Índice Index
Austral Holding .................................................................. [ 5 ] Pessoas e Valores .................................................................. [ 6 ]
People and Values
Carta do CEO - Austral Resseguradora .................................................................. [ 8 ] Letter from the CEO - Austral Re .................................................................. [ 12 ] Carta do CEO - Austral Seguradora .................................................................. [ 16 ] Letter from the CEO - Austral Seguradora .................................................................. [ 17 ] Austral Re .................................................................. [ 19 ] Base de Capital e Resultados Financeiros Capital Base and Financial Results
Controle de Despesas Control of Expenses
.................................................................. [ 19 ]
.................................................................. [ 20 ]
Estratégia de Subscrição .................................................................. [ 21 ] Underwriting Strategy Gestão de Riscos e Retrocessão .................................................................. [ 22 ] Risks and Retrocession Management
Atendimento ao Cliente .................................................................. [ 23 ] Customer Service Eficiência Operacional Operational Efficiency
.................................................................. [ 23 ]
Acionistas e Governança Corporativa .................................................................. [ 24 ] Shareholders and Corporate Governance Austral Seguradora .................................................................. [ 26 ] 1. Seguro Garantia 1. Surety Insurance
[
.................................................................. [ 27 ]
Tipos de Cobertura .................................................................. [ 28 ]
Types of Coverage
2. Riscos de Engenharia 2. Engineering Risks
.................................................................. [ 29 ]
Tipos de Cobertura [ Types .................................................................. [ 30 ] of Coverage 3. Riscos de Petróleo .................................................................. [ 30 ] 3. Oil & Gas Risks 4. Garantia Mecânica .................................................................. [ 31 ] 4 Mechanical Warranty
Austral Holding Principais Resultados 2014 (Key Figures 2014) BRL milhões
BRL million
Austral Re
Austral Seguradora
Austral Holding*
Prêmio Bruto Emitido
Gross Written Premium
445
222
592
Patrimônio Líquido
Equity
229
60
289
Lucro Líquido
Net Income
18,8
15,9
34,8
Retorno sobre Patrimônio (%)
Return on Equity (%)
11,0%
30,5%
15,6%
*Consolidação pró-forma, excluídos efeitos intracompanhia. *Pro forma consolidation, excluding intracompany effects. Ratings
A.M. Best
Outlook
S&P
Austral Re
B++
Estável (Stable)
brAA-
Positivo (Positive)
brAA-
Positivo (Positive)
Austral Seguradora A Austral Participações S.A. (Austral Holding) é uma empresa de investimentos em seguradoras e resseguradoras, controladora da Austral Seguradora e da Austral Resseguradora.
Outlook
Austral Participações S.A. (Austral Holding) is an insurance and reinsurance investment company, parent company of Austral Seguradora and Austral Resseguradora. Controladores Sócios majoritários da Vinci Partners Controlling Shareholders Vinci Partners majority shareholders
55,55%
19,50%
24,95%
100%
Nossos números, em 2014, indicam que a Austral Seguradora terminou o ano com Prêmios Emitidos de BRL 221 milhões, Patrimônio Líquido de BRL 59,9 milhões, Lucro Líquido de BRL 15,9 milhões e Retorno sobre Patrimônio médio de 30,5%. Já a Austral Resseguradora encerrou 2014 com Prêmios Emitidos Brutos de BRL 445 milhões, Patrimônio Líquido de BRL 229 milhões, Lucro Líquido de BRL 18,8 milhões e Retorno sobre Patrimônio médio de 11%. Os números consolidados (pró-forma) indicam que a Austral Holding encerrou 2014 com Lucro Líquido de BRL 34,7 milhões, Patrimônio Líquido de BRL 289 milhões e Retorno sobre Patrimônio médio de 15,6%. A seguir, os resultados detalhados das duas empresas.
Our figures in 2014 show that Austral Seguradora ended the year with BRL 221 million of Written Premium, Shareholders' Equity of BRL 59.9 million, Net Profit of BRL 15.9 million and average ROE of 30.5%. As regards Austral Resseguradora, it closed 2014 with Gross Written Premium of BRL 445 million, Shareholders' Equity of BRL 229 million, Net Profit of BRL 18.8 million and average ROE of 11%. The consolidated figures (pro forma) show that Austral Holding closed 2014 with Net Profit of BRL 34.7 million, Shareholders' Equity of BRL 289 million and average ROE of 15.6%. We following present in details the results of the two companies.
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Pessoas e Valores People and Values
A estratégia de negócios da Austral Re é assentada em valores como honestidade, meritocracia, respeito, parceria e resultados.
The business strategy of Austral Re is based on values such as honesty, meritocracy, respect, partnership and results.
Nossos Valores:
Our Values:
- Ética: Integridade e honestidade estão no cerne do nosso negócio. Exigimos da nossa equipe o padrão ético mais alto em tudo o que é feito, tanto no campo profissional quanto pessoal. Nossa imagem é nosso cartão de visita.
- Ethics: Integrity and honesty are at the core of our business. We require from our team the highest ethical standard in everything is done, in the professional and personal field. Our image is our business card.
- Meritocracia: Recompensamos e proporcionamos oportunidades para que as pessoas cresçam em velocidade condizente com seus resultados, esforço, dedicação e adesão aos valores, avaliados de forma clara e completa, com metas pré-negociadas, sem nenhum tipo de restrição ou favorecimento.
- Meritocracy: We reward and offer opportunities so that people can grow in accordance with their results, effort, dedication and commitment to the values, evaluated clear and completely, with pre-negotiated goals, without any restriction or favoritism.
- Ambiente de trabalho: Mantemos um ambiente saudável, harmônico, com mensagens claras e bem difundidas. Acreditamos no trabalho em equipe. Temos prazer em trabalhar na empresa. - Gente: Acreditamos que a diferença são as pessoas. Selecionamos nossa equipe criteriosamente, um por um. Recrutamos os melhores para sermos os melhores. Nosso pessoal é curioso, inovador, comprometido e saudavelmente insatisfeito. Delegamos porque confiamos. Confiamos porque temos as melhores pessoas alinhadas e motivadas. Somos motivados pelos desafios. - Foco em resultado: Somos obstinados por resultado. Não nos acomodamos, buscamos sempre mais. Não justificamos metas, batemos. - Cliente: Acreditamos em relacionamentos de longo prazo baseados na confiança. Nosso diferencial é a prestação de serviço, por sermos ágeis, inovadores e estarmos sempre disponíveis. - Nosso jeito: Cada um de nós é dono da empresa. Valorizamos a troca de ideias de maneira objetiva e sem distinção entre níveis organizacionais. Tomamos decisões rápidas, correndo riscos com responsabilidade. Aceitamos os erros que resultam em aprendizado e corrigimos as causas.
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- Working environment: We maintain a healthy and harmonious environment, with clear and well disseminated messages. We believe on the teamwork. We are pleased to work in the company. - People: We believe that people make the difference. We choose our team carefully, one by one. We recruit the best to be the best. Our staff is curious, innovative, committed and healthly dissatisfied. We delegate because we trust. We trust because we have the best aligned and motivated people. We are motivated by the challenges. - Focus on result: We are dogged by result. We are not resting, we seek always more. We do not justify targets, we beat them. - Client: We believe in long-term relationships based on trust. Our differential is the service provision because we are agile, innovative, and always available. - Our way: Each of us is the company owner. We value the exchange of ideas objectively and without distinction amongst organizational levels. We make quick decisions, taking risks with responsibility. We accept the errors that result in learning and correct the causes.
Carta do CEO - Austral Resseguradora Prezados acionistas, clientes e parceiros, Ao completarmos quatro anos de operação, achamos que chegou o momento de elaborar o nosso primeiro relatório anual. A Austral Re está se consolidando como um player relevante no competitivo mercado de seguros e resseguros brasileiro e, em 2014, pela primeira vez, obteve lucro antes do resultado financeiro (underwriting profit). Nosso índice combinado ficou em 97,3%, contra 102%, em 2013, e vem mantendo evolução constante nos nossos quatro anos. Esse avanço reflete basicamente o ganho de escala com o crescimento do prêmio ganho, aliado a um rígido controle de despesas. Nosso percentual de despesas administrativas sobre o prêmio ganho retido líquido saiu de 125%, em 2011, para 19%, em 2012, 11%, em 2013, e 7%, em 2014. Isso explica muito a tendência do índice combinado, que saiu de 247%, em 2011, para 108%, em 2012, 104%, em 2013, e 97,3%, em 2014. Vale ressaltar que, apesar de o índice combinado ter sido superior a 100%, de 2011 a 2013, a Austral Re obteve lucro em todos os anos de operação, já que as receitas financeiras superaram as perdas em underwriting. Resultado positivo em operações startup no mercado de seguros e resseguros é um fato bem raro e só foi possível graças a uma estratégia de estrutura enxuta, foco em operações de atacado (principalmente contratos automáticos), diversificação em linhas de negócio, boa subscrição e boa gestão dos ativos financeiros. Nosso prêmio emitido bruto cresceu 36%, em 2014, para R$ 445 milhões, contra R$ 327 milhões, em 2013; e o prêmio retido avançou 40% para R$ 200 milhões, contra R$ 142 milhões, no ano anterior. O crescimento da receita, em 2014, se deveu principalmente ao avanço na área de pessoas (ramos de Vida e Acidentes Pessoais), que representava menos de 5% do prêmio retido até 2013 e passou a representar mais de 30% dele, em 2014. Desde o início das operações, buscamos uma boa diversificação entre as diferentes linhas de negócio, para reduzir a volatilidade dos resultados, e fomos bem-sucedidos nesse objetivo. Procuramos não concentrar mais de 30% do prêmio retido em nenhuma linha específica e a primeira vez que isso aconteceu foi justamente em 2014, com o crescimento da emissão em ramos de Vida e Acidentes Pessoais, mas, como essa linha é menos volátil entre as em que atuamos, consideramos este um fato positivo. Continuamos fortes nas demais áreas de negócio, com destaque para o resseguro agrícola, patrimonial (property) e automóveis – apesar de reduzirmos a carteira de automóveis devido às margens desenvolvidas estarem inferiores aos nossos retornos mínimos. Em 2014, 8% de nossa carteira retida se referiam a riscos internacionais e estavam baseados principalmente em retrocessão de contratos de property numa esfera global. Tivemos excelentes resultados nessa carteira nos últimos dois anos, principalmente pelas poucas catástrofes naturais ocorridas nesse período, num índice bem inferior à média dos últimos 20 anos Nossa sinistralidade retida também caiu, em 2014, para 48%, contra 62%, em 2013. Parte dessa evolução se deu pela melhoria no underwriting e por termos saído de alguns negócios que não vinham apresentando o resultado esperado. Parte também reflete a nossa composição de carteira entre as diferentes linhas de negócio. Esses resultados foram possíveis não obstante termos mantido uma política bem conservadora nas nossas reservas, inclusive com aumentos significativos nas reservas para Sinistros Ocorridos mas Não Reportados (IBNR) dos ramos de responsabilidade civil para automóveis, após abrangentes estudos atuariais feitos ao longo do ano. Conforme já apresentado, temos adotado uma estratégia de redução de nossa exposição nessas carteiras. O resultado financeiro em 2014 também contribuiu bastante para a melhora da nossa performance. A carteira de investimentos locais foi rentabilizada em 103% do CDI no ano, após um resultado bem inferior, em 2013 (68% do CDI). Ao avaliar o desempenho da carteira, de 2011 a 2014, sua rentabilidade foi de 108% do CDI no período. Ainda tivemos o aumento dos juros no Brasil ao longo do ano (a taxa Selic média, em 2014, foi de 10,96%, contra 8,29%, em 2013) e a valorização do dólar frente ao real, que trouxe ganhos nos ativos em moeda estrangeira usados como
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hedge para os riscos que assumimos internacionalmente. A empresa está naturalmente aumentando seu float ao longo do tempo, conforme demonstrado a seguir. Em termos de Investimentos e Caixa, no final de 2011, o montante foi de R$ 107 milhões; em 2012, de R$154 milhões; em 2013, de R$187 milhões; e, em 2014, de R$ 289 milhões. Isso tudo impulsionou o aumento do resultado financeiro, de R$ 10,7 milhões, em 2013, para R$ 25,3 milhões, em 2014. Em 2014, também recebemos uma elevação (upgrade) na nossa classificação de risco (rating) local da S&P, que saiu de brA+ para brAA-. Antes de escrever esta carta, em janeiro de 2015, a S&P já havia publicado um novo relatório, colocando o nosso rating de brAA- em perspectiva positiva (positive outlook). Também neste ano recebemos pela primeira vez um rating internacional, da A.M. Best: B++, um degrau (notch) abaixo do A-. É um excelente rating para uma startup (para a A.M. Best, empresas com menos de cinco anos de idade ainda são consideradas startups) e num país com grau de risco mais elevado (para a A.M. Best, o Brasil está num grau 3 de risco, numa escala de 5). Mas temos convicção de que nossos resultados operacionais, governança corporativa e gerenciamento de riscos compensarão os pontos abordados acima nos próximos anos e permitirão o avanço do nosso rating. Em 2014, ainda tivemos a satisfação de receber a entrada de um novo acionista na Austral. A IFC (International Finance Corporation), braço de investimentos do Banco Mundial, adquiriu 19,5% do capital da Austral Holding, por cerca de R$ 80 milhões. Todo esse valor foi aportado como aumento de capital da Austral Re, que fechou 2014 com R$ 229 milhões de patrimônio líquido. Acreditamos que a IFC poderá fortalecer muito a Austral Re, tendo em vista quatro fatores principais: a reputação internacional da IFC (rating Aaa da Moody´s) chancela a marca da Austral; o novo acionista traz um elemento adicional de expertise e experiência ao negócio, já que a IFC tem participações em diversas empresas de seguro e resseguro pelo mundo; abre novos canais de relacionamento através da ampla rede de relacionamentos da IFC e do Banco Mundial no Brasil e no mundo, não só no universo financeiro, mas em vários setores da economia, como o agrícola e o de infraestrutura; e, obviamente, o capital adicional aportado na Austral Re também reforça nossa solidez patrimonial (security) e viabiliza um crescimento sustentável. Nosso retorno sobre o capital médio, em 2014, foi de 11%, contra 3,5%, em 2013. Esse nível de retorno ainda está abaixo do que esperamos a médio prazo, mas consideramos excelente para uma operação ainda em maturação, com apenas quatro anos de existência, num cenário altamente competitivo e num mercado de capital intensivo. Considerando que a Selic média em 2014 foi de 10,96% e que em um investimento financeiro há, geralmente, uma alíquota de 15% de imposto de renda, o retorno de 11% líquidos de impostos já é bem superior ao de um investimento em renda fixa, mesmo com os altos juros brasileiros. Devido ao risco inerente à nossa atividade, obviamente queremos evoluir para um retorno ainda maior e esperamos melhorá-lo nos próximos anos. Conforme já comentado, temos obtido crescimento no float da operação, o que nos permitirá, sem tomar maiores riscos financeiros, alcançar um aumento significativo da receita financeira em 2015. Se conseguirmos manter ou melhorar o índice combinado neste ano, naturalmente já teremos um ROE mais alto em 2015 do que em 2014. Cenário macroeconômico Quando começamos a estruturar a startup da Austral, em 2009/2010, o cenário econômico brasileiro era bem diferente do atual. O crescimento do PIB em 2010 foi de 7,5% enquanto a média dos 10 anos anteriores era de 3% ao ano. As perspectivas eram excelentes para o crescimento da economia, com o aumento da classe média, a necessidade de investimentos em infraestrutura, a expansão do crédito e a estabilidade econômica, mesmo em meio a uma crise internacional. Diversos fatores faziam todos acreditarem que o Brasil era um dos melhores lugares do mundo para investir naquele momento. Desde então, o cenário mudou bastante. De 2011 para 2014, a economia cresceu num patamar muito menor (em 2014, basicamente não cresceu) e as perspectivas para 2015 e 2016 também são de crescimento baixo ou mesmo de recessão. A inflação, hoje por volta de 7,5% ao ano, já estourou o topo da meta, o que nos traz o desconfortável cenário de baixo crescimento com alta inflação que já pareciam ser passado para a economia brasileira. Diversos projetos de infraestrutura não saíram do papel e boa parte das apostas dos investidores ficou represada. Ainda assim, a boa notícia é que o mercado segurador e ressegurador continuou crescendo em dois dígitos, nos três últimos anos, pois basicamente permaneceu aumentando sua penetração na economia. Esperamos que o mercado continue
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crescendo num bom patamar em 2015 e 2016, mesmo que abaixo da média dos anos anteriores. Para a Austral Re, ainda que o atual cenário macroeconômico traga preocupações e incertezas, vemos alguns pontos que fortalecem o resultado da operação em curto e médio prazos. Como o resultado financeiro é um importante pilar para a operação das seguradoras e resseguradoras, ele acaba positivamente influenciado pela elevação das taxas de juros (que ainda se somam ao aumento do float, já explicado anteriormente). A elevação da cotação do dólar frente ao real também traz ganhos cambiais, pois temos alguns ativos em dólar derivados de nossas atividades internacionais. Cenário do mercado de resseguros Mercado internacional Os resseguradores internacionais bateram recorde de lucratividade em 2014 (depois de outro excelente ano em 2013), principalmente, devido às poucas catástrofes naturais relevantes ocorridas nesses anos. Como já explicado, a Austral Re também se beneficiou um pouco desses resultados através de nossas retrocessões aceitas do mercado internacional. Por outro lado, o mercado de resseguros vive um de seus momentos mais brandos, com taxas caindo muito rapidamente devido ao excesso de capital no mercado, agravado pelo influxo de capital proveniente dos mercados financeiros (as ILS). Não acreditamos que esse cenário mudará a curto prazo e, logo, esperamos um 2015 difícil para o mercado ressegurador internacional, principalmente se as catástrofes naturais se apresentarem de forma mais contundente que nos anos anteriores. Mercado brasileiro O mercado brasileiro de resseguros também vive um momento de altíssima competição. Em 2010, quando estruturávamos a startup da Austral Re, havia cinco Resseguradores Locais. Agora, no início de 2015, já são 16. Com a perspectiva de crescimento do mercado de seguros e resseguros no Brasil, aliada à estagnação do crescimento em mercados mais maduros, como o norte-americano, o europeu e o japonês, muitos grupos resseguradores decidiram investir nos países emergentes, destacando-se entre eles o Brasil, com seu mercado de resseguros aberto recentemente (o Brasil viveu um monopólio estatal no mercado de resseguros por quase 70 anos, até 2008). Esse cenário competitivo foi altamente desafiador para todos os resseguradores no país e fez com que poucos locais conseguissem apresentar bons resultados em 2013 e 2014. O mesmo cenário de margens baixas (ou até prejuízos significativos) se deu para várias seguradoras de P&C, principalmente as mais focadas em grandes riscos. Ainda assim, há uma perspectiva positiva para as empresas que souberem se diferenciar nesse mercado, atuando em nichos de especialização ou com uma estratégia bem focada em ganhos de escala, eficiência operacional e de custos, boa subscrição e foco em inovação. Perspectivas para 2015 Acreditamos que, nos últimos quatro anos, construímos bons alicerces e deixamos a companhia preparada para alcançar resultados ainda melhores a partir de 2015. Essa confiança se baseia nos seguintes vetores: - Temos uma equipe fantástica, técnica, experiente e reconhecida no mercado, mas, acima de tudo, com interesses alinhados aos dos nossos acionistas a longo prazo. A estrutura de remuneração dos nossos executivos é muito mais focada no variável que no salário fixo, variável esse cujo pagamento é diferido em três anos para acompanhamento do desenvolvimento da sinistralidade dos contratos. Os principais executivos têm ainda o principal incentivo baseado num programa de stock option. Nossa equipe se sente dona do negócio e é 100% focada no resultado (bottom line) das operações. - Construímos nesses anos parcerias sólidas e baseadas na confiança e na ética com diversos parceiros, tanto seguradores quanto brokers e retrocessionários. Cremos que conquistamos uma reputação de companhia séria, parceira, ágil, inovadora, sempre disposta a procurar soluções para nossos clientes e pensar fora da caixa.
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- Nossa marca é mais forte agora que no início de nossa operação, temos sócios fortes e altamente capitalizados, com reputação local e internacional, e um histórico vencedor. Temos a chancela das agências de rating e do nosso novo acionista, a IFC, além da confiança dos nossos clientes e parceiros. - Conforme já explicado, conseguimos escala operacional e de custo, temos uma carteira sólida, diversificada, processos bem estruturados, sistemas de TI integrados, modelos de subscrição sofisticados, equipe técnica e motivada, estamos altamente capitalizados para continuar crescendo e continuamos focados em nosso plano de negócios. - Nosso float é crescente, administramos nossos ativos com eficiência e responsabilidade, contando com o apoio da Vinci Partners, e acreditamos que nosso resultado financeiro ainda tem muito a evoluir. - E, principalmente, nunca nos esquecemos de que estamos aqui para atender a nossos clientes e que esse é o nosso maior objetivo. Com tudo isso, gostaríamos de agradecer a confiança de todos os nossos parceiros e de reafirmar nosso compromisso com a sociedade e nossos clientes. Não obstante o cenário desafiador que temos pela frente em 2015, estamos entusiasmados para fazer deste um ano ainda melhor que o de 2014.
Bruno Freire CEO - Austral Resseguradora
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Letter from the CEO - Austral Re Dear shareholders, clients and partners, After completing four years of operation, we believe the time has come to draft our first annual report. Austral Re is consolidating as an important player within the competitive Brazilian insurance and reinsurance market and, in 2014, for the first time, it registered underwriting profit before the financial result. Our combined ratio stood at 97.3%, compared with 102% in 2013, and it has been keeping steady development in our four years. Such development primarily reflects the economies of scale with the earned premium increase, associated with a hard control of costs. The relation between our administrative expenses and net earned premium decreased from 125%, in 2011, to 19%, in 2012, 11%, in 2013, and 7%, in 2014. This explains much the combined ratio bias, which decreased from 247%, in 2011, to 108%, in 2012, 104%, in 2013, and 97.3%, in 2014. It is noteworthy highlighting that, despite the combined ratio has stood at over 100% from 2011 to 2013, Austral Re registered profit in every year of operation, since the revenue exceeded the underwriting losses. The income in startup operations in the insurance and reinsurance market is a very rare thing and was only made possible due to a lean structure strategy, focus on wholesale operations (mainly automatic treaties), risk spread among lines of business, good underwriting and good financial assets management. Our gross written premium increased 36% in 2014, amounting to R$ 445 million in comparison with R$ 327 million in 2013; and the net premium increased 40%, amounting to R$ 200 million, against R$ 142 million in the previous year. The revenue increase in 2014 was mainly due to the progress in the personal segment (Life and Personal Accidents branches), that represented less than 5% of the net premium up to 2013 and representing in 2014 more than 30% of it. From the beginning of operations, we sought a good risk spread among the distinct lines of business, in order to reduce the income volatility, and we have succeeded in such purpose. Our target was not to have more than 30% of the net premium in any particular line and the first time it happened was exactly in 2014, with the increased issuance in Life and Personal Accidents branches, however as this line is less volatile amongst those we operate, it is a positive fact. We remain strong in other business areas, especially in the agricultural, property and motor reinsurance – despite we have reduced the motor portfolio because the developed margins are lower than our minimum returns. In 2014, 8% of our net portfolio was composed of international risks and mainly were based on retrocession of property treaties globally. We achieved excellent results in this portfolio in the last two years, especially due to few natural disasters occurred in this period, in an index far below the average of the past 20 years. Our net loss ratio also decreased in 2014, to 48% against 62% in 2013. Part of this development was due to improvement in underwriting and because we have withdrawn from some businesses that were not presenting the expected result. Part also reflects our portfolio composition among the different lines of business. Such results were possible notwithstanding we have maintained a very conservative policy in our reserves, including with significant increases in reserves for Incurred But Not Reported (IBNR) losses of the motor liability branches, after comprehensive actuarial studies performed throughout the year. As already mentioned, we are adopting a strategy for reducing our exposure in these portfolios. The income in 2014 also contributed significantly to improve our performance. The profitability of the local investments portfolio was 103% of the Interbank Deposit Certificate (IDC) in the year, after a far lower result in 2013 (68% of the IDC). After analyzing the portfolio performance from 2011 to 2014, its profitability was 108% of the IDC in the period. We also faced the increase in interest rates in Brazil over the year (the average Selic interest rate in 2014 was 10.96% compared to 8.29%, in 2013) and the dollar appreciation against real, which resulted in gains in foreign currency assets used to hedge the risks we accept internationally. The company is naturally increasing its float over time, as follows. Float at the end of 2011: R$ 5 million. In 2012: R$ 23 million. In 2013: R$ 51 million. In 2014: R$ 60 million. This all boasted the income increase from R$ 10.7 million, in 2013, to R$ 25.3 million, in 2014. In 2014, we also got an upgrade in our local rating by S&P, from brA+ to brAA-. Before writing this letter in January 2015, S&P had already published a new report assigning our brAA- rating on positive outlook. Also this year we got for the first time an international rating, by A.M. Best: B++, a notch below A-. It is an excellent rating for a startup (according to A.M. Best, companies with less than five years are still considered as startup) and considering a country with higher risk level (according to A.M. Best, Brazil is risk level 3, on a scale of 5). But we are convinced that our operating result, corporate governance and risk management will balance the issues addressed above in the coming years and allow our rating improvement.
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In 2014, we also were pleased to count on a new shareholder in Austral. The International Finance Corporation (IFC), the World Bank investments arm, purchased 19.5% of Austral Holding capital for around R$ 80 million. All this sum was invested as capital increase of Austral Re, that closed 2014 with shareholders' equity amounting to R$ 229 million. We believe that IFC could strengthen Austral Re significantly, taking into account four major factors: the IFC international reputation (Aaa rating assigned by Moody's) approves the Austral brand; the new shareholder adds another component of expertise and knowhow to the business, since IFC ownership interest in several insurance and reinsurance companies worldwide; opens new communication channels through IFC and World Bank wide relationship network in Brazil and around the world, not only in the financial market, but in many segments of the economy, such as the agriculture and infrastructure; and of course, the additional capital invested in Austral Re also strengthens our solvency and enables a sustainable growth. Our return on the average equity in 2014 was 11% compared to 3.5% in 2013. This return level is still below that we expect in middle term, however we think it is excellent taking into account an operation that is still maturing, with only four years of existence, considering a highly competitive environment and a capital-intensive market. Whereas the average Selic interest rate in 2014 was 10.96% and that on a financial investment is usually applied a 15% rate of income tax, the 11% return deducted taxes is already much higher than that of a fixed income investment, even taking into account the high Brazilian interest rates. Due to the risk relative to our activity, obviously we want to evolve into an even higher return hoping to improve it in the coming years. As already mentioned, we have registered growth in the operation float, which will allow us, without taking higher financial risk, to achieve an expressive increase in financial income in 2015. If we could maintain or improve the combined ratio this year, of course we will have a higher ROE in 2015 than in 2014. Macroeconomic scenery When we began to structure the Austral startup in 2009/2010, the Brazilian economic scenery was very different than today. The GDP growth in 2010 was 7.5% while 10 previous years was 3% per year. Brazil was in the spotlight. The expectations were excellent for the economy growth, with the middle class increase, the need for infrastructure investments, credit expansion, economic stability, even in the midst of an international crisis. Several factors made everyone believe that Brazil was one of the best places around the world to invest that time. Since then, the scenery has changed a lot. From 2011 to 2014 the economy grew at a much lower level (in 2014 it basically did not grow) and the expectations for 2015 and 2016 are also low growth or even recession. The inflation, that today is about 7.5% per year, already surpassed the top of the target, resulting in the uncomfortable low growth scenery of high inflation that we imagined the Brazilian economy has already overcome. Several infrastructure projects were not developed and great part of the investors bets was restrained. Even so, the good news is that the insurance and reinsurance market continued registering a double digits growth in the last three years, since in essence it continued increasing its penetration in the economy. We expect that the market keeps growing at a good level in 2015 and 2016, even below the previous years' average. Regarding Austral Re, although the current macroeconomic scenario brings concerns and uncertainties, we see some points that strengthen the operation result in short and middle term. As the financial result is an important pillar for the insurers and reinsurers operations, it is positively influenced by the interest rates increase (which also add to the float increase, already herein explained). The dollar increase compared to the real also results in foreign exchange gains, so we have some dollar assets derived from our international activities. Reinsurance market background International market The international reinsurers achieved excellent profitability in 2014 (after another excellent year in 2013) mainly due to few relevant natural disasters that occurred these years. As already herein explained, Austral Re has also benefited somewhat from these results through our retrocessions from the international market. On the other hand, the reinsurance market faces one of the soft moments, with interest rates dropping down very quickly due to the excess of capital within the market, exacerbated by capital inflow arising from financial markets (the quick ratio). We do not believe that this situation will change in short term and therefore we expect a hard 2015 to the international reinsurance market, especially considering the occurrence of natural disasters in an incisive way than in previous years. Brazilian market The Brazilian reinsurance market also faces a high competition moment. In 2010, when we prepared the Austral Re startup, there were five Local Reinsurers. Today, in early 2015, this number is already 16. With the Brazilian insurance and reinsurance market growth expectation, associated with the stagnant growth in more mature markets, such as the US, European and Japanese, many reinsurance groups decided to invest in emerging countries, highlighting among them Brazil, with its reinsurance market recently opened (Brazil experienced a state monopoly in the reinsurance
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market for almost 70 years, until 2008). This competitive scenery was extremely challenging for all reinsurers within the country and due to this situation few local reinsurers could deliver good results in 2013 and 2014. The same scenery of low margins (or even significant losses) was faced by several P&C insurers, especially those most focused on large risks. Even so, there is a positive outlook for companies that were able to distinguish within this market, operating in specialized niches or with a strategy well focused on economies of scale, operating and cost efficiency, good underwriting and focus on innovation. Outlooks for 2015 We believe that in the last four years we have built a good background and made the company ready to achieve even better results from 2015. This confidence is based on the following vectors: - We count on a fantastic, technical, experienced team that is recognized in the market, but above all with interests aligned with those of our shareholders in the long term. The compensation structure of our executives is much more focused on variable wage than on fixed wage, whose payment is deferred over three years to monitor the development of the treaties loss ratio. The senior executives still count on the major incentive based on a stock-option program. Our team feels as owner of the business and is 100% focused on the operations' bottom line. - We built over these years sound and based on trust and ethics partnerships with several partners, as much insurers as brokers and retrocessionaires. We believe we achieved a reputation of serious, partner, agile, innovative company, and always willing to seek solutions to our clients and think out of the box. - Our brand is stronger now than at the beginning of our operation, we count on strong and highly capitalized partners, with local and international reputation, and a winning history. We have the approval by the rating agencies and our new shareholder, IFC, in addition to confidence of our clients and partners. - As already explained, we achieved operating and cost scale, we have a sound and diversified portfolio, wellstructured processes, integrated IT systems, sophisticated underwriting models, technical and motivated team, we are highly capitalized to continue growing and remain focused on our business plans. - Our float is increasing, we manage our assets in an efficient and responsible way, counting on Vinci Partners support, and we believe that our financial result still have so much to improve. - And above all, we never forget that we are here to satisfy our clients and this is our major objective. With all this, we would like to thank for the confidence of all our partners and to reaffirm our commitment to society and our clients. Despite the challenging environment we will face during 2015, we are enthusiastic to make this year an even better year than 2014.
