For those who are listening to the English, you may mute the original Portuguese audio by selecting mute original audio. Please note that this video conference is being recorded and will be made available on the company's investor relations website at www.irbre.com where the full earnings release materials are also available. The presentation, including the English version, can also be downloaded through the chat button. During the company's presentation, all participants will be muted. We will begin the question and answer session. To ask a question, please click the Q&A button at the bottom of your screen and type your question to join the queue. When your name is announced, a prompt to activate your microphone will appear on your screen. Please unmute yourself and ask questions. We ask that you please ask all of your questions at once.
We would like to emphasize that the information contained in this presentation, as well as any statements that may be made during the video conference regarding IRB business outlook, projections, and operating and financial targets, are based on the beliefs and assumptions of the company's management and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect IRB(Re)'s future performance and lead to results that differ materially from those expressed in such forward-looking statements.
Today, we are joined by the company's executives. Marcos Falcão, CEO and Investor Relations Officer. Daniel Castillo, Head of International. Paulo V alle, CEO of IRB Asset. Thays Vargas, Head of Control and Finance, and Débora Tavares, Head of Internal Controls, Risks, and Compliance. I will now turn it over to Mr. Marcos Falcão, CEO of IRB(Re), to begin the presentation.
Good morning, everyone, and thank you for joining us for another earnings presentation. Turning directly to the first quarter highlights, I would like to emphasize our solvency level of 287% in March 2026, which allowed us to distribute, in addition to the mandatory minimum dividend of BRL 51 million, an additional BRL 78 million in interest on equity. In other words, we will be distributing BRL 128 million to shareholders. I would also like to take this opportunity to thank our shareholders for attending our shareholders meeting and approving all matters put to vote with a quorum of 52%, a level of participation well above our historical average.
We continue to improve our communication and remain available to our shareholders. I would also like to thank the employees of IRB(Re) who participated in the Great Place to Work survey. IRB(Re) was certified for the third consecutive year. This certification reflects the assessment of our work environment, which shows that we can be profitable and transformative while also having a productive, pleasant, and easygoing work environment where people can do their best work while being themselves. We delivered a return on tangible equity of 21%, which is among the highest levels compared with our international peers. Our challenge is to maintain these levels while pursuing growth in a soft market environment. Our net income of BRL 102 million was impacted by Brazil's tax reform, as we will explain shortly.
Excluding this effect, comparable net income for 1Q 2025 would have been BRL 122 million. On the next slide, I will walk through the main highlights of our first quarter results compared with the first quarter of 2025. Our challenge remains growing retained premium, which fell by 8% with a 6% decline in P&C and a 50% decline in life. The decline in P&C was mainly driven by the reduction in the rural line. The life line, as we've already emphasized in other presentations, is being remodeled, and I believe we will begin to see an inflection in the premium line in the coming quarters. We are pleased with the business we have, and this is reflected in the growth of our underwriting result. We found net income of BRL 122 million in the first quarter, excluding the tax reform.
Including the impact of the tax reform, net income for the quarter was BRL 102 million. On the next slide, we will look at the same highlights on a last twelve months basis. Remember that this is the way we most like to look at our results. This is ending March, the period ending March 2026, compared with the same period ending March 2025. The key point is that we saw slight growth of 2% in the P&C premium, which generated an underwriting result 37% higher than the previous year. This is the effect of an increasingly well-underwritten portfolio. The same occurs in the lifeline, which although it has shrunk, generates a positive result due to the reconciliations of claim provisions with insurers.
Our comparable net income for the last twelve months, excluding the effect of the tax reform, reached BRL 558 million, which is a 35% increase. Even taking this effect into account, profit grew 18% to BRL 487 million. In other words, although the long-term outlook is positive for our tax expense line item, at this time, we continue to go through a transition phase in which the first observed impacts arise precisely from the need for accounting adjustments, strictly accounting adjustments to the new regulatory environment. I will now turn it over to Thays, who will provide more detail on this tax reform dynamic and its initial impacts on our results.
Thank you, Falcão. Good morning, everyone. I am Thays Vargas, the company's head of control and finance. As Falcão mentioned, the tax reform initially appears to bring a structurally positive outlook for our business, especially given the new treatment provided for the reinsurance and retrocession starting in 2027. Today, our reinsurance operations are subject to PIS and COFINS at a combined rate of 4.65% on earned premium net of claims actually paid. To give a practical sense of how relevant this is, in 2025, the company paid approximately BRL 120.5 million for these taxes, of which BRL 28 million are in the first quarter alone. In 1Q 2026, the amount paid was BRL 31 million. For this reason, the legal provision for a zero rate for reinsurance and retrocession operations starting in 2027 is, in principle, positive news for reinsurers. It is important to make a relevant technical distinction here.
A zero rate is not the same as an exemption. It's a specific tax treatment within the new regime. Although the initial direction is positive, the effective economic impacts will still need to be observed over time, especially given the entire value chain of the insurance and reinsurance market, including potential effects on pricing, cost pass-through, commissions, operating structure, and competitive dynamics. In other words, although the regulatory change points to an an important structural benefit, its real economic effects will depend on how this new model is absorbed by the different market participants. At the same time, as with any major structural change, this process already brings tangible transition effects, and the first material impact observed in the company's numbers is directly related to the deferred PIS and COFINS asset on technical claims provisions.
