, which operate in the following areas: underwriting, compensation, investments, corporate governance and audit. The Company s commitment to best governance practices is reinforced by its adhesion to B3 Novo Mercado, evidencing the commitment of the Company and of its Management to the interests of shareholders and investors. After the Company s IPO, the distribution of each controlling shareholder s equity interest in the Company s ownership structure, considering the base offer, is now as follows: the federal government, 21%; BB Seguros and Bradesco Seguros, 16%; Itaú Seguros, 12%; FIP Barcelona, 8% and other shareholders, 27%. Relationship with Independent Auditors Pursuant to CVM Instruction No. 381/03, we inform that IRB Brasil RE and its subsidiaries adopt as formal procedure to assure that the auditors of PricewaterhouseCoopers (PwC) are not affected by rendering of services to other companies, as to the independence and objectivity required in their work with the Company. In the first half ended, PwC provided additional services totaling R$890,000, referring to consulting and auditing services in the Company s IPO process. PricewaterhouseCoopers Auditores Independentes considers that services were rendered under strict compliance with the accounting standards referring to the exemption of independent auditors in auditing works, therefore, these did not represent situation which could affect the independence and objectivity in the performance of their external auditing services. Management Statement Pursuant to the provisions of CVM Instruction No. 480/09, the Management declares that they have discussed and reviewed the financial statements for the first half ended on and agreed with the Independent Auditor s Report. Acknowledgments We express our gratitude and acknowledgment to all employees, suppliers and partners, shareholders and clients for indicating IRB Brasil RE as their first reinsurer. We also thank the representatives of public authorities and brokers, for their support and confidence in our mission of providing solutions to the insurance market focused on profitability, innovation and sustainability. The Management Board of Directors Chairman Ana Paula Vitali Janes Vescovi Board members Alexsandro Broedel Lopes Flavio Eduardo Arakaki José Maurício Pereira Coelho Octávio de Lazari Júnior Board of Executive Officers Chief Executive Officer José Carlos Cardoso Vice-Presidents Fernando Passos Lucia Maria da Silva Valle 7

9 STATEMENT OF INCOME QUARTER FIRST HALF HISTORICAL FIGURES - BUSINESS VISION R$ Million 2Q17 2Q16 Change(%) 1H17 1H16 Change(%) Gross Written Premium 1.513, ,9 12% 2.855, ,3 13% Local 1.053, ,8 1% 1.929, ,5 0% International 460,1 308,1 49% 926,4 594,8 56% Retrocession (481,1) (465,4) 3% (929,8) (725,4) 28% Retained Premium 1.032,1 890,5 16% 1.925, ,8 7% Change in Technical Provisions (148,3) (70,4) 111% (161,4) (83,6) 93% Earned Premium 883,8 820,1 8% 1.764, ,3 3% Claims (541,5) (559,6) -3% (1.015,3) (1.130,0) -10% Acquisition Costs (148,9) (154,9) -4% (312,0) (323,0) -3% Other Revenues and Expenses (19,7) (11,7) 68% (72,1) (53,5) 35% Underwriting Results 173,7 93,9 85% 365,0 209,8 74% Administrative Expenses (55,8) (75,1) -26% (118,5) (120,7) -2% Financial Income 232,9 290,7-20% 438,3 534,2-18% Earnings Before Taxes 350,8 309,5 13% 684,8 623,3 10% Taxes and Contributions (119,0) (107,5) 11% (230,4) (209,0) 10% Recurring Net Income 231,8 202,0 15% 454,4 414,3 10% Retention Ratio 68,2% 65,7%... 67,4% 71,3%... Retrocession Ratio 31,8% 34,3%... 32,6% 28,7%... Loss Ratio 61,3% 68,2%... 57,5% 65,8%... Commission Ratio 16,8% 18,9%... 17,7% 18,8%... Administrative Expenses Ratio 6,3% 9,2%... 6,7% 7,0%... Combined Ratio 86,6% 97,7%... 86,0% 94,7%... Amplified Combined Ratio 68,6% 72,2%... 69,0% 72,4%... 8

