Morning, and thank you for standing by. Welcome to the video conference to present the results of IRB(Re) for the third quarter of 2023. We do have simultaneous translation available. To access, click on Interpretation on the globe icon on the lower part of your screen. You may choose between Portuguese or English. For those listening to the video conference in English, you may mute the original audio. We inform you that this video conference is being recorded and will be made available on the company's IR site at ir.irbre.com. During the company's presentation, all participants will be connected in listen-only mode. Later, we will begin the Q&A session. To ask questions, click on the icon Q&A on the lower part of your screen and write your question. For those listening in Portuguese, you may be able to ask your questions in person.
Questions in English should be asked in writing. We would like to clarify that any information contained in this presentation and statements that may be made during this video conference relating to the company's business outlook, projections, financial and operational targets, are based on beliefs and assumptions on the part of the company's management, and on information currently available.
Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore depend on circumstances which may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect the future performance of IRB, thus conducting to results which differ materially from those expressed in such forward-looking statements. Today, with us are the following executives. Mr. Falcão, CEO and IRO. Mr. Daniel Castillo, VP of Reinsurance. Mr. Rodrigo Botti, VP of Finances, Actuarial and IT. Ms. Thaís Peters, Director of Internal Controls, Risks and Conformity, and Mr. Paulo Valle, General Director of Asset. I now turn the floor over to Mr. Falcão, CEO, to begin the presentation.
Good morning to all. In this third quarter, we would like to highlight two important events. First, we were in Monte Carlo, and IRB was one of the highlights, and then FIDES in Rio de Janeiro in our home, where we welcomed customers from all over Latin America, and we made deals for 2024. We also had a very important day, our investor day, when 19 executives of IRB welcomed more than 50 people, analysts, investors, and we were able to explain how our business works. We also had some events focusing on the management of the company. This is extremely important in the long term. We had an event with our leaders.
This will continue in 2024, and this was focusing on teamwork. We want to think about the future that we desire for IRB. Additionally, we also launched our zero-based budget, which will be completed on November 30, and we acquired greater knowledge about the expenses we have in the company. This will allow us to better manage administrative expenses going forward. We continue to work in terms of having 80% of our underwriting in Brazil, 15% in Latin America, and 5% in other places worldwide. In addition to working closer to our customers, we now have the claims area closer to our customers. The claims area is the area that delivers the final product to our clients. In October, we paid the debentures as the forecast said, and our rating agency has kept our rating unchanged.
On the next slide, you are going to see that we are delivering what we promised in the beginning of the year. There is a marked improvement. We have been working for the results to continue to improve in the years to come. We are confident. We also know that there is some volatility in the short term, and we have to look at the reports and the results of our reinsurance company in the mid to long term. So probably in the next few calls, we are going to start showing results for three, six months, nine months, 12 months or even longer term, because we want to look at the business in the long term. With this, I turn the floor over to Daniel Castillo.
Thank you, Falcão. Good morning to all. The underwriting strategy remains the same. in 2022, we decided to focus in Brazil and Latin America. In this 84 years of history, we got to learn about Brazil, its risks, market needs, coverages, exposures, and loss ratio. At IRB, we have five main competitive advantages. We speak the client's language, we know the culture of the country, we know the Brazilian legal system, we have the authority to decide at the local level, and finally, we have the largest capacity for underwriting in the local reinsurance market. This year, we are transferring some of the offices from Rio to São Paulo to be even closer to our clients. In addition to Brazil, we are prioritizing Latin America, a market for which we have a dedicated team, fluent in Spanish and with knowledge of the region, the risks, and its catastrophic exposures.
We have refined our structure and adopted different practices for different countries with different needs and opportunities, such as Peru, Paraguay, Uruguay, Colombia, Bolivia, and Mexico. Finally, the global market is under analysis. We maintain our strategy to develop non-proportional businesses without taking on major catastrophic exposures, thus managing our business portfolio. In our strategy to focus on Brazil, we can see on the next slide the third quarter for the years 2021, 2022, and 2023, and you will see that the international business has reduced from 31%- 28% and 15% in Q3 2023. At the same time, you can see in the same period an increase in business in Brazil from 69%- 85%. Therefore, we continue to concentrate 80% of our business in Brazil, 15% in Latin America, and 5% internationally.