Before we go further into the accounting effects already reflected in the company's results, I think it's important to use the next slide to explain clearly what this deferred asset is and why it became the first concrete impact of this transition. Turning now to this more specific point, it is worth understanding how this deferred PIS and COFINS asset dynamic works in practice within our operation. As I mentioned previously, a 4.65% combined rate applies to earned premiums net of claims actually paid. In practice, this means that while the premium is taxed on an accrual basis, as the risk period elapses, the tax deduction for claims does not occur when the provision is established, but only when payment is actually made.
This mismatch creates a temporary difference between an expense that has already been recognized for accounting purposes and its respective tax utilization, generating the deferred PIS and COFINS asset. In other words, this deferred asset represents an expectation of future recovery within the PIS and COFINS tax base itself as the claims are settled. Here I'd like to reinforce an important point. This asset is not a formal tax credit with the Brazilian Federal Revenue Service, nor can it be directly offset against other taxes. Its nature is essentially accounting-based and timing-related with no direct cash impact. Its maintenance depends on the existence of a sufficient future taxable base for its realization, and therefore, its reversal occurs gradually as claims are paid, reducing this mismatch over time.
In other words, we are talking much more about a timing issue between accrual and cash within the tax logic of the operation. With the zero rate treatment for reinsurance and retrocession starting in 2027, this dynamic becomes even more relevant because the expected reduction in the future taxable base may limit this natural realization cycle, making a more careful analysis of the recoverability of these amounts necessary. On the next slide, it will be clear how this dynamic was reflected in the company's results during the quarter. Looking more objectively at the accounting effects already reflected in the company's results, this is the moment when the dynamic begins to materialize concretely in the numbers disclosed in the explanatory note 8118 in deferred tax credits in our reviewed interim financial statements.
Given the new scenario, we performed a recoverability analysis based on our projections through 2026, considering both the estimated claims settlement flow and the regulatory environment currently available. As disclosed in the note, we started 2026 with a balance of approximately BRL 228 million in deferred assets for PIS/COFINS on technical claims provisions. During the first quarter, BRL 33.5 million of this amount was realized for accounting purposes. It's important to reinforce that this amount should not be confused with the current PIS/COFINS disbursement for the quarter, but rather with the realization of the deferred asset and accounting and timing effect with no direct cash impact. As a result, we ended the quarter with a remaining balance of approximately BRL 195 million to be realized in subsequent periods.
It's important to highlight that maintaining and realizing this balance continues to be directly related, on the one hand, to the future flow of claims, pardon, payments, and on the other, to the evolution of the subordinate regulatory rules applicable to the transition period. We have already seen important progress with the publishing of rules related to IBS and CBS, there are still points that require more clarity, especially given the specific features of reinsurance operations, the value chain dynamics of the sector, and the tax treatment of claims deductibility within this new context. For this reason, we continue to monitor this process very closely, continuously reassessing our assumptions so that we can reflect in a timely, technically consistent, and transparent manner any regulatory developments or changes in expected realization.
With that, I conclude this initial view of the impacts of tax reform on the company's results, and I now turn it over to Castillo, who will go deeper into the operating dynamics of our business.
Thank you, Thays. Good morning, everyone. Before discussing the results for the first quarter of 2026, I'd like to make a few comments on the January and April renewals, the possible impacts of the Iran war, and the possible consequences of a potential El Niño. The January and April renewals represent approximately 70% of the year's renewals. Total written premium in the first quarter of 2026 compared with the same period last year showed moderate growth in property and casualty and an expected reduction in the life and rural lines. We will look at these numbers in more detail on the next slide.
Regarding the impact of the war, so far, we have not identified any material effects for the company since we do not have a significant presence in that part of the world. In the property portfolio, war risk is a contractual exclusion, and therefore, there is no coverage for this type of event. In the marine and cargo portfolios, immediately after the conflict began, we issued the war risk cancellation notice as provided for in the contractual clauses. So far, we have also not identified relevant exposure in these lines. Regarding El Niño, we expect greater drought risk in the north, northeast, and center west regions. While in the south, there is a higher probability of above-average rainfall. The phenomenon tends to put pressure on loss ratios in the center west, a region where we have lower exposure than the south.
Thus, at this time, we do not expect material impacts on the agribusiness portfolio. On the next slide, in the first chart on the top left, we see the annual evolution of retained premiums between the P&C and life lines. We can see that despite the premium reduction in the agro segment in January renewal, we were able to keep P&C volume stable with moderate growth. As mentioned in previous presentations, the life line declined as a result of the discontinuation of unprofitable contracts which were not renewed. On the chart on the right, we can see that the property line now represents 56% of total business in the last 12 months, ended March 26th, followed by rural at 13%. The life segment, highlighted in green, which represented 15% of retained premiums in the same period last year, now represents 3%.
In life, with the new structure that has been implemented, our strategy is to build a sustainable portfolio, gradually regaining the relevance that this segment had in the past. Our forecast is for a return to growth with more visible results in the next 18 to 24 months. Still in the chart on the right, we present the breakdown of retained premiums by geography. We are maintaining the international diversification strategy that has been previously communicated, with 13% growth in LATAM and 9% in the rest of the world. We remain focused on underwriting discipline, prioritizing risks with higher profitability. In Brazil, we recorded a 22% reduction compared with the same period last year, mainly explained by the exit from certain life contracts and the contraction in the rural segment. In agribusiness, we hired Glaucio Toyama recently to lead our new hub dedicated to the segment.
With broad experience in the sector, Glaucio joins us to strengthen the team, and we expect to see the portfolio grow in the coming months. Finally, analyzing recent renewals, we identified that pricing remains on a downward trend, reflecting the soft market environment already mentioned in previous presentations. Given this scenario, we maintained underwriting discipline, prioritizing business with an expected margin that is broadly stable compared with renewals in the same period of 2025.
