Glossary

Written Premiums

Reinsurance premiums are recognized as written premiums upon acceptance. Reinsurance premiums related to current risks, but whose reinsurance contracts have not yet been written, are calculated on an actuarial basis.

For optional reinsurance contracts, written premium is the amount agreed upon between the parties to guarantee the reinsurance coverage, for the amount the reinsurer accepts to cover and for the risk’s term.

For automatic reinsurance contracts, written premium is as follows:
∙Non-proportional contracts – written premium is the amount agreed upon between the parties to guarantee the reinsurance coverage, for the amount the reinsurer accepts to cover and for the term of the reinsurance contract.

∙ Proportional contracts – written premium is the premium amount estimated by the ceding party for all policies that will be covered for the term of the reinsurance contract.

Estimated Premium

An estimate that is proportional to the percentage of the reinsurer’s interest, weighted by a performance percentage established according to the reinsurer’s experience of the ceding parties’ premiums. These premiums are adjusted after each account report sent by the ceding party, usually on a quarterly basis.

Changes in the Technical Provision

Impact on the Income Statement referring to changes in the balance of the unearned premium provision for current and written risks (PPNG-RVE), consisting of the portion relative to risks not arising from contracts in the premiums issued in the year. Its purpose is to cover future expenses, including claims to be paid by the Company. It is calculated on an operational basis according to the expected exposure for each contract. In addition to this provision, another provision is formed for unearned premiums for current but not written risks (PPNG-RVNE), calculated based on an actuarial estimate for existing risks whose contracts have not yet been written, determined based on an actuarial methodology.

Retained Premium

Refers to Written Premiums less Changes in the Technical Provisions for a given period.

Retention Ratio

Refers to Retained Premiums divided by Written Premiums for a given period. The Company understands that this works as an important tool for periodically analyzing and comparing the most efficient way for managing underwriting risks in its reinsurance portfolio.

Earned Premium

Refers to Retained Premiums minus the portion of the ceded remiums, for the Company’s own protection, for reinsurers or local insurance companies, through automatic or optional contracts.

Retrocession Ratio

Refers to premiums written but not retained. The Company understands that this ratio works as an important tool for periodically analyzing the transfer of reinsurers’ reinsurance risk, for the Company’s own protection, to reinsurers or local insurance companies, through automatic or optional contracts.

Loss Ratio

Refers to retained claims divided by earned premiums for a given period. This ratio connects revenues (earned premiums) to direct expenses (retained claims) of the reinsurance and retrocession operation, in a given period, and provides guidance on business performance, thus facilitating decision making.

Net margin

Refers to (i) net income divided by (ii) earned premiums, gross of commission, recognized for a given period. This indicator, generally used by companies in different markets, connects the final result of the operation and the financial result of the entire operation (net profit) to its operating revenues (earned premium). This indicator also provides guidance on global performance, thus facilitating decision making.

Combined Ratio

Refers to the division between (i) retained claims plus acquisition cost, taxes on revenue and general and administrative expenses and (ii) earned premiums, recognized for a given period. This indicator, generally used by the market, connects revenues (earned premiums) to all direct expenses of the reinsurance and retrocession operation, in a given period, and provides guidance on business performance, thus facilitating decision making.

Amplified Combined Ratio

Refers to the division between (i) retained claims plus acquisition cost, taxes on revenue and general and administrative expenses and (ii) earned premiums plus the financial result, recognized for a given period. This indicator, generally used by the companies in the market that stand out for their financial performance, connects revenues (earned premiums and financial result) to all direct expenses of the reinsurance and retrocession operation, in a given period, and provides guidance on business performance, thus facilitating decision making.

Return on average equity (ROAE)

Refers to net income divided by the average equity recognized for a given period. This indicator measures the average capacity to add value to a company from its own resources and the money of investors, thus providing guidance on business performance, facilitating decision making.

Current liquidity ratio

Ratio between the company’s short-term rights (current assets) and short-term debts (current liabilities).

Overall liquidity ratio

Ratio between the sum of current assets and noncurrent assets and the sum of current liabilities and noncurrent liabilities. The Current Liquidity Ratio and the Overall Liquidity Ratio are not measures of financial performance or liquidity according to the accounting principles adopted in Brazil or the IFRS. Other companies may calculate their Current Liquidity Ratio and Overall Liquidity Ratio differently than the Company. In managing its businesses, the Company uses the Current Liquidity Ratio and the Overall Liquidity Ratio as a means of assessing its liquidity. The Company understands that this works as an important tool for periodically comparing its financial position, analyzing its liquidity level compared to its liabilities, and to inform certain managerial decisions.

Solvency ratio

Refers to the Company’s Shareholders’ Equity divided by the Minimum Required Capital for a given period. The Company understands that this works as an important tool for periodically analyzing and comparing the required equity to maintain the sustainability of its reinsurance operations.