IRB Brasil Resseguros SA

BOVESPA:IRBR3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

[Interpreted] Welcome to the results call of the second quarter of 2024 of IRB Re for those that require simultaneous translation, we do have this tool available in the platform, to access simply click on interpretation on the globe icon at the bottom side of the screen and choose the language of your preference, Portuguese or English. For those that are listening to this video call in English, you have an option to mute the original audio. We inform you that this conference is being recorded, and it will be made available at the Investors Relations website or ir.irbre.com, where you have all the materials of this call. You may download the presentation also on the chat icon in English as well. [Operator Instructions].

We emphasize that the information contained in this presentation and other declarations and statements that may be made during this call relative to business prospects, operating and financial goals and projections, our beliefs and premises of the management of the company as well as information that is currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties, and premises, and they refer to future events. Therefore, they depend on circumstances that may or may not occur.

Investors should understand that as far as economic conditions, market conditions and other operating factors may affect the future performance of IRB Re and the results may differ than the ones that are expressed in this presentation.

Today, we have the presence of our executives, Mr. Marcos Falcao, CEO, Financial VP and Director of Investor Relations of the company, Mr. Daniel Castillo, VP of Reinsurance; and Mr. Paulo Valle, General Director of IRB Asset.

I'll hand it over to Mr. Marcos Falcao, President of IRB Re, which will now start the presentation.

[Marcos Pessoa de Queiroz Falcao, executive]

[Interpreted] Good morning, everyone. Welcome to another call -- results call of IRB Re In 2024, we delivered a result above that observed in 2023 because we cleaned up house. In the first quarter of 2024, we had a net profit of BRL 79 million based on the result of over BRL 300 million. In the second quarter, we were very excited. And in April and May, we delivered BRL 60 million. And then we had the effects of the rain in Southern Brazil, something that was completely unexpected. In June, with the evidence and the information of the impact in Rio Grande do Sul, we made our reserves based on the best estimates. The information generated a PSL of BRL 150 million and IBNR of BRL 107 million, BRL 257 million total in reserves. With that, we closed the second quarter with BRL 75 million. And in June, the results was only BRL 5 million.

Annually, those BRL 144 million in the first quarter still left us a little bit below, but not as far from that BRL 300 million, which we were looking at early this year. In the third quarter, we expect to have even a better visibility of the impact of the tragedy in Southern Brazil, and we will reassess in a timely fashion, our reserves based on that evidence.

But at this moment, we are very comfortable as far as what was provisioned. Now IFRS-17 in the first quarter, our net profit was BRL 237 million. And in the second quarter, BRL 194 million, closing the first semester at BRL 431 million. By the way, versus the BRL 144 million of IFRS-4.

In the next slide, we have the comparison of the underwriting results, which in the first semester, BRL 156 million, already with the impacts of Rio Grande do Sul. So the number in the second quarter was BRL 33.7 million.

Next slide. These are the trends how the business has been behaving at a longer-term view. I really like to look at the accumulated numbers in 12 months. Now in this perspective, you may observe that our focus is on profitability. We can only increase our premium if our prices are okay.

So you see the issue premiums. You see that is a downward trend. For the moment, they are stabilizing the underwriting result, therefore, has an upward trend, a significant upswing, which has been calmed down by the results of June and the impacts of this tragedy in Southern Brazil is similar to the results in the first quarter. The net result has a growing trend, and the combined index is reducing, reaching almost 100%, as you may observe.

Now I'll hand it over to Mr. Daniel Castillo, and he will shed some additional light on the impacts of Rio Grande do Sul.

