4Q16 MD&A. BB Seguridade Participações S.A

Transcription

1 4Q16 MD&A BB Seguridade Participações S.A

2 P R E S E N T A T I O N The Management Discussion and Analysis MD&A presents the economic and financial status of BB Seguridade Participações S.A. (BB Seguridade). Directed to financial analysts, shareholders and investors, this quarterly report provides an analysis of economic and financial indicators of BB Seguridade s, stocks performance and other aspects considered relevant for the assessment of the company s performance. Back to February 2012, Banco do Brasil S.A. (BB) announced its intention to create BB Seguridade, a wholly owned subsidiary responsible for consolidating, under a single holding company all activities related to insurance, open-end private pension plans, premium bonds, brokerage, and other. In the same document, BB disclosed its intention to promote an IPO of the holding company BB Seguridade at BM&FBovespa S.A. Bolsa de Valores, Mercadorias e Futuros. The bookbuilding of the aforementioned public offering was concluded on April 25 th, 2013 and the price was set at R$17.00 per share. The shares started being traded on April 29 th, In the offering, the controlling shareholder (Banco do Brasil) sold 675 million shares, in a transaction that involved approximately R$11.5 billion, with 500 million shares sold in the base offering, 100 million in the hot issue, and 75 million in the greenshoe. The announcement of the offering closing was published on May 17 th, The consolidated financial statements were prepared in compliance with the International Financial Reporting Standards IFRS. All the analyses in this report are based on IFRS Financial Statements, but are occasionally supplemented by managerial data, besides other information calculated based on accounting principles determined by the Superintendência de Seguros Privados SUSEP (the regulator of the insurance industry in Brazil). ON- L I N E A C C E S S This MD&A is available at BB Seguridade s IR website, where additional information about the Company is also available such as: corporate structure, corporate governance, historical series for download, among other important information for shareholders and investors. The company s website can be accessed through either This report makes references and statements about growth estimates, earnings forecasts and future strategies regarding BB Seguridade. Such statements are based on current expectations, estimates and projections of the Management about future events and financial trends that may affect the businesses that the Group is involved in. These forward looking statements are not guarantees of future performance and involve risks and uncertainties that could overextend the control of the management, and thus can result in balances and values different from those anticipated and discussed in this report. The expectations and projections depend on market conditions (technological changes, competitive constraints on products, prices, etc.), on the country s macroeconomic performance (interest and exchange rates, political and economic changes, inflation, changes in tax rules, etc.) and on international markets. Future expectations based on this report should consider the risks and uncertainties that involve the businesses of BB Seguridade. BB Seguridade has no responsibility to update any estimate contained either in this report or in reports published previously. Tables and charts in this report shows, in addition to the accounting balances, financial and managerial figures. The changes of relative rates are calculated before rounding procedure in R$ million. The rounding method used follows the rules established by Resolution 886/66 of IBGE s Foundation: if the decimal number is equal or greater than 0.5, it increases by one unit, if the decimal number is less than 0.5, there is no increase.

3 4Q16 Earnings Conference Call February 14 th, 2016 Portuguese Time: 10 am (Brasília time) 7 am (Eastern time) Dial-in: Brazil USA UK Webcast: English Time: 11:30 am (Brasília time) 08:30 am (Eastern time) Dial-in: Brazil USA UK Webcast: Index 1. Summary 5 2. Earnings Analysis Balance Sheet Analysis Underwriting and Accumulation 29 Contacts Investor Relations 5. Distribution (11) ri@bbseg.com.br Rua Alexandre Dumas, 1671 Térreo Ala B Chácara Santo Antônio São Paulo SP CEP: Definitions 111

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5 1. S U M M A R Y Table 1 Key figures Quarterly F lo w Unit 4Q15 1Q16 2Q16 3Q16 4Q16 Earnings Summary Underwritting and accumulation businesses R$ thousand 629, , , , ,268 Distribution businesses R$ thousand 398, , , , ,008 Other R$ thousand (15,372) (21,085) (2,858) (34,890) (39,540) Net income R$ thousand 1,013, ,684 1,086, , ,524 Adjusted net income R$ thousand 1,013, ,684 1,086, ,930 1,074,736 Adjusted ROAE¹ % P erfo rmance by segment Insurance - Life, M o rtgage Life and R ural Loss ratio % Comission ratio % G&A ratio % Combined ratio % Expanded combined ratio % Adjusted ROAE % Solvency ratio % Insurance - P ro perty and C asualty Loss ratio % Comission ratio % G&A ratio % Combined ratio % Expanded combined ratio % Adjusted ROAE % Solvency ratio % P ensio n P lans Technical reserves R$ million 148, , , , ,534 M anagement fee % Adjusted ROAE % Solvency ratio % P remium B o nds Premium bonds reserves R$ million 12,354 11,723 11,208 11,012 10,763 Spread p.p Adjusted ROAE % Solvency ratio % B ro kerage Operating margin % Net margin % ¹BB Seguridade's adjusted ROAE of 4Q16, was calculated by dividing adjusted net income by the average equity of the period, both in IFRS as disclosed by the Company in its MD&A. The average shareholders equity was calculated as follows: Figure in the beginning of the period: R$8,190 million, shareholder s equity as of September, 2016, deducted of dividends to be distributed for the 2H16, according to the Payout of 82% (without interest accrual). Figure in the end of the period: R$8,289 million, based on shareholder's equity as of December, 2016, BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 5