10 EARNINGS RELEASE SCHEDULE 2Q17 Earnings Release August 4th, (Friday) Before market opens Conference Call August 4th, (Friday) In Portuguese at 12:00 pm (11:00 am US EDT and 4:00 pm UK) In English at 1:00 pm (12:00 pm US EDT and 5:00 pm UK) For participants abroad: Dial in: For participants in Brasil: Dial in: +55 (11) Code: IRB Brasil RE Webcast in English: Click here Webcast in Portuguese: Clique here Access Replay: For Portuguese: For English:

11 Separate and consolidated interim financial statements for the sixmonth period ended and independent auditor s report

12 Report on the review of the interim financial information To the management and shareholders of IRB-Brasil Resseguros S.A. Introduction We have reviewed the separate and consolidated interim financial information of IRB-Brasil Resseguros S.A. ( Company ) stated in the Quarterly Information Form (ITR) for the quarter ended, comprising the balance sheet as of and the statements of income, of comprehensive income for the three and six-month periods then ended, and of changes in equity and cash flow for the six-month period then ended, as well as a summary of the main accounting policies and other explanatory notes. Management is responsible for the preparation of these separate and consolidated interim financial statements in accordance with Technical Pronouncement CPC 21 Interim Financial statements and with the international accounting standard IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board (IASB), and for presenting such statements in a manner consistent with the rules of the Securities and Exchange Commission of Brazil (CVM) applicable to the preparation of the Quarterly Information Form (ITR). Our responsibility is to express an opinion on these interim financial statements based on our review. Scope of the review We conducted our review in accordance with the Brazilian and International Standards on interim financial reporting (NBC TR 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily to those responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially more limited in scope than an audit conducted in accordance with standards on auditing and consequently does not provide the assurance that we have become aware of all significant matters that could otherwise be identified during an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim information Based on our review, nothing has come to our attention that causes us to believe that the accompanying separate and consolidated interim financial statements included in the Quarterly Information Form described above were not prepared, in all material respects, in accordance with CPC 21 and IAS 34, applicable to the preparation of the Quarterly Information Form (ITR) and presented in a manner consistent with the rules issued by CVM. 2 de 126

13 Other matters Statements of value added We also reviewed the separate and consolidated statements of value added (DVA) for the six-month period ended, prepared under the responsibility of the Company s management, for which the disclosure in the interim financial information is required in accordance with the rules issued by CVM applicable to the preparation of Quarterly Information Form (ITR) and considered additional information under IFRS which do not require such disclosure. These statements were submitted to the same review procedures previously described and, based on our review, nothing has come to our attention that would lead us to believe that they have not been fairly stated, in all material respects, in accordance with the separate and consolidated interim statements taken as whole. Rio de Janeiro, August 2, PricewaterhouseCoopers Independent Auditors CRC 2SP000160/O-5 "F" RJ Patricio Marques Roche Accountant CRC 1RJ081115/O-4 3 of 126

14 Contents Financial statements Balance sheets Statement of income Statement of comprehensive income Consolidated statement of changes in equity Statement of cash flows Cash flows reconciliation Statement of value added Section A General information Operations Basis of preparation Consolidation Reclassification of comparison balances Section B Risks Risk management Lines of Defense Main risk types Operating risks Underwriting risks Market risk Credit risk Liquidity risk Evaluation techniques and assumptions applied for the purpose of fair value determination Fair value measurements recognized in the balance sheet Minimum capital, risk capital and liquidity in relation to capital Section C Information by business segment Information by business segment Statements of income by business segment Section D Group s structure Investments Changes in investments Equity interest Section E Notes relevant to the financial statements Cash and cash equivalents Financial investments Breakdown of investments Changes in financial investments Receivables from reinsurance and retrocession operations Breakdown Changes Aging of receivables from reinsurance and retrocession operations Retrocession assets - technical reserves Claims retrocession (breakdown) Deferred retrocession premiums Other technical reserves Trade notes and other receivables Tax and social security credits Tax and social security credits Deferred acquisition costs Property held for sale Property and equipment of 126