[Daniel Castillo, executive]

[Interpreted] Good morning, everyone. Thank you so much for being with us in yet another results call. I would like to make some additional comments about the events in Southern Brazil in the state of Rio Grande do Sul, this tragedy, which affected a great deal of the state. Let's get to some details. And exactly 83 years in 1951 in Rio Grande do Sul, in the month of May, there were some floodings that reached the capital city and other vicinities. 83 years later, in 2024, by coincidence in the same month, the capital of the state Porto Alegre with more permeable soils and more construction is reached by a new flooding and the water went up 5 meters above average. Between April 27 and May 2, the region received 700 millimeters of rain, which is roughly 1/3 of the historical average for the year in the region. Dams and [indiscernible] were very much affected and the situation in Rio Grande do Sul has been a real challenge involving all the different departments. So I will tell a little bit more about our role in that.

Now in the next slide, we have some of the activities conducted. So on May 4, we had the first meeting with the objective of assessing how we could support our customers. So we did our homework with the objective of identifying our exposure. So we called our clients to offer our support and estimate losses. For this much, we assessed our probabilities of loss and recovery as well as coverage. And since then, we have been monitoring daily all the claims that are reported. In some cases, we anticipate payments for clients. We travel to Europe to talk to some players and we updated our claim estimation so that they could plan on their side as well.

So I would like to explain how this operation works. Just like an insurer protects it himself with reinsurance, the reinsurer protects itself with retrocession. Specifically for events like that of Rio Grande do Sul, we have a retrocession protection with a limits for maximum losses, which is called the priority for the asset lines. And this limit was already reached which means that the payment for new claims will be recovered on the retrocession process. Therefore, we have a great protection for the claims.

Also on the engineering side, for the remaining claims, which are primarily automobile and others, we made a provision of roughly BRL 107 million. In the second quarter, Therefore, we had approximately BRL 150 million on claims, PSL. We also have our provision of claims, which is at BRL 107 million. So in total, we had an effect of BRL 257 million as a result of the floodings in Rio Grande do Sul. Based on the results of May in the week of the floodings we assessed our loss in the hundreds of millions, roughly BRL 160 million. We didn't have as much visibility. After 3 months of the event, we are confident in stating that we are well prepared for future claims and that we have the protection to hold on.

Now on the next slide, we go back to the results in the second quarter, 2024. Now within our strategy, on concentrated in the Brazilian business, we can see the first semester of 2022, '23 and '24, and there's been a reduction in international business from '23 to '22 and then roughly 16% in 2024. At the same token, we can see that in the same period, we had an increase on the Brazilian business from 65% to roughly 80%. Therefore, we continue with our strategy to concentrate 70% of our business in Brazil, 20% in Latin America, and 10% in different international exposures.

You may notice that our percentage of premium in LatAm is still low because the innovation in this business is only going to occur on the third quarter. So in the first semester 2024, we grew by 12% in Brazil and we diminished 35% internationally, which is the equivalent of a growth in our main market, which is Brazil, and 18% in this region, while abroad we have a reduction when compared to the second quarter of 2023. Especially due to the reduction of the international portfolio. Now on the total premium volume, we grew 3%. Again, our focus is profitability of the business.

Now we are going to talk about our loss ratio. Loss ratio is the most relevant factor for us to achieve the expected results. In this slide, you can see that there was a reduction in the loss ratio from 77% in Q1 2023 to 65% in Q2 2024, even considering BRL 257 million claims in Rio Grande do Sul. That's our provision. If we exclude Rio Grande do Sul, our loss ratio would have been 40%.

It is worth remembering that the reinsurance loss ratio is the result of contracts signed in the previous periods. It is fundamentally linked to risk assessment processes as they are presented as well as the appropriate pricing of those risks.

On the next slide, we can see the combined index, which in Q2 2024 decreased by 1.5 percentage points. We would like to remind you that the combined index demonstrates the health of the underwriting. This index carries the effect of previous years. The reduction indicates that we are on the right path. We can see the main components of the combined index, which are loss ratio and commissioning. Despite the catastrophe in Rio Grande do Sul, the combined index went from 109% in the first half of 2023 to 102% in the same half of 2024. The loss ratio continues its downward trend in relation to previous periods.