Bruno Freire CEO - Austral Re
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Carta do CEO - Austral Seguradora Prezados acionistas, clientes e parceiros, A Austral Seguradora foi criada a partir de um modelo de negócios para uma companhia de seguros especializada em nichos de mercado, com diferenciais na qualificação técnica, na prestação de serviços e na gestão de pessoas. Em 2014, a empresa completou quatro anos de operação, superando as melhores expectativas do seu plano de negócios. Com base em um cenário no qual investimentos em infraestrutura são fundamentais para o desenvolvimento social e econômico do Brasil, criamos linhas de produto de acordo com o momento do país. Somadas a isso, a expertise e a ampla rede de relacionamento da equipe montada tornaram possível posicionar a Austral Seguradora como uma das principais companhias nos segmentos onde atua. Hoje, a empresa ocupa lugar de destaque no ranking dos segmentos de Seguros Especializados. Após os primeiros anos de atividade, conseguimos construir uma marca e posicioná-la no mercado, obtendo o reconhecimento de corretores, clientes, resseguradores, agências de rating e acionistas. Dessa maneira, estruturamos o caminho para novos produtos e novas soluções de seguros para os clientes. Desde o início de suas operações, a Austral Seguradora participou efetivamente dos principais projetos e investimentos no país, o que se refletiu no crescimento médio (CAGR) de 42%, desde 2011. No ramo Seguro Garantia, crescemos 32% em relação a 2013. No ramo Riscos de Engenharia, tivemos um crescimento de 66%, em relação ao ano anterior. Também nos consolidamos como player relevante no segmento Riscos de Petróleo, entre as três maiores seguradoras do mercado, com crescimento de 34% comparativamente ao ano anterior. No mesmo período, o mercado de garantia cresceu apenas 19%, e tanto o mercado de Riscos de Engenharia quanto o de Riscos de Petróleo encolheram 10% e 16%, respectivamente. Sendo assim, em 2014, a Austral Seguradora atingiu o volume de BRL 221,9 milhões em prêmios emitidos, com ativos totais da ordem de BRL 467 milhões, obtendo lucro líquido de BRL 15,9 milhões, com um ROE de 26,5%, sobre Patrimônio Líquido de BRL 59,9 milhões – resultado que muito nos orgulha. Visão de Mercado - Seguro Garantia - O mercado de Seguro Garantia passou por grandes mudanças nos últimos anos, especialmente com a entrada de novos competidores, o que acirrou a concorrência e aumentou a pressão sobre as taxas. Por outro lado, esse mercado teve grandes avanços em termos de regulação, particularmente no que se refere à inclusão do Seguro Garantia como modalidade prevista na Lei de Execuções Fiscais. A iniciativa permitiu a ampliação do potencial de clientes a um universo muito mais amplo, antes restrito ao de empresas construtoras. - Riscos de Engenharia - Esse mercado viveu seu principal momento no boom das incorporadoras imobiliárias e, mais recentemente, com os grandes projetos de infraestrutura. Com o cenário macroeconômico um pouco mais conturbado, o mercado deverá apresentar-se mais seletivo em termos de novos projetos, mas com potencial de crescimento nos próximos anos, tendo em vista a grande demanda de infraestrutura no país. - Riscos de Petróleo - Embora atualmente muito concentrado no cliente Petrobras, o mercado de Riscos de Petróleo apresentou, nos últimos anos, novas e importantes demandas relacionadas a players privados e negócios relativos às rodadas realizadas pela Agência Nacional do Petróleo (ANP) em novos sítios exploratórios, como o Pré-Sal. Em termos gerais, a demanda por seguros e especialização vem crescendo e apresenta boas perspectivas para os próximos anos. Novas oportunidades e novos canais A Austral Seguradora vem buscando, por meio de parcerias estratégicas com corretores, congêneres e resseguradoras nacionais e internacionais, oportunidades nos ramos em que atua ou em novas linhas de negócio. O objetivo é expandir seu portfólio de produtos e o volume de prêmios retidos. O foco estratégico da seguradora é a criação de novos canais de negócios, de modo a ampliar sua abrangência no territorial. Algumas iniciativas já estão em andamento nesse sentido. Por fim, gostaríamos de agradecer a confiança e o apoio de todos os nossos parceiros e acionistas, que foram fundamentais para que pudéssemos obter o sucesso apresentado neste relatório. Aos nossos funcionários e equipe, agradecemos o empenho e a dedicação diária, essenciais para que pudéssemos conquistar nossas metas e objetivos.
Carlos Frederico Ferreira CEO - Austral Seguradora
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Letter from the CEO - Austral Seguradora Dear shareholders, clients and partners, Austral Seguradora was created from a business model to an insurance company specialized in market niches, with differentials in technical qualification, service provision and people management. In 2014, Austral completed 4 years of operation overcoming the best expectations initially projected in our business plan. Based on an early scenario where investments in infrastructure are fundamental for the social and economic development of Brazil, we created product lines that could be associated with this moment of the country. Coupled to this context, the expertise of our staff and the business relationships already existent on the team made possible to position Austral Seguradora as one of the leading companies in the segments it operates. Today the company has a distinguished positioning in the ranking of Specialized Insurance segments. After this initial period, we were able to build a brand and introduce it within the market with recognition by brokers, clients, reinsurers, rating agencies and shareholders, thus consolidating the way for new insurance products and solutions intended for our clients. Austral Seguradora took part effectively in the major projects and investments in the country since it began to operate, in 2011, reflecting a 42% average growth (CAGR). In the Guarantee Insurance with respect to 2013 we grew 32%, and in the Engineering Risks our growth was 66% in comparison with the previous year. We also consolidated as relevant player in the Oil & Gas Risks segment amongst the three major Insurers of the market, with a 34% growth compared to the previous year. Meanwhile the guarantee market grew only 19% and as much the Engineering Risks markets as the Oil & Gas Risks market decreased 10% and 16%, respectively. Austral Seguradora reached in 2014 the amount of BRL 221.9 million in written premiums, with total assets of BRL 467 million, registering a net profit of BRL 15.9 million and ROE of 26.5%, on a shareholders' equity of BRL 59.9 million. Market Vision - Guarantee Insurance - This market showed great changes in the last years, especially due to arrival of new competitors, which stimulated the competition and increased the pressure on the rates. On the other hand, the market presented great progresses concerning regulation, particularly in respect of the inclusion of Guarantee Insurance as modality provided for in the Tax Executions Act, allowing the clients potential increase to a much wider universe, that before was restricted to the building companies universe. - Risks - Market whose its major point was the boom of the real estate developers and more recently with the great infrastructure projects. With the macroeconomic scenario somewhat more troubled, the market should be more selective for new projects, however with growth potential in the coming years taking into account the great infrastructure demand in the country. - Oil & Gas Risks - Market currently very focused on Petrobras, but that in the recent years presented new and important demands associated with private players and business related to rounds held by the National Agency for Petroleum, Natural Gas and Biofuels (ANP) in new exploratory places, such as Pre-Salt. The demand for Insurance and specialization has been growing and the outlooks are good for the coming years. New opportunities and channels Austral has been seeking, through strategic partnerships with Brokers, Congeners and national and international Reinsurers, opportunities in the branches it operates or in new lines of business, with the purpose to expand its products portfolio and net premium volume. The creation of new business channels is the Insurer strategic focus, so that to expand its territorial scope. Some initiatives are already being made. We would like to thank for the confidence and support of all our partners and shareholders that were fundamental so that we could succeed as presented in such report. To our employees and staff we thank for the daily commitment and dedication that was essential to achieve our aims and objectives.
Carlos Frederico Ferreira CEO - Austral Seguradora
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Austral Re A Austral Re completou quatro anos de atividade, fechando 2014 com lucro de BRL 18,8 milhões e mantendo a sucessiva trajetória de lucratividade desde que foi fundada. Os indicadores da Austral Re têm melhorado sistematicamente. A empresa encerrou o ano com o expressivo índice combinado de 97,3%.
Austral Re completed four years of activity, closing 2014 accounting profit of BRL 18.8 million and keeping the successive profitability trajectory since it was constituted. The Austral Re indexes have been improving systematically. The company ended the year with the significant combined ratio of 97.3%.
Ativos Asset (BRL milhões / million) Lucro Líquido Net Income (BRL milhões / million)
18,8 6,2
299 176
4,7
3,5
2011
710
506
2012
2013
2014
2011
2012
2014
Índice Combinado Combined Ratio
247,7%
ROE Over Average Equity
2013
107,6%
103,9%
97,3%
11,0% 5,4% 3,5%
3,5%
2011
2012
2013
2014
2011
2012
2013
2014
Base de Capital e Resultados Financeiros Capital Base and Financial Results A Austral Re iniciou suas operações em 2011 com disponibilidade de capital bastante acima do requerido, já em linha com seu planejamento de expansão em longo prazo. Esse ativo passou a gerar ganhos financeiros, por meio da administração de recursos da Vinci Partners e da política de investimentos da companhia. Tendo como meta a preservação do capital da empresa, a administração da carteira da Austral Re visa à rentabilidade em longo prazo. Para isso, a empresa utiliza a boa prática da diversificação, levando em conta o risco de mercado, o risco de liquidez e o risco de crédito. Graças a essa estratégia, a Austral Re obteve ganhos superiores ao CDI nos seus primeiros quatro anos de operação. O resultado reflete a capacidade de gestão de um
Austral Re began its operations in 2011 with available capital quite above the required, already in accordance with its long-term growth planning. This asset became to generate financial gains, through the management of Vinci Partners funds and the investment policy of the company. Being its goal the preservation of the company capital, the Austral portfolio management aims long-term profitability. To this end, the company uses the best practice of spread, taking into account the market risk, liquidity risk and credit risk. Thanks to this strategy, Austral Re achieved gains above the IDC in its first four years of operation. The result reflects the management capacity of one of the most specific aspects of the reinsurance business model: the cash flow. Austral Re receives payments in the policy attachment and can invest
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dos aspectos mais específicos do modelo de negócio de resseguros: o fluxo de caixa. A Austral Re recebe pagamentos no início da apólice e pode investir o dinheiro enquanto não ocorrem os sinistros. Assim, a disponibilidade de investimentos da empresa é significativamente superior ao seu patrimônio líquido.
the money whilst the losses do not occur. Thus, the investments availability of the company is significantly higher than its shareholders' equity. All the financial operations of the company are guaranteed by the Investment Committee, composed of the Chief Financial Officer and a member from the Board of Directors.
Todas as operações financeiras da empresa são avalizadas pelo Comitê de Investimentos, composto pelo Diretor Financeiro e um membro do Conselho de Administração.
Controle de Despesas Control of Expenses
Por ser uma empresa em início de operações, as receitas da Austral Re ficam retidas nas provisões, conforme a natureza das operações de seguros e resseguros. Por isso, o controle de despesas é e sempre foi fundamental para a empresa. Nesse aspecto, a política de remuneração e alinhamento de incentivos da Austral Re, em especial a meritocracia, além de inovadora, mostrou-se absolutamente adequada ao seu ambiente de negócios e seus valores. Na Austral Re, o ambiente de trabalho é aberto e integrado, nenhum dos diretores tem sala e a comunicação acontece de forma livre e direta. Em termos de modelo organizacional, a empresa adota uma estrutura horizontal, respeitando os níveis de alçada. A Austral Re acredita que seus executivos estão em busca de mandato e de desafios, com a possibilidade de uma boa exposição e avaliação pela performance. A Austral Re diferencia-se na indústria pela forma de pagamento do bônus aos funcionários. A gratificação por desempenho é dividida em três parcelas anuais: 50% no ano seguinte ao do resultado, 25% um ano após e 25% dois anos após, podendo as duas últimas parcelas ser ajustadas para mais ou para menos em razão da sinistralidade. A empresa possui uma política de alinhamento e remuneração de longo prazo através da distribuição de opções de ações (stock options), garantindo que boa parte da remuneração dos executivos seja atrelada à geração de valor.
Being a company that is initiating its operations, the Austral Re revenues are retained in the reserves, according to the nature of the insurance and reinsurance operations. Therefore, the control of expenses is and has always been fundamental to the company. In this regard, the policy of remuneration and alignment of incentives of Austral Re, especially the meritocracy, in addition to be innovative, proved to be wholly appropriate to its business environment and values. In Austral Re, the work environment is open and integrated, none of the directors has room and the communication occurs in a free and direct way. In respect of organizational model, the company adopts a horizontal structure, respecting the levels of authority. Austral Re believes that its executives are searching for warrant and challenges, with the possibility of a good exposure and assessment by performance. Austral Re distinguishes in the industry by the bonus paid to the employees. The performance bonus is paid in three annual installments: 50% in the year following the result, 25% one year after and 25% two years after, and the last two installments may be adjusted up or down depending on the loss ratio. The company has a policy of alignment and long-term remuneration through the distribution of stock options, ensuring that great part of the executives wage is associated with the value creation.
Despesas Administrativas em Relação ao Prêmio Ganho Retido Líquido Administrative Expenses in Relation to Net Earned Premium
125,0%
18,9%
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2011
2012
10,9% 2013
7,2% 2014
Estratégia de Subscrição Underwriting Strategy A Austral Re iniciou suas operações com foco em contratos automáticos, atuando em todas as linhas de negócio. Do ponto de vista estratégico, isso tem permitido à empresa obter bons resultados em termos de emissão e sinistralidade, ano após ano. A política de subscrição da Austral Re tem como fundamento a otimização do gerenciamento de riscos da resseguradora. Cada tipo e forma de resseguro possui vantagens e desvantagens e depende, entre outros aspectos, da carteira da seguradora que está sendo analisada, da experiência dessa empresa, de seu know-how e também de seus objetivos ao comprar resseguro. Os critérios adotados na subscrição de contratos de resseguros e riscos facultativos da Austral Re são respeitados integralmente e pressupõem: - Políticas de aceitação em linha com as diretrizes definidas pela administração, sempre observando normas, legislação, regulamentos e manuais em vigor; - Subscrição conservadora, voltada à obtenção de um resultado operacional positivo, e não apenas aumento de participação no mercado. Para alcançar esses objetivos, a Austral Re adota os seguintes critérios: - Equipe de precificação técnica, formada por subscritores experientes; - Especialistas em análise de contratos e clausulados; - Alçadas de subscrição bem definidas para aceitação de contratos; - Monitoramento constante dos resultados e tendências da carteira. A subscrição de todos os contratos e riscos é feita de forma seletiva e com análise técnica profunda dos perfis de carteira, histórico de sinistros, triângulos e condições contratuais, conforme descrito nos métodos de precificação especificados, além de análises comparativas de mercado.
Austral Re initiated operations focused on automatic treaties, operating in all lines of business. From a strategic view, this has enabled the company to achieve good results in respect of issuance and loss ratio, year after year. The underwriting policy of Austral Re is based on the optimization of the reinsurance risks management. Each type and form of reinsurance presents advantages and disadvantages and depends, among other things, on the portfolio of the insurer under analysis, the experience of this company, its knowhow, as well its objectives by buying reinsurance. The criteria adopted for the underwriting of reinsurance treaties and facultative risks of Austral Re are fully respected and assume: - Acceptance policies in accordance with the guidelines set by the management, always complying with standards, legislation, regulations and manuals in force; - Conservative underwriting, intended for obtaining a positive operating result, and not only increased market share. To achieve these goals, Austral Re adopts the following criteria: - Technical pricing team, composed of experienced underwriters; - Experts in treaties and wordings analysis; - Underwriting authorities well defined for treaties acceptance; - Constant monitoring of the portfolio results and trends. The underwriting of all treaties and risks is made selectively and with sound technical analysis of the portfolio profiles, losses experience, triangles, treaty conditions, as described in the pricing methods specified, in addition to comparative market analysis.
Distribuição do Prêmio Retido por Linha de Negócios Net Premium Allocation Business Lines Outros (Other Lines) 4,4 | 2% Aeronáuticos (Aviation) 3,3 | 2%
Pessoas (Life) 74,8 | 38%
Negócios no Exterior (International Lines) 14,7 | 7% Rural (Crops) 20,7 | 10%
Patrimonial (Property) 24,9 | 13%
Automóveis (Motor) 30,5 | 15%
Transportes e Responsabilidades (Liability) 26,5 | 13%
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Sinistralidade Retida - Sinistros Pagos, Pendentes e IBNR Net Loss Ratio - Outstanding Losses and IBNR 100% 80% 60%
59,29%
40%
48,14%
12/2014
10/2014
08/2014
06/2014
04/2014
02/2014
12/2013
10/2013
08/2013
06/2013
04/2013
0%
02/2013
20%
Sinistralidade retida - líquida de comissão de resseguro (Loss ratio - net of reinsurance commission) Sinistralidade retida - com comissão de resseguro (Loss ratio)
Gestão de Riscos e Retrocessão Risks and Retrocession Management A Austral Re utiliza a retrocessão para reduzir a volatilidade de sua carteira, além de ampliar sua capacidade em algumas linhas, porém evitando um alto grau de alavancagem. A retenção líquida da empresa aprovada pela Superintendência de Seguros Privados (Susep) é de BRL 8 milhões e a linha bruta máxima automática chega a BRL 20 milhões em algumas linhas de negócio. Nos contratos de retrocessão, a Austral Re faz cessão em cota-parte para reduzir a volatilidade da carteira cedida, o que comprova a confiança de experientes resseguradores internacionais em sua subscrição.
Austral Re uses the retrocession to reduce the volatility of its portfolio, in addition to increase its capacity in some lines, however avoiding a high degree of leverage. The net retention of the company approved by the Superintendence of Private Insurance (Susep) is BRL 8 million and the automatic maximum gross line reaches BRL 20 million in some lines of business. In the retrocession treaties, Austral Re cedes in quotashare to reduce the volatility of the portfolio ceded, proving the confidence of experienced international reinsurers in respect of its underwriting.
Em linhas de negócio como Property, Engenharia e Marine, a Austral Re ainda compra proteção em Excesso de Danos, para ampliar a retenção, mas principalmente para “Clash”, Catastrófico e acúmulos desconhecidos (inclusive acúmulos com cosseguro). No ramo Agrícola, a empresa tem proteções de stop loss para estabilizar o resultado e proteger os acionistas.
In lines of business such as Property, Engineering and Marine, Austral Re still buys Excess of Loss protection to increase the retention, but mainly for Clash, Catastrophic and unknown accumulations (including coinsurance accumulations). In the agricultural line, the company counts on stop loss protections to stabilize the result and protect the shareholders.
A Austral Re trabalha somente com retrocessionários internacionais de primeiro nível, com uma política de risco de crédito (security) bastante rigorosa para as suas retrocessões. Também possui uma política de alçadas e processos bem definidos para a colocação de retrocessão, o que inclui revisão dos contratos pelo setor jurídico, algumas cláusulas obrigatórias, bem como um check list detalhado para evitar possíveis gaps de cobertura.
Austral Re operates only with first level international retrocessionaires, with a very rigid policy of credit risk for its retrocessions. It also counts on a policy of authorities and well defined processes for the retrocession placement, which includes the treaties review by the legal department, some mandatory provisions as well as a detailed check list to avoid possible coverage gaps.
Tão importante quanto a divisão de risco, a política de retrocessão da Austral Re busca trazer inovação e conhecimento ao mercado de resseguros brasileiro. Muitos dos retrocessionários da empresa contribuem para o desenvolvimento de modelos e produtos no país.
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As important as the risk spread, the retrocession policy of Austral Re seeks to bring innovation and knowledge to the Brazilian reinsurance market. Many of the retrocessionaires of the company contribute to the development of models and products in the country.
Atendimento ao Cliente Customer Service O diferencial da Austral Re está na qualidade dos serviços oferecidos, com soluções ágeis, inovadoras e desburocratizadas. A partir de uma estrutura organizacional horizontal, os clientes têm contato direto com os especialistas que tomam as decisões. Além disso, quando a empresa não possui conhecimento para alguma demanda específica, pesquisa soluções no mercado internacional. Assim, na Austral Re, os clientes têm acesso ao que existe de mais avançado em termos de seguros e resseguros no mundo. A Austral Re não busca apenas capacitar e dividir riscos, mas trabalhar pelo desenvolvimento do mercado de seguros e resseguros no Brasil.
The Austral Re differential is the quality of services offered, with agile, innovative and streamlined solutions. From a flat organizational structure, the clients are in direct contact with the experts who make the decisions. Furthermore, when the company has no knowledge as regards any specific demand, it searches for solutions in the international market. Thus, in Austral Re the clients have access to what is most advanced in terms of insurance and reinsurance worldwide. Austral Re does not seek only capacity and risks spread, but also to work for the insurance and reinsurance market development in Brazil.
Eficiência Operacional Operational Efficiency As áreas de suporte da Austral Re são compostas por profissionais experientes e valorizados. Em especial, destaca-se o setor de sinistros. A política da empresa para a avaliação e o pagamento de sinistros baseia-se num trabalho imparcial, rápido e técnico, levando em conta os seguintes aspectos:
The support areas of Austral Re are composed of experienced and recognized practitioners. In particular, it may be highlighted the claims area. The policy of the company for assessing and paying losses is based on a fair, fast and technical work, taking into account the following:
- Equipe experiente, para avaliação de cobertura contratual dos sinistros; - Alçadas bem definidas, para autorização das indenizações; - Área de sinistros independente, para maior transparência no processo; - Controle dos prazos de respostas, para agilidade do processo.
- Experienced team to evaluate the treaties coverage of the losses; - Well defined authorities to approve the indemnities; - Independent claims area aiming greater transparency in the process; - Control as respect of deadlines aiming the agility of the process.
No mercado de resseguros, o ressegurador atua de diversas maneiras nos processos de regulação de sinistros, mas raramente de forma direta. A responsabilidade pela regulação e liquidação do sinistro é de competência das seguradoras, às quais cabe a coordenação direta de todos os processos: judiciais e extrajudiciais. Entre as diversas cláusulas que compõem um contrato de resseguro, destacam-se as que tratam dos sinistros. A cláusula tem por objetivo determinar os procedimentos acerca do pagamento do sinistro, do processo de regulação e liquidação, bem como das despesas decorrentes da regulação. O mercado internacional convencionou a utilização de basicamente três tipos de cláusula de sinistro: - De assistência – claims assistance clause (pequeno envolvimento do ressegurador); - De cooperação – claims co-operation clause
In the reinsurance market, the reinsurer acts in several ways in the loss adjustment processes, but rarely in direct way. The insurers are liable for the loss adjustment, as well the direct coordination of all processes, the judicial and extrajudicial. Among the various provisions of a reinsurance treaty, it may be highlighted those on the losses. The provision aims at determining the procedures on the loss payment, the loss adjustment process, and also the expenses arising from adjustment. The international market made conventional the use basically of three types of losses provisions: - Assistance – claims assistance clause (low involvement of the reinsurer); - Co-operation – claims co-operation clause (moderate involvement); - Control – claims control clause (high involvement).
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(envolvimento médio); - De controle – claims control clause (envolvimento grande).
Austral Re indicates the co-operation clause, through which it can assist its clients in the claim requests, especially in medium and large sizes. This clause allows to choose and appoint loss adjusters in joint consent with the insurer, so that to achieve the best possible quality in the loss adjustment processes.
A Austral Re indica a cláusula de cooperação, por meio da qual pode auxiliar seus clientes nas solicitações de sinistro, especialmente nos de médio e grande portes. Essa cláusula permite a escolha e indicação de reguladores (loss adjusters) em comum acordo com a seguradora, de modo a obter a melhor qualidade possível nos processos de regulação.
Acionistas e Governança Corporativa Shareholders and Corporate Governance Todas as políticas da Austral Re são submetidas ao Conselho de Administração da empresa. A lei brasileira exige responsabilidade pessoal ilimitada para os controladores de instituições financeiras. Por essa razão, a maioria absoluta das ações ordinárias (voting shares) pertencem aos sócios controladores, sócios majoritários da Vinci Partners. Além dos bons resultados, que refletem a sólida experiência dos acionistas da Vinci Partners, a Austral comemorou uma importante conquista. Em setembro de 2014, a IFC (International Finance Corporation) passou a fazer parte do quadro de acionistas da empresa. A entrada da IFC traz uma série de vantagens à Austral Re:
All the policies of Austral Re are submitted to its Board of Directors. The Brazilian law requires unlimited personal liability for the controllers of financial institutions. For this reason, the absolute majority of the voting shares belongs to controlling shareholders, majority shareholders of Vinci Partners. In addition to the good results that reflect the sound experience of the shareholders of Vinci Partners, Austral celebrated a significant achievement. In September 2014, the International Finance Corporation (IFC) became shareholder of the company. The IFC entry brings a number of advantages to Austral Re:
- Melhoria de governança - indicação de um conselheiro da IFC, com amplo conhecimento no setor; - Transferência de know-how - novos relatórios, controle e transferência de conhecimento e tecnologia da IFC; - Experiência global - acesso à ampla rede de parceiros da IFC em todo o mundo; - Solidez e crescimento - parceira de longo prazo, a IFC ajudará a empresa em seu crescimento e na consolidação dos mercados de seguros e resseguros; - Selo de aprovação - aumento da credibilidade da empresa, melhorando seu posicionamento no mercado brasileiro.
- Governance improvement – appointment of an IFC advisor, with extensive knowledge in the sector; - Knowhow transfer – new IFC reports, control and transfer of knowledge and technology; - Global experience – access to wide network of IFC partners worldwide; - Soundness and growth – long-term partnership, IFC will help the company in its growth and to consolidate the insurance and reinsurance markets; - Seal of approval – the company credibility increase, improving its positioning within the Brazilian market.
Patrimônio Líquido (BRL) Equity (BRL million)
102
2011
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229 79
131
2012
136
2013
150
2014
Austral Seguradora A Austral Seguradora é uma empresa jovem,que cresce de forma rápida e consistente. Sua trajetória de sucesso reflete a qualidade dos serviços prestados a clientes e corretores e a ampla distribuição em todo o Brasil. Aprovada pela Susep (Superintendência de Seguros Privados), em outubro de 2010, a seguradora foi fundada com capital de R$ 38,5 milhões. Desde então, a seguradora vem se consolidando e alcançando excelentes resultados. Em 2014, emitiu mais de R$ 188 milhões em prêmios (sem DPVAT), o que representa um CAGR1 de 42%, desde 2011. Cabe frisar que as reservas e os investimentos da empresa cumprem rigorosamente todos os requisitos regulamentares. O diferencial da Austral Seguradora baseia-se no atendimento ágil e desburocratizado e no desenvolvimento de soluções inovadoras e personalizadas aos clientes. Contando com uma equipe experiente, a empresa investe muito em tecnologia, sempre priorizando a eficiência do serviço. Um avançado sistema CRM (Customer Relationship Management) permite o conhecimento das necessidades e expectativas do cliente, de forma a antecipar suas demandas e identificar oportunidades. Atuando em todo o território nacional, a Austral Seguradora tem como foco os segmentos de Seguro Garantia, Riscos de Engenharia, Riscos de Petróleo e Garantia Mecânica. Com aproximadamente R$ 117 milhões de prêmio bruto emitido em 2014, é o quarto principal segurador do país no mercado de Garantia, com 9% de marketshare – o mercado brasileiro de Garantia alcançou R$ 1,3 bilhão em prêmio bruto emitido.
Austral Seguradora is a young company, growing quick and consistently. Its successful trajectory reflects the quality of services provided to clients and brokers and the great number of products distributed throughout Brazil. Approved by the Superintendence of Private Insurance (Susep) in October 2010, the company was constituted with capital of R$ 38.5 million. Thenceforth, the company has been consolidating and achieving excellent results. In 2014, it accounted more than R$ 188 million in written premium (DPVAT excluded), representing a CAGR1 of 42% since 2011. It is worth highlighting that the company's reserves and investments comply strictly with all regulatory requirements. The Austral differential is based on agile and streamlined service and development of innovative and individualized solutions to the clients. Counting on an experienced staff, the company invests heavily in technology, always prioritizing the efficient work. An advanced Customer Relationship Management (CRM) system allows to understand the client needs and expectations, so that to anticipate their demands and identify opportunities. Operating all over the country, Austral Seguradora focuses on the following insurance coverages: Surety, Engineering Risks, Oil & Gas Risks and Mechanical Breakdown Warranty. With around R$ 117 million of gross written premium in 2014, Austral Seguradora is the fourth leading insurer in Brazil operating in the Surety segment, with 9% market share – the Brazilian market in such segment accounted R$ 1.3 billion in gross written premium.