15 14 Intangible assets Obligations payable and provisions for post-employment benefits Payables Provision for post-employment benefits Provisions for taxes and contributions Payables from reinsurance and retrocession operations Breakdown Changes Third-party deposits Technical reserves Reserve for unearned premiums and acquisition costs Provision for claims payable and for claims incurred but not reported Court-disputed claims Other provisions Guarantee of technical reserves Related parties Key management compensation Fiscal and judicial deposits, other lawsuits and tax obligations Civil, labor, tax and social security lawsuits Changes in provisions for lawsuits Tax lawsuits Provision for labor claims Shareholders equity Capital Treasury shares Profit reserves Asset valuation adjustment Earnings per share - basic and diluted Breakdown of the statement of income Earned premiums - main operation groups Incurred claims - main operating groups Cost of acquisition Result with retrocession Other operating income and expenses Administrative expenses Expenses with taxes Financial result Equity income (loss), net Income and social contribution taxes Retirement and pension plans and other employee benefits Variable contribution plans Section F Accounting policies Summary of significant accounting policies Foreign currency translation Cash and cash equivalents Financial assets Classification of reinsurance agreements Intangible assets Property and equipment Investment properties Impairment of non-financial assets Provisions Current and deferred income and social contribution taxes Employee benefits Capital Dividends of 126

16 6 of Revenue recognition Expenses with claims and commissions Statement of comprehensive income New standards, amendments and interpretations to existing standards Critical accounting estimates and assumptions Subsequent Events

17 Balance sheet In thousands of Brazilian reais Controlling shareholder Consolidated Parent Company Consolidated Assets Note December 31, December 31, Liabilities and Equity Note December 31, December 31, Current 7,877,228 7,145,344 8,096,253 7,233,522 Current 9,581,162 9,270,957 9,627,153 9,308,476 Cash and cash equivalents 21, ,543 25, ,575 Accounts payable 261, , , ,314 Cash and banks 5 21, ,543 25, ,575 Payables , , , ,941 Taxes and social charges payable 25,439 29,527 29,880 29,527 Labor reserves 23 11,561 7,849 11,561 7,849 Applications 6 1,451, ,280 1,608, ,473 Reserves for post-employment benefit 15.2 and ,879 32,771 32,879 32,771 Taxes and contributions payable 16 54,976 17,333 54,976 18,490 Credits of reinsurance and retrocession operations 7.1 2,988,351 2,429,070 2,988,365 2,429,719 Reserves for devaluation of investments ,039 4,736 Operations with insurers ,113,492 1,828,380 2,113,492 1,828,380 Operations with reinsurers , , , ,377 Payables from reinsurers and retrocession ,311,084 1,209,802 1,311,354 1,210,068 Other operating credits 80,505 56,358 80,519 57,007 Operations with insurers , , , ,827 (-) Reserve for credit risks (79,152) (66,045) (79,152) (66,045) Operations with reinsurers ,042, ,092 1,042, ,092 Reinsurance and retrocession brokers 65,466 49,117 65,466 49,383 Other operating debits 32,157 29,766 32,427 29,766 Retrocession assets - technical reserves 3,285,534 3,501,373 3,313,369 3,531,075 Premium - retrocession , , , ,403 Third-party deposits 18 74,113 59,963 74,113 59,963 Losses - retrocession 8.1 2,484,821 2,872,589 2,512,656 2,902,291 Other reserves 8.3 8,183 17,381 8,183 17,381 Technical reserves - reinsurers and retrocession 7,934,954 7,799,082 7,964,051 7,829,131 Trade notes and other receivables 68, ,423 98, ,025 Elementary and life group lines 7,934,954 7,799,082 7,964,051 7,829,131 Trade notes and other receivables 9 7,720 6,794 35,096 35,376 Unearned premium reserve ,844,179 1,498,083 1,844,179 1,498,083 Tax and social security credits , ,629 62, ,649 Current risks issued 1,655,626 1,326,449 1,655,626 1,326,449 Current risks not issued 188, , , ,634 Prepaid expenses 7,125 3,320 7,746 3,320 Losses outstanding ,594,230 4,653,164 4,595,497 4,653,516 Reserve for claims incurred but not reported ,366,682 1,547,368 1,394,512 1,577,065 Deferred acquisition costs 11 55,064 53,335 55,064 53,335 Other reserves , , , ,467 Non-current 5,993,361 6,455,667 5,820,510 6,405,008 Non-current 1,017,911 1,001,837 1,018,094 1,001,837 Long-term Receivables 5,234,473 6,116,027 5,278,183 5,911,246 Long-Term Payables 1,017,911 1,001,837 1,018,094 1,001,837 Investments 6 3,981,349 4,934,818 4,030,872 4,735,168 Accounts payable 765, , , ,660 Tax liabilities , , , ,427 Retrocession assets - technical reserves 62,984 61,578 62,984 61,578 Reserves for post-employment benefit 15.2 and , , , ,923 Premium - retrocession ,984 61,578 62,984 61,578 Other accounts payable , , Trade notes and other receivables 1,190,140 1,119,631 1,184,327 1,114,500 Debits of reinsurance and retrocession operations Trade notes and other receivables 9 35,420 31,859 35,420 26,728 Other operating debits Tax and social security credits , , , ,066 Deferred tax assets , , , ,907 Technical reserves - reinsurers and retrocession 189, , , ,215 Judicial and fiscal deposits , , , ,799 Elementary and life group lines 189, , , ,215 Unearned premium reserve , , , ,215 Current risks issued 171, , , ,929 Current risks not issued 17,653 17,286 17,653 17,286 Investments 631, , , ,767 Other payables ,056 58,173 62,056 58,173 Corporate shares , , Labor contingencies 57,615 53,732 57,615 53,732 Properties held for sale 12 5,988 6, , ,661 Other reserves 4,441 4,441 4,441 4,441 Other investments Shareholders equity 3,271,516 3,328,217 3,271,516 3,328,217 Property and equipment 13 65,412 46,719 64,592 46,719 Capital ,453,080 1,453,080 1,453,080 1,453,080 Capital increase under approval , ,000 - Intangible assets 14 62,230 62,276 62,230 62,276 Profit reserves ,963 1,535, ,963 1,535,821 Carrying value adjustment 24.4 (37,951) (65,289) (37,951) (65,289) Additional dividends proposed - 417, ,561 Treasury shares 24.2 (12,956) (12,956) (12,956) (12,956) Retained earnings 454, ,380 - Total Assets 13,870,589 13,601,011 13,916,763 13,638,530 Total Liabilities and Equity 13,870,589 13,601,011 13,916,763 13,638,530 The management notes are an integral part of the quaterly financial statements 7 of 126

