Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IRB Brasil Resseguros SA (BSP:IRBR3, Financial) reported a net profit of BRL79 million in Q1 2024 and BRL194 million in Q2 2024, showing a significant improvement from the previous year.
- The company has a strong focus on profitability, with a downward trend in the combined index, reaching almost 100%.
- The loss ratio decreased from 77% in Q1 2023 to 65% in Q2 2024, even considering the BRL257 million in claims from the Rio Grande do Sul floods.
- The company's administrative expenses were reduced by BRL3 million in the first half of 2024 compared to the same period in 2023.
- The financial and equity result for Q2 2024 was BRL166 million, higher than both Q1 2024 and Q2 2023, despite a lower CDI in the quarter.
Negative Points
- The unexpected floods in Southern Brazil significantly impacted the company's reserves, with a total provision of BRL257 million.
- The issued premiums showed a downward trend, indicating a stabilization rather than growth in this area.
- The company faces challenges in the renewal of retrocession contracts due to the catastrophic events in Brazil, which could impact future pricing.
- The loss ratio, excluding the Rio Grande do Sul event, is not expected to remain at the low level of 40%, indicating potential volatility in future results.
- The company has accumulated losses under IFRS 4, which means it will not be able to pay dividends until at least mid-2025.
Q & A Highlights
Q: We saw strong growth during the quarter with good premiums in Brazil. Can we expect substantial growth in premiums in the second semester and moving into next year?
A: Our focus is on maintaining pricing discipline rather than growing premiums at any cost. We believe price elasticity is decreasing, and our prices will be better accepted moving forward. However, we are not going to lower prices to grow premiums.
Q: What is the expected impact of the BRL107 million provision made for the Rio Grande do Sul floodings? Will there be any additional allocation in Q3?
A: The BRL107 million provision is deemed sufficient based on current evidence. We believe we are well-provisioned, but if new evidence arises, we will adjust accordingly. We estimate that 70% to 80% of the impact is already behind us.
Q: Can you provide insights on the renewal window and the expected premium increase over the next 12 to 18 months?
A: The catastrophe in Rio Grande do Sul has shown a demand for coverage for climate catastrophes, which supports a hard market. We will only develop business if it is profitable. We expect the market to maintain its current conditions, and we aim for a combined ratio target of 95%.
Q: What is the expected loss ratio excluding the impact of Rio Grande do Sul?
A: Excluding Rio Grande do Sul, the loss ratio is around 40%, which is not typical. We expect a more normalized loss ratio to be around 60%, which would still be profitable.
Q: Can you clarify the impact of the Rio Grande do Sul floodings on the second semester and the retrocession process?
A: We estimate that 70% to 80% of the impact is already accounted for. The BRL257 million provision includes retrocession, and we believe we are well-provisioned for any future claims.
Q: With the improved capital situation, can we expect faster growth in premiums?
A: While we aim to grow premiums, we will maintain our pricing discipline. We are not going to lower prices to sell more. The trend is upwards, but we prioritize profitability over premium growth.
Q: What is the expected commissioning rate after canceling the contract that was impacting it?
A: The commissioning rate is expected to return to around 20%-22% after canceling the contract.
Q: When can we expect dividend payments to resume?
A: We need to achieve accumulated profit under IFRS 4 to start paying dividends. We expect this to happen between Q2 and Q3 of 2025.
Q: What are the challenges and expectations for the retrocession renewal in October?
A: The renewal will be challenging due to the recent catastrophic events. We are working hard to secure favorable terms, but Brazil is now on the radar for climate events, which may impact pricing.
Q: Can you provide more details on the exchange rate variation and its impact on financial results?
A: We had a positive result of BRL52 million from exchange rate variation in Q2 2024. This was due to strategic investments in time deposits and certificates of deposit, which benefited from currency fluctuations. We have since neutralized our exposure to avoid future volatility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