1. Seguro Garantia 1. Surety Insurance O Seguro Garantia prevê o cumprimento das obrigações em contratos públicos ou privados ou no âmbito de processos administrativos e judiciais. É uma modalidade que vem ganhando cada vez mais espaço no mercado segurador. Isso porque, a cada dia, surge a demanda de novos tipos de garantia, como as judiciais, com grandes perspectivas de crescimento, especialmente aquelas relacionados às garantias judiciais em processos de execução fiscal, que passaram a ter melhor aceite entre os juízes e promotores, tendo em vista sua previsão em lei, abrindo novos horizontes. A Austral Seguradora encerrou seu quarto ano de operação sem o registro de sinistros nessa cobertura.
The Surety Insurance provides for compliance with the public or private obligations, or within the scope of administrative process and lawsuits. It is a modality that has been increasingly gaining visibility in the insurance market. That is why each day arises the demand for new types of sureties, such as the judicial, with great chances for growth, especially those associated with judicial bonds in tax execution procedures, that now are better accepted amongst courts and prosecutors, considering they are provided for by law, opening new horizons. Austral Seguradora closed its fourth operating year without losses reported in this coverage.
Atuação em: Operating in:
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Setores Público (0775) e Privado (0776) Public (0775) and Private (0776) Sectors Grandes investimentos em infraestrutura Major investments in infrastructure Aceitação de garantias judiciais em processos de execução fiscal Acceptance of judicial bonds in tax execution procedures Centrais elétricas e linhas de transmissão Power plants and transmission lines Portos Ports Concessão de rodovias Highways concession
Presença no mercado: Market presence:
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100 corretores ativos (100 active brokers) 350 grupos econômicos ativos (350 active economic groups) 1
39% de CAGR - 2011-2014 (39% of CAGR1- 2011-2014)
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Tipos de Cobertura Types of Coverage - Garantia Judicial
- Judicial Bond
Garante a substituição de penhoras, cauções ou depósitos efetuados junto ao Poder Judiciário, nos processos em que se admite discussão acerca da matéria ou valores. A modalidade foi regulamentada através da Lei nº 11.382/06, como alternativa de garantia exigida durante a defesa de uma ação executiva.
It provides the replacement of levies, undertakings or deposits made to the Judicial Branch in cases where litigation on the matter or values is admitted. The modality was regulated by Law No. 11.382/06, as surety alternative required during the defense of an execution proceeding. - Bond for Concessions
- Garantia para Concessões Garante ao poder concedente o adequado cumprimento das obrigações previstas no contrato de concessão. - Garantia de Adiantamento de Pagamento Garante ao segurado a correta aplicação dos adiantamentos concedidos pelo contratante ao contratado, para a compra de materiais e/ou para outros compromissos inerentes ao contrato, ao longo de sua vigência. - Garantia de Retenção de Pagamento Garante a substituição de retenções de pagamento previstas contratualmente e realizadas pelo segurado (contratante), durante a vigência do contrato. - Garantia do Executante (Performance Bonds) Garante a indenização ao segurado (contratante), até o valor estabelecido na apólice, caso o tomador deixe de cumprir as obrigações previstas no contrato principal. - Garantia do Licitante/Concorrente (Bid Bond) Garante indenização ao segurado (contratante), até o valor estabelecido na apólice, caso o tomador, vencedor da licitação (contratado), deixe de assinar o contrato de execução, fornecimento ou prestação de serviços previstos no edital ou convite. - Garantia Imobiliária Garante ao segurado (adquirente ou dono do terreno) indenização até o valor estabelecido na apólice em caso de descumprimento das obrigações de construir e entregar o empreendimento, conforme estabelecido no contrato principal.
It provides the Government proper compliance with obligations provided for in the concession contract. - Advance Payment Bond It provides the policyholder correct application of advances granted by the contracting party to the service provider to purchase materials and/or for other contractual commitments during its period. - Payment Retention Bond It provides the replacement of payment retentions contractually provided for and performed by the policyholder (contracting party), during the contract period. - Performance Bond It provides indemnity to the policyholder (contracting party) up to the amount specified in the policy, if the client fails to comply with the obligations provided for in the main contract.
- Bid Bond It provides indemnity to the policyholder (contracting party) up to the amount specified in the policy, if the client, the bid winner (service provider), fails to sign the contract of performance, supply or services provision provided for in the bid notice or invitation. - Real Estate Performance Bond It provides the policyholder (transferee or land owner) indemnity up to the amount specified in the policy in case of non-compliance with the obligations to build and deliver the venture, as set out in the main contract.
- Garantia de Completion - Completion Bond Garante a conclusão de projetos viabilizados por meio de recursos de financiamento de bancos de fomento.
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It provides the completion of projects made viable through funding sources of development banks.
- Garantia Administrativa
- Administrative Bond
Garante a veracidade de créditos tributários e a interposição de recurso voluntário em processo administrativo nos âmbitos federal, estadual e/ou municipal.
It provides the tax credits veracity and filing of the voluntary appeal in administrative process within the federal, state and/or local scope. - Customs Bond
- Garantia Aduaneira Garante ao segurado, a Receita Federal do Brasil, o pagamento dos tributos devidos no processo de importação de mercadorias que ingressem no País em regime suspensivo.
It provides the policyholder, the Federal Revenue Service, the payment of taxes due in the process to import goods that enter into the country in suspensive regime.
2. Riscos de Engenharia 2. Engineering Risks O Risco de Engenharia garante proteção contra os perigos que afetam todos os tipos de obra civil. A garantia permite transferir o risco para o segurador e, assim, minimizar eventuais perdas. Atende construções, ampliações ou reformas, cobrindo até mesmo as instalações e montagens de todos os setores: engenharias civil, elétrica, mecânica, metalúrgica e naval, entre outros.
The Engineering Risk provides protection against the perils that affect all types of civil work. The surety allows to transfer the risk to the insurer and thus minimize occasional losses. It meets constructions, extensions or renovations, also covering the installations and erections of all the sectors: civil, electrical, mechanical, metallurgical, naval engineering, amongst others.
Presença no mercado: Market presence:
[ [ [ [ [
Participação nos principais projetos e investimentos no país, nos últimos quatro anos Participation in the main projects and investments in the country over the last four years CAGR1 de 106,6% CAGR1 of 106.6% 500 projetos segurados 500 projects insured 45 corretores ativos 45 active brokers Crescimento de 68% no prêmio emitido, em 2014 68% growth in the written premium in 2014
Diferenciais: Differentials:
[ [ [ [
Cultura de relacionamento de longo prazo com clientes e corretores, com base na confiança e transparência Long-term relationship culture with clients and brokers based on confidence and transparency Política eficiente no processo de subscrição alinhada com uma gestão de riscos Efficient policy as respects the underwriting process in accordance with a risk management Comitê experiente que avalia e revisa as análises da subscrição Experienced committee that evaluates and review the underwriting analyses Time de especialistas com mais de 15 anos de experiência de mercado Experts team with more than 15 years of market experience
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Tipos de Cobertura Types of Coverage - Obras Civis em Construção
- Construction All Risks
Indeniza o segurado por danos parciais ou totais, causados por eventos segurados, em qualquer tipo de obra de engenharia civil, durante o período de sua execução.
It indemnifies the policyholder for partial or total damages caused by insured events, in any type of civil engineering work, during the period of its performance.
- Instalações e Montagens
- Erection All Risks
Indeniza o segurado por danos parciais ou totais, causados por eventos segurados a máquinas, equipamentos, estruturas metálicas e outros bens instalados e/ou montados, durante o período das obras do projeto.
It indemnifies the policyholder for partial or total damages caused by insured events to machineries, equipment, metal structures and further property installed and/or erected during the project works period.
- Responsabilidade Civil Geral
- General Liability
Reembolsa o segurado por quantias pelas quais vier a ser responsabilizado civilmente em relação a reparações por danos involuntários, pessoais e/ou materiais causados a terceiros, ocorridos durante o período da obra e que decorram de riscos cobertos pela apólice.
It reimburses the policyholder for sums which it may be held civilly liable in relation to repairs for involuntary, personal and/or material damages caused to third parties, occurred during the work period and arising from risks covered by the policy.
3. Riscos de Petróleo 3. Oil & Gas Risks O seguro de Riscos de Petróleo garante cobertura para bens, equipamentos e responsabilidade civil nos riscos ligados às operações de prospecção, perfuração e produção de petróleo e/ou gás, em terra (onshore) e no mar (offshore). A cobertura de obras e construções ligadas ao setor também faz parte da carteira. Buscando atender à demanda de seguros do setor de óleo e gás no Brasil com soluções inovadoras, a Austral Seguradora conta com parcerias estratégicas de resseguradores relevantes no mercado internacional. Além disso, mantém um corpo técnico especializado, para total suporte aos clientes.
The Oil & Gas Risks insurance provides coverage for property, equipment and liability in risks associated with the oil and/or gas prospection, drilling and production operations, onshore and offshore. The coverage for works and constructions connected with the sector is also part of the portfolio. Seeking to satisfy the insurance demand in the oil and gas segment in Brazil with innovative solutions, Austral Seguradora counts on strategic partnerships of leading reinsurers in the international market. Furthermore, it counts on a specialized technical team to fully support to the clients.
Diferenciais: Differentials:
[ [ [ [ [ 30 ]
Equipe exclusiva, dedicada à indústria de óleo e gás Exclusive team dedicated to oil and gas industry Serviço e estrutura de produção,com sede no Rio de Janeiro Service and production structure, with headquarters in Rio de Janeiro Parcerias estratégicas de resseguradores relevantes no mercado internacional Strategic partnerships of leading reinsurers in the international market Relacionamento direto com clientes de óleo e gás Direct relationship with oil and gas clients
Resultado: Result:
[
Em 2014, a Austral Seguradora se posicionou como terceiro principal segurador no ramo de Riscos de Petróleo, com 9% de market share. In 2014, Austral Seguradora stood the third position as leading insurer in the Oil & Gas Risks branch, with 9% market share.
Tipos de cobertura: Types of coverage: - Responsabilidade Civil
- Liability
Reembolsa o segurado por quantias pelas quais vier a ser responsabilizado em relação à reparação por danos involuntários, pessoais e/ou materiais causados a terceiros, ocorridos durante o período de construção, prospecção, perfuração ou exploração de petróleo ou gás natural e que decorram de riscos cobertos pela apólice. A cobertura inclui o choque com outra embarcação e despesas com infiltração, poluição e contaminação por vazamento de petróleo ou gás natural, desde que decorrente de acidentes cobertos pela apólice . - Despesas Extras do Operador
It reimburses the policyholder for the sums it may be held liable in relation to compensation for involuntary, personal and/or material damages caused to third parties, occurred during the period of construction, prospection, drilling or exploration of oil or natural gas and arising from risks covered by the policy. The coverage includes the collision with another vessel and seepage, pollution and contamination expenses due to leakage of oil or natural gas, since it is arising from accidents covered by the policy.
Protege o segurado contra acidentes envolvendo as atividades praticadas desde o momento da perfuração até o fechamento de um poço, tanto onshore quanto offshore. Estão incluídas as coberturas de controle de poço, reperfuração e poluição.
It protects the policyholder against accidents involving the activities practiced from the time of drilling to a well shutoff, as much onshore as offshore. The control of well, redrilling and pollution coverages are included.
- Danos Físicos
- Physical Damages
Cobre danos totais ou parciais causados a sondas, estruturas ou qualquer tipo de equipamento que faça parte da cadeia de óleo e gás. Também podem ser incluídas na cobertura plataformas fixas ou flutuantes, bem como todos os seus módulos e instalações.
- Operator's Extra Expense
It covers total or partial damages caused to rigs, structures or any type of equipment that is part of the oil and gas chain. Fixed and floating platforms can also be included in the coverage, as well as all their modules and facilities.
4. Garantia Mecânica 4. Mechanical Warranty A Garantia Mecânica assegura o reparo das partes mecânicas e elétricas do veículo. Além de proteger contra gastos inesperados, o seguro evita a desvalorização do automóvel. No caso da Austral Seguros, a prioridade são veículos seminovos ou usados, que já não contam mais com a garantia de fábrica. Com 25 anos de sucesso na Europa, a Garantia Mecânica apresenta-se como um produto de grande potencial de crescimento no Brasil – somente em 2014, foram vendidos 9,4 milhões de carros usados no país. 1 Compound Annual Growth Rate/Taxa Composta Anual de Crescimento 1 Compound Annual Growth Rate
The Mechanical Warranty provides the repair of mechanical and electrical parts of the vehicle. In addition to protect against unexpected expenses, the insurance prevents the depreciation of the automobile. As regards Austral Seguros, used or semi-new vehicles, they have no longer the manufacturer warranty. With 25 years of success in Europe, the Mechanical Warranty is a product of great growth potential in Brazil – only in 2014 were sold 9.4 million used cars in the country.
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Financial Statements December 31, 2014 and 2013, with Independent Auditor’s Report on Financial Statements.
Financial Statements Austral Resseguradora S.A. December 31, 2014 and 2013 with Independent Auditor’s Report on Financial Statements
Austral Resseguradora S.A. Financial statements At December 31, 2014
Contents
Management report of Austral Resseguradora S.A. ........................................................................ 1 Independent auditor’s report on financial statements ...................................................................... 3 Audited financial statements Balance sheets................................................................................................................................ 5 Income statements .......................................................................................................................... 7 Statements of comprehensive income ............................................................................................. 8 Statements of changes in equity ..................................................................................................... 9 Statements of cash flows .............................................................................................................. 10 Notes to financial statements ........................................................................................................ 11
Management Report Pursuant to legal and regulatory provisions, we hereby present the financial statements for the year ended December 31, 2014. Austral Resseguradora S.A. (“Austral Re”) was authorized by Brazil’s Private Insurance Supervisory Office (SUSEP) to operate the reinsurance and the retrocession business on February 1, 2011 through SUSEP Administrative Ruling No. 3908. Austral Re is a local reinsurer that provides, in addition to reinsurance capacity, services tailored to the need of each one of its customers, performing responsible underwriting activities, seeking efficiency in capital allocation and market development, associated with continuous and careful risk management initiatives. Reinsurance premiums, net of commissions, totaled R$329 million, and earned premiums amounted to R$297 million. The overall loss ratio (claims incurred/earned premium, net of reinsurance commissions) was 72%. It is also worth mentioning that scale economies and efficiency led administrative expenses to 3.7% of earned premium. Profit before taxes and before profit sharing was R$29.4 million, and net income for the year was R$18.8 million. The Company’s combined ratio was 97.3%, a ratio below 100% after only 4 years of operations. The investment policy adopted by Austral Re, which is in line with the Company’s business and compliant with current regulations, produced financial income worth R$25.3 million. Management states that the Company has financial capacity that supports the forecast for the next years. In addition, management represents that there is no marketable security classified as “Held to maturity” for the year. According to its initial business plan, Austral Re is set on keeping its market growth and consolidation path over the next year, sustaining its technical underwriting policy and seeking portfolio diversification in order to reduce its volatility. As part of its profit reinvestment policy, the Company is set on reinvesting the net income from dividends in its own business. According to Austral Re's Articles of Incorporation, shareholders are entitled to receive as minimum mandatory dividends an amount equivalent to 25% (twenty five per cent) of net income for each year ended December 31, adjusted under the terms of Brazilian Corporation Law.
1
Management Report (Continued) On January 24, 2014, S&P raised again the Reinsurer’s risk rating to brAA- (previously brA+). On August 4, 2014, AMBest assigned an overall risk rating of B++ to Austral Re. On September 9, 2014, International Finance Corporation (IFC), a member of the World Bank Group, announces an R$ 80 million investment in Austral Participações to support the insurance market expansion into the infrastructure, agriculture and other segments, as well as insurance product innovation. International Finance Corporation (IFC) acquired a minority interest in Austral Participações, the holding company of Austral Seguradora and Austral Resseguradora. International Finance Corporation’s investment will help the Company consolidate its operations and boost the significant growth the Company has been achieving over its four years of operations. At the end of 2014, Austral Re equity was R$ 228.6 million. The Company’s initial capital, worth R$136.4 million in 2013, was increased by R$80.9 million in capital increase (SUSEP Administrative Ruling No. 81, dated November 11, 2014 and SUSEP Administrative Ruling No. 61, dated September 24, 2014), by R$18.8 million in net income (excluding interest on equity totaling R$8.1 million), and by 486 thousand in share-based payments and adjustments to marketable securities. Finally, Austral Re thanks its team for all effort and dedication, Brazil’s Private Insurance Supervisory Office (SUSEP) and other insurance industry authorities for the assistance and guidance provided during this year, as well as its customers, business partners, suppliers and shareholders for the confidence placed in the Company. Rio de Janeiro, February 25, 2015.
Management.
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Centro Empresarial PB 370
Praia de Botafogo, 370 5º ao 8º Andares - Botafogo 22250-040 - Rio de Janeiro, RJ, Brasil Tel.: (55 21) 3263-7000 ey.com.br
A free translation from Portuguese into English of Independent Auditor’s Report on financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil
Independent auditor’s report on financial statements The Shareholders, Board of Directors and Officers
Austral Resseguradora S.A. Rio de Janeiro - RJ We have audited the accompanying financial statements of Austral Resseguradora S.A. (“Company”), which comprise the balance sheet as at December 31, 2014, and the related income statement, statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting practices and other explanatory information. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the accounting practices adopted in Brazil applicable to entities under Brazil’s Private Insurance Supervisory Office (SUSEP) oversight and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Brazilian and international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether these financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the Company’s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
3 Uma empresa-membro da Ernst & Young Global Limited
Auditor’s responsibility (Continued) We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Austral Resseguradora S.A. as at December 31, 2014, and its financial performance and its cash flows for the year then ended in accordance with the accounting practices adopted in Brazil applicable to entities under Brazil’s Private Insurance Supervisory Office (SUSEP) oversight. Rio de Janeiro, February 25, 2015. ERNST & YOUNG Auditores Independentes S.S. CRC - 2SP 015.199/O-6 - F - RJ
Marcelo Felipe L. de Sá Accountant CRC - 1RJ 094.644/O-0
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A free translation from Portuguese into English of Financial Statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil
Austral Resseguradora S.A. Balance sheets December 31, 2014 and 2013 (In thousands of reais)
Assets Current assets Cash and cash equivalents Cash and banks Short-term investments (Note 6) Fixed-income securities - government Investment fund shares Receivables from reinsurance operations (Note 8) Insurance operations Reinsurance operations Retrocession assets - reserves Retrocession claims (Notes 9 and 13) Recovery of claims incurred but not reported (Notes 9 and 13) Deferred retrocession premiums (Notes 9 and 13) Other reserves (Notes 9 and 13) Securities and receivables Tax credits Other receivables Deferred acquisition costs (Note 10) Deferred commissions - reinsurance Noncurrent assets Long-term receivables Short-term investments (Note 6) Fixed-income securities - government Receivables from reinsurance operations (Note 8) Insurance operations Retrocession assets - reserves Deferred retrocession premiums (Notes 9 and 13) Securities and receivables Tax credits Deferred acquisition costs (Note 10) Deferred commissions - reinsurance Property and equipment (Note 11) Personal properties Other property and equipment Intangible assets (Note 12) Other intangible assets Total assets
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12/31/2014
12/31/2013
624,968 11,805 11,805 233,939 202,260 31,679 259,881 214,919 44,962 114,407 27,881 16,972 67,278 2,276 1,005 976 29 3,931 3,931
472,984 9,387 9,387 178,132 166,236 11,896 170,808 147,140 23,668 107,039 38,038 13,257 54,673 1,071 4,630 4,596 34 2,988 2,988
84,996 82,925 44,717 44,717 630 630 37,334 37,334 244 244 1,287 846 441 784 784
33,364 30,847 91 91 29,900 29,900 495 495 361 361 1,504 990 514 1,013 1,013
709,964
506,348
12/31/2014
12/31/2013
437,892 9,298 6,691 659 527 1,421 144,581 38 126,394 6,254 11,895 201 201 283,812 131,578 80,527 65,665 6,042
335,677 7,043 5,447 1,032 392 172 100,679 54 97,081 3,535 9 206 206 227,749 111,189 74,377 40,672 1,511
43,483
34,252
1,812 1,812 41,671 41,671
34,252 34,252
Equity (Note 15) Capital Capital increase (under approval) Capital reserve Income reserve Marketable securities adjustments
228,589 209,479 1,300 17,643 167
136,419 126,132 2,380 980 6,926 1
Total liabilities and equity
709,964
506,348
Liabilities and equity Current liabilities Accounts payable Liabilities payable Taxes and social charges payable Labor charges Taxes and contributions Payables for reinsurance operations Refundable premium Reinsurance operations Insurance and reinsurance brokers Other operating payables Third-party deposits Third-party deposits Reserves - reinsurers (Note 13) Unearned Premium Reserve (PPNG) Outstanding Claims Reserve (PSL) Reserve for Claims Incurred But Not Reported (IBNR) Other reserves Noncurrent liabilities Accounts payable Deferred taxes Reserves - reinsurers (Note 13) Unearned Premium Reserve (PPNG)
See accompanying notes.
6
Austral Resseguradora S.A. Income statements Years ended December 31, 2014 and 2013 (In thousands of reais, except for earnings per share, expressed in reais) 12/31/2014
12/31/2013
Reinsurance premiums Changes in reserves Earned premiums (Note 18)
329,170 (31,985) 297,185
243,845 (62,448) 181,397
Claims incurred (Note 20.a)
(214,042)
(157,545)
(6,393) (32,211) (21,166) (10,908) (8,392) 25,343
(4,502) (1,238) (6,398) (10,123) (5,213) 10,742
(=) Income before taxes and profit sharing
29,416
7,120
Income tax (Note 16) Social contribution tax (Note 16) Profit sharing (Note 16)
(4,514) (2,766) (3,313)
(118) (85) (2,254)
(=) Net income for the year
18,823
4,663
202,675,339 0.09
128,376,876 0.04
Acquisition costs (Note 20.b) Other operating income and expenses (Note 20.c) Retrocession income (expenses) (Note 20.d) Administrative expenses (Note 20.e) Tax expenses (Note 20.f) Financial income (expenses) (Note 20.g)
Number of shares Earnings per thousand shares - in reais
See accompanying notes.
7
Austral Resseguradora S.A. Statements of comprehensive income Years ended December 31, 2014 and 2013 (In thousands of reais) 12/31/2014 Net income for the year Other comprehensive income to be reclassified to profit or loss in subsequent periods Changes in fair value of financial assets available for sale Effect of income and social contribution taxes Other comprehensive income for the year, net of taxes Total other comprehensive income for the year, net of taxes
See accompanying notes.
8
12/31/2013
18,823
4,663
276 (110)
2 (1)
166
1
18,989
4,664
Austral Resseguradora S.A. Statements of changes in equity Years ended December 31, 2014 and 2013 (In thousands of reais)
Capital Balances at December 31, 2012 Approval of capital increase (Note 15.a) Capital increase under approval (Note 15.a) Net income for the year Stock option plan (Note 19) Unrealized gains on securities available for sale Proposed profit allocation Recognition of legal reserve Recognition of income reserve Interest on equity (Note 15.c) Balances at December 31, 2013 Capital increase (Note 15.a) Capital increase (Note 15.a) Capital increase (Note 15.a) Net income for the year Stock option plan (Note 19) Unrealized gains on securities available for sale Proposed profit allocation Recognition of legal reserve Recognition of income reserve Interest on equity (Note 15.c) Balances at December 31, 2014
See accompanying notes.
9
Capital increase (under approval)
Capital reserve
Income reserves Retained Legal profit reserve reserve
Marketable securities adjustments
Retained earnings
Total
100,000
26,132
-
459
4,604
-
-
131,195
26,132 -
(26,132) 2,380 -
980
-
-
-
4,663 -
2,380 4,663 980
-
-
-
-
-
1
-
1
-
-
-
233 -
1,630 -
-
(233) (1,630) (2,800)
(2,800)
126,132
2,380
980
692
6,234
1
-
136,419
79,000 1,967 2,380 -
(2,380) -
320
-
-
-
18,823 -
79,000 1,967 18,823 320
-
-
-
-
-
166
-
166
-
-
-
942 -
9,775 -
-
(942) (9,775) (8,106)
(8,106)
209,479
-
1,300
1,634
16,009
167
-
228,589
Austral Resseguradora S.A. Statements of cash flows Years ended December 31, 2014 and 2013 (In thousands of reais) 12/31/2014 Cash flow from operating activities Net income for the year Adjustments to Depreciation and amortization Stock option plan
12/31/2013
18,823
4,663
668 320 19,811
610 980 6,253
(100,358) (89,612) (14,802) 2,196 1,925 (826) 5,989 43,902 1,379 63,482 (6) (3,301) (70,221)
(25,990) (87,112) (83,432) (1,065) (2,734) (602) (691) 58,259 6,624 143,648 (5,458) 7,700
Cash flow from investing activities Disposal (acquisition) of investments Acquisition of property and equipment Acquisition of intangible assets Net cash used in investing activities
(82) (140) (222)
28 (120) (405) (497)
Cash flow from financing activities Capital increase Payment of interest on equity Net cash provided by financing activities
80,967 (8,106) 72,861
2,380 (2,800) (420)
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
2,418 9,387 11,805
6,783 2,604 9,387
Changes in balance sheet accounts Financial assets Receivables from reinsurance operations Retrocession assets - reserves Deferred tax assets Securities and receivables Deferred acquisition costs Taxes and contributions paid Payables for reinsurance operations Accounts payable Reserves - reinsurers Third-party deposits Income and social contribution taxes paid Net cash provided by (used in) operating activities
See accompanying notes.
10
Austral Resseguradora S.A. Notes to financial statements December 31, 2014 and 2013 (In thousands of reais)
1. Operations Austral Resseguradora S.A., a privately-held corporation headquartered in Brazil at Rua Humaitá, 275, 7º andar, in the city of Rio de Janeiro, RJ (“Company” or “Reinsurer”), engages in reinsurance and retrocession operations in all insurance lines, pursuant to the legislation currently in force, across Brazil, and may hold equity interests in other companies as a member or shareholder. On January 31, 2011, SUSEP Administrative Ruling No. 3908 approved the resolutions made by the Company’s shareholders at the Special General Meeting held on December 27, 2010, as well as the authorization for Austral Resseguradora S.A. to operate the reinsurance and the retrocession business. On October 6, 2011 Austral Participações S.A. became the holder and owner of 100% of the Company’s shares, as shown in the share transfer book. The change in shareholding, as mentioned above, was approved by SUSEP Administrative Ruling No. 4531, dated April 3, 2012. On September 5, 2014, the shareholders of Austral Participações S.A. (shareholder and owner of 100% of shares of Austral Resseguradora) approved International Finance Corporation (IFC) becoming a shareholder in the Company through a capital increase in Austral Participações S.A. totaling R$79,937, with the issuance of 41,054,273 shares subscribed and paid up by the International Finance Corporation (IFC) on September 9, 2014. The International Finance Corporation’s indirect acquisition of a qualifying holding in Austral Resseguradora S.A. was ratified by SUSEP Administrative Ruling No. 6130/2014, as published in the Federal Register on December 24, 2014. The Administrative Ruling also ratified there was no change in the control structure of Austral Participações S.A.
2. Presentation and preparation of the financial statements a)
Going-concern considerations Management assessed the Company’s ability to continue as a going concern and is satisfied that the Company has sufficient funds to continue in business for a reasonable period of time. Additionally, management is not aware of any material uncertainty that may raise significant doubts about the Company’s ability to continue as a going concern. Accordingly, the financial statements were prepared based on that principle.
11
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
2. Presentation and preparation of the financial statements (Continued) b)
Statement of compliance The financial statements were prepared according to the provisions of SUSEP Circular No. 483 of January 6, 2014, accounting pronouncements, guidelines and interpretations issued by the Brazilian FASB (CPC), and rules of the Brazil’s National Private Insurance Council (CNSP) (hereinafter “accounting practices adopted in Brazil applicable to entities under Brazil’s Private Insurance Supervisory Office (SUSEP) oversight”). SUSEP Circular No. 483, of January 6, 2014, rules on the changes in accounting standards to be complied with by local entities engaged in activities involving private pension, sale of certificate accounts with lottery prizes, insurance and reinsurance, with retrospective application as of January 1, 2014. This Circular supersedes SUSEP Circular No. 464, of March 1, 2013. The changes in accounting standards introduced by this Circular did not impact the Company’s financial statements. The authorization to conclude the preparation of these financial statements was given by Company management on February 25, 2015.
c)
Functional and reporting currency The Company’s functional currency is the Brazilian Real (R$). This is the currency of the primary economic environment in which the Company operates. Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the rate of exchange prevailing at the balance sheet closing date. Differences arising on translation of monetary items are directly recognized in profit or loss.
d)
Basis of measurement The amounts in the financial statements are expressed in Brazilian reais (R$), rounded to thousands (R$ 000), except where otherwise indicated, and were prepared on a historical cost basis, except the following material items recognized in the balance sheet:
12
Financial instruments measured at fair value through profit or loss;
Reserves measured according to SUSEP guidelines.
Financial assets available for sale measured at fair value.