6 A D J U S T E D N E T I N C O M E Figure 1 Adjusted net income Figure 2 Adjusted net income Earnings breakdown¹ (R$ million) , , , , , , Distribution business (R$ million) Underwritting and accumulation businesses (R$ million) Other (R$ million) Adjusted ROAE (%) Non-interest operating results Net investment income ¹Calculated based on total non-interest operating result and net investment income of all BB Seguridade s controlled and affiliate Companies, net of income taxes, considering the effective tax rate of each Company for the period under analysis. QUARTELY ANALYSIS The adjusted net income reached R$1.1 billion in the 4Q16, growth of 6.0% as compared to the adjusted net income for the 4Q15. The performance in the quarter is explained by the growth of R$86.7 million (+13.2%) in the combined non-interest operating result, which was partially offset by the drop of R$25.5 million (-7.1%) in the combined net investment income, both net of tax effects. It is worth noting that the analysis of the last 12 months was impacted by the change of BB Corretora s tax regime to the noncumulative system in March 2016, which led to a rise in the PIS/PASEP and COFINS tax rates on gross revenues, making the bases not directly comparable. The return on average equity registered 52.2% in the 4Q16, 1.9 p.p. lower YoY. BB Seguridade s adjusted net income achieved R$4.1 billion in 2016, 4.1% up as compared to the adjusted net income of The performance is explained by both the R$124.5 million increase (+4.6%) in the combined non-interest operating result and the expansion of R$37.6 million (+3.1%) in the combined net investment income, both net of tax effects. It is worth noting that the result of the year had its comparison base impacted by the risen in taxes in all the BB Seguridade s affiliates and controlled companies, what turned the bases not directly comparable. The changes were: (i) the reinstatement in July 2015 of the PIS/PASEP and COFINS tax on financial revenues earned by the holdings BB Seguridade Participações, BB Seguros Participações, BB Cor Participações, BB MAPFRE SH1 Participações and MAPFRE BB SH2 Participações, subject to the non-cumulative system; (ii) the increase in the income tax rate, namely the social contribution ( CSLL"), which affected the results of BB Seguridade s affiliate companies controlled by BB MAPFRE SH1 and MAPFRE BB SH2, as well as Brasilprev, Brasilcap and IRB, from September 2015 on; (iii) the change of BB Corretora s tax regime to the non-cumulative system in March 2016, which led to a rise in the PIS/PASEP and COFINS tax rates on gross revenues. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 6

7 Figure 3 Adjusted net income Quarterly evolution breakdown (R$ million) Figure 4 Adjusted net income Year-to-date evolution breakdown (R$ million) , (26) 1,075 3,945 1,014 4Q15 Adjusted net income Change in non-interest operating result¹ Change in net investment income¹ 4Q16 Adjusted net income 2015 Adjusted net income Change in non-interest operating result¹ Change in net investment income¹ 2016 Adjusted net income ¹Calculated based on total non-interest operating result and net investment income of all BB Seguridade s controlled and affiliate Companies, net of income taxes, considering the effective tax rate of each Company for the period under analysis. ¹Calculated based on total non-interest operating result and net investment income of all BB Seguridade s controlled and affiliate Companies, net of income taxes, considering the effective tax rate of each Company for the period under analysis. A D J U S T E D I N C O M E S T A T E M E N T Table 2 Adjusted income statement Quarterly F lo w C hg. % A nnual F lo w C hg. % R $ tho usand 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 Equity inco me 1,029, ,913 1,076, ,984,734 4,130, Underwritting and accumulation businesses 629, , , ,484,650 2,595, Life, M ortgage Life and Rural 300, , , (1.6) 1,223,498 1,247, Property and Casualty 59,292 22,239 14,816 (75.0) (33.4) 208, ,186 (39.9) Pension Plans 156, , , (3.9) 646, , Reinsurance 41,024 13,575 75, , , Premium Bonds 72,509 67,483 66,842 (7.8) (0.9) 252, , Dental Insurance , (200) 2,870 - Distribution businesses 398, , , ,508,195 1,609, Other 80 (24,907) (37,323) (8,111) (74,479) G&A expenses (19,154) (17,309) (17,659) (7.8) 2.0 (57,404) (68,149) 18.7 Personnel expenses (15,541) (5,083) (7,767) (50.0) 52.8 (43,992) (35,078) (20.3) Administrative expenses (3,474) (6,419) (9,144) (11,568) (20,494) 77.2 Tax expenses (131) (5,758) (707) (87.7) (2,499) (12,941) Other operating income (expenses) (8) (49) (41) (15.8) (44.4) N et investment inco me 3,702 7,326 15, ,650 44, Financial income 3,702 41,170 15, (62.5) 80, , Financial expenses - (33,844) (63,038) (72,053) 14.3 A djusted net inco me 1,013, ,930 1,074, ,944,979 4,107, BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 7

8 E X T R A O R D I N A R Y E V E N T S Table 3 Earnings Analysis Extraordinary events Quarterly F lo w C hg. % A nnual F lo w C hg. % R $ tho usand 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 A djusted net inco me 1,013, ,930 1,074, ,944,979 4,107, Extrao rdinary events - - (93,212) ,452 (93,212) - Brasilprev: reversal of provisions , SH1: Increase of the social contribution rate , SH2: Increase of the social contribution rate , SH1: Tax credit - PIS/COFINS , ,458 - SH2: Tax credit - PIS/COFINS - - 9, ,557 - BB Seguros: Impairment - M APFRE BB SH2 BB Seguros: Impairment - M APFRE BB SH2 - Tax effects - - (176,101) (176,101) , ,874 - N et inco me 1,013, , ,524 (3.2) (0.6) 4,207,432 4,013,852 (4.6) Brasilprev Reversal of provision: in December 2014, pursuant to resolution CNSP nº 281/13 and SUSEP Rule 462/13, Brasilprev recorded R$1.0 billion in reversals. The amount refers to the entire balance previously recorded in Provision for Insufficiency of Contributions and Provision for Financial Fluctuation. Simultaneously, Brasilprev conducted its half-yearly Liability Adequacy Test, based on financial statements of December 2014, in compliance with SUSEP rule 457/12, and recorded R$514.1 million in Supplementary Coverage Provision (PCC). The Liability Adequacy Test assesses the obligations arising from pension plan contracts and, when found insufficient technical provisions, the company can adopt two alternatives: the use of unrealized gains (strategy adopted until June 2014); or the constitution of Supplementary Coverage Provision (strategy used in December 2014). Until June 2014, Brasilprev had been using unrealized gains to offset possible insufficiency of technical provisions identified by the Liability Adequacy Test. In December 2014, the deadline for reversal of Other Technical Provisions (where there were allocated the balances of Provision for Insufficiency for Contributions and Provision for Financial Fluctuations), SUSEP has allowed the use of an alternative forward yield curve structure, to minimize the inherent volatility of the original methodology. In this context, Brasilprev chose to occasionally use the constitution of Supplementary Coverage Provision to offset the insufficiency of technical provisions indicated by the December 2014 Liability Adequacy Test. On the occasion of the Liability Adequacy Test, dated as of June 2015, and due to the volatility of the forward yield curve, Brasilprev, supported by Paragraphs 2 and 3 of article 8 th of SUSEP Rule 457/12, re-adopted the procedure which employs the unrealized gains of collateral assets on technical provisions held to maturity to offset a possible insufficiency identified by the Liability Adequacy Test. In this context, based on the Liability Adequacy Test, dated as of June 2015, the balance of R$514.1 million of Supplementary Coverage Provision was fully reversed, with a positive impact of R$294.1 million in Brasilprev s net income, equivalent to a net effect of R$220.5 million in BB Seguridade s net income. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 8