You can see a reduction in the total premium from Q3 2022- Q3 2023, and this results from the overhaul of the portfolio, which was accelerated when we renewed our deals in 2023. In the renewals, although we have accepted new deals, we declined some that were not so profitable. We reduced our share in others with the objective of having a more balanced portfolio with a better quality and profitability.
Despite that, we renewed 85% of all the deals we wanted to maintain in our portfolio. On the next slide, you can see the breakdown of our business in the first nine months of 2022 and 2023. The property business accounts now for 35% of our portfolio. There was a good development of business under special risks or oil and gas in Q3 2023. We accepted new risk, but we do not expect the same growth in Q4 2023.
This is a seasonal type of business, and we are not expecting to see new deals by year-end. Our portfolio includes nine business lines in three geographies, Brazil, Latin America, and international. We have in 2023 a smaller but more profitable portfolio. On the next slide, we are analyzing the history of sinistrality.
In the past quarters of 2022, we were impacted by the agro- catastrophe in Brazil because of the drought, which has already been mentioned in previous presentations. Without a doubt, in our activity, loss ratio is the most important relevant for us to achieve the expected results. On this slide, we can see a drop in the loss ratio coming down from 124% in Q3 2022 to about half or 74% in the same period of 2023. This is the lowest number in our history. It is worth remembering that loss ratio in a reinsurance company comes from contracts signed in previous periods. It depends fundamentally on assessment processes of the risk at the time, and also depend on the right pricing. On the upper part of the slide, we can see a comparison of the first nine months of 2022 compared to the first nine months of 2023.
The loss ratio dropped from 108%- 75%. The amount of claims has dropped to the tune of BRL 1.6 billion. In the bottom part of the slide, we can see a breakdown of the loss ratio by geography. We believe that the actions just mentioned of price readjustment, a reduction in exposures with a decrease of share in several contracts, in addition to alignments to different commercial conditions and technical changes, have contributed to a gradual improvement of our loss ratio during the year. In this nine months, total loss ratio, both internally and externally, has dropped from 108%- 75%.
Only Brazil or Brazil alone accounts for a drop from 113%- 70%. On the next slide, I would like to comment on our renewal schedule. Most of our contracts will be renewed in January. The agri business we renewed in January and in April. America Latina business renews in June and July. Our retrocessions are renewed in October. Optional business is developed gradually on a month-by-month basis. This very spread out schedule allows us to make the best of our resources. I now turn the floor back over to Rodrigo, who will be talking about provisions and other financial numbers.
Thank you, Castillo. Good morning, everyone. It is a great pleasure to be here with you and be able to share with you information relative to Q3 of IRB(Re). On this slide, we see the evolution of our technical provisions in gross protection values. At the top, we can see the reduction in the provision of unearned premiums, mainly due to the lower volume of premiums issued as presented by Castillo just now. Claims provisions have also been reducing when compared to the previous quarter.
You will notice that this is coming from a natural drop in the [inaudible]. The message we'd like to convey remains the same. We maintain robust and cautious technical provisions and in line with the evolution of our business. On the next slide, we see on the top part the evolution of the company's acquisition cost, which in Q3 2023 came out at BRL 207 million, a drop of 33% when compared to the same quarter of 2022. In the bottom part of the slide, we see SG&A numbers in the third quarter of 2023. Those expenses totaled BRL 66 million, and there were no recurring effects of note. Up to year-to-date, our SG&A total BRL 117 million, excluding non-recurring events, when compared to BRL 237 million in the same period of the previous year.
On the next slide, we see a snapshot of the quarterly evolution of the components that make up the combined ratio, excluding the LPT and one-off effects. We can see that the loss ratio line is the most significant component of the combined ratio, and it continues to show great progress despite the nature of our business, which always shows a certain level of volatility. Loss ratio was retained was 700% in Q3 when compared to 112% in Q3 2022. The other components, commissioning and SG&A, show a certain stability. The combined ratio has reached 108% in Q3 2023, which is not ideal, but already shows great progress when compared specifically with that same combined ratio of 143% posted in Q3 last year. On the next slide, we see the combined index for years to date, nine months.