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
2. Presentation and preparation of the financial statements (Continued) d)
Basis of measurement (Continued) Pursuant to CPC 11 - Insurance Contracts, the Reinsurer applied the accounting practices adopted in Brazil (BR GAAP) to its insurance contracts, in accordance with the standards issued by the National Private Insurance Council (CNSP) and by Brazil’s Private Insurance Supervisory Office (SUSEP). The preparation of the financial statements requires management to make judgments in determining and recording accounting estimates. Significant assets and liabilities subject to these estimates and assumptions include, but are not limited to, assessing the liabilities underlying reinsurance policies, determining the fair value of financial assets, impairment testing of non-financial assets, provision for contingencies and deferred tax assets. Settlement of transactions involving these estimates may differ from the estimated value due to uncertainties inherent in the estimation process, as mentioned in Note 04.
3. Summary of significant accounting practices Significant accounting practices adopted in the preparation of the accompanying financial statements are described below. These practices have been consistently applied to all comparative periods presented herein. a)
Cash and cash equivalents Cash and cash equivalents include cash and positive bank account balances subject to insignificant risk of change in fair value. These are used by the Company to manage its short-term commitments.
13
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) b)
Financial assets The classification of the financial assets depends on the purpose for which they were acquired. Management determines the classification of its financial assets on the initial date of acquisition and reassesses classification at each balance sheet date. The Reinsurer classifies its financial assets in accordance with the categories defined by CPC 38 - Financial Instruments: Recognition and Measurement: I.
Assets measured at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading. A financial asset is classified in this category when acquired primarily for the purpose of selling in the near term, and is initially recognized at fair value. These assets are measured at adjusted cost, including earnings, and subsequently measured at fair value, with changes in fair value being immediately recognized in the income statement. Transaction costs directly attributable to the acquisition of financial assets classified in this category are immediately recognized in the income statement for the period as incurred. Assets under this category are classified in current assets regardless of their maturity date.
II.
Available-for-sale securities The Company classifies all non-derivative financial assets that are not designated in the previous category as securities available for sale. After initial recognition, these are measured at fair value, and the changes, other than impairment losses, are recognized in other comprehensive income and recorded under equity. When an investment is derecognized, the amount accrued as other comprehensive income is reclassified to the income statement.
14
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) b)
Financial assets (Continued) III. Held-to-maturity financial assets Financial assets designated upon acquisition as held to maturity are not subject to trading. The Company must have a positive intention and ability to hold them to maturity. These financial instruments are stated in current and noncurrent assets in accordance with their maturity and are measured at acquisition cost (fair value), plus earnings accrued to the balance sheet date, based on the effective interest rate of the respective securities. The Company has no financial assets classified as held to maturity at the balance sheet closing date. IV. Receivables Receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included as current assets, except for those maturing more than twelve months after the balance sheet date (these are classified as noncurrent assets). In practice, receivables are usually recognized at the value determined upon acceptance of the contract, adjusted for impairment, if necessary.
c)
Derivative financial instruments Derivative financial instruments designated in hedge transactions are initially recognized at fair value on the date the derivative contract is entered into and are subsequently remeasured at fair value. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, the nature of the risks excluded from the hedging relationship, the prospective assessment of the effectiveness of the hedging relationship and how the Company will assess the effectiveness of the hedging instrument in offsetting the exposure to changes in the hedged item’s fair value.
15
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) c)
Derivative financial instruments (Continued) The Company has no derivative financial instruments at the balance sheet closing date and did not conduct any transactions involving derivative instruments for the years ended December 31, 2014 and 2013.
d)
Recognition and measurement of reinsurance contracts Reinsurance contracts are represented by policies whereby the Reinsurer agrees with an insurer to accept a sole risk or a risk portfolio, or even part of the risk. Under such contracts, the Reinsurer agrees to pay compensations on claims covered by the cedent, as supported by the reinsurance contract. In general, the Reinsurer determines whether the reinsurance risk is significant by comparing premiums received with claims payable, had the insured event taken place. Reinsurance contracts aim at safeguarding the insurers’ interests by reducing their volatility, expanding capacity, reducing required capital and exchanging expertise, among others. For purposes of elective and nonproportional contracts, reinsurance premiums and acquisition costs are recorded at the moment the contract is accepted, net of respective contractual costs. The amount of earned premiums is recognized in the income statement in accordance with the elapsed term of the covered risk. In case of proportional contracts, the premium actually ceded to the reinsurer is known on a subsequent date. Accordingly, premiums are consistently written over the term of the contract, based on the estimate informed by the cedent upon acceptance thereof, except when there is a seasonal variation. Therefore, the amount of earned premiums recognized in the income statement arises from the writing pattern described above.
16
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) e)
Retrocession assets and liabilities Retrocession assets consist of receivables from reinsurers in the short and long term, depending on the time expected for realization or receipt of assets from retrocessionaires. Retrocession assets are consistently valued with reinsurance liabilities submitted to retrocession and with the terms and conditions of each contract. Liabilities payable to retrocessionaires comprise mainly premiums payable in retrocession contracts, consistent with the value of reinsurance assets to the extent that they are retroceded. Any gains or losses from the retrocession contracts are amortized during the expiry of contract risks. The Reinsurer analyzes the recoverability of the retrocession assets regularly at least at each balance sheet date. When there is objective evidence of impairment, the Reinsurer reduces the carrying amount of the retrocession asset to the estimated recovery value and immediately recognizes any loss in the income statement. Currently, no assessment has been made as to whether a provision for impairment on the Company’s retrocession assets should be recognized.
f)
Reinsurance liabilities The Reinsurer relied on the guidelines of CPC 11 - Insurance Contracts to assess its reinsurance contracts and translate its financial statements, applying the basic rules for assessing reinsurance contracts, e.g.: (i) liability adequacy test, (ii) retrocession assets impairment testing; and (iii) assessment of the level of prudence used to evaluate reinsurance contracts, among other applicable policies. Also, management did not find any situations where excessive prudence has been used to assess reinsurance contracts. The reserves from reinsurance contracts, according to the accounting practices adopted in Brazil applicable to entities under Brazil’s Private Insurance Supervisory Office (SUSEP) oversight and generally accepted actuarial concepts, applicable to local reinsurers authorized by Brazil’s Private Insurance Supervisory Office (SUSEP) to operate, are established in accordance with the provisions of the Brazil’s National Private Insurance Council (CNSP) and of SUSEP.
17
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) f)
Reinsurance liabilities (Continued) In compliance with CNSP Resolution No. 281 dated January 30, 2013, with SUSEP Circular No. 462 dated January 31, 2013, with internal manuals and with an actuarial note, the Company established the following reserves:
Unearned Premium Reserve (PPNG) This is recognized to cover payables related to future claims and expenses over the life of policies for risks assumed at the reporting date, comprising estimated policies in force and policies not issued. In order to calculate the portion of policies in force already written, the Company used different methodologies for each type of reinsurance contract and the exposure to each contract risk, in line with the SUSEP standards and guidance. The Unearned Premium Reserve for Policies in Force But Not Issued (PPNG RVNE) is estimated only for elective contracts, using until the average rate of delay noted in the Reinsurer’s portfolio. The average delay factor subjectively selected is applied to the unearned premium reserve for issued policies in order to derive the PPNG-RVNE. This calculation method allows promptly adjusting the reserve to any inconsistency determined in the related consistency tests for the previous months. In addition to recognizing a PPNG-RVNE, the Company also estimates premiums and brokerage commissions on policies in force but not issued, further calculating a deferral estimate for brokerage commissions.
Outstanding claims reserve (PSL) It consists of the cedent’s best estimate for the amount payable by the Reinsurer adjusted to market experience and, for claims reported on an individual basis, to the determination of the amount informed by the cedent under Company’s regulation.
18
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) f)
Reinsurance liabilities (Continued)
Reserve for claims incurred but not reported (IBNR) It aims at estimating the Reinsurer’s responsibility for claims already incurred, but not yet known. The reserve for claims incurred but not reported is calculated based on the type of contract, using a similar method of standard percentage rates established in SUSEP Circular No. 485, of January 6, 2014. For some proportional contracts with specific features, the Reinsurer uses an alternative method aimed at measuring the Company’s expected claims for this type of contract.
Excess earnings reserve (PET) This is intended to provision amounts owed by reference to contract earnings. This concept includes the payment of shares in profit commissions and claims bonus and sliding scale commissions. This reserve is calculated per contract on the computation date of these amounts and in accordance with specific criteria established in each contract. The reserve for such amounts is adjusted or reversed as the related amounts are confirmed with the cedents or retrocessionaires or actually paid/received.
Related expenses reserve (PDR) This is recognized on a monthly basis to cover expenses relating to payment of damages or benefits and covers not only expenses that may attributed to each individual claim but also expenses that may only relate to groups of claims.
g)
Deferred acquisition costs Deferred commissions are recorded upon acceptance of the contracts and allocated to the income statement as the policy/contract term elapses. These commissions are deferred using the same method adopted for premium deferral.
19
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) g)
Deferred acquisition costs (Continued) The table below shows two group average deferral periods: 
Average duration of policies included in reinsurance contracts, used for deferral of premiums written in a certain month; and

Total average deferral period for reinsurance contracts, i.e., total average period for the premium of a certain contract to be fully earned.
Groups
18 12 13 12 12 36 10 6 11 12 12 12 16
Property Special risks Liability Vehicle Transportation Financial risks Personal insurance - Group Rural Other Personal insurance - Individual Maritime Aviation Average period
Groups Property Special risks Liability Vehicle Transportation Financial risks Personal insurance - Group Housing Rural Other Personal insurance - Individual Maritime Aviation Average period
20
December 31, 2014 Average duration of policies included in Total average deferral reinsurance contracts period for reinsurance (in months) contracts (in months) 24 13 26 24 25 48 11 18 38 13 22 15 25
December 31, 2013 Average duration of policies included in Total average deferral reinsurance contracts period for reinsurance (in months) contracts (in months) 15 13 16 12 12 34 12 15 7 13 8 10 12 14
20 16 21 26 26 46 13 15 17 24 11 22 14 23
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) h)
Recognition of claims and expenses Claims from reinsurance include all events arising during the period, either reported or not, the related internal and external costs with treatment of claims directly related to processing and settlement thereof, the reduced amount consisting of salvage recoveries and any adjustments to prior periods’ unsettled claims.
i)
Property and equipment Property and equipment are measured at cost, less accumulated depreciation. Such cost includes expenses directly attributable to the acquisition of assets. Subsequent costs are included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company, and the cost of the item can be measured reliably. Depreciation of other assets is calculated using the straight-line method. Where the carrying amount of an asset exceeds its recoverable amount, the asset is immediately written down to its recoverable amount.
j)
intangible assets Software maintenance costs are recognized as expenses, when incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products, controlled by the Company, are recognized as intangible assets when the following criteria are met:
21
It is technically feasible to complete the software so that it is available for use.
Management intends to complete the software and use it.
Future economic benefits associated with the software can be demonstrated.
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) j)
Intangible assets (Continued)
Adequate technical, financial and other resources are available to complete the development of and use or sell the software;
The expense attributable to the software during its development can be measured reliably.
The directly attributable costs that are capitalized as part of the software product include payroll-related costs allocated to software development and an appropriate share of applicable direct expenses. Other development expenditures that do not meet these criteria are recognized as expenses, when incurred. Development costs previously recognized as expenses are not recognized as assets in subsequent periods. Software development costs recognized as assets are amortized throughout their estimated useful life. k)
Impairment of financial assets Upon balance sheet closing, the Reinsurer assesses whether there is objective evidence that a certain financial asset or group of financial assets has been impaired. A financial asset or a group of financial assets is deemed to be impaired and the impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset.
l)
Assets carried at amortized cost If there is objective evidence that an impairment loss has been incurred for assets carried at amortized cost, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets’ original effective interest rate. The carrying amount of the asset is reduced and the loss is recognized in the income statement.
22
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) l)
Assets carried at amortized cost (Continued) The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Impairment losses, if any, are always measured at the reporting date. For impairment purposes, the Company classifies insurance premiums receivable based on economic studies of losses incurred, default risks, among other aspects. The provision for impairment will be recorded when necessary, according to SUSEP Circular No. 483, of January 6, 2014. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
m) Income and social contribution taxes Current tax assets and liabilities for last and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. Income and social contribution taxes are calculated based on net income for the period, at the rates of 25% and 15%, respectively, adjusted for additions and exclusions determined by tax legislation in force. Deferred income and social contribution taxes reflect income and social contribution tax losses and losses from temporary differences on the balance sheet date between tax bases of assets and liabilities and their carrying amounts.
23
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) m) Income and social contribution taxes (Continued) Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. Temporary differences will be used to reduce or increase future taxable profits. The Company evaluates, on a semiannual basis, the amount of deferred income and social contribution tax assets in relation to its operating performance and projected taxable profit and, when necessary, reduces the amounts to the expected realizable value. n)
Liability adequacy test As required by CPC 11 - Insurance Contracts, at each balance sheet date, the Company evaluates the obligations in connection with the reinsurance contracts in force at the reporting date through a liability adequacy test. Brazil’s Private Insurance Supervisory Office (SUSEP) introduced and defined the rule for preparation of this test by way of SUSEP Circular No. 457, of December 14, 2012. The liability adequacy test has been carried out with prudence and objectivity, using applicable, appropriate and significant statistical and actuarial methods, based on updated and true information and realistic considerations, consistently with observable information in the financial market. In summary, the liability adequacy test compares the estimated cash flows arising from the obligations undertaken by the Company to comply with reinsurance contracts, with the reserves established by the Company at the reporting date, net of deferred acquisition costs and related intangible assets. The Company prepared a methodology that represents the best estimate of all future cash flows by using current, realistic and unbiased assumptions for each variable involved in the liability adequacy test and grouping the reinsurance contracts in view of the lines set forth in the regulation currently in force.
24
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) n)
Liability adequacy test (Continued) Pursuant to SUSEP Circular No. 457, of December 14, 2012, the cash flows estimated for purposes of performing the liability adequacy test are gross of retrocession. For each obligation arising from the insurance contracts evaluated, the related risk-free interest rate term structure was obtained by means of the fixed risk-free ETTJ index. The liability adequacy test for the years ended December 31, 2014 and 2013 indicated that the reserves then established, net of deferred acquisition costs and related intangible assets, are sufficient to secure the expected present value of cash flows in connection with the compliance with reinsurance contracts, discounted by the risk-free interest rate term structure, with no need to adjust the Company’s reserves. Moreover, the Company did not identify the need to record supplementary coverage reserves.
o)
Other reserves, contingent assets and contingent liabilities Pursuant to CPC 25 - Provisions, Contingent Liabilities and Contingent Assets, a contingent reserve for labor, civil and tax claims is recognized when there is a present (legal or constructive) obligation as a result of a past event, a reliable estimate can be made of the amount of the obligation, and it is probable that a cash outflow will be required to settle the obligation. If these conditions are not met, no provision shall be recognized. The reserves are recognized in view of a number of individual analyses performed by the Company’s legal advisors, of administrative and legal claims in progress, and of the potential unfavorable outcomes leading to future disbursements. An increase in the liability due to the passage of time is recognized as financial expenses. Contingent assets, if any, are not recognized until there is a final positive outcome for the Company and when the realization of these assets is probable.
25
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) p)
Determination of profit and loss Profit or loss is determined under the accrual method and considers that reinsurance premiums are recorded in nonproportional and elective contracts on the date of acceptance of covered risks. In case of proportional contracts, the premium actually ceded to the reinsurer is known on a subsequent date. Accordingly, premiums are consistently written over the term of the contract, based on the estimate informed by the cedent upon acceptance thereof, except when there is a seasonal variation. Reinsurance and retrocession premiums and the related acquisition costs and retrocession commissions are recognized in the income statement over the terms of the related policies. Written premiums gross of reinsurance comprise total premiums receivable agreed in reinsurance contracts during the reporting period and adjustments which may arise during such period for premiums receivable in relation to premiums written in prior reporting periods, in conformity with information provided by insurance companies. In 2014, the Company started to recognize the premium amount relating to policies in force but not issued (Premium - RVNE), considering that its premium history has become more consistent and the amount of Premium - RVNE can be more reliably estimated. Written premiums gross of retrocession comprise total premiums payable agreed in retrocession contracts during the reporting period and any adjustments from prior periods, consistently with reinsurance premiums under retrocession. The earnings per thousand shares calculation is shown in the income statements.
26
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) q)
Earnings per share In compliance with CPC 41, the Company presents its earnings per share for the years ended December 31, 2014 and 2013. Basic earnings per share are calculated by dividing profit or loss attributable to ordinary equity holders of the Company by the number of shares outstanding during the period. As at December 31, 2014 and 2013, the Company had no preferred shares.
r)
Stock option plan The stock option plan offered to executive officers is measured and recognized at fair value on the grant date in a specific equity account and in the income statement, to the extent the contractual conditions are met. The cost of equity-settled transactions is recognized over the year in which the service conditions are met, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognized until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the Company or the employee are not met. However, if a new award replaces the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.
4. Significant accounting judgments, estimates and assumptions The preparation of the financial statements requires using some accounting estimates and exercising a high degree of Management judgment on using some accounting policies. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
27
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions (Continued) In the process of applying the Company’s accounting policies, management has made the following judgments, besides those involving estimates and assumptions, which have the most significant effect on the amounts recognized in the financial statements. a)
Valuation of reinsurance contract liabilities As permitted by CPC 11 - Insurance Contracts, the Company applied the accounting practices accepted in Brazil. The reserves that represent the reinsurance contract liabilities of the Company’s lines are as follows: unearned premium reserve (PPNG), unearned premium reserve for policies in force but not written (PPNG-RVNE), outstanding claims reserve (PSL), reserve for claims incurred but not reported (IBNR), related expenses reserve (PDR), excess earnings reserve (PET) and supplementary coverage reserve (PCC). The Company’s reserves are calculated in accordance with methodologies widely known in the market, and are in accordance with all requirements and guidelines established by SUSEP. The behavior of the Company’s reinsurance portfolio is monitored on a monthly basis in order to foresee and define proper criteria for measurement of reserves. Claims will be analyzed taking into consideration the historical behavior based on market experience and may be further analyzed by main business line and type of claim. Large claims are usually separately addressed, either by being reserved at the face value of loss estimates or separately projected in order to reflect their future development. Additional qualitative judgment is used to assess the extent to which past trends may not apply in the future (for example to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.
28
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions (Continued) b)
Allowance for doubtful receivables from reinsurance and retrocession operations This allowance is grounded on an analysis of the history of losses monitored by management, and is established at an amount deemed to be sufficient to cover the probable losses on receivables from insurance and retrocession operations. As at December 31, 2014 and 2013, there were no indications that the receivables would not be recovered.
c)
Useful life of property and equipment and intangible assets The depreciation or amortization of property and equipment and intangible assets considers management’s best estimate of the use of these assets over its operations. Changes in the economic and/or consumer market may require a revision of useful life estimates.
d)
Impairment of non-financial assets Management annually tests the net book value of the assets with a view to determining whether there are any events or changes in economic, operating or technological circumstances that may indicate impairment. Where such evidence is identified, and the carrying amount of an asset exceeds its recoverable amount, an impairment provision is recognized and the carrying amount is written down to its recoverable amount. As at December 31, 2014 and 2013, there were no indications of impairment loss on nonfinancial assets.
e)
Provision for contingencies The Company is subject to legal, civil and labor claims covering matters arising from the regular course of activities. The assessment of tax, labor and civil risks involves considerable judgment by Company management, and, as a result of a past event, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation and the amount of this obligation can be reasonably estimated.
29
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions (Continued) e)
Provision for contingencies (Continued) The assessment of the likelihood of loss includes an analysis of available evidence, the hierarchy of laws, available case law, recent court decisions and their relevance in the legal system, as well as the opinion of outside legal advisors. Provisions are reviewed and adjusted to take into account changes in circumstances, such as the applicable statute of limitations, tax audit conclusions or additional exposures identified based on new matters or court decisions. Actual results may differ from estimates. Settlement of transactions involving these estimates may result in amounts significantly different than those recorded in the financial statements due to uncertainties inherent in the estimation process. The Company reviews its estimates and assumptions at least on a quarterly basis.
5. Reinsurance and financial risk management a)
Reinsurance risk management
The main risk the Company faces under reinsurance contracts is that actual claims payments differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Company is to ensure that sufficient reserves are available to cover these liabilities. The above risk exposure is mitigated by diversification across a large portfolio of reinsurance contracts. The variability of risks is also improved by careful selection and implementation of sound and prudent underwriting strategy guidelines, as well as the continuous monitoring for adjustment purposes.
30
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Reinsurance and financial risk management (Continued) a)
Reinsurance risk management (Continued) The Company purchases retrocession as part of its program to reduce volatility and expand capacity. Retrocession ceded is placed on both a proportional and nonproportional basis. Proportional retrocession is primarily quota-share retrocession, whereby the Company retrocedes the risks in proportion to claims recovered. Nonproportional retrocession is primarily excess-of-loss retrocession, whereby the retrocessionaire agrees to pay the claim amount in excess of a given threshold (priority) contractually agreed upon, thus minimizing the Company’s loss. Amounts recoverable from retrocessionaires are estimated in a manner consistent with the outstanding claims reserve and are in accordance with the reinsurance contracts. Although the Company has retrocession arrangements, it is not relieved of its direct obligations to its reinsurance policyholders and thus a credit exposure exists with respect to ceded retrocession, to the extent that any retrocessionaire is unable to meet its obligations assumed under such retrocession agreements. For reinsurance risk management, the Company adopts policies, processes and operating procedures to assess the risks involving its major lines of business. The underwriting policy drives decision-making, actions and procedures involved in underwriting the portfolio risks. The parameters adopted for preparing quotes and defining targets (production, commissioning, loss ratio, results, etc.) are attainable and sustainable, consistent with the Company’s structure and capital and aim at generating steady and continuous profits. The Company underwrites risks in all lines, considering the technical factors of each line and policy. The underwriting policy is supported by the portfolio’s risk underwriting guidelines, underwriting procedures, and decision-making authority levels, which are formally approved, regularly reviewed and properly communicated to all levels of personnel involved. For risk pricing purposes, with a view to obtaining results that are consistent, stable and positive both individually and for the portfolio as a whole, the Company adopts various models of pricing benchmarks, consolidated in the actuarial community. The main pricing methodologies include historical analysis, attrition and severity, exposure and experience.
31
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. 5. Reinsurance and financial risk management (Continued) b)
Sensitivity test for operating activities The Reinsurer’s risk monitoring policy addresses the periodical analysis of its investment portfolio in order to assess its volatility through changes which may lead to significant changes in P&L. According to Vinci Gestora de Recursos Ltda., a company that manages the Reinsurer's funds, such investments generated an exposure whose parametric Value at Risk (VAR) with 95% confidence level, one-business-day timeframe and a 252-business-day history was R$422 or 0.15% of the portfolio equity, as mentioned in Note 5.e, or R$816 with a confidence level of 99%. The Reinsurer analysis also considers its portfolio performance in stress scenarios of the main risk factors that make up its assets, as follows:
Forward yield curve structure of the Extended Consumer Price Index (IPCA): variation of 300 basis points or 3% on an equal basis in all of the forward yield curve vertices of inflation - IPCA - inferred by the yield curve of National Treasury Notes (NTN-B.;
Bovespa index: variation of 10% in Bovespa index:
Foreign exchange: variation of 10% in exchange rates. Scenario A (**) Risk factors Inflation Stock market Foreign exchange Total
Impact on P&L before taxes
Shock +300 bps -10% +10%
Scenario B (**)
(*)
(12,070) (470) 2,932 (9,608)
Risk factors Inflation Stock market Foreign exchange Total
(*) Bps = basis points, where 1 bp = 0.01% (**) Information from the administrator of the Company’s funds (Vinci Gestora de Recursos Ltda).
32
Shock -300 bps(*) +10% -10%
Impact on P&L before taxes 12,070 470 (2,932) 9,608
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Reinsurance and financial risk management (Continued) b)
Sensitivity test for operating activities (Continued) In addition to the aforementioned scenarios, the Company carried out sensibility tests increasing its portfolio’s loss ratio and stressing the behavior of foreign exchange rates prevailing as at December 31, 2014: 
Loss ratio To perform a sensitivity test, the Company assumed a 10% increase in the loss ratio reported for a group of reinsurance lines in the financial statements as at December 31, 2014, with the loss ratio being limited to a 10% floor rate. The table below presents the loss ratios used in the proposed sensitivity test:
Group Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Housing Rural Other Personal insurance - Individual Maritime Aviation Total
33
Loss ratio increased by 56.6% 6.2% 68.5% 156.8% 129.7% 10.0% 41.7% 10.0% 77.9% 168.6% 10.0% 121.1% 32.0%
December 31, 2014 Changes in reinsurance losses
Changes in losses, net of retrocession
2,085 54 62 3,154 2,551 6,910 2,296 5 4,509 6,804 182 186 140
1,343 20 41 3,118 2,015 792 1,774 5 687 3,061 16 122 126
28,938
13,121
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Reinsurance and financial risk management (Continued) b)
Sensitivity test for operating activities (Continued)
Loss ratio (Continued)
Group Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Housing Rural Other Personal insurance - Individual Maritime Aviation Total
Loss ratio increased by 197.7% 1.7% 10.0% 55.6% 64.5% 24.5% 133.7% 10.0% 110.5% 50.1% 119.0% 38.3% 37.7%
December 31, 2013 Changes in reinsurance losses
Changes in losses, net of retrocession
5,639 15 424 1,071 1,090 296 768 12 6,153 518 55 58 105
3,398 8 9 1,075 1,017 52 725 12 546 518 19 65 92
16,204
7,536
The impact on Reinsurer’s net income and equity after taxes and contributions as at December 31, 2014, is a decrease in the Company’s net income and equity amounting to R$8,037 (R$6,268 at December 31, 2013). c)
Financial risk management The Reinsurer’s investment policy sets forth the guidelines to allocate funds to marketable securities, as well as to monitor the risks inherent to its investment portfolio. The investments rely on analysis of short-, medium- and long-term macroeconomic scenarios, observing the main variables of the Brazilian and global economy, such as: expectations for evolution of interest rates, inflation rates, exchange rates, and economic growth, among others.
34
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Reinsurance and financial risk management (Continued) c)
Financial risk management (Continued) The Reinsurer’s investment decisions consider its cash needs and the matching between its assets and liabilities in light of a conservative behavior in relation to its counterparties’ credit and investments made. The financial investment risks are managed through a daily analysis and monitoring of the portfolio. The Reinsurer’s investment committee meets to analyze the portfolio performance, design prospective scenarios and set the overall guidelines for investments in the upcoming months.
d)
Credit risk Credit risk consists of any losses on financial liabilities not satisfied by the counterparties as agreed. The credit risk analysis is based on the ratings assigned by credit rating agencies. The Company conducts business with two local, seventeen admitted and nineteen occasional reinsurers. Additionally, the Reinsurer’s exposure reaches R$4,475 at December 31, 2014 and R$2,573 at December 31, 2013, from business accepted in reinsurance, in which insurers are the counterparties. This credit risk exposure was calculated in accordance with article 4, Attachment I of CNSP Resolution No. 228, of December 6, 2010, as amended.
e)
Market risk Market risk consists of any losses from unfavorable fluctuation of the value of the Company’s investments. The market risk control is based on the Value at Risk (VAR) model, which shows the greatest loss expected from an asset or portfolio for a given time frame and a given likelihood of occurrence.
35
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Reinsurance and financial risk management (Continued) e)
Market risk (Continued) At December 31, 2014, parametric Value at Risk (VAR) with 95% confidence level, onebusiness-day timeframe and a 252-business-day history was R$422 or 0.15% of the portfolio equity.
f)
Liquidity risk Liquidity risk consists of a company possibly not being able to make payments in connection with the mismatching of deadline between its assets and liabilities. Management controls the Company’s portfolio on a daily basis, regularly discussing the position of investments, considering the related liquidity and expected profitability, in its meetings or whenever required. The Company adopts a conservative approach to investments, prioritizing liquidity capacity at all times when choosing its financial assets, based on its obligations to the counterparties. At December 31, 2014, 72.58% of the Company’s portfolio comprises Financial Treasury Bills (LFTs), which have daily liquidity regardless of maturity.
Assets and liabilities Financial assets measured at fair value through profit or loss Financial assets available for sale Receivables from insurance operations Total assets Reinsurance contract liabilities (net of retrocession) Payables from insurance and reinsurance operations Total liabilities
Assets and liabilities Financial assets at fair value through profit or loss Financial assets available for sale Receivables from reinsurance credits Total assets Reinsurance contract liabilities (net of retrocession) Payables from insurance and reinsurance operations Total liabilities
36
No maturity
Within 1 year
December 31, 2014 From 1 to 2 years Above 2 years
Total
31,679 31,679
3,609 259,881 263,490
630 630
198,651 44,717 243,368
233,939 44,717 260,511 539,167
-
169,405 144,581 313,986
4,337 4,337
-
173,742 144,581 318,323
No maturity
December 31, 2013 From 1 to Within 1 year 2 years Above 2 years
Total
11,896 11,896
17,810 170,808 188,618
7,099 91 7,190
128,676 12,651 141,327
165,481 12,651 170,899 349,031
-
120,710 100,679 221,389
4,352 4,352
-
125,062 100,679 225,741
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
6. Financial assets a)
Classification by category and range of maturity December 31, 2014
I. Trading securities Financial Treasury Bills (LFT) Investment fund shares II. Securities available for sale National Treasury Notes (NTN-B) Grand total
No maturity
Within 1 year
SELIC -
31,679
3,609 -
197,605 -
1,046 -
202,260 31,679
73% 11%
IPCA
31,679
3,609
44,717 242,322
1,046
44,717 278,656
16% 100%
Rates contracted I. Trading securities Financial Treasury Bills (LFT) Investment fund shares II. Securities available for sale National Treasury Notes (NTN-B) Grand total
From 1 to 5 years
Above 5 years
Book and market value
Rates contracted
December 31, 2013 From 1 to Above 5 years 5 years
Portfolio percentage
No maturity
Within 1 year
Book and Portfolio market value percentage
SELIC -
11,896
17,810 -
130,681 -
5,094 -
153,585 11,896
86% 7%
IPCA
11,896
17,810
130,681
12,651 17,745
12,651 178,132
7% 100%
The curve value of securities available for sale at December 31, 2014 is R$44,439 (R$12,649 at December 31, 2013). The market values of government securities were determined by reference to quotations announced by the Brazilian Association of Financial Market and Capital Entities (ANBIMA). The investment fund shares are valued in view of the unit value of the share at the balance sheet date, as reported by each fund administrator. The market value of real estate investment fund shares in the Company’s portfolio was obtained by reference to the price informed by BOVESPA. For 2014, there were no changes in short-term investments.