18 Statement of income Six-month periods ended June 30 In thousands of Brazilian reais Quarter Six-month period Parent Company Consolidated Parent Company Consolidated Note April 1 to June 30, April 1 to June 30, April 1 to June 30, April 1 to June 30, January 1 to January 1 to January 1 to January 1 to Net issued premiums 1,374,071 1,190,966 1,374,071 1,190,966 2,546,561 2,173,242 2,546,561 2,173,242 Changes in technical reserves (288,908) (130,888) (288,908) (130,888) (351,555) (85,630) (351,555) (85,630) Premiums earned ,085,163 1,060,078 1,085,163 1,060,078 2,195,006 2,087,612 2,195,006 2,087,612 Incurred claims 25.2 (676,065) (396,158) (676,065) (396,158) (1,111,792) (1,331,453) (1,111,792) (1,331,453) Direct claims (807,387) (446,346) (807,387) (446,346) (1,368,404) (1,312,352) (1,368,404) (1,312,352) Salvages and reimbursements 34,986 39,981 34,986 39,981 52,355 57,635 52,355 57,635 Changes in reserve for claims incurred but not reported 96,336 10,207 96,336 10, ,257 (76,736) 204,257 (76,736) Acquisition costs 25.3 (40,239) (30,372) (40,239) (30,372) (66,559) (62,974) (66,559) (62,974) Commissions (40,239) (30,372) (40,239) (30,372) (66,559) (62,974) (66,559) (62,974) Other operating revenue and expenses 25.5 (23,765) 17,835 (23,294) 18,226 (31,661) 11,634 (30,757) 12,511 Result with retrocession 25.4 (157,219) (482,477) (157,219) (482,477) (550,235) (363,693) (550,235) (363,693) Income from retrocessions ,286 (104,980) 174,286 (104,980) 157, , , ,465 Expenses from retrocessions (309,635) (364,693) (309,635) (364,693) (676,204) (630,504) (676,204) (630,504) Salvage and reimbursements to the retrocession policyholder (25,088) (22,323) (25,088) (22,323) (36,124) (37,032) (36,124) (37,032) Other operating revenue and expenses 3,218 9,519 3,218 9,519 4,811 10,378 4,811 10,378 Administrative expenses 25.6 (55,863) (69,977) (61,073) (71,108) (135,522) (123,541) (142,128) (125,559) Tax expenses ,039 (42,261) 6,525 (42,587) (21,144) (78,588) (22,658) (78,914) Financial result , , , , , , , ,220 Financial income 446, , , ,105 1,353,658 1,396,426 1,385,254 1,396,529 Financial income from the investment portfolio 413, , , ,042 1,290,894 1,293,028 1,301,150 1,293,128 Other financial income 33,090 92,059 54,143 92,063 62, ,398 84, ,401 Financial expenses (257,526) (445,922) (269,429) (445,455) (1,002,878) (962,105) (1,014,005) (961,309) Financial expenses from the investment portfolio (211,350) (276,382) (193,037) (275,886) (903,333) (782,812) (885,051) (782,010) Other financial expenses (46,176) (169,540) (76,392) (169,569) (99,545) (179,293) (128,954) (179,299) Equity results ,086 9,079 14,399 10,428 25,872 21,695 22,204 23,131 Property income, net - 2,342 14,623 11,260-14,871 22,503 23,789 Adjustment of investments in subsidiaries 11,304 6, ,165 6, Other equity income, net (218) (116) (224) (832) (293) 58 (299) (658) Operating result 340, , , , , , , ,881 Gains or losses with non-recurring assets Net income (loss) before taxes and equity interest 340, , , , , , , ,893 Income Tax (53,446) (52,595) (56,074) (53,227) (98,595) (84,242) (105,634) (84,874) Social Contribution (55,418) (44,266) (56,703) (44,502) (101,775) (96,447) (104,321) (96,683) Net income for the period 231, , , , , , , ,336 Number of shares 310,698, ,698, ,698, ,698, ,698, ,698, ,698, ,698,900 Basic and diluted earnings per Share The management notes are an integral part of the quaterly financial statements 8 of 126