The result is still falling way below what we expect, but already shows advances when compared to the same period of last year. Excluding the LPT operations, the combined rate reached 108% when compared to 137% posted in the same period of last year. On the next slide, we see our operating cash flow behavior, which continues to be in line with our expectations. The current cash consumption is part of our adjustment. The strategy to overhaul our portfolio has reduced the amount of premiums received, and we still have to settle claims relative to risks taken on in previous years. But as we'll see later, that reduction has not affected our regulatory index for coverage and technical provisions. I turn the floor now to Paulo Valle, who will be touching upon our financial numbers.
Thank you, Rodrigo. As to our financial assets, we closed the Q3 at the same level as opposed to these in Q2 at BRL 8.5 billion. The financial equity number of BRL 182.9 million was twice as much as we saw in the previous quarter at BRL 95.8 million. The main highlights here are the debenture conversion into shares, which led to a positive result of BRL 20.3 million.
Number two, the positive performance of our active funds multi-market, which led to a result of BRL 20.5 million, and also the private credit fund, which led to a result of BRL 3.7 million. Lastly, also coming from our offshore investments due to the appreciation of the USD and other factors. As detractors, we had financial expenses and the negative carryover of inflation-packed funds, which performed below CDI in the quarter. Moving to the next slide, we see a breakdown of ensuring actives and assets and offshore assets.
In September, the onshore assets accounted for 66% of the total to the tune of BRL 5.1 billion. The main assets are post-fixed bonds with 61%, followed by IPCA indexed bonds at 25.1%, and also private credits pegged to CDI plus spread at 9.9%. As for the offshore assets, they account for 40% of the total. Those assets are concentrated in sovereign bonds of the Brazilian government and American Treasury bonds, and Canadian as well, and also private credits pegged to different currencies.
In this chart, we can see the gradual migration of offshore assets to onshore assets, driven by our underwriting strategy to concentrate on local markets. The assets then move in from the onshore from 58% in December 2022 to 65% now, and the offshore assets moving from 42%- 40% as we move from December 2022 to September 2023. I'd like to turn the floor over to Thaís Peters.
Thank you, Paulo. Well, on the coming two slides, we'll be talking about the regulatory indexes. SUSEP follows or monitors two indicators that must be covered by the company. Number one has to do with the equity sufficiency in terms of adjusted terms when compared to the minimum capital. We closed the quarter of the year with a sufficiency level of BRL 985 million- BRL 989 million. In other words, 50% above the required amount. That number reflects a combined improvement set of procedures that the company has implemented this year.
So we perform positively with those numbers, and we're able to reduce the minimum required, which reflects or translates a better risk assessment and a drop in loss ratio, as Castillo mentioned. When compared to Q2 2023, the indexes grew by 82%. In the next slide, you see the second indicator, which reflects the amount of assets qualified by SUSEP to meet the actuarial commitments of IRB. The indicator of sufficiency of guarantees ended Q3 with a sufficiency of BRL 608 million. Now I turn the floor over to Marcos Falcão for his final remarks.
T hank you, Thaís. In 2024, IRB is going to celebrate its 85th anniversary. We have a young, excited company that is 85 years old. We are going to continue to see a hard market that is prices which are favorable for underwriting and high interest rates. We will continue to focus on management actions to value our team. We have been improving our team, giving training, and building capacity. You will see many other initiatives later this year. We have a better portfolio. We are leaving old underwritings behind, and we are always focusing on our customers.
We are going to complete our DFs in the first quarter of 2024 as IFRS 17, and we are going to migrate all our systems to the cloud. We are going to start 2024 with our targets in place, and all the leaders in the company will have participated in the development of our zero-based budget. We will start 2024 full of energy and knowing everything that we need to know to have a stellar year. I am very excited to lead the IRB team going forward. We have worked hard with a lot of dedication, and our excitement only grows. We have seen lots of opportunities in the market to reduce the low penetration of insurance in Brazil. We are going to talk more about this in video conferences in the next few quarters. We can now move on to the Q&A session.