In the next slide, we highlight the results achieved in the life portfolio cleanup strategy. In the first chart in the upper left corner, we can see a reduction in retained premiums, a sharp re-movement in the domestic portfolio, and one that was already expected as part of the portfolio cleanup process. On the other hand, in the upper right chart, the positive effects of this strategy are clear. The lifeline recorded a positive underwriting result for the fourth consecutive quarter with a clearly favorable trend on a last 12 months basis. This progress is already directly reflected in profitability with BRL 33 million in net income recorded in the 12-month view. It is worth noting that in Brazil, the business reached the desired level on an LTM combined ratio basis at 84%.
In the next slide, we present the evolution of a P&C portfolio by geography, split between the domestic international markets. In the upper left chart, we see the retained premium remains stable at around BRL 3.4 billion. In the central chart, we see the improvement in the underwriting result, which reached BRL 785 million in the LTM basis. This income for the LTM was higher than in the same period of 2025, although still below the immediately preceding quarter. It's important to highlight that in the first quarter, three claims impacted International results.
An event that occurred in 2023 in a segment in which we are no longer operating, a property claim that showed negative development with an increase in the expected loss amount despite being associated with a historically profitable account, and finally, a series of smaller claims originating in COVID-19 period, not yet fully settled, but for which the prudently chose to strengthen our reserves. Although there is an apparent deterioration in the performance of the International business, we understand that these impacts are non-recurring, and we expect results to normalize over the course of the year. Our international strategy remains focusing on property and engineering lines with reduced exposure to long tail lines such as liability. We also prioritize non-proportional reinsurance, especially in the higher layers where risk exposure is more limited. Moving to the next slide, we present the consolidated figures segregated between P&C and life.
Despite the reduction in retained premiums in the year-over-year comparison, underwriting result maintains a consistent improvement trend, 88% up compared to the last 12 months to March 2025, moving from BRL 433 million to BRL 817 million in the last 12 months ended in March 2026. This performance is fully aligned with our strategy of focusing on profitability, which has been consistently reinforced with positive results in both P&C and life. As a direct consequence, net income also continues on a positive trend, up 18% year-over-year. Finally, at the bottom of the slide, we can see that consolidated combined ratio improved slightly, reaching 96%.
On the next slide, we present the evolution of the loss ratio, showing continued improvement in the P&C ratio, moving from 60% in the last 12 months through March 2025 to 55% in the last 12 months ended in March 2026. The dotted green line highlights the impact of our active management in reconciling pre-2020 claims reserves with our cedents. It is a joint effort to review and adjust other reserves. The work reduced the loss ratio by BRL 23 million in the 1Q 2026 and had a total impact of BRL 198 million over 2025. Moving to the next slide, we present the evolution of the commission ratio, which corresponds to the total of commissions paid to brokers and cedents is split between P&C and lifelines. In P&C, the ratio improved by 2% in the year-over-year comparison.
In life, the ratio declined by 27% and is now running at lower levels. This movement reflects the cancellation of unprofitable contracts as previously mentioned. Finally, on the next slide, we present the consolidated loss and commission ratios considering P&C and life operations. We observed that our underwriting indicators remain at healthy levels. It is worth highlighting that 2025 performance benefited from the active management of claims prior to 2020 with cedants, as mentioned earlier. We therefore reaffirm our commitment to underwriting discipline with a focus on profitability. I now turn it over to Falcão, who will continue the presentation talking about administrative expenses.
Thank you, Castillo, our very own Mr. Reinsurance, who is the steward of this disciplined high quality underwriting. Last year, we ended the year with an administrative expense ratio of 13%, with expenses of BRL 450 million.
In the last 12 months ended in March 2026, we remain at the same level and will begin the project to reduce administrative expenses in the legacy and enforce businesses. On the next slide, I present our four-year plan to reduce administrative expenses. Luciana Martos, our Head of Human Resources and Technology, will lead this process since she leads the areas with the company's largest expenses. In this plan, you will see that growth in the denominator, retained premiums, is essential for us to meet the target of reaching a competitive administrative expense to premium ratio of 7%, which we intend to achieve by 2029 at the latest. I'll divide this plan into three work streams with whose objective is to reduce our ratio by 6 percentage points.
The first, as we saw on the previous slide, is legacy expenses, which account for 3% of our earned premium. We are moving forward with the settlement of lawsuits and high expenses with attorneys' fees. We'll carry out portfolio sales, outsourcing these activities in some cases, seeking to refocus our structure on the business looking forward. One example is that we have a task force to accelerate the reconciliation of claims reserves with insurers, which in addition to ensuring that our reserves are aligned with those of our cedents, are also seek reserve reversals with gains for IRB(Re). The second work stream is strict expense control. Each area of the company has administrative expense control targets that directly impact individual bonuses.
Service provider contracts are reviewed at each renewal, with challenges to reduce costs and/or increase scope in each negotiation, as well as justifications that must be presented for each hiring or renewal. In addition, we are confident in the maturation of our investments in technological improvements such as the migration of our ERP to the cloud, completion of the data lake project, and use of artificial intelligence for process automation and efficiency gains. Our target is to cut 1.5 percentage points through these initiatives. Finally, the third work stream is based on the assumption that earned premium will grow, increasing the denominator of the ratio and directly contributing to dilution of the expense base. With this initiative, we'd expect to reduce at least administrative expense by at least 1.5 percentage points. This pillar act in an integrated manner. Technology generates efficiency.