37
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
6. Financial assets (Continued) b)
Fair value hierarchy The table below presents financial instruments recorded at fair value and their respective assessment methods. The different levels were defined as follows:
Level 1: securities traded in an active market;
Level 2: securities not traded in markets covered by “Level 1” whose pricing is directly or indirectly observable. Level 1
December 31, 2014 Level 2 Total
Level 1
December 31, 2013 Level 2 Total
I. Trading securities Investment funds Investment fund shares Real estate fund shares Fixed-income securities - government: Financial Treasury Bills
5,217
21,419 5,043
21,419 10,260
3,180
8,716 -
8,716 3,180
202,260
-
202,260
153,585
-
153,585
II. Securities available for sale Fixed-income securities - government: National Treasury Notes Grand total
44,717 252,194
26,462
44,717 278,656
12,651 169,416
8,716
12,651 178,132
At December 31, 2014, the Company holds 8,623 (9,425 at December 31, 2013) Financial Treasury Bills (LFT), totaling R$56,372 (R$55,607 at December 31, 2013), at Banco Itaú S.A. as a collateral to a letter of credit. c)
Changes in short-term investments Changes in short-term investments are stated as follows: 12/31/2013 Investment fund shares Fixed-income securities - government Total
38
11,896 166,236 178,132
(+) (-) Investments Redemptions 18,254 192,651 210,905
(496) (132,261) (132,757)
(+) Yield 2,025 20,351 22,376
12/31/2014 31,679 246,977 278,656
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
7. Guarantee of reserves The Central Bank of Brazil (BACEN) through Resolution No. 3308, of August 31, 2005, as amended, and SUSEP through CNSP Resolution No. 226, of December 6, 2010, as amended, set standards for investment of guarantee funds of reserves by insurers. At December 31, 2014 and 2013, the Company’s coverage stated the following: 12/31/2014 Unearned premium reserve Outstanding claims reserve Reserve for claims incurred but not reported (IBNR) Excess earnings reserve Total reserves
173,249 80,527 65,665 6,042 325,483
145,441 74,377 40,672 1,511 262,001
Credit rights Deferred acquisition costs - PPNG reducing account Recovery of claims incurred but not reported (IBNR) Recovery of outstanding claims reserve (PSL) Unearned premium reserve - retrocession Excess earnings reserve Total exclusions
(100,940) (3,411) (16,972) (27,881) (41,343) (2,276) (192,823)
(90,186) (2,938) (13,257) (38,038) (21,824) (1,071) (167,314)
Total reserves for coverage
132,660
94,687
Breakdown of assets linked to the coverage of reserves Financial Treasury Bills (LFT) National Treasury Notes (NTN) Financial investment fund shares Shares of real estate investment funds
100,146 44,717 17,692 10,260
90,901 12,651 6,460 3,180
Total assets linked to the coverage of reserves
172,815
113,192
40,155
18,505
Sufficiency
39
12/31/2013
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
8. Receivables from reinsurance operations 12/31/2014
12/31/2013
259,881 630 260,511
170,808 91 170,899
Premiums falling due From 1 to 30 days From 31 to 60 days From 61 to 120 days From 121 to 180 days From 181 to 360 days Above 360 days Total premiums falling due
22,987 22,304 7,328 110,365 81,262 630 244,876
8,546 12,960 3,229 76,285 60,851 91 161,962
Overdue premiums From 1 to 30 days From 31 to 60 days Total overdue premiums Risks in force but not written - RVNE Total outstanding premiums
2,972 8,211 11,183 4,452 260,511
6,969 1,968 8,937 170,899
170,899 521,129 (431,517) 260,511
83,787 292,561 (205,519) 70 170,899
Premiums receivable - current Premiums receivable - noncurrent Total current and noncurrent Aging of premiums receivable
Changes in premiums receivable Opening balance (+) Premiums written (-) Receivables (+) Reversal of provision for losses Closing balance
40
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
9. Retrocession assets 12/31/2014
12/31/2013
Claims incurred but not reported (IBNR) Recoveries of losses pending payment Deferred retrocession premiums of contracts written Other reserves
16,972 27,881 104,612 2,276
13,257 38,038 84,573 1,071
Total current and noncurrent
151,741
136,939
10. Deferred acquisition costs 12/31/2013 Property Aviation Special risks Liabilities Vehicle Maritime Transportation Financial risks Personal insurance - Group Rural Other Total current and noncurrent
1,586 189 76 135 129 137 461 115 276 54 191 3,349 12/31/2012
Property Aviation Special risks Liabilities Vehicle Housing Maritime Transportation Financial risks Personal insurance - Group Rural Other Total current and noncurrent
41
1,353 114 74 151 101 5 303 277 78 88 23 180 2,747
Set up 715 457 196 81 118 18 169 279 155 111 2,299 Set up 531 259 597 47 63 220 60 347 75 96 2,295
Amortization (305) (202) (124) (56) (74) (110) (111) (66) (309) (84) (32) (1,473) Amortization (298) (184) (595) (63) (35) (5) (166) (36) (23) (159) (44) (85) (1,693)
12/31/2014 1,996 444 148 160 173 45 519 49 246 125 270 4,175 12/31/2013 1,586 189 76 135 129 137 461 115 276 54 191 3,349
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
10. Deferred acquisition costs (Continued) The deferred acquisition costs referred to above correspond to total commission expenses, which are recorded upon acceptance of the contracts and allocated to P&L in accordance with the risk expiry period elapsed. These commissions are deferred through the same methodology used for premium deferral. All deferred commission expenses were taken into consideration in the liability adequacy test.
11. Property and equipment Annual depreciation rate IT equipment Telecommunication systems Furniture, machinery and fixtures Air-conditioning and security systems Facilities Total
20% 10% 10% 10% 10%
Annual depreciation rate IT equipment Telecommunication systems Furniture, machinery and fixtures Air-conditioning and security systems Facilities Total
20% 10% 10% 10% 10%
12/31/2013 453 85 274 178 514 1,504
12/31/2012 526 97 276 203 575 1,677
Acquisitions 42 40 82
Acquisitions 72 35 13 120
Depreciation (149) (12) (40) (25) (73) (299)
Depreciation (145) (12) (37) (25) (74) (293)
12/31/2014 346 73 274 153 441 1,287
12/31/2013 453 85 274 178 514 1,504
12. Intangible assets Annual amortization rate Right to use third-party software Total
20%
Annual amortization rate Right to use third-party software Total
42
20%
12/31/2013 1,013 1,013
12/31/2012 925 925
Acquisitions 140 140
Amortization (369) (369)
Acquisitions Amortization 405 405
(317) (317)
12/31/2014 784 784
12/31/2013 1,013 1,013
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
13. Reinsurance contract liabilities Reinsurance reserve 12/31/2014 12/31/2013
Reinsurance (-) retrocession=net reserve 12/31/2014 12/31/2013
26,564 3,681 1,791 8,277 12,637 73,294 14,428 4 18,628 10,643 440 2,862 173,249
24,811 3,834 1,549 12,567 13,993 51,337 5,227 23,509 5,505 1,023 2,086 145,441
(10,969) (2,756) (241) (324) (2,547) (69,369) (2,247) (2) (12,466) (2,596) (192) (903) (104,612)
(10,506) (3,242) (199) (2) (2,360) (47,196) (1,240) (18,672) (39) (324) (793) (84,573)
15,595 925 1,550 7,953 10,090 3,925 12,181 2 6,162 8,047 248 1,959 68,637
14,305 592 1,350 12,565 11,633 4,141 3,987 4,837 5,466 699 1,293 60,868
Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Personal insurance - Individual Rural Other Maritime Aviation Outstanding claims reserve (PSL)
43,920 104 628 7,044 7,903 62 9,639 13 5,664 3,417 742 1,391 80,527
44,442 38 431 2,376 4,700 7 3,846 465 14,518 2,592 347 615 74,377
(19,107) (18) (12) (1,733) (4) (2,415) (13) (4,020) (221) (338) (27,881)
(20,603) (327) (1,256) (860) (345) (14,187) (3) (122) (335) (38,038)
24,813 86 628 7,032 6,170 58 7,224 1,644 3,417 521 1,053 52,646
23,839 38 104 2,376 3,444 7 2,986 120 331 2,589 225 280 36,339
Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Personal insurance - Individual Housing Rural Other Maritime Aviation
4,437 660 170 20,103 15,498 116 8,753 3 5,302 9,010 117 1,496
5,650 414 143 6,514 5,574 4,446 2,533 11 5 9,236 4,735 41 1,370
(1,575) (586) (20) (339) (742) (1,358) (2) (4,242) (7,414) (30) (664)
(2,177) (337) (3) (181) (3,598) (311) (11) (6,067) (8) (12) (552)
2,862 74 150 19,764 14,756 116 7,395 1 1,060 1,596 87 832
3,473 77 140 6,514 5,393 848 2,222 5 3,169 4,727 29 818
Reserve for Claims Incurred But Not Reported (IBNR)
65,665
40,672
(16,972)
(13,257)
48,693
27,415
Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Personal insurance - Individual Rural Other Maritime Aviation Unearned premium reserve (PPNG)
43
Retrocession portion 12/31/2014 12/31/2013
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
13. Reinsurance contract liabilities (Continued) Reinsurance reserve 12/31/2014 12/31/2013 Property Special risks Liabilities Vehicle Transportation Financial risks Personal insurance - Group Rural Other Maritime Aviation Excess earnings reserve Property Provision for related expenses Total current and noncurrent
Retrocession portion 12/31/2014 12/31/2013
Reinsurance (-) retrocession=net reserve 12/31/2014 12/31/2013
417 3 15 51 94 2,092 2,443 315 571 6 19 6,026
191 4 2 80 113 884 70 153 14 1,511
(107) (3) (11) (2,057) (10) (87) (1) (2,276)
(82) (4) (12) (823) (18) (126) (6) (1,071)
310 15 40 94 35 2,433 228 571 5 19 3,750
109 2 80 101 61 52 27 8 440
16 16 325,483
262,001
(151,741)
(136,939)
16 16 173,742
125,062
Changes in reserves are stated as follows: Reconciliation of reserves/provisions Outstanding claims reserve Reserve for claims incurred but not reported Provision for related expenses Total reserve for claims Unearned premium reserve Excess earnings reserve Total reserve for premiums Total Progress of premium reserves At beginning of year Premiums written for the year Premiums earned for the year At end of year Progress of reserves for claims At beginning of year Claims incurred for the year Claims paid for the year At end of year
44
December 31, 2014 Reinsurance Retrocession Retained
December 31, 2013 Reinsurance Retrocession Retained
80,527
(27,881)
52,646
74,377
(38,038)
36,339
65,665 16 146,208 173,249 6,026 179,275 325,483
(16,972) (44,853) (104,612) (2,276) (106,888) (151,741)
48,693 16 101,355 68,637 3,750 72,387 173,742
40,672 115,049 145,441 1,511 146,952 262,001
(13,257) (51,295) (84,573) (1,071) (85,644) (136,939)
27,415 63,754 60,868 440 61,308 125,062
December 31, 2014 Reinsurance Retrocession Retained 146,952 329,170 (296,847) 179,275
(85,644) (166,661) 145,417 (106,888)
61,308 162,509 (151,430) 72,387
December 31, 2014 Reinsurance Retrocession Retained 115,049 214,042 (182,883) 146,208
(51,295) (123,812) 130,254 (44,853)
63,754 90,230 (52,629) 101,355
December 31, 2013 Reinsurance Retrocession Retained 83,548 243,845 (180,441) 146,952
(39,089) (134,839) 88,284 (85,644)
44,459 109,006 (92,157) 61,308
December 31, 2013 Reinsurance Retrocession Retained 34,804 157,546 (77,301) 115,049
(14,418) (82,303) 45,426 (51,295)
20,386 75,243 (31,875) 63,754
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
13. Reinsurance contract liabilities (Continued) Progress of IBNR reserves
December 31, 2014 Reinsurance Retrocession Retained 40,672 24,993 65,665
At beginning of year Changes At end of year
Progress of PDR
(13,257) (3,715) (16,972)
Progress of PSL
-
19,602 21,070 40,672
16 16
(38,038) 10,157 (27,881)
(6,862) (6,395) (13,257)
12,740 14,675 27,415
December 31, 2013 Reinsurance Retrocession Retained -
December 31, 2014 Reinsurance Retrocession Retained 74,377 6,150 80,527
At beginning of year Changes At end of year
27,415 21,278 48,693
December 31, 2014 Reinsurance Retrocession Retained 16 16
At beginning of year Changes At end of year
December 31, 2013 Reinsurance Retrocession Retained
-
-
December 31, 2013 Reinsurance Retrocession Retained
36,339 16,307 52,646
15,202 59,175 74,377
(7,556) (30,482) (38,038)
7,646 28,693 36,339
14. Progress of claims The tables below present the progress of claims per year of contract underwriting. Due to the peculiarities underlying reinsurance operations, in automatic contracts the Company does not have detailed information of each claim with individual progress of its value in time. As such, the amount reported varies as updated information is obtained through accountability sent by cedents on the contracts underwritten. The tables below presenting the progress of claims demonstrate the progress and payment of claims reports received by the Company for each year of underwriting contracts: Progress of reinsurance claims reported Year of underwriting 2011 2012 2013 2014 Total Paid in Amounts paid PSL
45
1st year
2nd year
730 6,638 6,748 76,162 90,278
72,025 104,045 75,876 251,946
2011
2012 288 -
59,286 -
Claim period 3rd year 22,915 35,880 58,795 2013 78,631 -
4th year 1,626 1,626 2014 183,913 -
Total 97,296 146,563 82,624 76,162 402,645 Total 322,118 80,527
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
14. Progress of claims (Continued) Progress of retained claims reported Year of underwriting 2011 2012 2013 2014 Total Paid in Amounts paid PSL
st
1 year
nd
2
year
Claim period rd 3 year
th
4 year
639 5,907 4,082 7,967 18,595
16,305 44,098 32,153 92,556
10,656 28,987 39,643
2011
2012
2013
2014
Total
32,141 -
56,818 -
98,946 52,646
286 -
9,701 -
798 798
Total 28,398 78,992 36,235 7,967 151,592
15. Equity a)
Capital At December 31, 2014, subscribed and paid-in capital is divided into 202,675,339 (128,376,876 at December 31, 2013) registered common shares with no par value. At the Special General Meeting held on December 17, 2013, shareholders approved a capital increase in the amount of R$2,380, with issue of 2,245,283 new registered common shares, with no par value (approved by SUSEP Ruling No. 5809 of March 31, 2014). Thus, capital now amounts to R$ 128,512 and is represented by 128.376.876 registered common shares with no par value. At the Special General Meeting held on June 30, 2014, shareholders approved a capital increase, through subscription in kind, amounting to R$1,967, by issuing 1,821,398 new registered common shares with no par value. Accordingly, capital increased to R$130,479 and the number of shares from 128,376,876 to 130,198,274 registered common shares with no par value. Such capital increase was approved by SUSEP/DIRAT Ruling No. 61 of September 24, 2014.
46
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
15. Equity (Continued) a)
Capital (Continued) At the Special General Meeting held on September 9, 2014, shareholders approved a capital increase, through subscription in kind, amounting to R$79,000, by issuing 72,477,065 new registered common shares with no par value. Thus, including the amount under approval, capital increased from R$130,479 as of June 30, 2014, to R$209,479 as of December 31, 2014, and the number of shares increased from 130,198,274 to 202,675,339 registered common shares with no par value. The referred to above capital increase was approved by SUSEP/DIRAT Ruling No. 81 of November 11, 2014.
b)
Income reserves Income reserves comprise the legal reserve set up at 5% of income for the year after absorption of accumulated losses, and the remainder is allocated to the retained profits reserve.
c)
Mandatory minimum dividends and interest on equity The Company’s Articles of Incorporation establishes a minimum dividend of 25%, calculated on annual net income, adjusted in accordance with article 202 of Law No. 6404/76. In 2014 and 2013, as approved by shareholders at a Special General Meeting and after the recognition of a legal reserve, dividends were paid out to shareholders in the form of interest on equity, as follows: 12/31/2014 Net income for the year Allocation to legal reserve Tax base Mandatory minimum dividends – 25% Interest on equity credited to replace minimum dividends (*) Interest on equity in addition to mandatory minimum dividends (*)
47
12/31/2013
18,823 (942) 17,881 4,470 (8,106)
4,663 (233) 4,430 1,108 (2,800)
3,636
1,692
As permitted by Law No. 9249/95, for the years ended December 31, 2014 and 2013, the Company credited interest on equity within tax limits, in the amount of R$8,106 (R$6,890, net of withholding income tax) and in the amount of R$2,800 (R$2,380, net of withholding income tax), respectively, to its shareholders. Interest on equity is recorded as a financial expense and is stated in equity as profit sharing in the financial statements.
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
15. Equity (Continued) d)
Breakdown of adjusted equity (PLA), solvency margin, and capital requirement 12/31/2014
12/31/2013
Equity Intangible assets
228,589 (784)
136,419 (1,013)
Adjusted equity (PLA)
227,805
135,406
20% of annual retained premium for the last 12 months 33% of annual average retained claim for the last 36 months Solvency margin (a)
32,502 21,089 32,502
21,801 11,600 21,801
Basis Capital (BC) (b)
60,000
60,000
Additional underwriting risk capital (CRSub) Additional credit risk capital (CRCr) Additional operational risk capital (CROp) Benefits of diversification Risk capital (RC) (c)
33,650 7,351 2,645 (3,137) 40,509
32,540 5,814 1,820 (2,551) 37,623
Minimum required capital (CMR) between (b) and (c), whichever is greater
60,000
60,000
227,805 60,000 167,805 279.68%
135,406 60,000 75,406 125.68%
Adjusted equity (-) Capital requirement (CR) Capital sufficiency - R$ Capital sufficiency (% of CR)
CNSP Resolution No. 302, of December 16, 2013, sets forth that minimum required capital that the overseen entity shall keep at any time to operate is the higher of basic capital and risk capital.
48
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
16. Income and social contribution taxes Income and social contribution taxes calculated at the effective official rates at December 31, 2014 and 2013 are reconciled as follows: December 31, 2014 Social contribution tax tax
Income
Income before taxes Interest on Equity (IOE) Profit sharing Tax base Statutory rate Income and social contribution taxes at statutory rate Permanent additions (exclusions) Income and social contribution taxes on P&L Effective rates
29,416 (8,106) (3,313) 17,997 25% 4,499
29,416 (8,106) (3,313) 17,997 15% 2,700
15
66
4,514 25%
2,766 15%
December 31, 2013 Social contribution tax tax
Income
7,120 (2,800) (2,254) 2,066 25% 517
7,120 (2,800) (2,254) 2,066 15% 310
(399)
(225)
118 5.7%
85 4.1%
17. Transactions with related parties The Company engages in transactions with related parties of Grupo Vinci Partners Ltda. and International Finance Corporation (IFC). The main transactions with these companies comprise the investment portfolio management, whose amounts are recorded as financial expenses, issuance of reinsurance contracts whose amounts are recorded as reinsurance premiums, reserve for unearned reinsurance premium, revenues from premiums written and expenses with unearned premium. Also, the Company and Austral Seguradora S.A. rationalize their costs by sharing administrative expenses in common, recorded as administrative expenses. The transactions are performed under such conditions as agreed upon by and between the parties and approved by the Board of Directors. For the year ended December 31, 2014, Company’s remaining liabilities arise from interest on equity, net of withholding income tax payable to shareholders amounting to R$2,766, referring to interest on equity for 2014 (R$2,380 at December 31, 2013).
49
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
17. Transactions with related parties (Continued) Throughout the year ended December 31, 2014, the Company compensated its management, represented by statutory officers, amounting to R$1,128 (R$1,097 at December 31, 2013). Balance sheets and P&L balances arising from transactions with these companies and management members are as follows: Related parties Vinci Gestora de Recursos Ltda. Austral Participaçþes S.A. Austral Seguradora S.A. Management Total
Assets 12/31/2014 12/31/2013 43,096 43,096
35,700 35,700
Liabilities 12/31/2014 12/31/2013 46 2,351 1,035 3,432
21 2,800 1,009 3,830
Income/(expenses) 12/31/2014 12/31/2013 (406) (8,106) 50,788 (1,128) 41,148
(241) (2,800) 43,992 (1,097) 39,854
18. Groups of insurance lines The Reinsurer’s groups of insurance lines and their performance indicators at December 31, 2014 and 2013 are as follows:
Groups Aviation Vehicle Other Property Personal insurance - Group Personal insurance - Individual Special risks Housing Liabilities Financial risks Rural Maritime Transportation Total
50
Earned premiums 12/31/2014 12/31/2013
Loss ratio - % (a) 12/31/2014 12/31/2013
4,821 22,128 44,391 40,519 60,585 30 9,557 1,003 27,136 63,686 1,692 21,637
3,074 21,187 11,387 31,367 6,322 508 9,794 111 2,874 13,262 61,264 1,662 18,585
29.12% 142.51% 153.26% 51.46% 37.90% (585.18%) 5.65% 62.30% (15.46) 70.80% 110.07% 117.91%
297,185
181,397
72.02%
34.23 50.56 45.51 179.77 121.52 108.19 1.50 (0.90) (4.75) 22.30 100.43 34.79 58.67 86.05%
Acquisition score - % (b) 12/31/2014 12/31/2013 12.81% 1.43% 1.94% 6.29% 0.82% 2.75% 18.51% 0.18% 0.26% 9.97% 3.33%
18.94 1.62 3.13 7.43 10.71 2.41 10.00 4.75 1.24 0.24 13.88 4.68
2.15%
2.48%
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
18. Groups of insurance lines (Continued) Retained earned premiums 12/31/2014 12/31/2013
Groups Aviation Vehicle Other Property Personal insurance - Group Personal insurance - Individual Special risks Housing Liabilities Financial risks Rural Maritime Transportation Total
Retained loss ratio - % ( a) 12/31/2014 12/31/2013
2,948 21,790 12,660 20,939 54,891 22 1,318 631 1,911 15,765 1,031 18,278
1,637 21,165 11,190 17,426 5,348 297 2,990 111 1,773 2,148 9,835 1,083 17,693
42.58% 143.11% (14.18%) 64.16% 32.32% 716.53% 15.44% 64.81% (31.41%) 43.60% 118.55% 110.24%
152,184
92,696
52.29%
56.32 50.81 46.28 195.00 135.56 64.95 2.79 (0.90) 4.84 24.25 55.56 59.53 57.47 81.17%
(a)
The loss ratio = {reported indemnities + claim expenses + change in the Reserve for Claims Incurred But Not Reported (IBNR)}/{Net premium written - changes in reserves}.
(b)
Acquisition score = acquisition cost/{net premium written - change in the Unearned Premium Reserve (PPNG) }.
The accepted reinsurance and retrocession premiums (net premium written) before and after ceded retrocession premiums are broken down below for the years ended December 31, 2014 and 2013. Groups Aviation Vehicle Other Property Personal insurance Group Personal insurance Individual Liabilities Financial risks Special risks Rural Housing Maritime Transportation Total
Net premiums written 12/31/2014 12/31/2013
Ceded retrocession premium 12/31/2014 12/31/2013
Net premium (-) retrocession = retained premium 12/31/2014 12/31/2013
% - Retention 12/31/2014 12/31/2013
5,572 17,810 49,568 42,641
3,898 26,482 10,687 34,120
(1,978) (671) (34,287) (20,265)
(1,667) 8 (100) (13,606)
3,594 17,139 15,281 22,376
2,231 26,490 10,587 20,514
64,50 96,23 30,83 52,48
57,23 100,03 99,06 60,12
72,160
9,970
(6,694)
(2,127)
65,466
7,843
90,72
34 1,258 50,371 9,338 58,966 1,131 20,321 329,170
501 2,220 45,735 9,752 75,686 56 739 23,999 243,845
(10) (414) (48,704) (7,794) (41,677) (539) (3,628) (166,661)
(205) (343) (42,703) (7,468) (63,445) (272) (2,911) (134,839)
24 844 1,667 1,544 17,289 592 16,693 162,509
296 1,877 3,032 2,284 12,241 56 467 21,088 109,006
70,59 67,09 3,31 16,53 29,32 52,34 82,15 49,37
% - Retrocession 12/31/2014 12/31/2013 35,50 3,77 69,17 47,52
42,77 (0,03) 0,94 39,88
78,67
9,28
21,33
59,08 84,55 6,63 23,42 16,17 100 63,19 87,87 44,70
29,41 32,91 96,69 83,47 70,68 47,66 17,85 50,63
40,92 15,45 93,37 76,58 83,83 36,81 12,13 55,30
Ceded retrocession premiums by class of reinsurers:
Local reinsurer Admitted reinsurer Occasional reinsurer Total
51
12/31/2014
12/31/2013
22,051 132,664 11,946 166,661
3,136 108,391 23,312 134,839
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
18. Groups of insurance lines (Continued) Accepted reinsurance and accepted retrocession premiums by class:
Insurer Admitted reinsurer Total
12/31/2014
12/31/2013
317,902 11,268 329,170
234,055 9,790 243,845
19. Stock option plan The Special General Meeting held on October 1, 2013, approved the stock option plan of Austral Participações S.A. (“Austral Participações”), the Company’s parent company. The plan sets forth general conditions for granting by Austral Participações of preferred stock options for shares issued by Austral Participações to eligible professionals, management members and employees of Austral Participações and its affiliates and/or subsidiaries for the services provided. The granting terms and conditions are defined and managed by the Management Committee, pursuant to the guidelines and conditions established by the stock option plan, and the plan will be settled with Austral Participações' shares, if and when the options are called, at the exercise price to be paid by buyers. The plan management committee may establish different vesting conditions or option term for each plan or individual contract, in order to extend terms and/or its scheduling. In the meetings held by the stock option plan management committee on October 1 and 2, 2013, the first and second stock option programs were approved, whereby Austral Participações granted stock option to beneficiaries, totaling 4,500,000 shares. In the meeting held by the stock option plan management committee on December 19, 2014, the third stock option plan program was approved, whereby Austral Participações granted stock option to beneficiaries, totaling 4,832,127 shares.
52
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) The first program provides for three vesting dates, the last being December 2014, when the beneficiaries will have the right to buy their options for the services provided, for the period of four years as from the last vesting date and as from each of vesting dates established by the plan management committee, subject to the contractual conditions. The second program provides for four vesting dates, the last being September 2016, when the beneficiaries will have the right to buy their options for the services provided, for the period of four years as from the last vesting date and as from each of the vesting dates established by the plan management committee, subject to the contractual conditions. The third program defines three to five vesting dates, depending on the beneficiary, the last being September 2018 for 99.97% of shares and the balance maturing September 2016, when the beneficiaries will have the right to buy their options for the services provided, for a period of two years from the last vesting date and from each of the vesting dates established by the plan management committee, subject to the contractual conditions. The weighted average remaining contractual life for outstanding options is 6 years. For the first and second programs, the fair value of options is estimated on the granting date, based on the Monte Carlo simulation model, at a volatility of approximately 27.5%, i.e. in line with volatilities of the insurance industry companies listed in stock exchange at the granting time, according to the interest rate future traded at the S達o Paulo Securities, Commodities & Futures Exchange (BM&FBovespa). The spot price is calculated based on Vinci Capital Partners' assumptions, which have been audited by independent auditor over the normal course of the auditing process of Fundo Vinci Capital Partners II FIQ FIP, and on the options price of both programs of R$1,1425, which is adjusted by an inflation index and by the payment of dividends and interest on equity per share paid by the Company from time to time, as from the date the individual contract is entered into with the beneficiary. Based on those assumptions, the weighted average fair value of each option granted was R$0.4922.
53
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) For the third program, the fair value of options is estimated on the granting date, based on the Black and Scholes option model, at a volatility of approximately 36.5%, i.e. in line with volatilities for listed insurers at the time of the grant, and the fixed interest rate curve on the grant date according to the future interest rate market traded at the São Paulo Securities, Commodities & Futures Exchange (BM&FBovespa). The spot price used was the price used in the primary issue of shares to the IFC and the option exercise price was R$1.1752, which is adjusted by an inflation index and by the payment of dividends and interest on equity per share paid by the Company from time to time, from the date the individual contract is entered into with the beneficiary. Based on those assumptions, the weighted average fair value of each option granted was R$0.4529. Austral Participações grants to each beneficiary an option to sell shares acquired after a beneficiary exercises a call option, as well as the option to repurchase such shares. The term and price of such options are determined in individual contracts entered into between Austral Participações and the beneficiaries. The following table reconciles Austral Participações outstanding stock options: Number of options At December 31, 2012 Total options granted in the year Total options expired in the year Total options extinguished in the year
4,500,000 (31,250) (93,750)
At December 31, 2013 Total options outstanding at beginning of period Total options exercisable at beginning of period Total options granted in the period
4,375,000 2,968,750 4,832,137
Total options outstanding at end of period Total options exercisable at end of period
9,207,137 4,062,500
In the event that a beneficiary has a work contract terminated either voluntarily or involuntarily, without just cause, any non-exercisable stock options are automatically extinguished, with no right to damages or compensation. Exercisable stock options may be exercised within a set period as established in each individual contract.