In the next slide, we present the key indicators of life and non-life separately, we can see that the life portfolio has been more volatile mainly due to the commissioning of an important account that we closed in 2022. When we look at the non-risk portfolio, we see that it's more stable with a combined ratio of 99% despite the events in the South in Rio Grande do Sul.

Now I turn the floor back to Falcao, who's going to talk about our finances.

[Marcos Pessoa de Queiroz Falcao, executive]

Thank you, Daniel. On the next slide, we present the company's administrative expenses in a slightly different way. Please compare the expenses in the first semester with deducting depreciation and contingency, we would be comparing BRL 131 million in the first half with BRL 128 million in the first half of 2024. There was a reduction, therefore, by BRL 3 million in discretionary expenses.

Another way is to look at current expenses plus personnel and in relation to the premiums. The percentage is in the region of 6.4% in Q2 2024. Our target is to look at the expenses that we can manage and try and have the lowest possible expenses. This will make us more competitive. But we can also increase the premiums. This is another driver of this index.

On the next slide, we show the evolution of technical provisions for claims, IBNR and OCR in relation to earned premiums. As you can see, we are very comfortable with these indicators, and they have been trending nicely.

On the next slide, we analyze as well the floating which is a measure used internationally where we look at the volume of reserves that we invest to have our financial results. As you can see here, this has also trended upwards since 2020 up to now.

Now I turn the floor over to Paulo Valle, the VP of Assets, and he's going to talk about our investment portfolio.

[Paulo Valle, executive]

Good morning. Welcome. We closed Q2 2024 with a financial and equity result of BRL 166 million, above the BRL 142 million recorded in Q1 2024 and also higher than the results of Q2 2023. And this is despite lower CDI in this quarter. As for the assets under management, volume grew to BRL 9.1 billion, up from BRL 8.5 billion in the second quarter of 2023. However, if we exclude a temporary difference of BRL 400 million resulting from the receipt of funds from a specific contract in June for payment in July, we would currently have financial assets worth BRL 8.7 billion, which is what we actually manage.

We obtained good results in the portfolio, especially due to a net position in dollars in the second half of June as well as the good performance of the private credit fund in the quarter. We can see in the highlight in the graph that the exchange rate variation in Q2 2024 generated a positive result of BRL 52 million.

On the next slide, you will see that we ended June with BRL 9.1 billion in investments. And as I said previously, BRL 400 million have already left the cash position in July. The allocation of funds in general can be divided as 60% of assets in Brazil and 40% abroad, which has also linked to our financial obligations.

Of this, 60% in Brazil, 36% are post fixed public bonds linked to the SELIC or repo operations. The 17% are linked to inflation, with a large part being used to back our debentures and actuarial liabilities and 6% in private bonds, mostly linked to CDI or inflation. Of the 40% we hold offshore, approximately 20% are Brazilian sovereign bonds, 13% are American and Canadian T bonds due to contractual requirements, and approximately 6% are time deposits and certificates of deposits in different currencies to back our obligations.

It is worth highlighting the low credit risk and the low market risk in the portfolio. Our portfolio is made up of onshore financial investments, invested in sovereign bonds with AAA ratings and duration of approximately 1.5 years. Our offshore assets are basically concentrated in sovereign bonds with BB institutions with a duration of less than 1 year.

On the slide, we show the historical profitability of our assets. Onshore, we separate the portfolio into two parts: active management, 74% of the portfolio, BRL 4.1 billion with a profitability of approximately 102% of the CDI in Q2 2024. And then passive management, 26% of the portfolio, BRL 1.4 billion, basically made up by assets linked to inflation for the hedging mentioned above and other assets with less liquidity.

In Q2 2024, the passive management portion has had its performance impaired and had the profitability of 25% of the CDI due to the annual revaluation of our interest in Shopping Maia, Guarulhos. And due to the drop of [ Enapa ] in May, another impact of BRL 7 million. These assets represent less than 1% of our reserves. And the gain with the foreign exchange variation has offset the profitability, BRL 52 million versus a negative impact of BRL 13 billion approximately.