Efficiency supports quality growth increases scale, accelerating expense dilution. This is the dynamic that supports our structural transformation and the goal of bringing administrative expenses down to single digits, converging to 7% in 2029. I'm fully aware of the size of the challenge, especially this year, which we're paving the company's future avenues for growth. To do that, we will need to bring in talent and deploy technology. I believe 2027 will be a year in which we'll be able to move forward more quickly in efficiency gains because most of the structural measures will already have been implemented. We'll continue to keep you updated on this progress. Moving on to the next slide, we see the evolution of our float, which represents the volume of financial investments from the reinsurance business that is not financed by adjusted shareholders' equity.
Therefore, it reflects the portion of capital supported by the business itself in relation to the retained premium volume. This indicator allows us to monitor not only the growth of the business, but mainly our ability to transform reinsurance activity into a solid and sustainable financial base. Over recent periods, we have observed that this float has remained at consistent and robust levels, reinforcing the company's financial strength, even in a context of greater technical discipline and selectivity in underwriting. In other words, we continue to preserve a resilient operating capital structure capable of supporting liquidity, financial efficiency, and long-term results. Along with those same lines, I will now turn it over to Paulo Valle, who will provide more detail of our financial results.
Thank you, Falcão. Good morning, everyone. We ended the first quarter of 2026 with BRL 8.6 billion assets under management compared to BRL 8.7 at the end of 2025. 60% invested in BRL in the onshore market and 40% in dollars in other currencies in the offshore market. The main reason for a BRL 147 million reduction in total AUM in this quarter was the depreciation of 5.14% in U.S. dollar against BRL during the period. Considering the last 12 months, first quarter 2026 versus 1 Q 2025, it was also due to the 9.10% depreciation of the U.S. dollar and the payment of the first debenture installment in the amount of BRL 286 million, reducing AUM total by BRL 326 million.
This effect, however, impacted liabilities by the same amount and did not cause any change in the sufficiency of assets pledged for regulatory coverage, nor in the company's liquidity position. Financial income for our investment portfolios totaled BRL 180 million in the first quarter of 2026, comprising BRL 143 million onshore and BRL 37 million offshore. Looking at the last 12 months, the result was BRL 673 million, BRL 550 million, and BRL 123 million respectively, in line with the 12 months ended in the previous quarter. Regarding foreign exchange variation, the LTM result ended in first quarter 2026, we recorded a negative impact of BRL 18 million. Resulting from the U.S. dollar depreciation against the Argentine peso and the Canadian dollar.
It's worth highlighting that the company maintains careful currency ALM management, seeking an efficient match in between assets and liabilities in each currency, and mitigating economic effects of these fluctuations. Another relevant factor was the reduction in financial expenses in the first Q 26, reflecting payment of half of the debentures at the end of 2025, which resulted in lower interest expenses in the last 12 months. It is worth remembering that the remaining tranches of the debenture mature in October and December 2026 in the amount of BRL 280 million. In this second slide, we can see the performance of our investments.
In the onshore portfolio, positive performance was led by floating rate fixed income at 14.5% and private securities, 14.6%, benefiting from the same level of interest rates and complemented by the contribution from the equity allocation, which delivered strong performance in the quarter and the LTM period. In line with the strategy adopted, inflation-linked and fixed-rate positions showed a carry below CDI, reflecting precisely the still high-level rate of basic interest rate and the negative slope into the curve.
This effect was expected and is part of the portfolio construction context in order to capture gains in the interest rate cycle normalizes, which should benefit the company in coming years since the duration of this part of the portfolio is approximately five years in fixed rate securities and 6.5 years in inflation-linked securities, and was acquired at nominal and real rates of around 13.5% and 7% respectively. On the offshore side, active management with sovereign private securities yielded above Fed funds at 6.8% and 5.5% respectively in the last 12 months. The passive, the liability portion yielded approximately 3.6%, reflecting rate on US Treasuries used as collateral.
In the next slide, we can see that the total onshore portfolio at BRL 3.9 billion returned 14% over the last 12 months, equivalent to 94.4% of CDI. The onshore portfolio liabilities at BRL 1.3 billion returned 8.2%, equivalent to 55.4% of CDI. Together, they generate an average return of 13.2% over the year, 89.5% of CDI. The offshore side, the total active portfolio, BRL 2 billion, returned 6.3%, and the passive offshore portfolio, BRL 1.4 billion, returned an equivalent 77.2% of Fed funds. Together, this portfolio generated a total return of 5.1% of 121.5% of Fed funds.
The total investment portfolio delivered a return of 9.9% in the 12 months prior to March 31, excluding foreign exchange variation. In this slide, we see the share of assets, each asset class in our onshore portfolio. As we mentioned earlier, we took advantage of current interest rate levels to gradually increase the duration of the portfolio by acquiring fixed rate positions aimed at ensuring a robust financial income and lower refinancing risk for the company in the coming years. Given the volatility associated with the geopolitical backdrop, we believe the portfolio is well-positioned to capture an environment of slightly higher inflation in the short and medium term and a more gradual pace of interest rate cuts.
This scenario mainly benefits floating rate and inflation-linked portfolios and, at the same time, allows us to maintain positive carry in the fixed-rate positions over the medium term. I will now turn it over to Débora.