19 Statement of comprehensive income Six-month periods ended June 30 In thousands of Brazilian reais Quarter Parent and Consolidated Six-month period Parent and Consolidated Note April 1 to June 30, April 1 to June 30, January 1 to January 1 to Net income for the period 231, , , ,336 Other comprehensive income (loss) Items to be later recognized in the profit or loss Exchange rate difference in the translation of foreign operations (237) Financial assets available for sale 24.4 Net gain (loss) from the fair value adjustment of financial assets available for sale in the period ,461 38,252 93,726 Unrealized loss with securities - Subsidiaries (1,638) (69) 1, Income and social contribution taxes (269) (7,858) (17,213) (42,177) Items that will not be reclassified to the profit or loss (531) 9,534 22,839 51,443 Post-employment benefits 24.4 Re-measuring of obligations with post-employment benefit 15,132 9,405 (8,973) (20,458) Re-measuring of obligations with post-employment benefit - Subsidiaries (96) 262 (63) 479 Income and social contribution taxes (6,809) (5,026) 13,535 8,412 8,227 4,641 4,499 (11,567) Total other comprehensive income (loss) 7,696 14,175 27,338 39,876 Total comprehensive income in the period 239, , , ,212 The management notes are an integral part of the quaterly financial statements 9 of 126

20 Consolidated statement of changes in equity In thousands of Brazilian reais Profit reserves Note Capital Capital increase under approval Legal Reinvestment Treasury shares Carrying value adjustment Retained earnings Additional dividends proposed Equity of the partners of the parent company Balances as of January 1, 1,453, ,617 1,070,197 (12,956) (80,405) - 454,062 3,174,595 Market value adjustment of securities , ,680 Cumulative translation adjustments (237) - - (237) Actuarial losses with post-employment benefit (11,567) - - (11,567) Net income in the six-month period , ,336 Total comprehensive income in the six-month period , , ,212 Total contributions by and distributions to shareholders Additional dividend paid in fiscal year (14,700) (454,062) (468,762) Distribution of interest on equity (113,800) (113,800) Total contributions from shareholders and distributions to shareholders (128,500) (454,062) (582,562) Balances on 1,453, , ,697 (12,956) (40,529) 414,336-3,046,245 Balances as of January 1, 1,453, ,617 1,245,204 (12,956) (65,289) - 417,561 3,328,217 Market value adjustment of securities , ,564 Cumulative translation adjustments Actuarial losses with post-employment benefit , ,499 Net income in the six-month period , ,380 Total comprehensive income in the six-month period , , ,718 Total contributions by and distributions to shareholders Capital increase under approval AGO/AGE of March 24, - 500,000 (290,617) (209,383) Additional dividend paid in fiscal year (417,561) (417,561) Distribution of interest on equity (120,858) (120,858) Total contributions from shareholders and distributions to shareholders - 500,000 (290,617) (330,241) (417,561) (538,419) Balances on 1,453, , ,963 (12,956) (37,951) 454,380-3,271,516 The management notes are an integral part of the quaterly financial statements 10 of 126