I'll now turn the floor over to Paulo.

[Unknown Executive]

First of all, I'm talking about risk because, Thais Peters, our risk manager has become a mother very recently, and she is on maternity leave. We are going to have a new risk director, we released the communication to the market today, and this is [ Ms. Eduarda La Rocque ].

She is a very experienced person in the market of risk. She had been working with us as a consultant, helping us to develop the risk management area, and she's now going to become a director of the risk area.

First of all, we are going to talk about the sufficiency of adjusted net worth in relation to the minimum capital required. On the left graph, we see that the indicator reached BRL 820 million an increase by 54%, which means a sufficiency of 182%. This is mainly due to the drop of the minimum capital required. This dropped quarter-on-quarter, and it went from BRL 1.4 billion in Q2 2023 to BRL 1 billion in Q2 2024. This drop had to do with the underwriting risk capital requirement, especially due to the decrease in retained claims in the moving average of the last 12 months. The remaining portions of the capital requirement remained stable in the period. The company has, therefore, improved and this impacts the capital requirements. Loss ratio is also lower. Therefore, we need less capital and sufficiency improves.

On the next slide, we look at the second regulatory indicator, which assesses the amount of assets qualified by SUSEP to cover our actuarial commitments. The technical provisions coverage ended Q2 2024 with a sufficiency of BRL 609 million. The increase relative to Q1 had to do with the receipt of court-ordered payments, the Precatorios, which made a positive impact on this indicator. In regulatory terms, we feel very comfortable -- it's a very comfortable position with a good outlook ahead of us.

Then we have a slide where we compare and we see our results from IFRS 17 from that perspective. The net income was BRL 194 million, vis-a-vis a loss of BRL 37 million in Q2 2023. We also saw an increase in revenue by BRL 57 million due to the greater writing of premiums, essentially in property and life. Reinsurance expenses increased by BRL 572 million due mainly to the losses in Rio Grande do Sul. It is worth highlighting that the company has retro for most of these claims. So it is possible to see a variation in the net income by BRL 765 million.

And finally, the financial result increased by BRL 136 million, mainly due to the quarter's exchange rate variation, as Paulo explained. Also, the company's management continues to be based on the methodology, IFRS 4, which is the methodology adopted by SUSEP. IFRS 17 is very different from IFRS 4, it's a new methodology, and we will report under both methods so that everybody feels comfortable with these numbers.

On the next slide, I would like to show a little bit part of what we have been doing in terms of ESG. And there are two things I would like to highlight, two programs that make us proud. We have a young apprentice program has been running for over 2 years, and we hire youngsters between 16 and 20 years old in a situation of social vulnerability. In the last 10 years, 100 young people had their first professional experience at IRB. We currently have 10 young people between 16 and 20, 71% are women, and 90 -- not [ 19% are nonwhite ].

The other is an inclusion program for people with disabilities. This program is for people with hearing impairment. And we have 10 people in different areas and different hierarchical levels. We have a company that assists us with sign language to interpret in meetings. And some of our employees already master sign language. We work on different corporate topics. It's always very good to have these people with us developing and being integrated.

In conclusion, just a little bit of the next events that are coming down the pipe. So these slides we disclosed in June, the reported sustainability that we put out. In July, we did the kick off of our budget after the international contracts, renovations. We were awarded as a great place to work, one of the 50 best companies to work in.

And today, we are disclosing the results. So the next relevant events for the semester, in October, we're going to renew the retrocession contracts. So that will be a very intensive work after the flood is in Rio Grande do Sul. In November, we'll be back here on the 12th to disclose the results for the third quarter. And in early December, we want to make an Investor Day, which will shed some light on the events of Rio Grande do Sul and the impacts.