9 BB MAPFRE SH1 and MAPFRE BB SH2 Increase of the social contribution rate: in May 2015, the federal government issued the Provisional Measure Nr. 675 ( PM 675/15 ), raising the rate of the social contribution ( CSLL") from 15% to 20% for financial institutions, insurance and premium bonds companies, among others. On October 6, 2015, the PM 675/15 was converted into a definitive Law Nr. 13,169 ("Law 13,169/15"), providing that the new tax rates for social contribution will be effective from September 1, 2015 to December 31, 2018, going back to 15% on January 1, Therefore, the insurance companies BB MAPFRE SH1 and MAPFRE BB SH2 recalculated their respective social contribution deferred tax assets, originally registered at 15%, to the current 20% rate, creating a positive impact for BB Seguridade's net income of R$21.9 million in equity income arising from BB MAPFRE SH1 and of R$19.9 million in equity income from MAPFRE BB SH2. Such deferred tax assets arises from: (i) temporary additions (tax credits activated by the companies, coming mainly from the constitution of provisions for loan losses and other provisions that are expected to be reversed before the end of the effectiveness of the Law 13,169/15); (ii) negative basis/accumulated fiscal losses; and goodwill (as a result of the corporate reorganization that took place during the process of structuring the partnership). SH1 and SH2 - Tax credit - PIS/COFINS: change in the methodology of PIS/PASEP and COFINS tax calculation which comprises the constitution of tax credits related to temporary differences of taxation on claims to be paid provision ( PSL ), incurred but not reported claims provision (IBNR) and incurred but not enough reported claims provision (IBNER), resulting in positive net impacts of R$53.1 million in BB MAPFRE SH1 and of R$53.5 million in MAPFRE BB SH2. Considering that the change in the methodology was applied to provisions recorded in both 2016 and previous years, the amount of tax credits related to provisions recorded in previous years was considered extraordinary, which generated a positive impact of R$23.0 million in BB Seguridade s net income. BB Seguros Impairment (MAPFRE BB SH2): impairment loss in BB Seguro s investment in MAPFRE BB SH2 which amounted to R$176.1 million, as determined by the CPC 01 ( Brazilian Accounting Standards Committee Rule ). The impairment loss was due to the challenging economic scenario, lower premiums written estimates and lower net investment income due to lower expected interest rates. The gross amount was registered as an impairment loss in BB Seguros s other operating income/expenses, with a negative impact on BB Seguridade s equity income that amounted to R$116.2 million, net of income taxes BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 9

10 BB MAPFRE SH1 Life, Mortgage Life and Rural Figure 5 SH1 Premiums written (R$ million) Figure 6 SH1 Adjusted net income and ROAE 1,542 1,867 2,094 2,098 1,497 2,097 1,819 1, Net investment income¹ (R$ million) Non-interest operating result¹ (R$ million) Adjusted ROAE (%) ¹Net of income taxes considering the Company s effective tax rate for the period under analysis. QUARTELY ANALYSIS The net income arising from the Life, Mortgage Life and Rural business segment amounted to R$428.6 million in the 4Q16, 7.1% higher YoY. The performance was impacted by the growth of the underwriting result driven by the improvement in G&A ratio, partially offset by the deterioration in the loss ratio of credit life and term life segments and the contraction of the net investment income. In the 4Q16, premiums written amounted to R$2.0 billion, 6.2% lower YoY justified by the drop in credit life (-48.3%), partially offset by the increase in term life (+16.4%), mortgage life (+139.9%) and rural (+4.8%) insurance segments. In 2016, the net income arising from the Life, Mortgage Life and Rural business segment reached R$1.7 billion, 1.9% up as compared to The result of the year was impacted by the increase in the income tax rate namely Social Contribution ( CSLL"), from 15% to 20%, since September 2015 according to the Law 13,169/15. The earnings before taxes and profit sharing grew by 5.7% driven by the increase in the underwriting result, due mainly to the higher earned premiums, but partially offset by the deterioration in the loss ratio. Premiums written amounted to R$7.4 billion, in 2016, 2.9% lower YoY, justified by the decrease in credit life (-48.2%), partially offset by the growth in term life (+15.8%), mortgage life (+29.2%) and rural (+14.0%) insurances. The term life products were especially boosted by the launch of the new portfolio which begun to be sold in July BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 10

11 MAPFRE BB SH2 P&C Figure 7 SH2 Premiums written (R$ million) 2,325 2,422 2,228 2,284 2,121 2,174 1,971 1,996 Figure 8 SH2 Adjusted net income and ROAE Net investment income¹ (R$ million) Non-interest operating result¹ (R$ million) Adjusted ROAE (%) ¹Net of income taxes considering the Company s effective tax rate. QUARTELY ANALYSIS The adjusted net income from the P&C business segment amounted to R$29.6 million in the 4Q16, 75.0% down YoY, driven by: (i) (ii) the negative underwriting result in the quarter, explained by the deterioration of the loss ratio in auto and casualty insurances; and the contraction of 39.7% in the net investment income, explained by the higher average yield on the interest bearing liabilities. In the 4Q16, the premiums written amounted to R$2.0 billion, 10.4% lower YoY, driven by the drop in auto (-17.5%) and casualty (-5.1%) insurances, partially offset by the expansion of the other segment (+15.4%). In 2016, the adjusted net income achieved R$250.4 million, 39.9% down YoY. The performance is explained by the deterioration in both loss and commission ratios, as well as the contraction of the net investment income. Premiums written dropped by 7.4% YoY, as a consequence of the reduction of 18.0% in auto insurance sales, partially offset by the growth in casualty (+2.2%) and other (+30.1%) segments. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 11