We will now start the Q&A session. To ask a question, use the Q&A icon and state your name and affiliation, and write your question. Questions in Portuguese may be asked in person. Questions should be asked all at once. We are now going to move to the first question from Mr. Caio de Pratto, sell-side analyst from UBS.
Good morning. Good morning, Falcão, Castillo, Natasha, all the team. Thanks for taking my question. I have two. First, the retrocession for the quarter and LPT operations. You also carried out another LPT operation in this quarter, but you present a liquidity ratio which is more comfortable. I want to understand the rationale behind these operations in this quarter, and also the volume of retrocession in the quarter. Even if we exclude the LPT operation, the retro ratio was a lot larger this quarter. What can we expect also going forward? This is the first question.
The second one has to do with the total underwriting result. This had been gradually improving in the last few quarters, but in Q3, we saw a drop. We understand that there is an inherent volatility to the business, but what led to this specific drop in the underwriting results, and what can we expect going forward? Is this going to grow gradually in the future?
This is Daniel Castillo speaking. Let me take the retrocession question first. Our retrocessions are renewed in October. That is when we determine the limits that we want to acquire, and we negotiate the prices. What happened is that we were able to get a reduction. We did not need the limits we acquired before, and we managed to get a reduction in prices as well. But because the renewal is due in October, we will see the effect of the renewal of the retrocessions from now into the future. You should see a reduction as of October this year.
Our retrocession, its cost is reduced by 30% as of October relative to the values we had last year. As regards the result of underwriting, there is volatility, as you well said. We had two major claims, but they were absorbed during the quarter. As you know, there is a seasonality to our business and a volatility. What we are seeing in terms of loss ratio is within the numbers we expected. We shouldn't look at a quarter. We shouldn't look at a picture, but we should look at our results as a film. Everything is within our expectations.
Perfect. Thank you, Castillo. What about the LPT operation? Given that the ratios are now more comfortable, was there any specific reason why you carried out this operation in this quarter?
Hi, this is Rodrigo Botti speaking. Thanks for your question. As regards to LPT, remember that LPT is a funding operation. But we use an operational side to carry an operation that is ultimately a funding operation. We realized BRL 150 million in premium in this LPT operation. Going forward, we haven't any LPT operation in plan, but it's an alternative for us to obtain financing. This is an operations thing that we use actually for funding.
Thank you, Botti. Thank you, Castillo.
The next question comes from Shirazi from Santander sell-side.
Good morning. Thanks for taking my question. My question has to do with El Niño. We have been watching the El Niño phenomenon very closely, but how can El Niño impact your results going forward?
Hello, Arnon. This is Daniel Castillo speaking. Our agro business is scattered around, so we can have a more balanced exposure. The loss ratio is faring better than we expected so far in 2023, with no indication that it should worsen by year-end. We don't expect bad effects from El Niño until 2024. I'm concerned because we see good loss ratio this year, so I am concerned that the prices will be lower next year.
We have to watch that from a very close range and do the underwriting with a lot of responsibility. Agro, as you know, has a catastrophic nature to it. So one year we might get good results, but we shouldn't accept a reduction in the following year. It's no reason for us to accept a reduction in the following year. Loss ratio is better than expected, and what we hear from our cedents is exactly the same.
Thank you.
Our next question comes from Mr. Gabriel Gusan, sell-side from Citi. Good morning.
My question has to do with the volume of retained premiums. This has dropped. We know that there is an effect coming from the LPT and the bigger retrocession. But what can we expect in terms of the annualized level of retained premiums, and the actuarial capital of the company?
Gabriel, this is Castillo once again. Our premium reduced in 2023 as a result, actually, of the overhauling of the portfolio that we have done early on in January. We had renewal times in April and in June, and in all cases, we continued to overhaul the portfolio. So we were expecting to somewhat sacrifice part of the premium until the end of the year. The idea was to clean up the portfolio, and our priority was, and continues to be profitability. Once we have a clean, quote-unquote, portfolio, and we expect that to happen by the end of the year, then we will be in a position to resume growth as of 2024. So that drop in premium was expected, fully expected, and was within our budgetary expectations.