And with that, we'll have some visibility for 2025. So with that being said, we can open up for Q&A. And thank you very much, everyone.

[Operator]

[Operator Instructions] First question from Ricardo an analyst from BTG.

[Ricardo Buchpiguel, analyst]

Good morning, everyone. I have three questions on my side. So we saw a strong growth during the quarter. We saw good premiums in Brazil. And looking forward, you have the several plan recently, which shows a good growth, and it can come in handy with the premiums in the rural side. And as we see, there's a gain -- regain in share with the partnership with [ Brazil Seg ].

Now if you combine all of that with the international premiums becoming more or rather less and less relevant our expectation is that there will be an acceleration in the growth in premiums in the next semester. I want to know if that is a reasonable estimation, is there could be a substantial growth on the premiums on the second semester and moving into next year.

My second question is, when I look at this information and the impacts on Rio Grande do Sul, we see lower levels, roughly 40% in your figures. So I want to know if this is a recurring level and what explains this sharp drop that we observed.

And finally, in the insurance sector. Speaking about the loss ratio, by the way. And also the interest for the product increases in that situation. I want to know if that is true for reinsurance as well. So in other words, after the floodings in Rio Grande do Sul, having this relevant loss impact. I want to know if the appetite for the reinsurance product has increased in the last few months.

[Marcos Pessoa de Queiroz Falcao, executive]

Thank you. Ricardo, this is Falcao. Right. So I'll start answering, and I'll hand it over to Castillo. In regards to your general question, I think that our mindset is that we don't have an anxiety to grow in premium. But we are eager to maintain our discipline in terms of pricing. What we believe in is that initially, when there is a price increase, people are resistant to it at first. So price elasticity is actually decreasing. It starts really high at this point in time. That's why we haven't -- we haven't grown quite as much on premium. We have grown in geography, which will be explained in a second, but what we see is a price elasticity.

Now the insurance business also faces this problem. Some businesses found this problem in the ag sector due to the past events due to the repricing we saw last year. And the production of this -- of these companies as they reported, the whole market has seen that. There was a loss. There was a bit of a problem with that elasticity.

What we believe in, given our international experience and speaking to our international peers, is that this price elasticity is decreasing. We expect that our prices will be better accepted moving forward. So the speed with which this will happen Ricardo, we don't know. But again, we are not going to focus on growing premiums if we have to lower prices. We don't lower prices in any event.

I'll hand it over to Daniel now. He will make some comments about the business questions.

[Daniel Castillo, executive]

And Ricardo about price as well, we are going through a period where we were wondering if the hard market was going to continue or not. And the catastrophe in Rio Grande do Sul has shown that a lot of people were uncovered. And it showed that there is a lot of demand for coverage for similar events for climate catastrophes. And with that, we believe that the market -- the hard market will maintain, but like Falcao said very well, we are only going to develop the business if there is profitability on the other side of it. Our objective is not to increase the premium to the detriment of our profitability.

Now with regards to your question about the loss ratio at 40%, you're asking if that is recurring or not. And you did some math, and I imagine you have excluded Rio Grande do Sul, which is the right thing to do. And this 40% is the result of a loss ratio this year that is very positive, very much so. We are running the business well. The agri insurance is going, is going very well. So yes, that number is very low. We don't see -- I mean, this is not a normal loss ratio. We don't expect that it will stay at 40%.

As far as the appetite for the product, which is your third question, no, of course, I mean, events such as the catastrophe in Rio Grande do Sul creates a number of opportunities. It's going to allow us to make a lot of changes in our situation. For example, having a limit per event, which is a condition that didn't exist in Brazil before, because Brazil was not considered to be a country prone to having climate catastrophes. So that should change the conditions. And I mean, without question, there will be a lot of opportunity to go around. But when it comes to Rio Grande do Sul, we usually say that maybe 5% to 10% of the economic loss was covered. Now imagine the room for opportunity that exists if we develop our business further in there. I hope I answered your question.