54
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) In the event that a work contract of a beneficiary is terminated with just cause, all exercisable stock options are extinguished and those that may still be exercised and any shares that may have been acquired due to the exercise of options are automatically extinguished by operation of the law, irrespective of prior warning or damages. The 9,207,137 outstanding stock options represent a dilution of up to 4.19% on the total of 210,534,733 Austral Participações shares. No option was exercised up to December 31, 2014. The effect of stock option plan relating to employees registered with Austral Resseguradora who were entitled to the options of Austral Participações S.A. is recorded in the Company’s equity as capital reserve for the year ended December 31, 2014, in the amount of R$ 320, and at December 31, 2013, in the amount of R$980, matched with expenses in the income statement.
20. Breakdown of P&L accounts a)
Claims incurred
Reported indemnities Claim expenses Changes in claims incurred but not reported Total
b)
12/31/2013
(188,838) (211) (24,993) (214,042)
(136,436) (40) (21,069) (157,545)
12/31/2014
12/31/2013
(7,159) 766 (6,393)
(5,104) 602 (4,502)
Costs of acquisition
Commissions Changes in deferred acquisition costs Total
55
12/31/2014
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
20. Breakdown of P&L accounts (Continued) c)
Other operating income and expenses
Other income Expenses with profit sharing and reinsurance accepted Other expenses Total
d)
1,315 (33,296) (230) (32,211)
630 (1,327) (541) (1,238)
12/31/2014
12/31/2013
3,715 63 120,034 (166,637) 21,659 (21,166)
6,395 12 75,896 (134,839) 46,138 (6,398)
12/31/2014
12/31/2013
(6,090) (1,616) (2,018) (668) (267) (249) (10,908)
(5,005) (1,624) (1,647) (609) (148) (110) (9,143)
Administrative expenses
Own personnel and social charges Occupancy and operation Third-parties services Depreciation and amortization Publicity and advertising Other Total
56
12/31/2013
Retrocession income (expenses)
Claims incurred but not reported Claim expenses Indemnity recovery Ceded retrocession premium Changes in ceded retrocession premium Total
e)
12/31/2014
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
20. Breakdown of P&L accounts (Continued) e)
Tax expenses
COFINS expenses PIS expenses Inspection fees Other Total
g)
12/31/2014
12/31/2013
(6,362) (1,129) (777) (124) (8,392)
(3,957) (710) (486) (60) (5,213)
Financial income (expenses) 12/31/2014 Income Trading securities Securities available for sale Reinsurance operations Other income
20,724 3,755 20,759 2,363
15,327 14,568 1,194
Expenses Trading securities Securities available for sale Reinsurance operations Other expenses
(1,052) (927) (18,663) (1,616)
(6,146) (13,222) (979)
25,343
10,742
Total financial income (expenses)
57
12/31/2013
Austral Resseguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
21. Professionals in charge Directors:
Gilberto Say達o da Silva Alessandro Monteiro Morgado Horta Bruno Augusto Sacchi Zaremba Chief Executive Officer
Bruno Augusto Sacchi Zaremba Executive Board:
Michel Cukierman Bruno de Abreu Freire Accounting Manager:
Arthur Teixeira Rodrigues CRC RJ - TC No. 078781/O-0 Actuary:
Claudia Novello Ribeiro MIBA No. 2029
58
Financial Statements December 31, 2014 and 2013, with Independent Auditor’s Report on Financial Statements.
Financial Statements Austral Seguradora S.A. December 31, 2014 and 2013 with Independent Auditor’s Report on Financial Statements
Austral Seguradora S.A. Financial statements December 31, 2014 and 2013
Contents
Austral Seguradora S.A. management report .................................................................................. 1 Independent auditor’s report on financial statements ...................................................................... 3 Audited financial statements Balance sheets................................................................................................................................ 5 Income statements .......................................................................................................................... 7 Statements of comprehensive income ............................................................................................. 8 Statements of changes in equity ..................................................................................................... 9 Cash flow statements .................................................................................................................... 10 Notes to financial statements ........................................................................................................ 11
Management Report Austral Seguradora S.A. (hereinafter referred to as “Austral” or “Insurer”) was created from investments made by Vinci Partners, a group that controls one of the main Brazilian independent investment managers, with approximately R$ 15 billion in assets under management (AUM). The Insurer's strategic focus is to provide insurance to infrastructure projects, special risks, and corporate risks. It operates in the surety bond, engineering risks and oil risks. The Insurer kept its success strategy in 2014 by selling its products, and increasing the volume of premiums and its market share. In line with the shareholders’ dynamism, Austral is a financially sound company that provides highquality products and prompt and customized services to its customers. Austral was very proactive in the infrastructure segment, which led it to increase the volume of premiums vis-à-vis 2013. Austral effectively participated in major projects and investments in Brazil in 2014, which resulted in a 17% growth in the surety bond line vis-à-vis 2013, and a 66% growth in the engineering risk line vis-à-vis 2013. It also consolidated its position as a major player in the oil risk segment in the top three insurers in the market. On January 30, 2015, Austral had its br AA- rating reaffirmed by S&P, with a change in the stable perspective to positive. Operations For 2014, Austral presented net income amounting to R$15.9 million, which shows the maturity of the Insurer’s business portfolio. This positive result is a consequence of Austral's operational efficiency, when portfolio written premiums amounted to R$190 million, combined with the maintenance of the level of administrative expenses against premiums. Financial income amounted to R$11.3 million, and followed the conservative investment policy defined by the Insurer’s shareholders. In addition to these positive indicators, Austral kept its conservative subscription policy, which has reflected excellent technical result. At period end, equity computed amounted to R$60 million, and total assets of the Insurer amounted to R$467.4 million.
1
Management report (Continued) According to the business plan prepared at the beginning of the operation, Austral achieved its objectives and now seeks new opportunities to increase the volume of retained premiums. Therefore, the Insurer will analyze opportunities in new market niches with this characteristic, and will remain strongly committed to the consolidation of its brand, always with a focus on rendering prompt services to customers and business partners, observing the profitability and liability policy on risk management for shareholders and reinsurance partners. The combination of investments in a qualified team and specialized systems to ensure high-quality and prompt services, aligned with the development of new products, will drive Austral towards achieving its long-term goals. Brazilian Private Insurance Supervisory Office (SUSEP) Circular The investment policy adopted by Austral is in line with the best asset and liability risk management practices. These management practices ensure that the Insurer is financially capable of meeting its commitments, in accordance with National Board of Private Insurance (CNSP) Resolution No. 226/2010, as amended, maintaining all of its marketable securities under “held for trading” and “available for sale” categories, as mentioned in the financial statements. According to Insurer’s Articles of Incorporation, shareholders are entitled to receive as mandatory minimum dividend an amount equivalent to 25% (twenty-five percent) of net income for the year ended December 31 of each year, adjusted under the terms of the Brazilian Corporation Law. Lastly, we would like to thank all Austral Seguradora team, our brokers, partners, customers, and reinsurers for their trust, as well as SUSEP and the shareholders for all support provided to us.
Rio de Janeiro, February 25, 2015 Management.
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Centro Empresarial PB 370
Praia de Botafogo, 370 5º ao 8º Andares - Botafogo 22250-040 - Rio de Janeiro, RJ, Brasil Tel.: (55 21) 3263-7000 ey.com.br
A free translation from Portuguese into English of Independent Auditor’s Report on financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil applicable to entities supervised by Brazil’s Private Insurance Supervisory Office (SUSEP)
Independent auditor’s report on financial statements The Shareholders, Board of Directors and Officers
Austral Seguradora S.A. Rio de Janeiro - RJ We have audited the accompanying financial statements of Austral Seguradora S.A. (“Insurer”), which comprise the balance sheet as at December 31, 2014, and the related income statement, statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting practices and other explanatory information. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the accompanying financial statements in accordance with accounting practices adopted in Brazil applicable to entities supervised by Brazil’s Private Insurance Supervisory Office (SUSEP), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement in the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Insurer’s internal control. An audit also includes evaluating the appropriateness of accounting practices used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
3 Uma empresa-membro da Ernst & Young Global Limited
Auditor’s responsibility (Continued) We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Austral Seguradora S.A. as at December 31, 2014, its financial performance and its cash flows for the year then ended, in accordance with accounting practices adopted in Brazil applicable to entities under SUSEP supervision. Rio de Janeiro, February 25, 2015 ERNST & YOUNG Auditores Independentes S.S. CRC - 2SP 015.199/O-6 - F - RJ
Marcelo Felipe L. de SĂĄ Accountant CRC - 1RJ 094.644/O-0
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A free translation from Portuguese into English of financial statements prepared in Brazilian currency in accordance with accounting practices adopted in Brazil applicable to entities supervised by Brazil’s Private Insurance Supervisory Office (SUSEP)
Austral Seguradora S.A. Balance sheets December 31, 2014 and 2013 (In thousands of reais) 12/31/2014
12/31/2013
Assets Current assets Cash and cash equivalents Cash and banks
327,239 15,548 15,548
276,877 5,686 5,686
Short-term investments (Note 6) Fixed income securities - government Investment fund shares Investment fund shares - compulsory vehicle liability insurance (DPVAT)
116,999 66,465 15,533 35,001
117,064 80,272 6,587 30,205
Receivables from insurance and reinsurance operations Premiums receivable (Note 8) Insurance operations Reinsurance operations Other operating receivables
90,368 81,537 1,570 6,160 1,101
67,534 53,294 5,278 8,089 873
Reinsurance assets - technical reserves (Note 9) Reserve for claims incurred but not reported (IBNR) Claims pending payment Deferred reinsurance premium
89,643 4,416 1,472 83,755
75,942 7,039 12,129 56,774
2,623 2,093 485 45
3,320 2,243 943 134
12,058 10,929 1,129
7,331 6,693 638
Noncurrent assets
140,114
127,813
Long-term receivables
137,305
125,697
Short-term investments (Note 6) Fixed income securities - government
13,535 13,535
-
Receivables from insurance and reinsurance operations Premiums receivable (Note 8) Insurance operations
38,999 37,416 1,583
40,041 38,137 1,904
Reinsurance assets - technical reserves (Note 9) Deferred reinsurance premium
69,960 69,960
73,738 73,738
-
744 744
Deferred acquisition costs (Note 10) Deferred commissions - insurance Deferred commissions - co-insurance
14,811 13,034 1,777
11,174 9,950 1,224
Property and equipment (Note 11) Personal properties Other property and equipment items
1,142 1,051 91
754 720 34
Intangible assets (Note 12) Other intangible assets
1,667 1,667
1,362 1,362
467,353
404,690
Securities and receivables Receivables Tax credits Other receivables Deferred acquisition costs (Note 10) Deferred commissions - insurance Deferred commissions - co-insurance
Securities and receivables Tax credits
Total assets
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12/31/2014
12/31/2013
258,537 5,820 3,728 1,407 448 237
214,696 6,751 3,505 2,781 420 45
85,178 137 3,738 71,801 9,353 149
72,525 570 3,394 62,672 5,775 114
4,253 4,253
318 318
163,286 121,096 18,785 22,981 5 419
135,102 79,625 33,763 21,579 135
Noncurrent liabilities
148,819
145,383
Accounts payable Deferred taxes
835 835
-
31,788 7,862 18,800 5,126
35,389 9,607 20,378 5,404
116,183 116,183
109,981 109,981
13 13
13 13
59,997 41,548 823 17,477 149
44,611 38,500 1,700 569 3,821 21
467,353
404,690
Liabilities and equity Current liabilities Accounts payable Liabilities payable Taxes and social charges payable Labor charges Taxes and contributions Insurance and reinsurance payables Refundable premiums Insurance operations Reinsurance operations Insurance and reinsurance brokers Other operating payables Third-party deposits Third-party deposits Technical reserve - insurance and reinsurance (Note 13) Unearned premium reserve (PPNG) Outstanding claims reserve Reserve for claims incurred but not reported (IBNR) Provision for related expenses Other provisions
Insurance and reinsurance operations payables Insurance operations Reinsurance operations Insurance and reinsurance brokers Technical reserve - insurance and reinsurance (Note 13) Unearned premium reserve (PPNG) Other payables Administrative proceedings Equity (Note 15) Capital Capital increase (under approval) Capital reserve Income reserve Marketable securities adjustments
Total liabilities and equity
See accompanying notes.
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Austral Seguradora S.A. Income statements Years ended December 31, 2014 and 2013 (In thousands of reais, except for earnings per share - in reais) 12/31/2014
12/31/2013
Written premiums Changes in technical premium reserves Premiums earned (Note 20 a)
221,589 (48,078) 173,511
167,256 (88,037) 79,219
Revenue from policies written - DPVAT
1,836
1,741
Claims incurred (Note 20 b)
(25,871)
(54,095)
Acquisition costs (Note 20 c) Other operating income (expenses) (Note 20 e) Reinsurance income (expenses) (Note 20 d) Administrative expenses (Note 20 f) Tax expenses (Note 20 g) Financial income (expenses) (Note 20 h) Disposal of intangible assets
(13,654) (3,285) (98,948) (13,144) (4,107) 11,335 1
(7,535) (2,765) 1,955 (10,488) (2,746) 3,894 -
-
(2)
(=) Income before taxes and profit sharing
27,674
9,180
Income tax (Note 16) Social contribution tax - rate of 16 Profit sharing
(5,511) (3,418) (2,818)
(1,175) (740) (1,574)
(=) Net income for the year
15,927
5,689
42,470,190 0.37
41,337,526 0.14
Non-recurrent assets losses
Number of shares Earnings per thousand shares - in reais
See accompanying notes.
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Austral Seguradora S.A. Statements of comprehensive income Years ended December 31, 2014 and 2013 (In thousands of reais)
Net income for the year
12/31/2014
12/31/2013
15,927
5,689
214 (86) 128
35 (14) 21
16,055
5,710
Other comprehensive income to be reclassified to P&L for the year in subsequent periods Changes in fair value of financial assets available for sale Income and social contribution tax effect Other comprehensive income for the year, net of taxes Total other comprehensive income for the year, net of taxes
See accompanying notes.
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Austral Seguradora S.A. Statements of changes in equity Years ended December 31, 2014 and 2013 (In thousands of reais) Capital
Capital Balances as of December 31, 2012 Capital increase (under approval) (Note 15 a) Net income for the year Unrealized gains on securities available for sale Share-based payment (Note 20) Proposal for profit sharing Set up of legal reserve Set up of income reserve Interest on equity (Note 15 c) Balances as of December 31, 2013 Capital increase (Note 15 a) Capital increase (Note 15 a) Net income for the year Unrealized gains on securities available for sale Share-based payment (Note 20) Proposal for profit sharing Set up of legal reserve Set up of income reserve Interest on equity (Note 15 c) Balances as of December 31, 2014
See accompanying notes.
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(under approval)
38,500
-
-
1,700 -
-
-
-
Capital reserve -
Income reserves Retained Legal profit reserve reserve
Marketable securities adjustments
Total
51
-
-
-
569
-
-
-
-
-
284 -
3,486 -
-
38,500
1,700
569
335
3,486
21
-
44,611
1,700 1,348 -
(1,700) -
-
-
-
128
15,927
1,348 15,927
-
128 254
-
-
Retained earnings -
38,551
5,689
1,700 5,689
-
21 569
21
-
-
254
-
-
-
-
-
-
796 -
12,860 -
-
41,548
-
823
1,131
16,346
149
(284) (3,486) (1,919)
(796) (12,860) (2,271) -
(1,919)
(2,271) 59,997
Austral Seguradora S.A. Cash flow statements Years ended December 31, 2014 and 2013 (In thousands of reais) 12/31/2014 Cash flow from operating activities Net income for the year Adjustments to Depreciation and amortization Impairment losses Share-based payment
12/31/2013
15,927
5,689
592 6 254 16,779
398 569 6,656
(13,342) (21,799) (9,923) 1,494 (53) (8,364) 6,972 9,052 252 3,935 34,386 (7,319) 12,070
(22,238) (62,744) (83,263) 194 (2,125) (8,383) 4,124 59,827 420 (2) 113,333 (2,147) 3,652
Cash flow from investing activities Investment disposals Acquisition of property and equipment Acquisition of intangible assets Net cash used in investing activities
(545) (740) (1,285)
2 (93) (644) (735)
Cash flow from financing activities Capital increase Payment of interest on equity Net cash used in financing activities
1,348 (2,271) (923)
1,700 (2,000) (300)
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
9,862 5,686 15,548
2,617 3,069 5,686
Changes in assets and liabilities Financial assets Receivables from insurance and reinsurance operations Reinsurance assets - technical reserves Deferred tax assets Securities and receivables Deferred acquisition costs Taxes and contributions Insurance and reinsurance payables Accounts payable Third-party deposit Technical reserves - insurance and reinsurance Income and social contribution taxes paid Net cash generated by operating activities
See accompanying notes.
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Austral Seguradora S.A. Notes to financial statements December 31, 2014 and 2013 (In thousands of reais)
1. Operations Austral Seguradora S.A (“Insurer” or “Company”) is a privately-held company organized on December 29, 2009 as Vitrus Participações em Seguradoras S.A. and registered with the Rio de Janeiro State Commercial Registry on January 15, 2010, headquartered in Brazil, with head offices at Rua Humaitá 275, 7º andar, in the city of Rio de Janeiro. On October 6, 2011 Austral Participações S.A. became the holder of 100% of the Company’s shares, as shown in the share transfer book. The change in equity control, as mentioned above, was approved by SUSEP Administrative Ruling No. 4531, of April 3, 2012. On September 5, 2014, the shareholders of Austral Participações S.A. (shareholder of Austral Seguradora and holder of 100% of the Company shares) approved the participation of the International Finance Corporation - IFC as a shareholder of the Company, upon increase in capital of Austral Participações S.A by R$79,937, by means of issue of 41,054,273 shares fully subscribed and paid in by the International Finance Corporation - IFC on September 9, 2014. The International Finance Corporation - IFC’s becoming a shareholder with qualified indirect interest in Austral Seguradora S.A. was confirmed by SUSEP Administrative Ruling No. 6130/2014, published in the Federal Official Gazette of December 24, 2014. The same administrative ruling confirmed that there was no change in the controlling shareholding structure of Austral Participações S.A.
2. Preparation and presentation of financial statements a)
Going-concern considerations Management evaluated the Company's ability to continue as a going concern and is convinced that the Company is able to continue as a going concern in the future. Furthermore, management is not aware of any material uncertainty that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements were prepared based on this principle.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
2. Preparation and presentation of the financial statements (Continued) b)
Statement of compliance The financial statements were prepared according to the provisions of SUSEP Circular No. 483, of January 6, 2014, the technical pronouncements, guidelines, and interpretations issued by the Financial Accounting Standards Board (CPC), and the rules of CNSP, hereinafter “accounting practices adopted in Brazil applicable to entities overseen by SUSEP.” SUSEP Circular No. 483, issued on January 6, 2014, provides for on amendments to accounting standards to be complied with by publicly-held supplementary social security entities, companies working with certificate accounts with lottery prizes, local insurance and reinsurance companies, with retroactive effects from January 1, 2014. Such Circular repeals SUSEP Circular No. 464 issued on March 1, 2013. Such amendments did not impact significantly the Company’s financial statements. The authorization to complete the preparation of the financial statements was given by Company management on February 25, 2015.
c)
Functional and reporting currency The Company’s functional currency is the Real (R$). This is the currency of the main economic environment in which the Company operates. Transactions in foreign currency are initially translated at the exchange rate to the functional currency at the transaction date. Monetary assets and liabilities stated in foreign currency are translated into functional currency using the exchange rate in force as of the corresponding balance sheet closing date. Differences arising from the translation are posted directly against P&L for the year.
d)
Measurement basis The amounts in the financial statements are stated in Brazilian reais (R$), rounded to thousands (R$000), unless otherwise stated, and were prepared on a historical cost basis, except for the following material items recognized in the balance sheet:
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Financial instruments measured at fair value through profit or loss.
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
2. Preparation and presentation of the financial statements (Continued) d)
Measurement basis (Continued) 
Financial assets available for sale measured at fair value.

Technical reserves, measured in accordance with SUSEP guidelines.
As allowed by CPC 11 – Insurance Contracts, the Company used accounting practices adopted in Brazil in its insurance contracts, in accordance with the standards issued by the CNSP and by SUSEP. The preparation of the financial statements requires that management make judgments in determining and recording accounting estimates. Significant assets and liabilities subject to these estimates and assumptions include, among others, the evaluation of insurance contract liabilities, fair value measurement of financial assets, impairment test of non-financial assets, provision for contingencies and deferred tax assets. Settlement of transactions involving these estimates may present changes in relation to the estimated value due to uncertainties inherent in their estimate process, as mentioned in Note 4.
3. Summary of significant accounting practices The significant accounting practices and policies adopted in the preparation of these financial statements are described below. These policies were consistently applied to all comparative periods presented. a)
Cash and cash equivalents These include cash and positive balances in current accounts, with insignificant risk of change in fair value, and are used by the Company to manage its short-term commitments.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) b)
Financial assets Classification depends on the purpose for which each financial asset was acquired or taken out. Management determines the classification of financial assets as of the initial date of acquisition of assets and reassesses their classification as of each balance sheet date. The Company classifies its financial assets in accordance with the categories under CPC 38 – Financial Instruments: Recognition and Measurement: I.
Securities measured at fair value through profit or loss Financial assets at fair value through P&L are financial assets held for trading. A financial asset is classified in this category if it was acquired particularly to be sold in the short term, and is initially recognized at fair value. These assets are measured at restated cost, plus yields, and subsequently measured at fair value, with changes in fair value posted directly to P&L for the period. Transaction costs incurred in the acquisition of financial assets classified under this category are immediately posted to P&L for the period as incurred. Securities under this category are classified as current assets, irrespective of their maturity dates.
II.
Securities available for sale The Company classifies in this category all non-derivative financial assets not designated in the previous category. After their initial recognition, they are measured at fair value and any changes other than those arising from impairment are recorded through other comprehensive income, a component of equity. When an investment is derecognized, the accumulated result in other comprehensive income is transferred to the P&L.
III. Financial assets held to maturity Financial assets designated in this classification upon acquisition are not subject to negotiation. The Company shall intend and have the financial ability to keep them to maturity.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) b)
Financial assets (Continued) III. Financial assets held to maturity (Continued) Financial instruments under this accounting classification are stated in the Company’s current and noncurrent assets, according to their maturities. They are measured at their acquisition cost (fair value), plus yields to the financial statements base date, calculated at the effective interest rate of the corresponding securities. The Company has no financial assets classified as “held to maturity” as of the interim financial statements closing date. IV. Receivables Receivables are non-derivative financial assets, with payments that are fixed or determinable, not quoted in an active market. They are recorded under current assets, except for those with maturity exceeding twelve months from the balance sheet date (these are classified as non-current assets). Receivables arising from insurance contracts, such as the balance of premiums receivable from policyholders, are classified by the Company under this category and initially measured at fair value and subsequently at amortized cost less provision for impairment. In practice, receivables are usually recognized at the value billed when the policy is written, adjusted by the provision for impairment, if necessary.
c)
Derivative financial instruments Derivative financial instruments designated as hedge operations are initially recognized at fair value on the date on which the derivative instrument is taken out and are subsequently restated at fair value. Upon initial recognition of a hedge operation, the Insurer formally classifies and documents the hedge contract to which it intends to apply the hedge accounting, as well as management’s risk management objective and strategy to implement the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of the risks excluded from the hedging relationship, the prospective statement of the effectiveness of the hedging relationship and how the Company will evaluate the effectiveness of the hedging instrument to offset exposure to changes in the fair value of the hedged item.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) c)
Derivative financial instruments (Continued) The Company has no derivative financial instruments as of the financial statement closing date, and did not carry out transactions with derivative instruments for the years ended December 31, 2014 and 2013.
d)
Recognition and measurement of insurance and reinsurance contracts Insurance contracts are those wherein the Insurer accepts the significant insurance risk of another party (the policyholder), agreeing to pay insurance indemnity to policyholders in case of a specific uncertain future event (the insured event), with adverse effect on the policyholder. Generally, the Insurer determines whether the insurance risk is significant by comparing premiums received with losses payable, had the insured event taken place. The insurance premiums and acquisition costs are recorded when the policies are written, and the amount of premiums earned is recognized in P&L in accordance with the risk expiry period elapsed. The accepted co-insurance operations and those carried out through DPVAT are recorded based on information received from other insurance companies and from Seguradora L铆der dos Cons贸rcios do Seguro DPVAT S.A., respectively. Reinsurance assets consist of receivables from reinsurers in the short and long term, depending on the time expected for realization (or receipt) of assets from reinsurers. Reinsurance assets are consistently valued with insurance liabilities submitted to reinsurance and with the terms and conditions of each contract. Liabilities payable to reinsurers comprise mainly premiums payable in reinsurance contracts. Any gains or losses for initially contracting reinsurance are amortized over the duration of the contracts. Reinsurance premiums granted are recorded when the policies are written and allocated to P&L in accordance with the risk expiry period elapsed. The reinsurance premium granted is consistently deferred with the related insurance premium.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) d)
Recognition and measurement of insurance and reinsurance contracts (Continued) Premiums referring to reinsurance contracts for exceeding damages are recorded in P&L as reinsurance premiums granted and deferred for allocation through set up and reversal of Unearned Premium Reserve (PPNG), according to the methodology described in actuarial note. The Insurer analyzes the recoverability of reinsurance assets regularly, at least on a semiannual basis. When there is objective evidence of impairment, the Company tests reinsurance assets for impairment and immediately recognizes any loss in P&L for the period. For the year ended December 31, 2014, no assessment was made as to the need for a provision for impairment of the Insurer’s reinsurance assets.
e)
Insurance liabilities The Insurer relied on CPC 11 - Insurance Contracts guidance to evaluate insurance contracts and convert financial statements, applying the basic rules for evaluation of insurance contracts, e.g.: (i) liability adequacy test; (ii) impairment testing of reinsurance assets; (iii) evaluation of the level of caution used to analyze insurance contracts, among other applicable policies. Also, management did not find any situations in which excessive caution was used to evaluate insurance contracts according to accounting practice adopted in Brazil applicable to entities under SUSEP supervision. The reserves for guarantee of insurance contracts according to the accounting practices adopted in Brazil, applicable to insurers authorized by SUSEP to operate insurance for damage, are set up in accordance with the guidelines of CNSP and SUSEP, exposed by means of CNSP Resolution No. 281, of January 30, 2013, and SUSEP Circular No. 462, of January 31, 2013. For each technical reserve specified below, the actuary in charge prepared an actuarial note with the criteria, parameters and formulas thereof.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) e)
Insurance liabilities (Continued) 
Unearned premium reserve (PPNG) Pursuant to SUSEP Circular No. 462, of January 31, 2013, this reserve is set up to cover payables related to future claims and expenses while the policies remain effective, regarding policies in force as of the reporting date, in compliance with the corresponding criteria. The Unearned Premium Reserve for Policies in Force But Not Issued (PPNG-RVNE) is set up to cover future losses in view of indemnities and related expenses while the policies remain effective, regarding policies in force at the calculation base date, but not issued by the Insurer. The calculation methodology is based on average late payment rates identified for the past twelve months in the Company's portfolio. This average late payment factor subjectively selected is applied on the PPNG of risks in force and already written to obtain PPNG-RVNE. This calculation methodology enables the reserve to be quickly adjusted to any inconsistency detected in the reserve consistency test for the previous months. In addition to setting up the PPNG-RVNE, the Company also estimates premiums and brokerage commissions for risks in forced and not written, also calculating the estimated deferral of such commission. Both PPNG for risks in force and written and PPNG-RVNE are segregated in accordance with the classification of lines recommended by SUSEP Circular No. 395, of December 7, 2009, as amended: Group Property Special risks Liabilities Financial risks Financial risks
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Lines Insurance line 0167 - Engineering risks Insurance line 0234 - Oil risks Insurance line 0351 - General civil liability Insurance line 0775 - Policyholder surety bond - public sector Insurance line 0776 - Policyholder surety bond - private sector
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) e)
Insurance liabilities (Continued)
Reserve for DPVAT administrative expense It is set up in light of the amounts reported solely by Seguradora Líder dos Consórcios do Seguro DPVAT S.A.
Reserve for outstanding claims (PSL) It is monthly set up to cover expected payables for reported claims, yet unpaid, to the calculation base date, including administrative and legal claims. PSL includes monetary restatements, interest, exchange variation and contractual fines, where necessary. Reserve for Outstanding Claims for DPVAT is set up in light of the amounts reported solely by Seguradora Líder dos Consórcios do Seguro DPVAT S.A.