Thank you, Paulo. Good morning, everyone. First, I would like to introduce myself in the new role as Head of Internal Controls, Risk and Compliance, which I took on the beginning of April. After eight years in the company, I would like to thank our CEO, Marcos Falcão, and the Board of Directors for their trust in my work. I would also like to thank Eduarda La Rocque, my predecessor, for all her dedication over the last few years, and I wish her success in her new challenges.
From the perspective of corporate risk management, in the first slide on the left, we have the evolution of the regulatory solvency ratio, where we see that in March 2026, this reached 287%, representing a growth of 80 percentage points compared to the first quarter of 2025. This is the highest level recorded since the second quarter of 2024. In the upper-right chart, we see that this movement was mainly due to the increase in the company's adjusted shareholders' equity, approximately 25%, reaching BRL 2.7 billion in March 2026. It's worth highlighting that these amounts already reflected the deduction of the amounts related to dividends and interest on equity. On the right, on the lower corner, we see the evolution of adjusted shareholders' equity sufficiency, which reached BRL 1.7 billion in this quarter.
This evolution is the result of the positive results delivered over the last quarters and reflects the company's discipline in both underwriting and investment management. On the next slide, regarding the regulatory liquidity ratio, we ended March 26th with a sufficiency level of 13.1%. On the charts on the right, we see the historical evolution of technical provisions coverage sufficiency, which reached BRL 833 million this quarter. This result reflects the company's prudence in managing both technical provisions and assets. I'll now turn it back to Thays.
Thank you, Débora. We'll now move to performance from the IFRS 17 perspective. Since Castillo already commented on the main operating effects and events of this quarter, the focus here is to show how these same movements were reflected in our results from an accounting standpoint under the standard. Net income for the quarter was BRL 94 million, compared with BRL 134 million reported in the same period of 2025.
The reinsurance service result totaled BRL 74 million in the quarter below the BRL 235 million observed in the first quarter of the previous year. The main difference is that while the IFRS 4 view shows an increase in the consolidated underwriting result, IFRS 17 is more sensitive to revisions in future expectations for contracts, comparing expected cash flows with what actually occurred during the period. In other words, in addition to expected claims experience, this view also considers when cash inflows and outflows, as well as the occurrence of claims, should materialize over time. In this context, the quarterly change mainly reflects changes in expected future cash flows for certain portfolios. On one hand, we observed a lower expected contribution from rural, reflected in the reduction of expected claims and consequently in reinsurance revenue during the period.
On the other hand, reinsurance expense did not move in the same way in the same proportion, pressured by higher claims in international contracts, especially in the property segment, as Castillo already mentioned as non-recurring impacts with an expectation of normalization over the course of the year. This combination of lower revenue and contribution and greater expense pressure resulted in a reduction of approximately BRL 160 million in the service result, mainly concentrated in the P&C line. The life result remained immaterial, with no meaningful impact on consolidated performance. At the bottom of the slide, we show the movement in the contractual service margin for the first quarter of 2026. The period began at BRL 528 million, and we ended March at BRL 474 million.
This variation was mainly driven by negative adjustments of BRL 79 million, reflecting the difference between expected premium receipts and amounts actually received. We also recorded the natural amortization of CSM, totaling approximately BRL 113 million, mainly in the property portfolio, in line with the recognition of services provided. Finally, CSM from new business totaled BRL 449 million in the quarter below the BRL 195 million recorded in the first quarter of 2025. This reduction is mainly explained by renewals of contracts with operating agreements that include significant retrocession of reinsurance premiums, a dynamic not present to the same extent in the prior year. On this next slide, we move from the operating impact of the contracts to another relevant IFRS 17 component, namely the financial dynamics associated with measuring those same cash flows over time.
As we saw earlier, in addition to the operating experience observed, IFRS 17 also considers when these inflows and outflows should occur. This is exactly how the financial result from reinsurance and retrocession contracts arises. Therefore, both operating liabilities and operating assets are measured based on cash flow projections discounted by discount rate curves built from the different estimated timing of those flows according to the actuarial assumptions of each portfolio. Because these projections are updated at each reporting date using the current market rate, changes in interest rate curves can generate material impacts on the financial result regardless of the operating performance of the contracts. In 1Q 2025, declining discount rates generated a financial expense of BRL 198 million.
This quarter, we observed the opposite movement with a moderate increase in curves in both BRL and USD, where our main exposures are concentrated. This increase, especially at key points on the liability curve, reduced the present value of obligations and generated financial income of BRL 32 million from the current rate update. We also recorded the recurring effect of the locked-in rate update, reflecting the financial accretion of rates set at contract inception. Combining these effects, we ended the quarter with a total financial expense of BRL 87 million related to discount rate changes, below the BRL 198 million recorded in the first quarter of 2025. In summary, under IFRS 17, a significant portion of accounting volatility arises not only from operations but also from macroeconomic conditions reflected in discount curves. I will now turn it back to Falcão for closing remarks.
Thank you, Thays. Before I close, I'd like to reinforce that the tax reform remains a strategic and relevant topic for the company. As discussed throughout the presentation, the implementation of the new regime starting in 2027 brings a structurally positive outlook for the reinsurance sector, especially because of the zero rate treatment, which tends to improve our relative competitiveness over the long term. At the same time, 2026 will still be a transition year during which we will closely monitor regulatory developments and their practical effects on existing balances and accounting dynamics. Given the complexity of this topic, it's not a trivial matter, I highlight that we held BRL 194 million in deferred plus COFINS assets on technical claims provisions as of March 2026. You can see this in explanatory note 8.1.