[Operator]

Next question from Daniel Vaz from J. Safra.

[Daniel Vaz, analyst]

Good morning. Congratulations on the results. I have two questions, if I may. First, related to the provision you made BRL 107 million, I want to know what you have seen in this 1.5 month that we already have on Q3, how much is that provision going to pan out? Is that going to be enough for the claims you're going to liquidate, I mean considering the IBNR. Are you going to -- is there going to be any additional allocation on Q3? That's one question.

And number two, as far as the window on renewal, I want to understand the repricing aspect in that renewal. What have you observed? We heard Falcao talking about the price elasticity aspect, which is on a downward trend. So what can we expect from -- as far as the premium increase in the 12 to 18 months window. Pricing is higher, so you have your combined ratio, your target and if you may confirm that is 95%, so what difficulties have you seen in that renegotiation? And what can we expect for 2025? From an analyst perspective, what can we model based on. So yes.

[Paul Arenson, executive]

Daniel, thank you for your questions. I'll answer the first one and the toughest one, I will hand it over to Castillo. So the IBNR of BRL 107 million that we had started the quarter. You asked about the Q3. So on July, given the evidence that we have, that was more than enough. August is still too early to tell. We believe that we are doing well. We think we are well provisioned on that. But obviously, if some event happens in August or September, we are not going to hesitate to increase provision if necessary.

It's important to understand that we have had at least 70% of the impact from Rio Grande do Sul. And if there is anything, it will be on Q3 and Q4. Now that 30%, there's people here inside that feel are going to be even lower. So we're being conservative here.

Now Daniel, our estimation is that we are well provisioned. But of course, if there are additional evidence coming up, we are going to provision accordingly, but the impact we feel it's behind us. So, Daniel?

[Daniel Castillo, executive]

Yes, Daniel Castillo here, as you know, and as we have said time and time again, our strategy is to have 70% of our business in Brazil, 20% in LatAm, and 10% in the rest of the world. So LatAm is definitely in our sights. Last year, we pretty much focused on mapping opportunities in LatAm. The LatAm business is renewed especially in July. And if there are some things renewing on September in October, but most of it is in July. Now this past July, we made a lot of analysis as far as the business we mapped last year, and this renewal actually panned out quite well.

Not only did we renew, but we actually started new business, both in contracts as well as other. So it's important to say that our objective in Latin America is to be a leader in this market. And just like Falcao said, we see this -- it's the same story for Latin America. We are only going to do business in LatAm when we understand our exposure and if we can price right to reach the profitability we desire. So I hope that answered your question, Daniel.

[Operator]

Next question from Gabriel Gusan from Citi.

[Gabriel Gusan, analyst]

Good morning, everyone. I just wanted to understand something with regards to the impact of Rio Grande do Sul in the second semester and try to extrapolate that a little bit to the third quarter. You mentioned that number, 70%, that means that you already received 70% of the payments or you have received and provisioned that already. And you were expecting 70% of the total amount and still on that topic, the thing about the retrocession, which you are supposed to receive, is that already accounted for on the quarter? You have those provisions, BRL 257 million, is that considered in the calculation? Can you shed a little some light, so we get an understanding, please.

[Marcos Pessoa de Queiroz Falcao, executive]

Gabriel, good morning. This is Falcao. Well, 70%, I'm being conservative at that, by the way. There is an ongoing discussion here. And again, this number is based on the total visibility of the event. So this is just an educated guess, so to say. So 70% may be conservative. I would focus on that for the estimates, but there are people in the business that believe that 80% is already past us. So it's around ballpark, 70% to 80%. We believe it's behind us.

So everything that we reported as PSL and IBNR is net. So this is already accounted for. I mean there's nothing else to consider. And again, we got into the third quarter with BRL 106 million of IBNR, just like I said before, we believe that this is well provisioned, and we believe we get visibility for the complete month of July and a piece of August as well. So at this point, we have no reason to believe we need digital provisions. And just to -- sorry, go ahead.