21 Statement of cash flows - (Direct Method) Six-month periods ended June 30 In thousands of Brazilian reais Parent Company Consolidated Operating activities Insurance premiums received, social security contribution and management and other fees 2,396,393 2,282,920 2,397,448 2,282,920 Recovery of claims and commissions 194, , , ,856 Operating receipts (salvaged, reimbursement and other) 116, , , ,906 Payments for losses, benefits, redemptions and commissions (1,527,961) (1,440,268) (1,528,338) (1,440,268) Transfer of premiums due to assignment of risks (668,126) (639,393) (668,126) (639,393) Payments of expenses and obligations (190,344) (150,670) (205,497) (157,650) Other operating payments (157,449) (123,251) (157,449) (123,251) Receipt of rentals and property divestment 4,928 12,520 28,211 21,284 Receipt of interest and dividends 11,884 4,986 12,078 5,243 Accrual of judicial deposits (10,893) (199) (10,893) (199) Cash provided by operations 169, , , ,448 Taxes and contributions paid (173,058) (207,707) (180,057) (207,956) Financial investments Investments at fair value through profit or loss (1,966,182) (2,426,065) (2,287,420) (2,434,315) Sales and redemptions of investments at fair value through profit or loss 1,613,899 2,473,543 1,812,123 2,485,989 Net financial investments (352,283) 47,478 (475,297) 51,674 Net cash provided by (used in) operating activities (355,718) 155,178 (475,240) 161,166 Investment activities Investments available for sale (743,903) (3,233,624) (1,006,344) (3,134,335) Sales and redemptions of investments available-for-sale 1,785,166 3,762,896 1,785,166 3,768,825 Redemptions of investments held through maturity 5,119 9,120 5,119 9,120 Payment for the acquisition of: Investments (381,441) - - (99,720) Property and equipment (20,024) (2,664) (20,024) (2,677) Intangible assets (10,802) (7,600) (10,802) (7,600) Receipt for the sale of: Investments Property and equipment Net Cash provided by investment activities 634, , , ,316 Financing activities Distribution of dividends and interest on equity (463,506) (508,333) (463,506) (508,333) Net cash used in financing activities (463,506) (508,333) (463,506) (508,333) Increase (decrease) in cash and cash equivalents (185,104) 175,676 (185,626) 187,149 Exchange variation on cash and cash equivalents (6,657) (20,240) (6,610) (20,240) Increase (decrease) in cash and cash equivalents after exchange variation (191,761) 155,436 (192,236) 166,909 Cash and cash equivalents at the beginning of the six-month period 213,543 13, ,575 18,277 Cash and cash equivalents at the end of the six-month period 21, ,388 25, ,186 The management notes are an integral part of the quaterly financial statements 11 of 126

22 Statement of cash flow - (Direct Method) Six-month periods ended June 30 In thousands of Brazilian reais (continued) Parent Company Consolidated Reconciliation of net income in the six-month period and net cash provided by operating activities Net income in the six-month period 454, , , ,336 Adjustments to net income Depreciation and amortization 15,065 14,734 17,424 15,549 Asset impairment (202) - (202) Accrual of allowance for loan losses 13,107 (31,718) 13,107 (31,718) Accrual of exchange variation on allowance for loan losses - (17,520) - (17,520) Gain from divestment of fixed and intangible assets 5 (703) 5 (703) Equity income (loss) (26,165) (6,766) - - Exchange variation on cash and cash equivalents (6,657) 20,240 (5,618) 20,240 Other adjustments Changes in equity accounts Financial investments (737,283) (160,907) (866,550) (163,377) Credits of insurance and reinsurance operations (572,388) (120,795) (570,074) (130,201) Retrocession assets 214, , , ,350 Tax and social security receivables 82,334 (31,790) 86,840 (31,790) Prepaid expenses (3,653) 1,093 (4,274) 1,093 Deferred acquisition costs (55,064) - (55,064) - Other assets (5,862) (2,917) (13,287) (4,634) Judicial and fiscal deposits (35,836) (15,051) (38,273) (8,537) Trade payables 34,680 16,876 20,547 17,335 Taxes and contributions (38,806) 147,203 (38,839) 147,203 Payables from insurance and reinsurance operations 101,282 28, ,282 36,445 Third-party deposits 14,151 4,029 14,151 4,029 Technical reserves - insurance and reinsurance 174,192 (587,786) 172,788 (545,368) Other liabilities (4,048) Judicial provisions 21,759 (50,785) 21,759 (50,785) Net cash provided by operations (355,718) 155,178 (475,240) 161,166 The management notes are an integral part of the quaterly financial statements 12 of 126