Reserve for claims incurred but not reported (IBNR) It is set up to cover amounts expected to be settled related to claims incurred but not reported to the calculation date, including accepted co-insurance operations, gross of reinsurance operations and net of ceded co-insurance operations, in compliance with the criteria provided for by SUSEP Circular No. 462, of January 31, 2013. As indicated in the actuarial note of portfolio for organization of the Insurer, in the first year of operation, specifically for the surety lines, the percentages applied were zero. As from the second year of operation, percentages defined in SUSEP Circular No. 283, of January 24, 2005, were initially used for all of the Insurer’s insurance lines. Lines “0775 - Policyholder Surety Bond - Public Sector” and “0776 Policyholder Surety Bond - Private Sector” were created after SUSEP Circular No. 395, of December 7, 2009, was published. Therefore, for these lines, the percentages defined for “0745 - Public Surety Bond” and “0740 - Private Surety Bond” were respectively applied.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) e)
Insurance liabilities (Continued)
Reserve for claims incurred but not reported (IBNR) (Continued) As from January 2014, percentages used were those mentioned in SUSEP Circular No. 485, of January 6, 2014, which repealed the abovementioned Circulars. While the Insurer does not present a significant mass of data, which allows the statistical calculation of this reserve through an own methodology set forth in an actuarial note, calculation thereof will continue to be performed in accordance with SUSEP Circular No. 485, of January 6, 2014. Reserve for Claims Incurred But Not Reported (IBNR) for DPVAT is set up in light of the amounts reported solely by Seguradora Líder dos Consórcios do Seguro DPVAT S.A.
Reserve for related expenses (PDR) It is set up on a monthly basis to cover expenses related to payment of claims or benefits, comprising both expenses that can be assigned individually to each contingent event and expenses that can only be related to contingent events as a group.
f)
Deferred acquisition costs Expenses with commissions are recorded when policies are written and allocated to P&L while the policy remains effective. These expenses are deferred by means of the methodology used for deferral of the related insurance premium.
20
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) f)
Deferred acquisition costs (Continued) Average insurance line deferral periods are as follows:
Lines 0167 Engineering risks 0234 Oil risks 0351 General civil liability 0775 Policyholder surety bond – public sector 0776 Policyholder surety bond – private sector
Lines 0167 Engineering risks 0234 Oil risks 0351 General civil liability 0775 Policyholder surety bond – public sector 0776 Policyholder surety bond – private sector
g)
December 31, 2014 Average effectiveness period In days In months 925 365 925 1,036 1,036
30 12 30 34 34
December 31, 2013 Average effectiveness period In days In months 877 403 877 986 986
29 13 29 32 32
Recognition of claims and expenses Claims from general insurance include all events arising during the six-month period, either reported or not, the related internal and external costs with treatment of claims directly related to processing and settlement thereof, the reduced amount consisting of salvage recoveries and any adjustments to prior years’ unsettled claims.
h)
Property and equipment Property and equipment are measured at historical cost, less accumulated depreciation. The historical cost includes expenses directly attributable to the acquisition of assets. Costs subsequently incurred are included in the carrying amount of the asset or recognized as a separate asset, as appropriate, if, and only if it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. The carrying amount of those items or pieces that are replaced is derecognized. All other repair and maintenance costs are posted against P&L for the year, as incurred.
21
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) h)
Property and equipment (Continued) Depreciation of other assets is calculated using the straight-line method. The carrying amount of an asset is immediately discounted to its recoverable amount when the carrying amount exceeds the estimated recoverable amount.
i)
Intangible assets Costs associated with the maintenance of software are recognized as expenses, as incurred. The development costs of third-party software that is directly used by the Company are recognized as intangible assets whenever the following criteria are met:
It is technically feasible to complete the software so that it is available for use.
Management intends to complete the software and use it.
It can be shown that the software is likely to generate future economic benefits.
Appropriate technical, financial and other resources are available to complete the development in order to use the software.
Expenses attributable to the software during its development can be measured reliably.
Directly attributable costs, capitalized as a portion of the software product include costs in development and an appropriate portion of applicable direct expenses. Other development expenses not falling under these criteria are recognized as expense, as incurred. The development costs previously recognized as expenses are not recognized as assets in a later period. The software development costs recognized as assets are amortized throughout their estimated useful lives.
22
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) j)
Impairment of financial assets Upon balance sheet closing, the Company assesses whether there is objective evidence that a certain financial asset or group of financial assets is impaired. An asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment in connection with one or more events after the initial recognition of the assets.
k)
Assets recorded at amortized cost When there is clear evidence of impairment of the assets recorded at amortized cost, the amount of loss is measured as the difference between the carrying amount of the asset and the present value of future estimated cash flows (excluding future expected losses on credit not yet incurred), discounted at the original effective interest rate of the financial asset. The carrying amount of the asset is reduced, and the amount of loss is recognized in the income statement. The Company initially assesses financial assets stated at amortized cost individually as to whether there is clear evidence of impairment of that is individually significant, or in groups, for financial assets that are not individually significant. If it is concluded that there is no actual evidence of impairment on a financial asset individually evaluated, whether or not significant, the asset is included in a group of financial assets with similar characteristics of credit risks and is jointly evaluated in relation to the impairment. Impairment loss, if any, is always assessed at the balance sheet date. For impairment purposes, the Company designates insurance unearned premiums based on economic studies of losses, risks of default, among others. The provision for impairment will be recorded when necessary, according to SUSEP Circular No. 483, of January 6, 2014. If, in a subsequent period, there is a decrease in impairment loss clearly related to an event taking place after recognition of said loss, this impairment previously recognized shall be reversed. Any subsequent impairment reversal is recognized in the income statement to the extent that the asset carrying amount does not exceed its respective amortized cost as of the reversal date.
23
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) l)
Deferred income and social contribution taxes Current tax assets and liabilities for the last and prior years are measured at the estimated amount recoverable from or payable to tax authorities. Income and social contribution taxes are calculated based on P&L for the period, at the rates of 25% and 15%, respectively, adjusted for additions and exclusions determined by tax legislation in force. Deferred income and social contribution taxes reflect the effects of income and social contribution tax losses temporary differences as of the balance sheet date between tax bases of assets and liabilities and their carrying amounts. Deferred tax assets are recognized for all deductible temporary differences, unused tax credits and tax losses to the extent that it is probable that temporary differences will be reversed in a near future and taxable profit will be available so that the deductible temporary differences may be realized and unused tax credits and losses may be used. Temporary differences will be used to reduce or increase future taxable profits. The Company evaluates, on an annual basis, the amount of deferred income and social contribution tax assets in relation to its operating performance and projected taxable profit, and, when necessary, reduces the amounts to the expected realizable value.
m) Liability adequacy test As required by pronouncement CPC 11 - Insurance Contracts, at each balance sheet date, the Company evaluates the obligations in connection with the insurance contracts in force as of the base date by means of the liability adequacy test. SUSEP set and defined the rules for preparation of this test by way of SUSEP Circular No. 457, of December 14, 2012. The liability adequacy test does not apply to insurance contracts for DPVAT and was conducted with caution and objectivity in view of the use of applicable, appropriate and significant statistical and actuarial methods, based on updated and true information and realistic considerations, consistently with financial market observable information.
24
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) m) Liability adequacy test (Continued) Briefly, the liability adequacy test is determined by the difference between current estimates of cash flows and total accounting balance of reserves at the test base date, less deferred acquisition costs and intangible assets directly related to the technical reserves. The Company prepared a methodology which represents the best estimate of all future cash flows by using current, realistic and unbiased assumptions for each variable involved in the liability adequacy test. Pursuant to SUSEP Circular No. 457, of December 14, 2012, estimated cash flows in the liability adequacy test are gross of reinsurance amounts. By virtue of the Insurer’s insurance lines, the use of an interest rate contracted for assets and liabilities, an interest rate expected for assets and a table in conducting the liability adequacy test is not applicable. For each obligation arising from the insurance contracts evaluated, the forward structure of risk-free interest rate was obtained by means of the fixed risk-free ETTJ index, according to SUSEP Circular No. 457, of December 14, 2012. The liability adequacy test for the years ended December 31, 2014 and 2013 indicated that the reserves then established, net of deferred selling expenses and related intangible assets, are sufficient to secure the expected present value of cash flows in connection with the compliance with insurance contracts discounted at the forward structure of riskfree interest rate, with no need to adjust the Insurer’s reserves. In addition, the comparison between PPNG set up (net of deferred selling expenses and related intangible assets) at the present value of claims flows to be incurred by the Insurer showed no need to set up a supplementary reserve.
25
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) n)
Other provisions, contingent assets and liabilities Pursuant to CPC 25, a provision for labor, civil and tax contingencies is recognized when there is a present legal or constructive obligation as a result of past events, whose amounts can be reliably estimated, and the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. When any of these features is not met, the Company does not recognize a provision. Provisions are set up based on a number of individual analyses, made by the Company’s legal advisers, of administrative and legal proceedings pending judgment and based on the likelihood of an unfavorable outcome leading to future outflow of funds. An increase in liability due to the passage of time is recognized as financial expense. Contingent assets, if any, are not recognized until the Company is awarded a final favorable decision, and when the likelihood of asset realization is considered as probable.
o)
Determination of profit or loss (P&L) Profit or loss is determined on an accrual basis, considering that insurance premiums are recorded on the date of inception of policies. Insurance premiums and the related selling expenses are recognized in P&L in accordance with the risk expiry period elapsed. Insurance premium revenues are posted to P&L at the inception of the related insurance policies and deferred for appropriation, on a straight-line basis, during the validity of the policies by setting up and reversing the Unearned Premium Reserve (PPNG). Premiums referring to reinsurance contracts for exceeding damages are recorded in P&L for the sixmonth period as reinsurance premiums granted and deferred for allocation through set-up and reversal of Unearned Premium Reserve (PPNG), according to the methodology described in actuarial note. As from 2014, the Company recognized the portion of premiums related to risks in force yet not issued (Premium - RVNE) considering that its premium history base become more consistent, and allowed it to reliably estimate the amount of RVNE premium.
26
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
3. Summary of significant accounting practices (Continued) o)
Determination of P&L (Continued) Earnings per thousand shares are stated in the income statement for the year.
p)
Earnings (loss) per share In compliance with CPC 41, the Company presents its earnings (loss) per share for the years ended December 31, 2014 and 2013. Basic earnings per share are calculated by dividing P&L for the year, attributed to the Company common shareholders, by the number of outstanding shares as of the base date. As of December 31, 2014 and 2013, the Company had not preferred shares.
q)
Stock option plan Share-based payment to Company executives is measured and recognized at fair value as of the date options are granted, in a specific equity and P&L account, as contractual conditions are met. The cost of transactions settled in shares is recognized, over the year in which conditions are fulfilled, ending on the date the employee becomes entitled to premium (vesting date). The cumulative expense recognized through the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of shares to be acquired. When share-based payment premium is canceled, it is treated as if it had been acquired on the cancellation date, and any expenses are immediately recognized. This includes any premium in which non-acquisition conditions within the control of the Company or the other party are not met. However, if a new plan replaces the plan canceled, and is designated as a substitute plan on grant date, the plan canceled and the new plan are treated as a change in the original plan.
27
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions The preparation of financial statements requires the use of certain accounting estimates and a high level of management judgment in using certain accounting practices. Nevertheless, uncertainty associated with those estimates and assumptions could lead to results that would require significant adjustment to the carrying amount of assets or liabilities affected in future periods. In applying the accounting practices and policies, management made the following judgments, in addition to those involving estimates and assumptions, whose significant effects were recognized in the financial statements. a)
Evaluation of insurance contract liabilities As permitted by Pronouncement CPC 11 - Insurance Contracts, the Company applied the accounting practices generally accepted in Brazil to its insurance contracts. The technical reserves which represent the insurance contract liabilities of the Insurer’s lines are as follows: unearned premium reserve (PPNG), unearned premium reserve for policies in force but not written (PPNG-RVNE), outstanding claims reserve (PSL) and reserve for claims incurred but not reported (IBNR), related expenses reserve (PDR) and supplementary coverage reserve (PCC). Insurer’s reserves are determined based on methodologies known in the Brazilian insurance market, in compliance with all SUSEP requirements. The behavior of the Insurer's insurance portfolio is monitored on a monthly basis in order to foresee and define proper criteria for measurement of reserves. It is worth highlighting that, while the Company does not present a significant mass of data, which allows the statistical calculation of Reserve for Claims Incurred But Not Reported (IBNR) by means of an own methodology set forth in an actuarial note to be developed by the Company, calculation thereof will be performed in accordance with SUSEP Circular No. 448, of September 4, 2012.
b)
Reserve for recovery of insurance, co-insurance and reinsurance assets These reserves are recorded under SUSEP Circular No. 483/2014, and established at an amount deemed to be sufficient to cover the probable losses on receivables from insurance, co-insurance and reinsurance. As of December 31, 2014 and 2013, there were no indications that the receivables would not be recovered.
28
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions (Continued) c)
Useful life of property and equipment and intangible assets Depreciation or amortization of property and equipment and intangible assets considers management’s best estimate on the use of these assets during operations. Changes in the economic scenario and/or consumer market may require that the estimated useful lives be reviewed.
d)
Impairment of non-financial assets Management semiannually reviews the net carrying amount of assets so as to assess events or changes in economic, operating or technological circumstances which may indicate deterioration or impairment. When such evidence is identified and net book value exceeds recoverable amount, a provision for impairment is set up by adjusting net carrying amount to the recoverable amount. As of December 31, 2014 and 2013, there were no indications of impairment of non-financial assets.
e)
Provision for contingencies The Company is exposed to legal, civil and labor claims arising from the normal course of its business, and the assessment of related risks involves considerable judgment by management, for tax, labor and civil claims resulting from a past event, an outflow of resources embodying economic benefits is likely to be required to settle an obligation, and this obligation can be reliably estimated. Assessment of the likelihood of loss includes analysis of available evidence, the hierarchy of laws, available case law, the most recent court decisions and their relevance in the legal system, as well as the opinion of external legal advisors. Provisions are reviewed and adjusted to take into consideration changes in circumstances, such as applicable statute barring period, conclusion of tax audits or additional exposures identified based on new matters or court decisions. Actual results could differ from those estimates.
29
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
4. Significant accounting judgments, estimates and assumptions (Continued) e)
Provision for contingencies (Continued) Settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to the uncertainties inherent in their estimate process. The Company reviews its estimates and assumptions at least on a quarterly basis.
5. Insurance and financial risk management a)
Insurance risk management The main risk for the Insurer in insurance contracts consists of claim payments not living up to expectations. This is influenced by the frequency of claims, severity, amounts actually paid and history of long-term claims. Accordingly, the Insurer seeks to ensure that sufficient reserves are available to cover these liabilities. The aforesaid risk exposure is reduced by diversifying the portfolio in light of a judicious analysis of the risk acceptance, by implementing healthy and cautious guidelines on the underwriting strategy. The Insurer underwrites policies in the Surety Bond, Engineering Risk, and Oil Risk lines, considering technical risk factors. For risk pricing purposes, in order to obtain consistent, stable results which are positive both individually and for the portfolio, the Insurer makes it a policy to underwrite insurance and adopt operating procedures for risk assessment. The Insurer uses a pricing model following its risk management assumptions. It is worth highlighting that the procedure supplements the decision-making level regime and that these documents are formally approved and duly announced to all levels involved. The Insurer acquires reinsurance as an integral part of its risk reduction program. The ceded reinsurance is taken out on a proportional and nonproportional basis.
30
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) a)
Insurance risk management (Continued) The following table presents the concentration of business risks by region and portfolio, based on the reinsurance premium value, both gross and net. Region Mid-West Northeast North Southeast South Total
Region Mid-West Northeast North Southeast South Total
Region Mid-West Northeast North Southeast South Total
Region Mid-West Northeast North Southeast South Total
31
DPVAT 3,008 5,672 1,803 15,013 6,534 32,030
DPVAT 2,713 5,088 1,595 13,926 5,993 29,315
DPVAT 3,008 5,672 1,803 15,013 6,534 32,030
DPVAT 2,713 5,088 1,595 13,926 5,993 29,315
Distribution of gross reinsurance premium as of December 31, 2014 Surety bond Engineering risk Civil liability Oil risk Total 1,330 7,256 1,327 91,158 15,683 116,754
8,454 448 9 4,828 782 14,520
309 24 1 358 15 707
57,578 57,578
13,100 13,400 3,140 168,935 23,014 221,589
Distribution of gross reinsurance premium as of December 31, 2013 Surety bond Engineering risk Civil liability Oil risk Total 162 1,253 571 83,193 85,179
19 30 55 8,571 19 8,694
1 2 5 950 1 959
43,109 43,109
2,895 6,373 2,226 149,749 6,013 167,256
Distribution of net reinsurance premium as of December 31, 2014 Surety bond Engineering risk Civil liability Oil risk Total 720 4,222 810 44,004 9,326 59,082
1,600 226 4 126 369 2,325
54 12 85 8 159
3,921 3,921
5,382 10,132 2,617 63,149 16,237 97,517
Distribution of net reinsurance premium as of December 31, 2013 Surety bond Engineering risk Civil liability Oil risk Total 104 762 352 40,644 41,862
10 15 28 1,956 10 2,019
1 1 2 223 1 228
1,436 1,436
2,828 5,866 1,977 58,185 6,004 74,860
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) b)
Sensitivity test for operating activities The Insurer’s risk monitoring policy addresses the periodical analysis of its portfolio in order to assess its volatility through changes which may lead to significant changes in P&L. According to Vinci Gestora de Recursos Ltda., a company that manages the Company's funds, such investments generated an exposure whose parametric Value at Risk (VAR) with 95% confidence level, one-business-day timeframe and a 252-business-day history was R$108 or 0.11% of the portfolio equity, or R$229 with a confidence level of 99%. The Insurer analysis also considers its investment portfolio performance in stress scenarios of the main risk factors that make up its assets, as follows:
Forward yield curve structure of the Extended Consumer Price Index (IPCA): variation of 300 base points or 3% on an equal basis in all of the forward yield curve vertices of inflation - IPCA - inferred by the yield curve of National Treasury Notes (NTN-B).
Bovespa Index: variation of 10% in Bovespa index.
Foreign exchange: variation of 10% in the foreign exchange rate. Scenario A (**) Risk factors Inflation Exchange Foreign exchange Total
Shock +300bps (*) +10% +10%
Scenario B (**) Impact on P&L before taxes (3,410) (240) 1,192 (2,458)
Risk factors Inflation Exchange Foreign exchange Total
Shock -300bps (*) -10%
*
bps = base points, where 1 bp = 0.01%.
**
Information from the Management of the Insurer’s funds (Vinci Gestora de Recursos Ltda.).
-10%
Impact on P&L before taxes 3,410 240 (1,192) 2,458
In addition to the scenarios above, the Company has performed sensitivity tests by increasing the loss ratios identified in its portfolio, and stressing the behavior of the foreign exchange rate as of December 31, 2014.
32
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) b)
Sensitivity test for operating activities (Continued)
Loss ratio In order to perform a loss sensitivity test, a 10% increase in the loss ratio observed in 2014 was adopted, therefore limiting the loss ratio for the sensitivity test to 10%. Based on these new reported claims amounts, the impact on the Company’s P&L was assessed and, consequently, there are possible changes in claims incurred but not reported (IBNR). Nonetheless, this 10% increase in loss ratio is not sufficient to cause changes in the IBRN amount for any of the Company’s operating lines. This is due to the low indices of loss ration observed over the year, making the SUSEP percentage established in the SUSEP Circular No. 485 of January 6, 2014, and applied on the base premium, to be higher than the SUSEP percentage applied on the base loss for the same period. The table below presents changes in claims reported, gross and net of reinsurance, considering the loss ratio according to each of the Insurer’s insurance lines. These claims were obtained by applying this loss ratio test on written premium and retained premium (less reinsurance premium for exceeding damage) accumulated as of December 31, 2014.
Line Engineering risks Oil risks General civil liability Policyholder surety bond - Public sector Policyholder surety bond – Private sector Total
33
Loss ratio increased by
December 31, 2014 Change in reported Changes in Test on changes Test on changes claims, gross of reported claims, net in IBNR, gross in IBNR, net of reinsurance of reinsurance of reinsurance reinsurance
20.57% 10.00% 28.28%
172 4,583 20
364 217 6
10.00%
3,424
1,770
10.00%
1,737 9,936
750 3,107
-
-
-
-
-
-
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) b)
Sensitivity test for operating activities (Continued)
Loss ratio (Continued)
Line Engineering risks Oil risks General civil liability Policyholder surety bond - Public sector Policyholder surety bond – Private sector Total
Loss ratio increased by
December 31, 2013 Change in reported Changes in Test on changes Test on changes claims, gross of reported claims, net in IBNR, gross in IBNR, net of reinsurance of reinsurance of reinsurance reinsurance
270.73% 10.00% 10.00%
2,140 4,310 86
160 144 -
342 -
26 -
10.00%
6,449
3,621
-
-
10.00%
2,068 15,053
1,162 5,087
342
26
The impact on the Insurer’s P&L and equity after taxes and contributions as of December 31, 2014 is a reduction in Company’s P&L and equity amounting to R$2,386 (R$4,612 as of December 31, 2013). c)
Financial risk management The Insurer’s investment policy sets forth the guidelines to allocate the Company’s funds to marketable securities, as well as to monitor the risks inherent in its investment portfolio. The investments rely on analysis of short-, medium- and long-term macroeconomic scenarios, observing the main variables of the Brazilian and global economy, e.g.: expectations for evolution of interest rates, inflation rates, exchange rates, and economic growth, among others. The Insurer’s investment decisions consider its cash needs and the matching between its assets and liabilities in light of a conservative behavior in relation to its counterparties’ credit and investments made. The financial investment risks are managed through a daily analysis and monitoring of the portfolio. The Insurer has an investment committee that meets to analyze the portfolio performance, design prospective scenarios and set the overall guidelines for investments in the upcoming months.
34
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) d)
Credit risk It consists of any losses on financial liabilities not satisfied by the counterparties as agreed. The Insurer only does business with well-rated reinsurers. The Insurer is engaged in operations with ten local reinsurers, seventeen admitted reinsurers and nineteen unauthorized reinsurers. In this panel, the lowest rating given by Standard & Poor's, Fitch and A. M. Best Company was AA-. Also, the Insurer’s co-insurance exposure amounts to R$3,225, with other insurers as counterparties. This credit risk exposure was calculated in accordance with article 5, Attachment I of CNSP Resolution No. 228, of December 6, 2010, as amended.
e)
Market risk It consists of any losses from unfavorable fluctuation of the value of the Insurer’s investments. The market risk control is based on the Value at Risk (VAR) model, which shows the greatest loss expected from an asset or portfolio for a given time frame and a given likelihood of occurrence. At December 31, 2014, parametric Value at Risk (VAR) with 95% confidence level, onebusiness-day timeframe and a 252-business-day history was R$108 or 0.11% of the portfolio equity.
f)
Liquidity risk It consists of a company possibly not being able to make payments in connection with the mismatching of deadline between its assets and liabilities. Management has daily visibility of the Company’s Portfolio, and regularly discusses the position of investments in its meetings, or on an ad hoc basis, when necessary, considering their liquidity and expected profitability.
35
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
5. Insurance and financial risk management (Continued) f)
Liquidity risk (Continued) The Insurer adopts a conservative philosophy for investments, prioritizing liquidity capacity at all times when choosing its financial assets, based on its obligations to the counterparties. Disregarding investment fund shares referring to the DPVAT, the Company currently has 69.57% of its portfolio in LFT, securities which are daily liquid, irrespective of their maturities.
Assets and liabilities Financial assets at fair value through profit or loss Financial assets available for sale Receivables from insurance and reinsurance operations Securities and receivables Total assets Accounts payable Insurance contract liabilities (net of reinsurance) Payables from insurance and reinsurance operations Third-party deposits Total liabilities
Assets and liabilities Financial assets at fair value through profit or loss Financial assets available for sale Receivables from insurance and reinsurance operations Securities and receivables Total assets Accounts payable Insurance contract liabilities (net of reinsurance) Payables from insurance and reinsurance operations Third-party deposits Total liabilities
36
December 31, 2014 From 1 to Over 2 years 2 years
No maturity
Up to 1 year
50,534 -
5,079 -
-
61,386 13,535
116,999 13,535
50,534
90,368 2,623 98,070
38,999 38,999
74,921
129,367 2,623 262,524
-
5,820 73,643 85,178 4,253 168,894
835 46,223 31,788 78,846
-
6,655 119,866 116,966 4,253 247,740
December 31, 2013 From 1 to Over 2 years 2 years
Total
No maturity
Up to 1 year
36,792 -
26,783 -
2,076 -
45,433 5,980
111,084 5,980
36,792
67,534 3,320 97,637
40,041 744 42,861
51,413
107,575 4,064 228,703
-
6,751 59,160 72,525 318 138,754
36,243 13,348 49,591
22,041 22,041
6,751 95,403 107,914 318 210,386
Total
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
6. Financial assets a)
Classification by category and range of maturity December 31, 2014 Agreed rates I. Trading securities Fixed rate FI shares - DPVAT Financial Treasury Bills (LFT) Investment fund shares II. Securities available for sale National Treasury Notes (NTN-B) Total
Up to No maturity 12 months
From 13 to 60 months
Carrying Over amount and Percentage 60 months market value of portfolio
SELIC -
35,001 15,533
5,079 -
61,046 -
340 -
35,001 66,465 15,533
27% 51% 12%
IPCA
50,534
5,079
1,786 62,832
11,749 12,089
13,535 130,534
10% 100%
The value curve of available-for-sale securities as of December 31, 2014 is R$13,286. December 31, 2013 Agreed rates I. Trading securities Fixed rate FI shares - DPVAT Financial Treasury Bills (LFT) Investment fund shares II. Securities available for sale National Treasury Notes (NTN-B) Total
Up to No maturity 12 months
From 13 to 60 months
Carrying Over amount and Percentage 60 months market value of portfolio
SELIC -
30,205 6,587
26,783 -
38,425 -
9,084 -
30,205 74,292 6,587
26% 63% 6%
IPCA
36,792
26,783
38,425
5,980 15,064
5,980 117,064
5% 100%
The value curve of available-for-sale securities as of December 31, 2013 is R$5,945. The market values for public securities were determined in view of the quotations announced by the Brazilian Financial and Capital Markets Association (ANBIMA). The investment fund shares are valued in view of the unit value of the share as of the balance sheet date reported by the fund managers. In 2014, there was no reclassification between the short-term investments categories. The market value of publicly-traded company shares and of listed real estate funds the Insurer has in its portfolio was obtained from the price disclosed by Bovespa.
37
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
6. Financial assets (Continued) b)
Hierarchy of fair value The table below presents financial instruments recorded at fair value, under their corresponding assessment methods. The different levels were defined as follows:
Level 01: securities traded in active market.
Level 02: securities not traded in markets covered by “Level 01” whose pricing is directly or indirectly observable.
Level 03: securities whose cost is not determined in view of an observable market. Level 01
c)
December 31, 2014 Level 02
Total
Level 01
December 31, 2013 Level 02
Total
I. Trading securities Investment funds Investment fund shares Real estate fund shares Fixed rate FI shares - DPVAT Fixed rate securities - public Financial Treasury Bills (LFT)
1,682 -
11,049 2,802 35,001
11,049 4,484 35,001
1,587 -
5,000 30,205
5,000 1,587 30,205
66,465
-
66,465
74,292
-
74,292
II. Securities available for sale Fixed rate securities - public National Treasury Notes (NTN)
13,535
-
13,535
5,980
-
5,980
Grand total
81,682
48,852
130,534
81,859
35,205
117,064
Changes in short-term investments Changes in short-term investments are as follows:
Investment fund shares Investment fund shares - DPVAT Fixed income securities - public Total
38
12/31/2013
(+) Investments
(-) Redemption
6,587 30,205 80,272 117,064
7,784 9,306 93,918 111,008
(8,228) (102,814) (111,042)
(+) Yield 1,162 3,718 8,624 13,504
12/31/2014 15,533 35,001 80,000 130,534
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
7. Guarantee of technical reserves The Central Bank of Brazil (BACEN), by means of Resolution No. 3308, of August 31, 2005, as amended, and SUSEP, by means of CNSP Resolution No. 226, of December 6, 2010, as amended, set the standards for investment of guarantee funds of technical reserves by insurers. As of December 31, 2014 and 2013, the Company’s coverage was as follows:
39
12/31/2014
12/31/2013
Unearned premium reserve Outstanding claims reserve Reserve for claims incurred but not reported Reserve for related expenses Technical reserve for DPVAT Total technical reserves
237,279 18,785 22,981 5 419 279,469
189,606 33,763 21,579 135 245,083
Credit rights Deferred acquisition cost reducing PPNG Unearned premium reserve – reinsurance Recovery of outstanding claims Recovery of claims incurred but not reported Consortium reserve - DPVAT Total exclusions
(94,446) (20,605) (72,727) (1,472) (4,416) (34,987) (228,653)
(72,985) (15,451) (58,268) (12,129) (7,039) (30,192) (196,064)
Total reserves for coverage
50,816
49,019
Breakdown of assets linked to coverage of reserves Financial Treasury Bills (LFT) National Treasury Notes (NTN) Short-term investment fund shares Real estate investment fund shares
39,374 13,282 9,065 4,484
57,126 3,210 1,586
Total assets linked to coverage of reserves
66,205
61,922
Sufficiency
15,389
12,903
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
8. Receivables from insurance operations 12/31/2014 Premiums receivable - current Premiums receivable - noncurrent Total current and noncurrent
12/31/2013
81,537 37,416 118,953
53,294 38,137 91,431
24,836 7,646 6,020 1,577 9,989 37,416 87,484
10,570 29,127 3,236 1,271 8,600 38,137 90,941
176 176 31,293 118,953
487 3 490 91,431
91,431 247,917 10,917 82 (231,388) (6) 118,953
39,810 160,387 4,358 51 (113,175) 91,431
Aging of premiums receivable Premiums falling due From 1 to 30 days From 31 to 60 days From 61 to 120 days From 121 to 180 days From 181 to 360 days Over 360 days Total premiums falling due Overdue premiums From 1 to 30 days From 31 to 60 days Total overdue premiums Risks Effective Yet Not Issued (RVNE) Total outstanding premiums Changes in premiums receivable Opening balance (+) Premiums written (+) Tax on financial transactions (IOF) (+) Additional fraction portions (-) Receivables (-) Provision for impairment loss Closing balance
Considering the premium receipt flow and payment in installments for the year ended December 31, 2014, it has been observed that the Insurer has operated with three installments on average.