[Unknown Executive]

Yes. If I may, I just wanted to add something here. Now similar catastrophic events like we had in Rio Grande do Sul, usually, the larger part is communicated immediately. So what can happen is there is a small part, small number of claims that is not considered, which is already reserved for them. So that BRL 106 million is precisely to cover those claims. So if there is anything on different departments, we are duly we have the armor for that.

[Unknown Analyst]

Now it is clear. Now if I may perhaps change gears here, we saw the premium dropping in the semester. We heard a little bit about the renewal window. That was a positive one. And we also heard about the retain which is close to BRL 1 billion, which is not a stronger number. We were expecting maybe 1.2, 1.3 throughout the quarters.

So to piggyback on that, we see that you have a better capital situation at the moment, both capital as well as provision coverage. So in light of all of that, with all of these improvements, can we expect a faster growth on premium both retained and issued.

[Unknown Executive]

We would like to grow premiums, but we are going to maintain prices. That is our reinsurance has to be bought. We are not going to lower our prices to sell more. I would expect that premiums would have grown more. But again, the price elasticity was higher than expected, but the trend is upwards. I have nothing more specific to say, but we are going to preserve profitability. And in terms of projecting the premiums, we got it wrong in our budget. Our premiums are below what we budgeted for. We are trying to grow premiums, and we want people to get used to the prices.

[Operator]

The next question is from Eduardo Nigo from sell-side [indiscernible].

[Unknown Analyst]

I would like to go back to the claims in Rio Grande do Sul. It's going to be important in the second semester as well. As for the BRL 257 million that you provisioned most of it in June are linked with the soft guidance you gave relative to the impact of BRL 180 million, the net impact on Q1. So probably at the higher limit of the provisioning within your expectations. That is in the second semester, we are not expecting a huge variation. Is this what you expect as well? You mention that, but I just wanted to confirm.

And then the other question, I want to tag along the previous question about what a loss ratio would be at more normal levels. You excluded Rio Grande do Sul and loss ratio was between [ 40% and 50% ], which is very good. Could you tell us what you would expect in terms of a more normalized, so to speak, loss ratio.

And then the commissioning. You finalized this contract that was hurting the commissioning which was about 30% and your run rate without that was 22%. In Q3 or Q4, are we going to 22%. And is this a drop going to be gradual? Or are we going to see the impact already in Q3?

[Marcos Pessoa de Queiroz Falcao, executive]

Thank you for your questions. Eduardo, I'm going to take the last one first. In terms of commissioning, the commissioning is going to behave as you said, by canceling this contract, the number will go back to 22%, 20%, 22%, as you said.

Then your second question was about the provisioning for the Rio Grande do Sul losses. There is an offset there in terms of the results because of the profitability of the other portfolios. This low loss ratio allowed us to have greater profitability, which offset the impact of Rio Grande do Sul. And as I said before, when we gave the guidance in relation to Rio Grande do Sul, the call was on May 15. And the events had happened 10 years before that -- 10 days, pardon, before that.

So I think we were brave in giving a guidance. And we are in the upper part of the guidance, but we are still within the range that we expected from the evidence that we have available, we feel comfortable not only with our provisions to face the bill up to the end of the year.

And I'll pass the floor on to Daniel to talk about loss ratio.

[Daniel Castillo, executive]

If we exclude Rio Grande do Sul, the loss ratio is in the region of 40%, but this is not the typical sinistrality, loss ratio. We are having very good results in the rural and property areas, which are really good if you ask me how much I would expect, I would expect 60% in terms of loss ratio, which would be acceptable, and we would still be profitable.

As regards the provision of BRL 257 million, this is net of retrocession. So how does that work? We have good retrocession for property mortgage. This is like a franchise. So we pay the franchise and then above that limit, we retroceded. If there are new claims in property, if we go through retrocession. And then we have automobiles and cars. And we have created this provision of BRL 106 million. So we think we are very well protected to face.