Gabriel, this is Falcão now. To talk about capital for growth, we have been talking to people about that in a very transparent and straightforward manner. Looking at the budget and our business plan, which comes from the budget, we only would call on more capital if it is critical for shareholders. We look at the earnings per share number, and then we could, not increase the pie, but the slices of the pie, perhaps. That is a way to look at it. So when we understand we will have more return to shareholders in terms of earnings per share, then it would make more sense to have more capital, right? So premiums growth will be dependent on profitability. If we need capital because of that, we will have that conversation when the time comes.
Thank you. My question was a bit more basic, right? For this capital level that we see now, does it make sense to think about BRL 3.2 billion or BRL 800 million of retained premium, which is what you posted this quarter? Or is it more than that, BRL 4 billion, which is a bit closer to what you did in the previous quarter, or BRL 4.8 billion as you did three quarters ago. So means the big picture, what is the level of retained premiums that your level of capital now can accommodate with no bottlenecks?
We will have LPT or retrocessions. So first have a better picture of the whole thing. I think I would say it is closer to the top of the range than to the lower part of this range. Now, again, we will accommodate it, but it will depend on demand. We will only grow premium if it turns out to be a profitable operation.
Okay. Thank you.
Our next question comes from Alessandro Fernandes, an investor. His question in writing was the following: We can realize a gradual trend to increase the share in the agricultural portion of the portfolio. That segment, however, has historically shown low profitability levels. Please, if you could comment on that.
Though actually, we have reduced our share in agribusiness. When compared to other industries, it may seem higher, but we have reduced our exposure in agribusiness by half in 2023.
Okay. Thank you for the answer. Our next question comes from Rodrigo José, also an investor, and his question in writing was: In terms of loss ratio and market volatility in the agribusiness, wouldn't you contemplate the issuance of ILS to further decrease that risk?
This is Botti speaking. RBS will be an important advance in the Brazilian market. We are investing in this technology, gaining more knowledge, working along the regulatory agencies to be able to use capital markets and insurance operations to transfer risk. This will be used not only for the agribusiness component, but for other industries as well. This could be an interesting tool for us to use in the future.
Thank you. Our next question comes from Leandro Leite from UBS. You may proceed, sir.
Good morning. Congratulations on your results. Thank you. My question is about financial results. You had strong numbers this year, this quarter, and you mentioned in the release about a positive impact coming from US dollar variation. Having said that, if we were to exclude this effect, what kind of numbers would we have at the end? What would be the run rate of your financial numbers considering your current reserve level?
Well, first off, foreign exchange rates impact returns in our partners. Our policy is to maintain a very close match between assets and liabilities. A lower yield on the asset front corresponds to a decrease in our liabilities as well. The results and the bottom line is relatively controlled and limited. Would you like to say something, Paulo?
Yes. In terms of the upshot, as we announced in our release, the positive result came from a good performance of our macro fund at the multi-market and the private funds onshore. As for the offshore, we had a positive result due to a more efficient investment policy in emerging currencies, which was driven by an improvement in our hedging policy, which we just started this quarter. We have been hedging via currencies which are part of our liability, which leads to higher yields. The foreign exchange impact has also helped. We had a long component in US dollars, which also helped boost results. That is to the tune of about $22 million, $22.7 million to be exact.
Okay. Thank you.
I would like to inform you that the Q&A session is now over. I would like to turn the floor back over for the company's final remarks.
Before the final remarks, I just wanted to thank everyone for your interest in this company, and for your questions. Some questions came in writing. The most frequent question is about the PLR. There is this misunderstanding that we paid PLR, but it is just a provision that we are making for that. That is linked to the company's profitability. The PLR will only be paid if the board, after looking at the numbers, if the board seems or deems it fit.
There were a couple of questions about the capital increase. I have already addressed those. The idea is to do that if it is a good deal for shareholders and if it is fitting to our earnings per share approach. As I said, to increase the slice of the pie and not the pie per se. Overall, I think we have addressed all your questions and concerns. Once again, thank you for your interest, and rest assured that we are quite confident, the company will be closing the year at a very high note, and 2024 is a very promising year in terms of results and for a good path forward for the company. Thank you again. Have a nice day. Have a nice weekend, everyone.