40
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
9. Reinsurance assets - technical reserves 12/31/2014
12/31/2013
Reserve for claims incurred but not reported (IBNR) Recovery of claim expense Recovery of claim indemnification Deferred reinsurance premiums from policies written
4,416 4 1,468 153,715
7,039 5,569 6,560 130,512
Total current and noncurrent
159,603
149,680
Amortization
12/31/2014
10. Deferred acquisition costs Surety bond Civil liability Engineering risks Oil risks Total current Surety bond Civil liability Engineering risks Oil risks Total noncurrent Total current and noncurrent
Surety bond Civil liability Engineering risks Oil risks Total current Surety bond Civil liability Engineering risks Oil risks Total noncurrent Total current and noncurrent
12/31/2013
Setting up
6,687 186 456 2 7,331
8,970 2 561 609 10,142
(4,877) (42) (293) (203) (5,415)
10,780 146 724 408 12,058
10,270 366 536 2 11,174 18,505
10,205 46 998 71 11,320 21,462
(7,125) (23) (522) (13) (7,683) (13,098)
13,350 389 1,012 60 14,811 26,869
12/31/2012
Setting up
4,147 122 133 4,402
2,782 75 366 17 3,240
(242) (11) (43) (15) (311)
6,687 186 456 2 7,331
5,370 346 4 5,720 10,122
4,903 26 660 2 5,591 8,831
(3) (6) (128) (137) (448)
10,270 366 536 2 11,174 18,505
Amortization
12/31/2013
All the above-mentioned deferred acquisition costs refer to expenses with commissions, which are recorded when policies are written and allocated to P&L while the policy remains effective. These expenses are deferred by means of the methodology used for deferral of the insurance premium. All deferred commission expenses were considered in the liability adequacy test.
41
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
11. Property and equipment Annual depreciation rate IT and telecommunication equipment Facilities Furniture, machinery and fixtures Other property and equipment Total
20% 10% 10% 10%
Annual depreciation rate IT and telecommunication equipment Facilities Furniture, machinery and fixtures Other property and equipment Total
20% 10% 10% 10%
12/31/2013 241 352 127 34 754
12/31/2012 239 393 110 18 760
Acquisitions 79 323 77 66 545
Acquisitions 42 29 22 93
Depreciation (65) (62) (21) (9) (157)
Depreciation (40) (41) (12) (6) (99)
12/31/2014 255 613 183 91 1,142
12/31/2013 241 352 127 34 754
12. Intangible assets Annual amortization rate Right to use third-party software Total
20%
Annual amortization rate Right to use third-party software Total
42
20%
12/31/2013 1,362 1,362
12/31/2012 1,017 1,017
Acquisitions 740 740
Acquisitions 644 644
Amortization (435) (435)
Amortization (299) (299)
12/31/2014 1,667 1,667
12/31/2013 1,362 1,362
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
13. Technical reserve - insurance and reinsurance Insurance reserve 12/31/2014 12/31/2013 Surety Unearned premium reserve Outstanding claims – administrative Claims incurred but not reported Engineering risk Unearned premium reserve Outstanding claims – administrative Outstanding claims – legal Claims incurred but not reported Reserve for related expenses DPVAT Outstanding claims – administrative Outstanding claims – legal Claims incurred but not reported Other reserves Oil risks Unearned premium reserve Claims incurred but not reported General civil liability Unearned premium reserve Outstanding claims – administrative Claims incurred but not reported Total
(-) Reinsurance portion 12/31/2014 12/31/2013
(=) Net reserve 12/31/2014 12/31/2013
160,786 300 1,395 162,481
115,851 1,193 117,044
(83,527) (180) (702) (84,409)
(61,760) (607) (62,367)
77,259 120 693 78,072
54,091 586 54,677
30,310 1,386 51 658 5 32,410
25,240 17,122 144 3,424 45,930
(26,643) (1,252) (36) (553) (4) (28,488)
(22,025) (12,122) (3,167) (37,314)
3,667 134 15 105 1 3,922
3,215 5,000 144 257 8,616
4,484 12,564 17,520 419 34,987
2,557 13,930 13,570 135 30,192
4,484 12,564 17,520 419 34,987
2,557 13,930 13,570 135 30,192
45,547 3,354 48,901
47,822 3,319 51,141
(43,070) (3,119) (46,189)
(46,223) (3,209) (49,432)
2,477 235 2,712
1,599 110 1,709
636 54 690 279,469
693 10 73 776 245,083
(475) (42) (517) (159,603)
(504) (7) (56) (567) (149,680)
161 12 173 119,866
189 3 17 209 95,403
-
-
Changes in technical reserves, without considering the DPVAT insurance line, are as follows: Reconciliation of reserves Outstanding claims reserve Reserve for claims incurred but not reported Reserve for related expenses Total reserve for claims Unearned premium reserve At end of year
December 31, 2014 Insurance Reinsurance Retained 1,737 5,461 5 7,203 237,279 244,482
Progress of unearned premium reserve As of January 1 Premiums written for the year Premium earned for the year At end of year
43
(1,468) (4,416) (4) (5,888) (153,715) (159,603)
269 1,045 1 1,315 83,564 84,879
December 31, 2013 Insurance Reinsurance Retained 17,276 8,009 25,285 189,606 214,891
Insurance 189,606 221,589 (173,916) 237,279
(12,129) (7,039) (19,168) (130,512) (149,680)
5,147 970 6,117 59,094 65,211
December 31, 2014 Reinsurance Retained (130,512) (124,072) 100,869 (153,715)
59,094 97,517 (73,047) 83,564
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
13. Technical reserve – insurance and reinsurance (Continued) Progress of claim reserves As of January 1 Indemnities reported Claim expenses Recovery of claims Changes in claims incurred but not reported Salvage recovery Claims paid for the year At end of year
Changes in claim reserves As of January 1 Claims incurred for the year Claims paid for the year At end of year
Changes in IBRN reserve
Changes in related expenses reserve
25,285 1,208 277 (794) (2,548) (16,225) 7,203
(19,168) (522) (175) 2,623 11,354 (5,888)
Insurance
December 31, 2014 Reinsurance
25,285 (1,857) (16,225) 7,203
(19,168) 1,926 11,354 (5,888)
Insurance
December 31, 2014 Reinsurance
Insurance 5 5
As of January 1 Changes At end of year
Changes in outstanding claims reserve
44
December 31, 2014 Reinsurance
8,009 (2,548) 5,461
As of January 1 Delayed reports Changes At end of year
As of January 1 Changes At end of year
Insurance
(7,039) 2,623 (4,416) December 31, 2014 Reinsurance (4) (4)
Insurance
December 31, 2014 Reinsurance
17,276 (15,539) 1,737
(12,129) 10,661 (1,468)
Retained 6,117 686 102 (794) 75 (4,871) 1,315
Retained 6,117 69 (4,871) 1,315
Retained 970 75 1,045
Retained 1 1
Retained 5,147 (4,878) 269
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
14. Progress of claims The progress of claims presented in this Note segregates the insurance lines internally sold by the Company from the Compulsory Vehicle Liability Insurance (DPVAT). These were segregated because, for DPVAT purposes, information stated is generated by Seguradora L铆der dos Cons贸rcios do Seguro DPVAT S.A. The Insurer has no reported claims in the surety lines. In addition, as the general civil liability line is a secondary product of the engineering line and, to date, has only one claim reported, the following tables present these two lines in a group. The tables below present the progress of claims reported in engineering and general civil liability lines, payments for the period, which resulted in an outstanding claim reserve. Claims incurred but not reported are estimated based on SUSEP Circular No. 448, of September 4, 2012. Outstanding insurance claim progress table Date of report
2012
2013
1,050 1,648 1,831 1,831
20,905 20,702 20,702
2014
Claims reported At end of report year After 1 year After 2 years Total claims reported
-
Accumulated deficit Accumulated deficit
-
781 74%
Payments made At end of report year After 1 year After 2 years Total payment
-
411 1,264 1,774 1,774
8,517 19,699 19,699
29 29
6,582 6,582
639 1,072 1,711
17,276 8,009 25,285
1,742 5,461 7,203
Reserve for outstanding claims Reserve for claims incurred but not reported Total liabilities
45
2011
711 711 -
(203) (1%)
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
14. Progress of claims (Continued) Recoverable reinsurance claim progress table Date of report
2011
2012
2013
735 1,154 1,282 1,282
19,445 19,494 19,494
2014
Claims reported At end of report year After 1 year After 2 years Total claims reported
-
Accumulated deficit Accumulated deficit
-
Payments At end of report year After 1 year After 2 years Total payment
-
288 884 1,242 1,242
7,585 18,552 18,552
23 23
4,403 4,403
447 646 1,093
12,129 7,039 19,168
1,472 4,416 5,888
Reserve for outstanding claims Reserve for claims incurred but not reported Total assets
546 74%
513 513 -
49 -
Below are the amounts referring to claims reported, expenses with claims and reserve for claims incurred but not reported in the DPVAT line, broken down by type of administrative and legal claims. These amounts are reported by Seguradora L铆der dos Cons贸rcios do Seguro DPVAT S.A. only. 12/31/2014
46
12/31/2013
Progress of administrative claims Up to 1 year Outstanding claims reserve
4,484 4,484
2,557 2,557
Progress of legal claims Up to 1 year From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years Over 5 years Outstanding claims reserve Total outstanding claims reserve
5,010 2,698 1,587 1,191 894 1,184 12,564 17,048
5,526 2,878 2,138 1,569 1,100 719 13,930 16,487
Reserve for claims incurred but not reported
17,520
13,570
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
15. Equity a)
Capital As of December 31, 2014, subscribed and paid-in capital comprises 42,470,190 registered common shares, with no par value (41,337,526 at December 31, 2013). Capital increase amounting to R$1,700 was approved by SUSEP Administrative Ruling No. 5810, of March 31, 2014, as resolved in the Special Shareholders’ Meeting held on December 17, 2013. Thus, capital increased to R$40,200, and the number of shares to 41,337,526 registered common shares, with no par value. Capital increase amounting to R$1,348 was approved by SUSEP Administrative Ruling No. 62, of September 24, 2014, as resolved in the Special Shareholders’ Meeting held on June 30, 2014. Thus, capital increased to R$41,548, and the number of shares to 42,470,190 registered common shares, with no par value.
b)
Income reserves Income reserves comprise the legal reserve set up at 5% of income for the year after absorption of accumulated losses, and the remainder is allocated to the retained profits reserve.
c)
Minimum mandatory dividends and interest on equity The Company’s articles of incorporation sets a minimum dividend of 25% on net income for the year, adjusted as provided for by article 202 of Law No. 6404/76.
47
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
15. Equity (Continued) c)
Minimum mandatory dividends and interest on equity (Continued) For 2014, upon approval by the Special Shareholders' Meeting, and after setting-up of legal reserve, dividends were partially paid to shareholders as interest on equity, as follows:
Net income for the year Allocation to legal reserve Tax base Minimum mandatory dividends - 25% Interest on equity paid as minimum dividends (*) Interest on equity in relation to minimum mandatory dividends
12/31/2014
12/31/2013
15,927 (796) 15,131 3,782 (2,271)
5,689 (284) 5,405 1,351 (1,919)
1,511
(568)
(*) Following Law No. 9249/95, the Company paid interest on equity within the tax threshold in the years ended December 31, 2014 and 2013, amounting to R$2,271 (R$1,930, net of withholding income tax) and to R$1,919 (R$1,631, net of withholding income tax) respectively, to its shareholders. Interest on equity is recorded as financial expenses, and as distribution of profit in the equity account of the financial statements.
48
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
15. Equity (Continued) d)
Breakdown of adjusted equity (PLA) 12/31/2014
12/31/2013
Equity Income and social contribution tax losses Intangible assets
59,997 (1,667)
44,611 (500) (1,362)
Adjusted equity (PLA)
58,330
42,749
Basic capital - BC (a)
15,000
15,000
Additional underwriting risk capital (CRsubs) Additional operational risk capital (CRoper) Additional credit risk capital (CRcred) Diversification benefit Risk capital - CR (b)
9,601 1,763 8,162 (2,363) 17,163
8,328 986 6,227 (1,907) 13,634
Minimum required capital (CMR) - higher of (a) or (b)
17,163
15,000
58,330 17,163 41,167 239.86%
42,749 15,000 27,749 184.99%
Adjusted equity (-) Capital requirement (EC) Capital sufficiency - R$ Capital sufficiency (% of EC)
CNSP Resolution No. 302, of December 16, 2013, sets forth that minimum required capital that the overseen entity shall keep at any time to operate is the higher of basic capital and risk capital.
49
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
16. Income and social contribution taxes Income and social contribution taxes calculated at the effective official rates as of December 31, 2014 and 2013, are reconciled as follows: December 31, 2014 Income Social contribution tax tax Income before taxes Interest on equity Profit sharing Tax base Statutory rate Income and social contribution taxes (IRPJ and CSLL) at statutory rate Permanent additions (exclusions) IRPJ and CSLL on P&L Effective rates
December 31, 2013 Income Social contribution tax tax
27,674 (2,271) (2,818) 22,585 25%
27,674 (2,271) (2,818) 22,585 15%
9,180 (1,919) (1,574) 5,687 25%
5,646
3,388
1,422
(135) 5,511 24%
30 3,418 15%
(247) 1,175 20%
9,180 (1,919) (1,574) 5,687 15% 853 (113) 740 13%
17. Related-party transactions The Company engages in transactions with related parties of Grupo Vinci Partners Ltda. and International Finance Corporation - IFC. The main transactions with these companies comprise the investment portfolio management, whose amounts are recorded as financial expenses, insurance and reinsurance policies written, whose amounts are recorded as insurance premiums, reinsurance premiums, reserve for unearned insurance and reinsurance premium, revenues and expenses of written premiums and revenues and expenses of unearned premium. Also, the Company and Austral Resseguradora S.A. rationalize their costs by sharing administrative expenses in common, recorded as administrative expenses. The transactions are performed under such conditions as agreed upon by and between the parties and approved by the Board of Directors. For the year ended December 31, 2014, the Company recorded liabilities regarding IOE, net of income tax withheld at source, payable to shareholders amounting to R$504 (R$1,631 as of December 31, 2013).
50
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
17. Related-party transactions (Continued) Over the year ended December 31, 2014, the Company compensated its Management members, comprising statutory officers, with the amount of R$546 (R$537 as of December 31, 2013). Balance sheet and P&L balances arising from transactions with these companies and management members are as follows: Related parties
51
Assets 12/31/2014 12/31/2013
Liabilities 12/31/2014 12/31/2013
Income/(expenses) 12/31/2014 12/31/2013
Inbrands S.A. Inbrands Indústria de Roupas S.A. BK Brasil Operação e Ass. de Restaurante S.A. A H Confecções S.A. BGNE Restaurantes e Com de Alimentos S.A. Companhia de Marcas PDG Realty S.A. Empreendimentos Participações PDG SPE 61 Empreendimentos Imobiliários Ltda. PDG SPE16 Empreendimentos Imobiliários Ltda. Valid Soluções e Serviços de Segurança S.A. Strazzaria Empreendimentos Participações Ltda. Unidas Locadora de Veículos Ltda. BGK do Brasil S.A. Companhia Energética do Maranhão CHL Desenvolvimento Imobiliário S.A. Unidas S.A. Cecrisa Revestimentos Cerâmicos S.A. Solenergias Comercializadora e energia S.A. Agra Empreendimentos Imobiliários S.A. API SPE 69 Desenvolvimento Empr. Imob. Ltda. Cayamaro Empreendimentos Imobiliários SPE Ltda. Centrais Elétricas do Pará S.A. CHL CVI Incorporações Ltda. CHL LXXIV Incorporações Ltda SPE CHL XCII Incorporações Ltda. SLN Indústria de Roupas S.A. Terra Brasis Resseguradora S.A. Equatorial Soluções S.A. Gold Chile Empreendimentos Imobiliários Ltda. Gold Hereklia Empreendimentos Imob. SPE Ltda. Gold Senegal Empreendimentos Imob. SPE Ltda. ZMF 5 Incorporações Ltda. Moscou Incorporadora Ltda. Vinci Gestora de Recursos Ltda. Austral Participações S.A. Austral Resseguradora S.A. Management members
1 31 1 292 22 5,830 -
6 12 2 9 904 -
80 4 69 9 71 24 503 47,867 -
52 10 1,919 35,357 -
54 122 1 4 247 (79) 1 2 62 19 108 55 8 1,057 83 (9) 46 (15) (172) (2,271) (51,085) (546)
15 6 255 17 15 16 2 54 4 23 (532) 13 1 118 29 15 44 16 155 81 692 3 1 98 91 (104) (1,919) (44,230) (537)
Total
6,177
933
48,627
37,338
(52,308)
(45,558)
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
18. Insurance lines The Insurer’s insurance lines and their performance indicators as of December 31, 2014 and 2013 are as follows: Earned premiums 12/31/2014 12/31/2013 Insurance lines Surety bond Engineering risks Oil risks General civil liability DPVAT Total (a) (b)
71,621 9,450 59,926 753 31,761
49,472 4,575 (4,566) 349 29,389
173,511
79,219
Loss ratio % - (a) 12/31/2014 12/31/2013
0.70 (27.80) 0.06 21.96 87.30
0.58 541.22 (72.69) 21.91 87.29
14.91%
68.69%
Acquisition score % - (b) 12/31/2014 12/31/2013
25.99 17.76 1.89 10.31 1.43
13.54 9.48 (0.51) 13.97 1.43
12.66%
9.63%
The loss ratio = {reported indemnities + claim expenses + salvages and refunds + changes in the Reserve for Claims Incurred But Not Reported (IBNR)}/{Net written premium - changes in the Unearned Premium Reserve}. Acquisition score = acquisition cost/earned premium
Breakdown of direct written premiums before and after ceded reinsurance premiums for the years ended December 31, 2014 and 2013 is as follows: Direct premium written Ceded reinsurance net of ceded coinsurance premium 12/31/2014 12/31/2013 12/31/2014 12/31/2013 Surety bond General civil liability Engineering risks Oil risks DPVAT Total
85,637 691 13,201 43,103 32,030 174,662
88,882 965 9,326 43,152 29,314 171,639
Premium written coinsurance accepted 12/31/2014 12/31/2013 Surety bond General civil liability Engineering risks Oil risks Total
14,072 11 1,102 449 15,634
10,406 (64) 10,342
(43,727) (539) (11,246) (40,119) (95,631)
(38,424) (731) (6,799) (41,673) (87,627)
Ceded reinsurance premiums 12/31/2014 12/31/2013 (6,481) (6) (768) (381) (7,636)
(4,983) 124 (4,767)
Premium - Risks effective Ceded reinsurance yet not issued (RVNE) premium of RVNE 12/31/2014 12/31/2013 12/31/2014 12/31/2013 Surety bond General civil liability Engineering risks Oil risks Total Grand total
52
17,045 5 217 14,026 31,293 221,589
181,982
(7,463) (3) (182) (13,157) (20,805) (124,072)
(92,396)
Insurance (-) reinsurance = retained premium 12/31/2014 12/31/2013 41,910 152 1,955 2,984 32,030 79,031
50,457 233 2,527 1,479 29,314 84,010
Co-insurance (-) reinsurance = retained premium 12/31/2014 12/31/2013 7,591 5 334 68 7,998
5,515 1 60 5,576
Co-insurance (-) reinsurance = retained premium 12/31/2014 12/31/2013 9,582 2 35 869 10,488 97,517
89,586
% - Retention 12/31/2014 12/31/2013 48.94 22.00 14.81 6.92 100.00 45.25
56.77 24.15 (27.10) (3.43) 100.00 48.95
% - Retention 12/31/2014 12/31/2013 53.94 45.45 30.31 15.14 51.16
52.98 (93.75) 53.89
% - Retention 12/31/2014 12/31/2013 56.22 40.00 16.13 6.20 33.52 44.01
49.23
% - Reinsured 12/31/2014 12/31/2013 51.06 78.00 85.19 93.08 54.75
43.23 75.85 72.90 96.57 51.05
% - Reinsured 12/31/2014 12/31/2013 46.06 54.55 69.69 84.86 48.84
47.02 193.75 46.11
% - Reinsured 12/31/2014 12/31/2013 43.78 60.00 83.87 93.80 66.48 55.99
50.77
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
18. Insurance lines (Continued) Reinsurance premiums by class of reinsurers:
Local reinsurer Admitted reinsurer Unauthorized reinsurer Total
12/31/2014
12/31/2013
(90,312) (30,814) (2,946) (124,072)
(66,400) (25,914) (82) (92,396)
19. Stock option plan The Special Shareholders’ Meeting held on October 1, 2013 approved the stock option plan of Austral Participações S.A. (“Austral Participações”), the Insurer’s parent company. The Plan sets forth general conditions for granting by Austral Participações of preferred stock options for shares issued by Austral Participações to eligible professionals, management members and employees of Austral Participações and its affiliates and/or subsidiaries for the services provided. The granting terms and conditions are defined and managed by the Management Committee, pursuant to the guidelines and conditions established by the Stock Option Plan, and the Plan will be settled with Austral Participações' shares, if and when the options are called, upon payment by buyers. Without prejudice, the plan management committee may establish different vesting conditions or option term for each plan or individual contract, in order to extend terms and/or its scheduling. In the meetings held by the stock option plan management committee on October 1 and 2, 2013, the first and second stock option programs were approved, whereby Austral Participações granted stock option to beneficiaries, totaling 4,500,000 shares. In the meeting held by the stock option plan management committee on December 19, 2014, the third stock option program was approved, whereby Austral Participações granted stock options to beneficiaries, totaling 4,832,137.
53
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) The first program provides for three vesting dates, the last being December 2014, when the beneficiaries will have the right to buy their options for the services provided, for the period of four years as from the last vesting date and as from each of the vesting dates established by the plan management committee, subject to the contractual conditions. The second program provides for four vesting dates, the last being September 2016, when the beneficiaries will have the right to buy their options for the services provided, for the period of four years as from the last vesting date and as from each of the vesting dates established by the plan management committee, subject to the contractual conditions. The third program provides for three to five vesting dates, depending on the beneficiary, the last being September 2018 for 99.97% of the options and the balance falling due in September 2016, when the beneficiaries will have the right to buy their options for the services provided, for the period of two years as from the last vesting date and as from each of the vesting dates established by the plan management committee, subject to the contractual conditions. The average weighted contractual life remaining for the outstanding stock options is 6 years. For the first and second programs, the options fair value is estimated on the granting date, based on the Monte Carlo option model, considering a volatility of approximately 27.5%, in line with the volatilities of the insurance industry companies listed in stock exchanges at granting time, the interest rate curve being determined on granting date, according to the interest rate future traded at the S達o Paulo Securities, Commodities & Futures Exchange (BM&FBovespa). The spot price of the asset is calculated based on Vinci Capital Partners' assumptions, which have been audited by independent auditor over the ordinary course of the auditing process of Fundo Vinci Capital Partners II FIQ FIP, and on the options price of both programs of R$1.1425, which is adjusted by an inflation index and by the payment of dividends and interest on equity per share paid by the Company from time to time, as from the date the individual contract is entered into with the beneficiary. Based on those assumptions, the average weighted value for each option granted was R$0.4922.
54
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) For the third program, the options fair value is estimated on the granting date, based on the Black-Scholes model, considering a volatility of approximately 36.5%, in line with the volatilities of the insurance industry companies listed in stock exchanges at granting time, the interest rate curve being determined on granting date, according to the interest rate future traded at BM&FBovespa. The spot price used was the price of first issue of shares for IFC, and the options price was R$1.1752, which is adjusted by an inflation index and by the payment of dividends and interest on equity per share paid by the Company from time to time, as from the date the individual contract is entered into with the beneficiary. Based on those assumptions, the average weighted value for each option granted was R$0.4529. Austral Participações further grants to each beneficiary an option to sell shares acquired by virtue of the options granted to the beneficiary, as well as the option to repurchase such shares. The term and price of such options are determined in individual contracts entered into between Austral Participações and the beneficiaries. The following table reconciles Austral Participações total outstanding stock options: Number of options As of December 31, 2012 All shares granted for the year All shares expired during the year All shares extinguished during the year
4,500,000 (31,250) (93,750)
As of December 31, 2013 Total outstanding shares at beginning of year Total exercisable shares at beginning of year
4,375,000 2,968,750
Total shares granted for the year Total outstanding shares at end of year Total exercisable shares at end of year
4,832,137 9,207,137 4,062,500
In the event that a beneficiary has a work contract terminated either voluntarily or involuntarily, without just cause, any non-exercisable stock options that are automatically extinguished, with no right to damages or compensation, as well as exercisable stock options, may be exercised within a set period as established in each individual contract.
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Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
19. Stock option plan (Continued) In the event that a work contract of a beneficiary is terminated with just cause all exercisable stock options are extinguished, and those that may still be exercised and any shares that may have been acquired due to the exercise of options are automatically extinguished by operation of the law, irrespective of prior warning or damages. The 9,207,137 outstanding stock options represent a dilution of up to 4.19% on the total of 210,534,733 Austral Participações S.A. shares. No option was exercised up to December 31, 2014. The effect of share based remuneration relating to employees registered with Austral Seguradora who were entitled to the options of Austral Participações S.A, is recorded in the Insurer’s equity as a capital reserve for the year ended December 31, 2014, amounting to R$254 (R$569 for the year ended December 31, 2013) and matched against P&L.
20. Breakdown of P&L accounts a) Premiums
Direct premiums written Co-insurance premiums accepted - insurance companies Co-insurance premiums ceded - insurance companies Written premium - DPVAT Premium – risks effective yet not issued Changes in reserves Earned premiums
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12/31/2014
12/31/2013
174,874 15,634 (32,242) 32,030 31,293 (48,078) 173,511
142,325 10,342 (14,725) 29,314 (88,037) 79,219
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
20. Breakdown of P&L accounts (Continued) b)
Claims incurred
Direct indemnities DPVAT indemnities Direct expenses DPVAT expenses Recovery of claims Salvages and refunds Claims incurred but not reported – direct Claims incurred but not reported - DPVAT Total
c)
(1,208) (23,121) (277) (6,867) 776 17 2,547 2,262 (25,871)
(29,181) (18,684) (98) (4,848) 7,771 5 (6,937) (2,123) (54,095)
12/31/2014
12/31/2013
(22,975) 1,017 8,304 (13,654)
(19,194) 2,883 8,776 (7,535)
12/31/2014
12/31/2013
697 (2,623) 3,389 (124,072) (10) 23,671 (98,948)
19,867 6,393 2,242 (92,396) (3) 65,852 1,955
Reinsurance income (expenses)
Indemnity recovery Recovery of claims incurred but not reported Revenue from profit sharing Ceded reinsurance premiums Transfer of salvages and refunds Unearned premium reserve Total
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12/31/2013
Acquisition cost
Commissions on written premiums Recovery of co-insurance commission Changes in deferred acquisition cost Total
d)
12/31/2014
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
20. Breakdown of P&L accounts (Continued) e)
Other operating income and expenses 12/31/2014 Recovery of policy cost Recovery of DPVAT ticket cost Bank fees DPVAT bank fees Risk inspection Allowance for doubtful accounts Policy written expenses Other DPVAT expenses Other reinsurance expenses Total
f)
12/31/2014
12/31/2013
(5,570) (2,012) (3,038) (572) (1,428) (524) (13,144)
(5,133) (1,833) (1,464) (401) (1,230) (427) (10,488)
Tax expenses 12/31/2014 Contribution Tax on Gross Revenue for Social Security Financing (COFINS) expenses Contribution Tax on Gross Revenue for Social Integration Program (PIS) expenses Inspection fee Other Total
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5 145 (38) (1,690) (110) (35) (604) (438) (2,765)
Administrative expenses
Own personnel expenses and social charges Occupancy and operation expenses Third-party service expenses Depreciation and amortization expenses DPVAT administrative expense Other Total
g)
476 153 (70) (1,798) (155) (6) (2) (663) (1,220) (3,285)
12/31/2013
12/31/2013
(3,178)
(2,041)
(513) (374) (42) (4,107)
(348) (299) (58) (2,746)
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
20. Breakdown of P&L accounts (Continued) h)
Financial income (expenses) 12/31/2014
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12/31/2013
Income Trading securities - DPVAT Trading securities Securities available for sale Insurance operations Other income
3,718 9,419 1,293 13,760 2,421
2,142 6,105 1,373 4,041 96
Expenses Trading securities - DPVAT Trading securities Securities available for sale Insurance operations Other expenses Total
(3,718) (485) (441) (12,860) (1,772) 11,335
(2,142) (491) (2,464) (4,243) (523) 3,894
Austral Seguradora S.A. Notes to financial statements (Continued) December 31, 2014 and 2013 (In thousands of reais)
21. Professionals in charge Directors:
Gilberto SayĂŁo da Silva Alessandro Monteiro Morgado Horta Bruno Augusto Sacchi Zaremba Chief Executive Officer:
Bruno Augusto Sacchi Zaremba
Executive Board:
Michel Cukierman Carlos Frederico da Costa Leite Ferreira
Accounting manager:
Arthur Teixeira Rodrigues CRC RJ - TC nÂş 078781/O-0
Actuary:
Claudia Novello Ribeiro MIBA No. 2029
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