12 Brasilprev Pension Plans Figure 9 Brasilprev Management fee Figure 10 Brasilprev Adjusted net income and ROAE QUARTELY ANALYSIS Management fee (R$ million) Management fee (%) Net investment income¹ (R$ million) Non-interest operating result¹ (R$ million) Adjusted ROAE (%) ¹Net of income taxes considering the Company s effective tax rate. The Pension Plans business segment achieved a net income of R$266.7 million in the 4Q16, 27.5% up YoY. The performance was supported by the growth of 25.3% in the revenues with management fees, driven by the expansion of 33.2% in the assets under management and the improvement of 2.6 p.p. in the cost-to-income ratio. In the 4Q16, pension plans contribution rose 55.5% YoY, with the growth concentrated in VGBL sporadic contribution plans. Net inflows amounted to R$9.7 billion, 68.1% higher YoY, boosted by the strong expansion of the contributions. In 2016, the net income of the Pension Plans business segment totaled R$1.0 billion, 17.1% up as compared to the adjusted net income of The performance observed in the year is a result of the growth in the non-interest operating result, explained by the expansion of revenues with management fees along with the improvement of 2.6 p.p. in the cost-to-income ratio. The volume of pension plans contribution grew by 28.3% YoY, highlighting the performance of VGBL sporadic contribution plans. In the year, net inflows achieved R$28.5 billion, 24.9% higher YoY, driven by the expansion of the contributions and the 0.5 p.p. drop in the annualized redemption ratio. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 12

13 Brasilcap Premium Bonds Figure 11 Brasilcap Collections (R$ million) Figure 12 Brasilcap Net income and ROAE 1,321 1,961 1,379 1,856 1,043 1,571 1,360 1, Net investment income¹ (R$ million) Non-interest operating results¹ (R$million) ROAE (%) ¹Net of income taxes considering the Company s effective tax rate. QUARTELY ANALYSIS In the 4Q16, the net income for the Premium Bonds business segment reached R$100.3 million, 7.8% lower YoY. The performance was impacted by the drop in both the net investment income and the result with premium bonds. The result with premium bonds dropped by 31.4% YoY, with a contraction of 2.2 p.p. in the premium bonds margin, driven by the drop of 14.2% in the net revenues with premium bonds. The net revenues decrease is explained by the contraction of 9.7% in the premium bonds collection and the growth of 0.8 p.p. in the average reserve quote. On the other hand, the result with lottery expenses and the acquisition costs fell by 23.3% and 12.3%, respectively. Premium Bonds business segment reached a net income of R$439.2 million in 2016, 15.9% higher YoY, driven by the higher spread in the year. In 2016, the result with premium bonds dropped by 27.9% YoY, due to the deterioration of 1.9 p.p. in the premium bonds margin, explained by the decrease of 17.7% in the net revenues with premium bonds, driven by the contraction of 13.3% in premium bonds collection and the growth of 0.9 p.p. in the average reserve quote. The effect was partially offset by the drop of 23.7% in the result with lottery expenses as well as the reduction of 19.0% in the acquisition costs. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 13

14 IRB Reinsurance Figure 13 IRB Premiums written¹ (R$ million) Figure 14 IRB Adjusted net income¹ (R$ million) 368 1,032 1,200 1, , Non-interest operating result¹ Net investment income¹ ¹Net of income taxes considering the Company s effective tax rate. QUARTELY ANALYSIS In the 4Q16, the Reinsurance business segment reached a net income of R$368.5 million, 83.5% higher YoY. The performance is justified by the improvement of 32.3 p.p. in the loss ratio, partially offset by the growth in the G&A and the commission ratios. The net income of the Reinsurance business segment achieved R$836.1 million in 2016, 10.4% higher YoY. The performance in the year is explained by the improvement of 3.6 p.p. in the combined ratio. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 14

15 D I S T R I B U T I O N B U S I N E S S E S BB Corretora Brokerage Figure 15 BB Corretora Brokerage revenues (R$ million) Figure 16 BB Corretora Adjusted net income and operating margin Adjusted net income (R$ million) Operating margin (%) QUARTELY ANALYSIS BB Corretora s net income amounted to R$435.0 million in the 4Q16, 9.0% higher YoY, driven by: (i) (ii) the growth of 11.4% in brokerage revenues, partially offset the contraction of 4.9 p.p. in the operating margin, justified mostly by the higher PIS/PASEP and COFINS tax rates since March 2016; and the increase of 45.3% in the net investment income, driven by a higher average balance of financial investments along with the increase in the average yield on interest earning assets. In 2016, BB Corretora reported a net income of R$1.6 billion, 6.7% higher YoY, explained by: (i) (ii) the growth of 8.0% in brokerage revenues, partially offset by the contraction of 2.7 p.p. in the operating margin, justified mostly by the higher PIS/PASEP and COFINS tax rates since March 2016; and the 35.0% increase in the net investment income, driven by an increased average volume as well as a higher average yield on interest earning assets. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 15

16 G U I D A N C E In 2016, BB Seguridade s net income grew by 4.1% as compared to the same period of 2015, within the 2016 revised Guidance, as presented below: Table 4 Estimates for 2016 R atio Values o bserved 2016 Estimates BB Seguridade - Adjusted net income growth (%) G U I D A N C E The following table presents the Guidance for 2017: Table 5 Estimates for 2017 R atio 2017 Estimates Adjusted net income growth (%) BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 16

