IRB (IRBR3) projects return of dividends and sees losses in the past; stock rises

The IRB board (IRBR3) once again envisaged the possibility of distributing dividends next year. During a conference call, the company’s CEO, Marcos Pessôa de Queiroz Falcão, said that the company still has accumulated losses but, if it returns to consistent profits by the end of 2024, the distribution of earnings should be resumed.

“We must end (the loss) as soon as possible, so that we can return to paying dividends. If everything goes well, we should close the loss accumulated this year”, he highlighted.

In the fourth quarter of last year, the company once again recorded a profit of R$38 million, reversing losses from the same period in 2022.

IRB shares, this Monday (1), rose 2.5%, quoted at R$ 38.29, around 2 pm.

IRBR3: Balance

Despite not indicating guidance for 2024, the IRB estimate is to increase this year’s premiums by around 10%. Portfolio restructuring was one of the key turning points throughout 2023, with emphasis on underwriting (subscription) of 2023, which closed positive at R$155 million in the year to date.

In the last three years, IRB (IRBR3) focused on reducing the exposure of the international portfolio and increasing the Brazilian share. Thus, the share of premiums issued in Brazil increased from 60.6% (4Q21) to 82.8% (4Q23). As a consequence, the international share in the period fell from 21.7% to 10.4%.

The focus, until then, was to have a portfolio 80% focused on Brazil and 20% on the international market, especially in Latin America. After market analysis carried out throughout 2023, the objective changed for 2024, now with special attention focused on Europe and Latin America.

Brazil will continue to represent the majority of the portfolio, but now aiming for 70% of the total share of IRB premiums, while in Latin America the expectation is to have around 20%, and in the international market (without Latam and focusing on Europe ) the estimate is around 10% (previously it was 5%).

“The opportunities we will have to explore in 2024 are much greater than we initially saw. On a recent trip to Europe, we noticed opportunities there. We believe that it is not only in Latin America, but also in Europe that we will have opportunities”, highlighted Hugo Daniel Castillo Irigoyen, Vice-President of Reinsurance.

In Latin America, the company will focus on markets such as Peru, Paraguay, Uruguay, Colombia and Mexico. “We go to areas in which we feel comfortable, always focusing on profitability,” said Castillo.

2023 Results

Throughout 2023, IRB saw two important indices reach historic marks. The loss ratio, which measures the volume of customer compensation claims compared to revenue, fell to 55% in 4Q23. Retained claims reached R$2.907 billion, 70%.

The accident rate fell from 94% in 4Q22 to 60% in 4Q23, which demonstrates, according to Rodrigo de Souza Lobo Botti, Vice-President of Finance, Actuarial and Technology, the cleanliness of the IRB portfolio throughout 2023.

According to the board, these results were obtained through actions carried out such as price adjustments and reductions in participation in certain contracts. For 2024, the renewal calendar foresees new developments throughout the year. Most Brazilian contracts were renewed in January, but there are renegotiations planned between April, June and July in Latin American and international contracts and in agricultural contracts.

Another indicator closely monitored by the reinsurance market is the Combined IRB Index, as it aggregates claims, commissions and other expenses. The indicator ended 2023 at 109% compared to 137% in 2022, a drop of 28 pp. According to Botti, the result is still below what was intended, but shows significant progress compared to the previous year.

Regulatory indicators

The IRB publishes an important regulatory indicator every quarter, which is analyzed with a magnifying glass by the market, as there was a non-compliance in 2022.

Thus, the PLA (Adjusted Net Equity) Sufficiency reached 146% in 4Q23 after reaching 101% in 4Q23. The indicator improved quarter by quarter after the non-compliance and now has a margin of 46% above what is necessary.

“This is a reflection of the capital management that the company has implemented. In the search for capital efficiency, IRB prioritized risks that brought greater profitability”, explained Thaís Ricarte Peters, Director of Internal Controls, Risks and Compliance. In terms of values, PLA Sufficiency rose from R$ 18 million at its minimum (4Q22) to the current R$ 534 million (4Q23).

IRB Expectations for 2024

According to the CEO of IRB, Marcos Pessôa de Queiroz Falcão, the projection for 2024 is to grow without reducing prices. The expectation is that interest rate levels will remain high, which allows the company to bring good returns on reserves without taking on more risk. “We will evolve in risk management and use of our capital”, he highlighted.

IRB hopes to face a still volatile market, but with new business opportunities in sight, still keeping an eye on the demand for capacity greater than the market supply. “We are changing levels”, pointed out the CEO.

In the conference call, Falcão brought updated numbers for January 2024 for the company, which recorded a net profit of R$36.8 million. January’s underwriting result was R$45 million, continuing the good numbers seen in 2023.