23 Statement of value added Six-month periods ended June 30 In thousands of Brazilian reais Parent Company Consolidated Revenue Revenue from insurance operations 2,546,561 2,173,242 2,546,561 2,173,242 Other (85,168) (61,944) (59,402) (52,114) Accrual/Reversal of allowance for loan losses (13,107) 31,718 (13,107) 31,718 Changes in technical reserves (351,555) (91,044) (351,555) (91,044) Net operating revenue 2,096,731 2,051,972 2,122,497 2,061,802 Benefits and losses Claims (1,368,404) (1,312,352) (1,368,404) (1,312,352) Changes in reserve for claims incurred but not reported 204,257 (76,736) 204,257 (76,736) Other 52,355 57,635 52,355 57,635 (1,111,792) (1,331,453) (1,111,792) (1,331,453) Input acquired from third-parties Materials, energy and other (28,033) (21,084) (34,139) (22,125) Outsourced services, net commissions (16,082) (23,882) (16,581) (23,882) (44,115) (44,966) (50,720) (46,007) Gross value added 940, , , ,342 Depreciation, amortization and depletion (15,065) (14,734) (17,424) (15,549) Net added value produced by the entity 925, , , ,793 Value added received through transfer Financial result 350, , , ,386 Result with retrocession (549,707) (363,693) (549,707) (363,693) Other 25,553 6,973 25, (173,374) 77,601 (153,523) 70,818 Total added value to distribute 752, , , ,611 Distribution of value added Personnel 76,488 64,807 76,488 64,807 Taxes, fees and contributions 221, , , ,468 Interest on equity 120, , , ,800 Retained earnings in the six-month period 333, , , , , , , ,611 The management notes are an integral part of the quaterly financial statements 13 of 126

24 Management notes to the separate and consolidated interim financial statements for the six-month periods ended Section A General information 1.1 Operations IRB Brasil Resseguros S.A. ("IRB Brasil RE, the "Reinsurer" or the "Company") is a private closely held corporation established in 1939 by then-president Getúlio Vargas, with headquarters at Avenida Marechal Câmara 171 in the city of Rio de Janeiro, and offices in São Paulo, Buenos Aires, London and New York. Its activities basically consist of reinsurance operations in Brazil and abroad. Publication of the separate and consolidated financial statements as of was authorized by the Company's Executive Board on August 2,. 1.2 Basis of preparation The parent company financial statements were prepared and are presented in accordance with technical pronouncement CPC 21 (R1) - Interim Financial statements, and the consolidated interim financial statements were prepared and are presented in accordance with CPC 21 (R1) and with international accounting standard IAS 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB) and in compliance with the rules issued by the Securities and Exchange Commission of Brazil (CVM) applicable to the preparation of the financial statements, and contain all material information required under financial statements, and only such information, which are consistent with the information used by management in its activities. The financial statements were prepared under the historical cost convention, which, in the case of financial assets available for sale and other financial assets and liabilities, is adjusted to reflect their measurement at fair value. The preparation of the parent company and consolidated financial statements requires the use of certain critical accounting estimates and requires Management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, and where assumptions and estimates are significant to the financial statements, are reported in Note 28. The presentation of the parent company and consolidated statements of value added (DVA) is required under Brazilian corporation law and under the accounting practices adopted in Brazil for public corporations. The accounting practices adopted in Brazil applicable to entities supervised by SUSEP do not require the presentation of such statement. As a result, such statement is presented as supplementary information, without any prejudice to the set of financial statements. IRB Brasil Resseguros S.A. has a branch in London, whose activities are currently being discontinued (run-off). At its 209 th Ordinary Meeting held on December 11, 2014, the Board of Directors approved the valuation of the operations of this branch at market value for further consideration of proposals for its possible sale. Such valuation did not produce losses in IRB Brasil RE s financial statements. Since the London operations do not represent a significant separate line of business or geographical area of operations for the Company, as required under CPC 31, the balances of that branch were not presented as discontinued operations. The Company also has a branch in Argentina, which started operating on September 1, The corresponding accounting balances of these branches are recorded and presented in the parent company and consolidated financial statements of the Company. 14 of 126