[Marcos Pessoa de Queiroz Falcao, executive]

There are many questions that were sent by e-mail. I'm going to try and answer most of them just now altogether.

The first question is about dividends, which is a recurring question. So first of all, just to be clear, in terms of accounting method, we use IFRS 4. Our accumulated losses on the IFRS 4 is in the region of BRL 240 million.

For us to start paying dividends, we should have accumulated profit not losses. So once we start making a profit, we will start paying dividends. I don't believe this is going to happen before beginning of 2025. So I would say between Q2 and Q3 next year, we should be running profit. This is what we expect.

The other question has to do with the retrocession. We have talked about it today. The renewal of retrocessions will be a challenge in October because of the catastrophic events, but we are working hard to do the best we can. But Brazil now is in the radar because of the climate event. So the retrocession is we'll price that. We don't have visibility on that yet. I think we would be able to give you more color next quarter.

What about M&A? We do see possibilities. We have more capital available. And we have tax losses which are accumulated. So this would be beneficial if we decide to go into an M&A process.

In terms of international premiums, Daniel has answered that. We are leaders in LatAm and Brazil. And when we go internationally, we follow our partners.

Again, nothing is going to change. 70% in Brazil, 20% in Latin America, and 10% in other markets. We are not there yet, but this is our target. And then we have an [ SSPE Andrina ] This is a market, which is in its infancy. It's an innovation. It's in the backbone, but we might issue our DRS, but it doesn't depend on us only. That will see no impact in our numbers. It's just a huge instrument. We believe in this instrument. But this should mature in the next few years, not months.

The next question is about Voepass, I think it's an important subject to talk about. Whenever there is a significant claim in Brazil, we are involved, given our footprint in the market. And in terms of Voepass, we have provisioned BRL 14 million in Q3 for civil liability, our share was 5% in the panel of reinsurers of this contract.

There are two very nice questions about the culture of insurance.

We have the purpose of protecting society, but it's also frustrating. We look at what happened in Rio Grande do Sul, and only 10% of the economic losses at most was insured. It's not enough for Brazil, but unfortunately, Brazilians don't include insurance in their expenses, in their fundamental expenses. And we try to participate in forums, in debates, we produce material to educate people. The government has been supportive of our initiative to develop an insurance culture, and we hope that will improve.

And then a question about Brasilia.

We have been lobbying with the federal state and municipal government to foster programs to protect society. It could be risk management, it could be products, designed to protect the population. It's very cheap to protect people's assets, it's much cheaper than just providing assistance to people. We have been working in Brasilia in the capital of Brazil. We have been working there for 8 months lobbying the government, and we are now accelerating this initiative so that we can have a delivery very shortly.

With this, we end the Q&A session. Oh, there is one now about our financial results. Ands there is a question about the exchange rate variation and its gain.

We have a portfolio for assets and liabilities and then a directional portfolio, and it worked in the last quarter. It's not something we do on a regular basis, but we act on an ad hoc basis. We are very conservative, and we want to create more alpha in our portfolio.

Just a short comment. We had a positive result by BRL 52 million, BRL 29 million in June alone. And in June, it has become clear now. We make an investment according to our liability. We work with a basket of over 50 currencies. The liability is boosted in its original currency, and we invest in time deposits and certificates of deposit to neutralize the exchange variation. There was an appreciation of the real in June and the maturities of the time deposits are usually after 3 months. So those maturities in June, we decided to roll these investments throughout the month, and we benefited from the depreciation rather than the appreciation of the real.

But this is a position we no longer hold. We are neutral again. So in relation of the question whether we expect the reverse effect in July. No, we don't because we have offset our exposure in different currencies.

[Operator]

The Q&A session is now ended. The conference call of IRB Re is now ended. The Investor Relations department remains available to take any questions you might have. Thank you so much for participating, and have a lovely day. Thank you.