17 O T H E R I N F O R M A T I O N Table 6 Market share and ranking Quarterly F lo w Unit 4Q15 1Q16 2Q16 3Q16 4Q16 Life Premiums written R$ thousand 769, , , , ,428 M arket-share % 14.6% 15.8% 15.5% 17.3% 16.0% Ranking 2º 2º 2º 2º 2º C redit life Premiums written R$ thousand 656, , , , ,463 M arket-share % 33.3% 15.1% 25.8% 15.6% 20.4% Ranking 1º 3º 1º 3º 1º M o rtgage life Premiums written R$ thousand 24,762 52,345 54,027 51,141 59,405 R ural M arket-share % 2.6% 6.4% 6.5% 6.0% 6.7% Ranking 7º 5º 5º 5º 3º Premiums written R$ thousand 608, , , , ,928 A uto M arket-share % 82.2% 78.6% 77.4% 67.1% 74.6% Ranking 1º 1º 1º 1º 1º Premiums written R$ thousand 1,222,799 1,032,637 1,100, ,650 1,009,018 M arket-share % 14.3% 13.6% 13.6% 11.0% 12.0% Ranking 2º 2º 2º 4º 2º C asualties Premiums written R$ thousand 805, , , , ,290 M arket-share % 14.0% 15.1% 14.4% 12.7% 10.9% Ranking 1º 1º 1º 1º 1º P ensio n P lans Technical reserves R$ thousand 148,246, ,295, ,816, ,723, ,533,558 M arket-share % 28.2% 28.5% 29.4% 29.8% 30.3% Ranking 2º 1º 1º 1º 1º Contributions R$ thousand 9,892,606 7,898,302 13,922,495 10,218,318 15,383,564 M arket-share % 33.9% 35.2% 44.5% 39.4% 41.3% Ranking 1º 1º 1º 1º 1º P remium B o nds Reserves R$ thousand 12,354,369 11,723,268 11,207,605 11,011,804 10,762,799 M arket-share % 39.8% 38.6% 37.7% 37.3% 36.6% Ranking 1º 1º 1º 1º 1º Collections R$ thousand 1,856,387 1,043,471 1,570,613 1,359,880 1,675,493 M arket-share¹ % 32.5% 21.4% 29.3% 25.8% 26.3% Ranking¹ 1º 2º 1º 2º 2º Source: Susep. ¹ Susep data up to november/2016. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 17

18 Table 7 - Stocks Breakdown of the shareholders basis Shareho lders Shares P articipatio n B anco do B rasil 1 1,325,000, % T reasury Sto cks 1 3,393, % F ree F lo at 41, ,606, % Foreign 1, ,237, % Companies 3,358 78,686, % Individuals 37,558 31,682, % T o tal 41,923 2,000,000, % Table 8 - Stocks Performance Quarterly F lo w Unit 4Q15 1Q16 2Q16 3Q16 4Q16 Sto ck's perfo rmance Earnings per share R$ Dividends per share R$ Equity per share R$ Closing price R$ Annualized dividend yield¹ % M arket capitalization R$ million 48,660 59,400 56,220 59,760 56,600 R atio s P/E (12 month traling) x P/BV x B usiness data Quantity of trade carried out 980,065 1,161, , , ,836 Average daily volume traded R$ million Average daily volume traded - BM &FBOVESPA R$ million 5,659 5,991 6,331 6,171 7,488 Share on BM &FBOVESPA's average volume % ¹Dividend yield calculated considering the dividends reported in the last 12 months divided by the average stock price in the same period. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 18

19 2.E A R N I N G S A N A L Y S I S E A R N I N G S B R E A K D O W N Figure 17 Earnings Analysis Breakdown¹ (%) 4Q Q Q Q Q Q Q Q Brokerage Life, Mortgage Life and Rural Pension Plans Premium Bonds Property and Casualty Reinsurance Dental Insurance Other ¹Does not consider the individual results from BB Seguridade, BB Seguros and BB Cor holdings, as well as the dental plans operation when negative. N E T I N V E S T M E N T I N C O M E Figure 18 Earnings Analysis Net investment income (R$ million) 15 QUARTERLY ANALYSIS In the 4Q16, the net investment income of the BB Seguridade holding company grew by 317.2% YoY, explained by the increase of the average balance of cash and cash equivalents In 2016, the net investment income of the holding company rose by 150.7% YoY, driven by the expansion of the average cash balance along with a higher average Selic rate throughout the year. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 19

20 G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S Figure 19 Earnings Analysis General and administrative expenses (R$ million) QUARTERLY ANALYSIS In the 4Q16, the G&A expenses of the holding company dropped by 7.8% YoY, due to lower personnel expenses as an outcome of the deployment of the cost sharing methodology with the subsidiaries BB Seguros and BB Corretora. The decline in personnel expenses was partially offset by higher expenses with specialized technical services, as a result of hiring consulting services. In 2016, BB Seguridade s G&A expenses grew by 18.7% YoY, explained by: (i) (ii) the increase in tax expenses, as a result of IOF collection on withdrawals of short-term financial investments for dividend payment, besides the re-establishment, from July 2015 on, of the PIS/PASEP (0.65%) and COFINS (4.00%) tax rates on financial revenues at the holding level; and the growth in administrative expenses, explained by the increase in specialized technical services as a result of hiring consulting services. The growth observed in the administrative and tax expenses was partially offset by the decline of 20.3% in personnel expenses, driven by the deployment of a methodology for costs sharing within the subsidiaries. Table 9 Earnings Analysis General and administrative expenses Quarterly F lo w C hg. % A nnual F lo w C hg. % R $ tho usand 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 A dministrative expenses (3,474) (6,419) (9,144) (11,568) (20,494) 77.2 Specialized technical services (1,800) (4,691) (7,180) (4,559) (12,682) Condominium fee (826) (722) (856) (3,004) (3,367) 12.1 Communication (274) (313) (336) (1,129) (1,316) 16.6 Other administrative expenses (574) (693) (772) (2,876) (3,129) 8.8 P erso nnel expenses (15,541) (5,083) (7,767) (50.0) 52.8 (43,992) (35,078) (20.3) Compensation (9,831) (2,251) (4,455) (54.7) 97.9 (25,665) (19,144) (25.4) Welfare benefits (3,949) (1,285) (1,675) (57.6) 30.4 (12,372) (9,445) (23.7) Other compensation (765) (885) (880) 15.1 (0.5) (2,961) (3,441) 16.2 Benefits (996) (662) (757) (24.0) 14.3 (2,994) (3,048) 1.8 T ax expenses (131) (5,758) (706) (87.7) (2,499) (12,941) COFINS (114) (1,602) (571) (64.4) (1,738) (4,515) PIS/Pasep (17) (258) (91) (64.8) (280) (727) IOF - (3,898) (478) (7,640) 1,498.3 Other (0) (0) (45) 11, ,651.4 (3) (59) 1,866.7 Other o perating inco me (expenses) (8) (49) (41) (15.8) (44.4) G&A expenses (19,154) (17,309) (17,658) (7.8) 2.0 (57,404) (68,149) 18.7 BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 20