The difference between the December 2025 balance and the March 2026 balance is the amount that we wrote down in the tax expense line item of BRL 34 million. Throughout 2026, we will keep communicating regulatory developments while noting that the zero rate will apply in 2027. This is a complex topic in terms of being very technical, with impacts that go beyond the simple change in rate, which is why we continue revisiting our assumptions prudently with technical discipline and transparency. Our commitment is to continue communicating to the market clearly and in a timely manner as the regulatory developments and their respective impacts evolve. In summary, we see a relevant structural benefit on the horizon, but we continue to manage this transition with attention, responsibility, and focus on correctly adapting our business.
Looking toward 2027, our ambition is to have two insurance companies growing operations, one in life and one in P&C. To support this, we have assigned Fred Knapp, our CFO, to lead the setup of the large risks P&C insurer, leveraging his experience as former CEO of Swiss Re, with a focus on increasing facultative reinsurance premiums. Thays Vargas, our statutory director for accounting, tax, and treasury, has also taken on the actuarial department led by Reinaldo Marques, who brings recognized experience and leads our R&D initiatives on topics such as climate risks and natural events, such as the floods in Rio Grande do Sul and the fires in São Paulo. Débora, who was head of the technical and actuarial provisions department, has now assumed the risk, compliance, and internal controls department, continuing the work done by Duda La Rocque and bringing her discipline in processes and controls.
Duda, in turn, will begin setting up our institute, which will bring together all of our community impact initiatives, cultural initiatives, education initiatives, and studies on climate risks that will guide IRB(Re)'s work in its purpose of protecting society's future. We are proud to resume paying dividends and interest on equity. In the coming quarters, we will balance this with capital allocation for new projects, working with the Board to define an appropriate payout level, which we believe is appropriate for the company. I want to share my vision for what I aspire IRB(Re) to become in the coming years. We will be more than a local reinsurer. We want to build an ecosystem in which IRB(Re) becomes a global hub for reinsurance and risk management services.
I am confident that with the right people, the right incentives and technology, we can disrupt this market, supported by our 87 years of leadership in the sector. We are confident that we're on the right path. Finally, I would like to thank our employees, our board of directors, our shareholders, who together with our clients and partners are with us on this challenging journey. I would also like to thank SUSEP, which has been working to modernize and keep pace with improvements in the market. Once again, thank you. We can now open the floor for questions.
We will now begin the Q&A session. Remember that to ask questions, please click on the Q&A button at the bottom of your screen to join the queue. When your name is announced, a request will appear to unmute your microphone.
At that point, you should do so and ask your question by voice. We'd like to ask you to please ask all questions at once. We will now begin our first question coming from Eduardo Rosman from BTG. Eduardo, we will unmute your microphone so that you can ask your question. You may proceed.
Hello, good morning. Good morning, Falcão. Good morning, team. Kudos on the presentation. It was very complete and well-rounded. This, it was very educational about the tax reform as well. I also really liked seeing the announcement about efficiency, tax efficiency. I have two questions, any level of detail that you can give us about your six-point efficiency improvement plan by 2029. What's involved there? Does the reinsurance market need to change? Do the new initiatives and reinsurance businesses need to do a good job?
Could you give us a path forward? My second question is about the term. How much time are we talking about here? We saw that in the short term, we saw that we had accounting effects and not fee effects. As Castillo also mentioned, the market is softer. Your accounting revenue was BRL 100 million the first quarter. I know you generated more cash, but the consensus is roughly around BRL 600 million in the year. Can we get to that point, or do things look grim? Thank you.
Hi, this is Falcão. Good morning. Thank you, Rosman, for your words and your very challenging question. First, I will touch on some administrative questions, and then I will leave Castillo to talk about premium and growth looking forward. In terms of the administrative answer, we need to reach that 7% level.
We have a big advantage here, which is fully under our control, which is a significant expense on legacy and old assets that we've been simplifying. This process has a due date. It's going to finish. We know when it's going to finish. Given the legal cases, sometimes they take a while to be ruled on. We need to pay attorney's fees. Those expenses are significant. I think that in 18 to 24 months, we can reduce that by a significant margin in legacy effects, and that brings us to business as usual. Then we have the growth of the premium. I think we will understand even better as we move forward.
We also have a number of different expenses that are going to pay out, expenses on technology and efficiency gains that will begin entering operations very soon and will make us a more efficient company and give us more scale. That's the key, the key element here to this game is scale. That BRL 100 million result, Rosman, if you compare it with 1Q 2025, you need to think BRL 120. If you think about the BRL 600 for the year, if we're to compare oranges with oranges, so last year's money, we need to compare the BRL 100 with that actually is BRL 120. We really have three quarters where we need to build up to BRL 480. That's BRL 160 per quarter. I think it's very feasible. I am very confident.
We all know that the first quarter is always a less exciting quarter. As we reach the middle point of the year, we're going to have very good visibility. At that point, we will be ready to start really making a forecast. I think this is 2026 is a very structural year, and it's going to really put us in a very good position for 2027 to be a great year. I think somewhere between BRL 5 and BRL 600 we're definitely going to reach. Let's keep following and see how things develop. Castillo, what do you say about the premiums?
Good morning, Eduardo. Thank you for your question. As I mentioned, our retained premium is in BRL 3.4 billion, roughly. We must remember we're in a soft market with significant pressure on premiums. This means it's a time when we need to remain strongly focused on discipline because our focus is on profitability. Brazilian premiums remain stable and look likely to be moderate in growth. Internationally, they're also going to be in moderate growth, but the soft market is significant internationally as well. As for insurance, insurer coverage, we expect premiums to increase since we will be reinsurers both for the large risk insurers and the life insurers. We must remember that the insurers are likely to begin operating in July. This means the results will be visible in the coming year.