25 (a) Separate quarterly statements The separate (Parent Company) financial statements were prepared in accordance with the accounting practices adopted in Brazil issued by the Accounting Pronouncements Committee (CPC) and are disclosed together with the consolidated financial statements. (b) Consolidated quarterly statements The consolidated financial statements were prepared and are presented in accordance with the accounting practices adopted in Brazil, including the pronouncements issued by the Accounting Pronouncements Committee (CPC), and in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). 1.3 Consolidation The following accounting policies are applied in the preparation of the consolidated financial statements: Subsidiaries are all entities in which the Company has the power to determine financial and operational policies, which in general are accompanied by ownership of more than half of the voting capital. The existence and effect of any voting rights currently exercisable or convertible are considered when assessing whether the Company holds control over other entities. Subsidiaries are fully consolidated from the date on which control is transferred to the Company, and are deconsolidated from the date on which control ceases. The Company has a subsidiary located in the United States of America, which is in the process of discontinuing (run-off) its operations and a company that concentrates the real estate investments of the Reinsurer. On, IRB Parent Company held an impairment balance of R$5,039. Information on the subsidiaries follows: International Corporation & Subsidiaries IRB Investimentos e Participações Imobiliárias S.A. Interest in the share capital 100.0% 100.0% Shares held 5,000, ,465,949 Assets 51, ,052 Current and non-current liabilities 29,615 14,445 Equity at the end of the period 21, ,607 Net income for the period ,970 The Company also holds all shares in the following investment funds: BB Ações 22 Fundo de Investimento BB Peabiru Fundo de Investimento Renda Fixa Bradesco Fundo de Investimento em Ações Safe IBRX-50 Itaú FI IRB BRASIL RE Renda Fixa Fundo de Investimento Caixa IRB Brasil RE Renda Fixa Bradesco FIRF IRB Caixa BB IRB BRASIL RE FI RF LP Crédito Privado FI Itaú Renda Fixa IRB BRASIL RE Crédito Privado 15 of 126

26 FI Caixa IRB BRASIL RE RF Crédito Privado LP Bradesco FI IRB BRASIL RE Crédito Privado LP Fundo de Investimento Imobiliário FII Votorantim Fundo de Investimento RF IRB BRASIL RE Absoluto The Company's consolidated financial statements were prepared in order to consolidate the International Corporation & Subsidiaries, the aforementioned exclusive funds and the subsidiary IRB Investimentos e Participações Imobiliárias S.A. 1.4 Reclassification of comparison balances i) For comparison purposes, the Company reclassified the portion of the asset and liability balances of the provision for unearned premiums from current to non-current as of December 31, that will be deferred over periods longer than 12 months, in the amounts of R$61,578 and R$150,880, respectively. ii) For comparison purposes, the Company reclassified the portion of outstanding deferred acquisition costs from current liabilities to current assets, since the applicable standards establish that only deferred acquisition costs already settled may be used to reduce the unearned premium reserve. Such changes do not have a material impact on the comparison information in the balance sheets as of December 31, and January 1, (opening balances), and, consequently, said comparison financial statements are not being restated for the purpose of compliance with CPC 23, Accounting Policies, Changes in Estimates and Correction of Errors. The effects on the balance sheet as of December 31, are as follows: Original balance Adjustment Parent and Consolidated December 31, Reclassified Balance Sheet Assets Current Retrocession assets - technical reserves 61,578 (61,578) - Deferred acquisition costs - 53,335 53,335 Non-current Retrocession assets - technical reserves - 61,578 61,578 Total 61,578 53, ,913 Liabilities Current Technical reserves - Reinsurers and retrocession Unearned premium reserve 1,648,963 (150,880) 1,498,083 Non-current Technical reserves - Reinsurers and retrocession Unearned premium reserve - 204, ,215 Total 1,648,963 53,335 1,702, of 126