21 A D J U S T E D N E T I N C O M E C O M P O S I T I O N Figure 20 Earnings Analysis Non-interest operating results vs net investment income (R$ million)¹ Figure 21 Earnings Analysis Non-interest operating results vs net investment income (%)¹ , , , Non-interest operating results Net investment income ¹Net of taxes considering the Companies effective tax rate. Non-interest operating results Net investment income Table 10 Earnings Analysis Non-interest operating results vs net investment income¹ Quarterly F lo w C hg. % A nnual F lo w C hg. % R $ tho usand 4Q15 3Q16 4Q16 On 4Q15 On 3Q On 2015 N o n-interest o perating results 656, , , ,719,913 2,844, Life, M ortgage Life and Rural 203, , , (1.7) 892, , Property and Casualty (8,631) (15,346) (47,333) (11,009) (79,026) Pension Plans 99, , , (4.6) 405, , Premium Bonds 12,870 7,816 9,297 (27.8) ,100 45,668 (33.9) Reinsurance 9,658 (9,712) 48, ,291 61, Dental Insurance (95) (551) 2,220 - Holdings and broker 339, , , ,339,498 1,354, N et investment inco me 357, , ,483 (7.1) ,225,067 1,262, Life, M ortgage Life and Rural 96,380 78,557 77,528 (19.6) (1.3) 331, ,986 (4.1) Property and Casualty 67,923 37,585 62,149 (8.5) , ,212 (6.8) Pension Plans 57,420 54,940 53,843 (6.2) (2.0) 240, ,053 (6.0) Premium Bonds 59,639 59,667 57,545 (3.5) (3.6) 183, , Reinsurance 31,366 23,287 26,574 (15.3) , ,271 (15.5) Dental Insurance (60.2) Holdings and broker 44,165 34,223 53, , , A djusted net inco me 1,013, ,930 1,074, ,944,979 4,107, ¹Net of taxes considering the Companies effective tax rate. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 21

22 N O N - I N T E R E S T O P E R A T I N G R E S U L T QUARTERLY ANALYSIS The combined non-interest operating results amounted to R$743.3 million in the 4Q16, 13.2% up YoY, explained by: (i) the growth of R$46.7 million in the non-interest operating result arising from the Pension Plans business segment, mostly explained by the 25.3% increase in the revenues with management fees, driven by the expansion of 33.2% in the assets under management along with the 2.6 p.p. improvement in the cost to income ratio; (ii) the increase of R$40.0 million in the non-interest operating result arising from the Life, Mortgage Life and Rural business segment, due mainly to the higher volume of earned premiums and the 2.7 p.p. improvement in the combined ratio; (iii) the expansion of R$39.0 million in the non-interest operating result from the Reinsurance segment, driven mainly by the improvement of 32.3 p.p. in the loss ratio; and (iv) the R$27.1 million increase in the operating result at BB Corretora, as a result of higher brokerage revenues arising mainly from the Life, Mortgage Life and Rural business segment as well as the one from the Pension Plans business. The growth observed in the non-interest operating results at the aforementioned segments was partially offset by the drop of R$38.7 million in the non-interest operating results from the Property and Casualty business segment, driven by the deterioration of 6.2 p.p. in the combined ratio, and the decrease of R$3.6 million in the non-interest operating result from Premium Bonds business segment, due to the decline in collections. The combined non-interest operating result amounted to R$2.8 billion in 2016, 4.6% up YoY, driven mainly by: (i) the growth of R$125.1 million in the non-interest operating result arising from the Pension Plans business segment, due to the 25.9% increase in revenues with management fees as well as the 2.6 p.p. improvement in the cost to income ratio; (ii) the R$37.2 million increase in the non-interest operating result arising from the Life, Mortgage Life and Rural business segment, due mainly to the higher volume of earned premiums partially offset by the 2.4 p.p. increase in the loss ratio; (iii) a R$36.2 million higher non-interest operating result at the Reinsurance segment, driven by the improvement of 3.6 p.p. in the combined ratio; and (iv) the R$96.6 million expansion in the operating result at BB Corretora, as a result of the 8.0% growth in brokerage revenues, explained by higher revenues arising from the Life, Mortgage Life and Rural business segment as well as from the Pension Plans business. The improved performance in the aforementioned items was partially offset by: (i) (ii) the decrease of R$68.0 million in the non-interest operating result arising from the Property and Casualty business segment, driven by higher loss and commission ratios; and the R$23.4 million decline in the Premium Bonds business segment, mainly as a result of the drop in the premium bonds collection. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 22