Thank you. Thank you for answering my questions.
Thank you, Eduardo.
Our next question comes from Eduardo Nishio from Genial Investimentos. Eduardo, we will activate your microphone. You may proceed.
Good morning, everyone. Good morning, Castillo, Falcão, and everyone else who is with us today. I'd like to follow up on Rosman's question. I'd like to get a take on the BRL 194 million PIS/COFINS perspective. How is this balance going to be used? What pace are you going to follow to drop down this deferred tax over the coming few months and the accounting write-down? I'd also like to ask, why did you not consider this item to be non-recurring, given that it's a positive perspective for the regulatory change? My second question is with regard to the dividend payout for JCP. In this quarter, you had a very relevant impact.
You mentioned that it was extraordinary, but I'd like to see for the next quarters, do you intend to move away from this initial phase, from the 25% payout to perhaps even a larger payout still in 2026, given that you began the year with a payout that was much higher than previously in terms of payout? Thank you.
Thank you for your question. I'll start with dividends, and then I'll start on tax reform, and I'll transfer to Thays. In terms of dividends, what we've said is that this year we intend to have a minimum dividend payout of 25%, and what we did was reflecting the 25% of last year. This year we expect to pay at least 25%, but when you look at the capital use that we need for this year, you see we're good in terms of solvency margin. If you have a capital use, looking at the earnings we're able to achieve in the first half of the year, we can see if we can increase that payout. What I think, Nishio, and think of the same conditions, this company should have a dividend payout closer to 50% rather than 25%.
We'll try to attain that, but let's work prudently. This is a path, and we'll reach that with patience. Now, about the tax credit, we have a balance, and the rule, there has been a large discussion. You're probably paying attention to that in all areas of the economy regarding implementation of the tax reforms, and the rules are not clear. We have to comply with accounting rules, and Thays will explain that more in detail. The difficulty of understanding the tax reform is to compare oranges to oranges.
Rather, the accounting effect within a year doesn't mean it will be a recurring effect. I'm more curious to see how it will be next year when we have the zero rate because we have a PIS/COFINS payment in the top line and the write-down of tax credits. Again, it's duplicated. Now I move to Thays.
The main point regarding this maintenance of this asset is to have a future tax base for next year. With a zero tax rate of 2027, this base will no longer be in place. There are some regulatory issues that make us somehow uncertain about when this taxable base would end. This is why we need to keep track of the secondary legislation to ensure we comply with the accounting rules. Within this scenario, we conducted a recoverability study regarding the balance, and we'll write it down, the deferred assets. Most of the balance will be within the year of 2026, we'll keep track of the regulations to see whether this will extend further or not.
Nishio, what's important to say is that, with the transparency that we usually work with, as soon as we make any different decision, rather different from what we said now, we'll communicate the market. We'll keep it very transparent to the market. Thays is always available to answer any questions you may have. Her slides about the tax reform are very clear. I think we have to learn together. Impacts will be seen in several sectors. It will be a lively year regarding that. Did we answer your question, Nishio?
Sure. Thank you. We just say that we need to treat that as a non-recurring event for comparison purposes?
Yes. In my point of view, this is a non-recurring event because it's limited to that period.
When there's no longer a taxable base, then you have to end this balance, and the discussion will be how to end this balance. You know, it's an accounting non-cash effect. The problem is to see the zero rate, tax rate as a, as bad news, which is not the case. We need to learn how to classify that properly.
Okay, thank you.
The next question comes from Kaio from UBS. Kaio, we'll open the microphone so you can ask your question.
Good morning, Falcão, Castillo, and the whole IRB team. I have two questions. First, regarding diversification of International premiums, I would like to understand at what stage of the strategy you are currently, and what is the most significant renewal period in this market, and if you could expect some acceleration for that.
Given that there is an expectation of International business in your portfolio, what would be the drivers for IRB to gain more relevance in the market? The second question is about repo. The ratio was about higher because you expected some transfer of these premiums. Could you give us some more detail whether it's local or international? In this quarter, what should we expect of the effect of this ratio for this year, meaning that you would have more retentions this year?
Kaio, this is Falcão speaking. I'll talk about retrocession first, and then I'll turn it over to Castillo. It's very hard to understand the effect on that, and the effect of that in the reinsurance premiums, which involves accepting premiums here and transferring them internationally.
It's very difficult to infer based on the business of 1 quarter what happened internationally. What I would like to say is that plan of retaining more, decreasing purchase of protections, which will have effects on the results on 2027. This year only will have effects on the financial results. This is in progress, and it's within our plans as planned. Later on, we can clarify that better, but this effect that you saw is not something to worry about. It has to do with seasonality, and in one quarter, maybe there's more premiums coming from one partner, and then it's within the mutualism principle and transferring risk within the reinsurance market. It's not something to worry about. We can explain that further on.
Kaio, the international business has peaks of renewal January, April, June, and July, and something in September. Our strategy international business is to concentrate on what we know better, which is property and engineering. We're trying to avoid long-tail liability insurance premiums, for example, because claims will develop in 10 years for a business that we do today. That is something that doesn't interest us.
We prefer short-tail business, which we can see results in one year, 18 months at the most. Property and engineering are the businesses we're concentrating on. In International business, we're trying to have a non-proportional business in deals in which you can choose the business we want to participate with, less probability of large claims. This is a strategy that has proved we are on the right track. There is this kind of appetite in the international market, I believe we'll keep away from this long-tail business.
We'll continue to develop it because there is a need for that.
Okay, thank you, Castillo and Falcão.
The next question comes from Guilherme Grespan from JPMorgan. Go ahead, Guilherme.
Good morning, Falcão and Castillo, IRB team. Thank you for the presentation. The presentation is very good with increased disclosure. We like that. I have two questions. First, a follow-up on dividends. Sometimes we get a bit anxious, and Falcão was clear in his message that there may be room for a payout around 50%. My question is to try to understand if I'm missing something. Because when I see your profitability, and even looking at some level of growth, we see a payout that's higher. Giving us some figures.
For you to keep, since you have kept solvency stable, you could have paid BRL 178 million in dividends, and it would still be stable. That would be higher than 100% payout. I'm curious to see whether we're missing something in the equation, because the book case would be a payout of 50%, we believe it could be higher than that. The second question is about the tax symmetry. We have always discussed global reinsurance. There are some leverages closing, taxation of IOF. There's potential zero rate for PIS/COFINS, and you started paying interest on equity, so a part of the symmetry is closing. This question is either for you or Castillo, if the symmetry of price is closing, or do you see a scenario in which it would be close to zero, or is this a wishful thinking? Thank you.
Thank you for your questions. You always put us in a tight spot here with difficult questions. The dividend payout, if I were on your side to make my calculations, I would make the same calculations you make. The fact is that we plan to grow and using capital in other projects. The use of capital is what's missing in your equation. We think we should go slowly to be able to have a good return on capital for shareholders, and then increase the dividend payout. It's ex ante with ex post discretion. Ex ante you see wish what could be done, and then afterwards, the dividend payout. We'll continue with that method with discipline.
As for competitiveness, which is your topic, that improved a bit because when you close the exchange rate, that changes a bit here. The tax reform has helped us a bit. The difference is not so far. If it were not for tax credits that improve our actual rate, we would have a gap. For example, a reinsurance company in Germany pays 25% of income tax, while we pay 40%. That is decreasing. The market is very small. Brazil accounts for 1% of reinsurance premiums only. We need to grow our insurance market and have more people buying reinsurance locally. This is the challenge of the company, and this is why we want to go International using the experience of Castillo. Thank you, Grespan.
Okay, that's very clear. Thank you, Falcão, for your answer.
The next question comes from Tiago from Goldman Sachs. We'll open the microphone so you can ask your question. Go ahead, Tiago.
Good morning, Falcão, Castillo, and the entire team. Thank you for my question. I have two questions. First, about the rural portfolio. You said you expect some growth in coming months. I would like to understand where that growth would come from, since the scenario seems very challenging for this area. Would you plan to increase existing contracts or new contracts? Just to understand where this is coming from. The second question is about the actual tax rate. What do you expect for 2026, including the interest on equity benefit?
Well, the calculation of the actual tax rate, we'll send you later on because we don't have this calculation right now, but it will be within the range of 20%-25%. We'll send you the calculations later. As for the rural business, we've been depending on Brasilseg, and Brasilseg depends highly on subsidies that are also dropping. We're all on the same boat here, and it's been a very difficult path. We do believe that we have to think that in Brazil, rural insurance has to grow because the coverage of the areas, agricultural areas, is very low. We are looking for further alternatives of rural. We have people who are very experienced, and Glaucio has a plan. Glaucio has a plan to implement a plan to go after other channels and not only Brasilseg.
Also, we depend on the governmental policy to retain agricultural. All those countries that the best practices of countries that have large agriculture areas, they maintain the subsidy because it's an insurance of the GDP that not only affects the coverage of your harvest, but as well as the GDP of the country. At regular times, we expect to go back to previous subsidy levels, you know, that would help the business by itself. I don't have an specific answer, but these were the actions we took, and let's see how it goes. It's difficult because the downside is very low. We look at only upside for the rural line for the future. Thank you.
The next question comes from He nrique Navarro from Santander. We'll open the microphone for you, Henrique. Go ahead.
Henrique is having some issues with his audio. Could we continue ?
I can ask Navarro's question. Navarro would like to know more about the impact of El Niño because it's not significant this year, and also about the international expansion strategy considering that the international portfolio has been a detractor of income.
Thank you for your question, Navarro. I'll answer about the El Niño. We're less worried about it this year because El Niño has been beneficial for us every year that we have had it, given the insured area we have. We'll soon disclose a report that explains that. We're not worried about El Niño. It's more worrisome when we have La Niña because that increases the loss ratio. Castillo will answer the International question.
The international results that we saw in the first quarter is specific about these three claims. We've seen a large demand in this area of business that we operate in, property and engineering. We believe that this research should go back to the level that we experience at the domestic businesses. We're not worried about the international lines because we see growth with profitability.
Thank you, Navarro. This ends the Q&A session. We will now turn the floor over to the company for their closing remarks.
Thank you all for participation in the call. This is the first quarter. I believe the next quarter will be more interesting in terms of information and visibility for the year. Rosman said the challenge of delivering the results for the year and understanding the effects of the tax reform in a good way with no surprises. Let's see. It seems that next year will be better than this one. Let's keep moving, and thank you all for your presence, and have a good day.
This ends the video conference of earning call results for the first quarter of 2026 of IRB(Re). The investor relations department is available to answer any further questions you may have. Thank you all for attending. Have a good day.