23 N E T I N V E S T M E N T I N C O M E Figure 22 Earnings Analysis Average Selic rate (%) Figure 23 Earnings Analysis Forward yield curve (%) Dec/15 Sep/ Sep/16 Dec/ Source: Bacen DI1F17 DI1F18 DI1F19 DI1F20 DI1F21 Source: ValorPro QUARTERLY ANALYSIS The combined net investment income of BB Seguridade and its controlled and affiliated companies amounted to R$331.5 million in the 4Q16, 7.1% down YoY. The net investment income was impacted by a lower average Selic rate as well as a lower inflation, which affected the yield on inflation protected securities classified as held to maturity. The combined net investment income of BB Seguridade and its controlled and affiliated companies totaled R$1.3 billion in the year, an increase of 3.1%, driven by: (i) (ii) the growth of R$63.7 million in the net investment income from the Premium Bonds segment, as a result of the 1.5 p.p. improvementin the spread; the increase of R$36.6 million in the combined net investment income from BB Seguridade, BB Corretora and the holdings BB Seguros and BB Cor, explained by the higher average Selic rate along with the expansion of the balance of interest earning assets. Figure 24 Earnings Analysis Breakdown of financial Figure 25 Earnings Analysis Trading portfolio by index¹ investments by index¹ Dec/15 Dec /16 Dec /15 Dec /16 Inflation 48.5% Floating 18.7% Mutual funds quotas 0.2% Pre-fix ed 28.4% Other 4.3% Floating 18.6% Inflation 51.2% Mutual funds quotas 0.2% Pre-fix ed 25.0% Other 5.0% Pre-fix ed 43.8% Other 11.1% Floating 41.0% Inflation Mutual funds 3.6% quotas 0.5% Pre-fix ed 32.9% Other 11.9% Floating 40.8% Inflation 13.9% Mutual funds quotas 0.5% ¹Considering the financial investments of BB MAPFRE SH1, MAPFRE BB SH2, Brasilprev (ex-p/vgbl) and Brasilcap weighted by BB Seguridade s economic stake in each company. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 23

24 Table 11 Earnings Analysis Combined financial investments¹ Quarterly F lo w C hg. % R $ tho usand D ec/ 15 Sep/ 16 D ec/ 16 On D ec/ 15 On Sep/ 16 T rading 9,332,194 9,326,910 9,874, Pre-fixed 4,088,909 3,156,939 3,250,298 (20.5) 3.0 Floating 3,823,109 5,118,588 4,029, (21.3) Inflation 339, ,714 1,373, M utual funds quotas 44,726 51,442 50, (1.3) Other 1,035, ,227 1,170, A vailable fo r sale 2,417,831 1,760,356 1,562,758 (35.4) (11.2) Pre-fixed 136,845 31,275 32,173 (76.5) 2.9 Floating 464, , ,891 (8.9) (31.9) Inflation 1,829, ,885 1,088,139 (40.5) 25.2 Other (12,606) 239,421 19,554 - (91.8) H eld to maturity 12,095,545 12,344,707 12,558, Pre-fixed 2,541,640 2,637,393 2,720, Floating 163,948 9,317 5,266 (96.8) (43.5) Inflation 9,389,957 9,697,996 9,832, ¹ Considering the financial investments of BB MAPFRE SH1, MAPFRE BB SH2, Brasilprev (ex. P VGBL) and Brasilcap weighted by BB Seguridade s economic stake in each company. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 24

25 3. B A L A N C E S H E E T A N A L Y S IS Table 12 Balance Sheet Analysis Balance sheet B alance C hg. % R $ tho usand D ec/ 15 Sep/ 16 D ec/ 16 On D ec/ 15 On Sep/ 16 A ssets 9,231,340 8,987,940 9,969, Cash and cash equivalents 59, , ,538 1, Investments 7,203,271 8,743,998 7,974, (8.8) Current tax assets 29,956 48,418 49, Dividends receivable 1,938,325-1,273,950 (34.3) - Other assets 4 3,854 2,885 72,025.0 (25.1) Intangible - - 3, Liabilities 1,650,572 7,254 1,680, ,065.6 Dividends payable 1,634, ,670, Current tax liabilities Other liabilities 15,926 6,900 8,718 (45.3) 26.3 Shareho lders' equity 7,580,768 8,980,686 8,289, (7.7) C A S H A N D C A S H E Q U I V A L E N T S By the end of December 2016, the balance of cash and cash equivalents reached R$665.5 million, mainly composed of repos. I N V E S T M E N T S Table 13 Balance Sheet Analysis Direct investments T o tal o wnership (%) Investment balance A cco unting R $ tho usand A ctivity treatment D ec/ 16 D ec/ 15 Sep/ 16 D ec/ 16 Insurance, P ensio n P lans and P remium B o nds BB Seguros Participações Holding (1) ,141,522 8,298,328 7,912,353 Insurance B ro kerage BB Cor Participações² Holding (1) , ,670 - BB Corretora de Seguros e Adm. de Bens Holding (1) , ,950 61,966 Note: (1) Controlled companies, fully consolidated ²BB Cor Participações was closed down at December 27, Therefore, BB Corretora became a direct controlled Company of BB Seguridade. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 25

26 Table 14 Balance Sheet Analysis BB Seguros Participações investments T o tal o wnership (%) Investment balance A cco unting R $ tho usand A ctivity treatment D ec/ 16 D ec/ 15 Sep/ 16 D ec/ 16 Insurance B B M A P F R E SH 1 P articipaçõ es S.A. H o lding (1) ,020,007 2,828,873 3,165,316 Companhia de Seguros Aliança do Brasil M APFRE Vida S.A. Insurance Insurance M A P F R E B B SH 2 P articipaçõ es S.A. H o lding (1) ,230,688 2,348,905 2,198,335 Aliança do Brasil Seguros S.A. Brasilveículos Companhia de Seguros M APFRE Seguros Gerais S.A. BB M APFRE Assistência S.A. Insurance Insurance Insurance Insurance P ensio n P lans B rasilprev Seguro s e P revidência H ealth B rasildental Operado ra de P lano s Odo nto ló gico s S.A P remium B o nds Insurance/ P ensio n P lans (1) ,794,476 1,903,549 1,777,217 H ealth (1) ,533 6,828 7,778 B rasilcap C apitalização P remium B o nds (1) , , ,447 R einsurance IR B R einsurance (1) , , ,710 Note: (1) Affiliated companies, booked by the equity method BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 26

27 Figure 26 Balance Sheet Analysis Ownership structure at 12/31/2016 BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 27

28 S H A R E H O L D E R S E Q U I T Y Shareholder s equity amounted to R$8.3 billion in December 2016, 9.3% higher YoY. The paid-in capital, which amounts to R$5.6 billion, is divided into 2.0 billion common shares, without par value. The shareholders equity of R$8.3 billion is equivalent to a book value of R$4.14 per share. Table 15 Balance Sheet Analysis Statement of changes in equity Capital Capital Reserve Legal and statutory reserve Treasury stock Retained earnings (losses) Accumulate d other comprehensi ve income Total B alance o n D ecember 31, ,646, ,290,014 (266) - (12,798) 7,923,984 Transactions with stock payments (446) Share buyback program (48,249) - - (48,249) Additional dividends in 2H (1,103,927) (1,103,927) Other comprehensive income (32,526) (32,526) Net income for the period ,207,432-4,207,432 Destination - Capital reserve ,486 - (841,486) Additional dividends proposed in 1H (1,731,440) - (1,731,440) - Additional dividends proposed in 2H (1,634,506) - (1,634,506) B alance o n D ecember 31, ,646, ,027,573 (48,961) - (45,324) 7,580,768 Changes in the Period (262,441) (48,695) - (32,526) (343,216) B alance o n D ecember 31, ,646, ,027,573 (48,961) - (45,324) 7,580,768 Transactions with stock payments (292) Share buyback program (33,953) - - (33,953) Other comprehensive income ,460 32,460 Dividends lapsed Net income for the period ,013,852-4,013,852 Destination - Capital reserve ,790 - (709,790) Additional dividends proposed in 1H (1,635,518) - (1,635,518) - Additional dividends proposed in 2H (1,668,676) - (1,668,676) B alance o n D ecember 31, ,646,768 1,004 2,737,363 (83,206) - (12,864) 8,289,065 C hanges in the P erio d ,790 (34,245) - 32, ,297 BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 28

29 4. U N D E R W R I T I N G A N D A C C U M U L A T I O N L I F E, M O R T G A G E L I F E A N D R U R A L BB Seguridade offers life, mortgage life and rural insurance through its affiliate company BB Mapfre SH1. This company was established by a 20-year term partnership with Mapfre in 2010, and the joint operations began in BB Seguridade holds, through BB Seguros, a 74.99% economic stake in BB Mapfre SH1, composed of 100% of the preferred shares and 49.99% of the common shares. The segments in which BB Mapfre SH1 operates is dominated by the Brazilian banks, what reflects the association of this kind of products with the bancassurance channel. The following topics show a brief description of the main products offered by BB Mapfre SH1: a. Life insurance is a product focused on individuals which assures financial protection to the beneficiaries, chosen by the policyholder, in case of death (natural or accidental), or permanent disability of the insured. If a claim occurs, the insurance company pays the amount agreed in the insurance policy to the beneficiary. Differently from the products sold in other countries, the life insurance sold by BB Mapfre SH1 is a term life insurance without accumulation. If the customer fails to make the monthly payments, the coverage is suspended without any amount being reverted to the policyholder. b. Credit life insurance is a life insurance policy intended to pay off a borrower s loan in case of death of the insured. This type of product is designed to protect both the lender and the insured dependents, preventing them to inherit this liability. This product is already quite widespread in Brazil and it is expected to grow with the expansion of the loan portfolio. The main beneficiary of this type of product is the lender. c. Mortgage life insurance is an insurance policy intended to pay off a mortgage in case of death or disability of the insured. The insurance policy gives the guarantee that his family will keep the property and the bank will receive the full payment of the mortgage debt. A mortgage life insurance also protects against physical damage to the insured property. The premium is calculated on a monthly basis and varies according to the outstanding loan balance and the borrower s age. d. Rural insurance encompasses a group of three main products: (i) the crop insurance, which protects the farmers from weather hazards and falling prices of the crop; (ii) the rural lien insurance, which protects the asset given as collateral for a rural loan; and (iii) the rural producer credit life insurance, which is an insurance designed for farmers intended to pay off the rural loan in case of death of the insured. P R O P E R T Y A N D C A S U A L T Y BB Seguridade offers auto, property and casualties insurance through its affiliate Mapfre BB SH2. This company was established by a 20- year term partnership with Mapfre Brasil signed in 2010, and the joint operations began in In this partnership BB Seguridade holds a 50.00% economic stake in Mapfre BB SH2, being 51.0% of the preferred shares and 49.0% of the common shares. In this segment, the insurance policies for large risks and auto require a more customized assistance and selling process, which result in a higher concentration of sales in independent brokers than in the bancassurance channel. The following paragraphs show a brief description of the main products offered by Mapfre BB SH2: a. Property insurance is a type of insurance sold to individuals or companies that provides protection against risks to properties, linked or not to loans. The main products of this segment are: home insurance (covers the risks related to a private residence), business insurance (covers the risks related to a property that belongs to a company) and insurance for machinery and equipment (protection to a property that belongs either to individuals or companies). b. Auto insurance is an insurance policy designed to provide protection for vehicles, of commercial or particular use, against theft, physical damage and/or bodily injury resulting from traffic collisions, besides other assistances provided to the policy holder. The auto insurance market is dynamic and competitive, what benefit the client to shop around for the best price before closing the deal. Besides that, the renewal of this kind of policies occur on an yearly basis, what makes easier for the competitors to go after the clients and makes it difficult to establish and strengthen a long term relationship with costumers, unlike other segments. c. DPVAT is a mandatory insurance in Brazil that covers personal injury caused by vehicles to passengers, drivers or pedestrians. DPVAT offers coverage for three natures of damage: death, permanent disability, and reimbursement for medical and hospital expenses. DPVAT is funded by vehicles owners through annual payments. Out of the amount collected, 45% is transferred to the Ministry of Health (SUS), to fund the hospital care victims of traffic accidents across the country, and 5% are transferred to the Ministry of Cities, for exclusive use in programs directed to the prevention of traffic accidents. The remaining 50% are directed to the payment of claims. BB Seguridade Participações S.A. Management Discussion & Analysis 4Q16 29