IRB-Brasil Resseguros S.A. (IRBR3) Earnings Call Transcript & Summary

Good morning. Welcome to IRB Brasil Second Quarter Earnings Call. Mr. Wilson Toneto, Acting CEO and Technical Operations VP; Mr. Werner Süffert, Finance VP and IR VP; Ms. Isabel Solano; VP of Reinsurance; and Mr. Carlos Guerra, Conformity and Legal Department are here with us today. This teleconference is being recorded. [Operator Instructions] The presentation has been prepared by IRB Brasil RE. It should be regarded as a source for investment strategy. This presentation may contain forward-looking statements related to the company that reflect the company's current understanding of its performance, its business and future events. This includes with no limitations that may include estimates, projections about future results of the company, its own performance or objectives, words such as believe, anticipate, hope, expect, project or other similar words. We would like to inform investors that several important investors or several market conventions may impact future results. And of course, they reflect upon the numbers presented in this presentation. Under no circumstance, the company its workers, consultants should not be liable for any investments decision based on information currently available today that may be specific or any related event. The market and competitive information, including market projections that are mentioned throughout these presentations, have been obtained through internal survey, market surveys and public domain information and business publications. The references to run on -- runoff and nonrecurring effects, one-off are presented in a managerial format, not audited, they're just for better analysis purposes. Mr. Wilson Toneto, Acting President and Technical VP of IRB Brasil RE will start his presentation. You may now have the floor, sir.

Thank you. Good morning, everyone. Thank you for attending the call. We have analysts, shareholders and our workers are here today to attend our second quarter earnings call. As I said, all VPs are available to answer any questions you may have. The information has been made available for the quarter according to the current legislation. It includes the company's performance details. This is just an executive summary of the main indicators that I'd like to point out to all of you. I don't know who is changing the slides, can you move on to the next one, please? These are all the definitions about discontinued business, one-off effects. It's important to read them through. But first and foremost, it's important to mention that we are subject to seasonality, just like we've said before. We should take projections in -- you have to take these effects into account in your projections. Okay. Moving on to the next slide then. A very important item to us is cash generation, of course. For the fourth consecutive quarter, we've been able to generate a robust cash flow, as you can see on the top of the chart. When you take into account operating and nonoperating cash, it amounts to about BRL 916 million, fourth quarter in a row having positive cash generation. We haven't had that since 2017. The company hadn't generated that much cash. We had important information, but we had negative balance as far as operating cash goes. It's important to pay attention to this item. It's important to our liquidity, but also to prove that the actions the company has taken. When we talk about to the management of our resources and continuous improvement, these things have yielded this positive cash generation. The second highlight is the increase in solvency. Solvency is the backbone of any reinsurer, as you well know. We have remained solvent. And I would like to point out 2 lines, the total solvency, the first one. It's a market benchmark today. This is the amount I have above my base capital. This is according to regulatory demand. That's the additional capital to the necessary capital we need for our activities. That's according to the regulations. And the same type of calculation is used for regulatory solvency, but it excludes some assets that the regulatory agencies are not considering. So we are at 273% in total solvency, back in June was 180%, 1-8-0, and now we are at 273%, well above previous quarters. And for the regulatory solvency, that's determined by SUSEP, we have remained stable when compared to the previous quarter. But when you take into account the leverage, it's much better when you compare to the previous quarters. So the second good news is increase in solvency. On to Slide 4 now. We can now see the main factors that impacted the first half of the year results and also the second quarter. I'd rather start by looking at the chart on the right. It actually reflects the work that this administration has performed. It reflects the recurring results, the good work we have put in this period. It has remained solid, and we have these recurring results, as you can see on your right. In the first half of 2020, we had a loss of BRL 732 million, and we now have BRL 57 million of recurring results. This is a good reflection of our administration. This is official information on -- the loss is BRL 156 million for the first semester. Despite being better than the first half of 2020, it contains several businesses that have been discontinued. We've already taken action in that regard. So we have important business, a substantial business that will impact our accounting results. There's nothing we can do about them. We have to account them, we have to book them properly, of course. But when we look on the right view, we exclude the effects of these nonrecurring, these runoff businesses. Now we can have a better picture of what the situation of IRB today. The next index reflects again the same trend. When you look on your right, it's a combined or recurring index, that's a result of premiums, minus claims commissions and expenses. And of course, the further down from 100%, that's better. We were at 134.9%. We dropped 26 percentage points. We are at 108% in combined, it's a very positive improvement. When you take the accounting results, another improvement of 19.5 percentage points, another important drop in the combined index. Again, it's a positive indicator, and it's important to show analysis and the entire market. We have been improving in a nutshell. I'm not going to describe all of these numbers in detail. This is our monthly claim rates, total and runoff. And runoff again indicates discontinued business and the runoff claim rates. You don't have the final quadrant on the right -- let me just point that out to you. The total claim rate for the company came down from 92% to 85%. And the runoff claim rates went down from 203% to 198%. It came down, but there's still an important component in that result. Our run-on claim rates, which is continued business, we are at 78%. It was 75.5% in the second half. We still have a tail of these discontinued business. And that's the message we'd like to convey today. It's an important factor, still. But as you can see, we have a very nice slide to exemplify that. The trend is to come down even further. On to the next slide. Let me shift gears a little bit. Let me talk about the financial assets. We are at BRL 9.1 billion. They are compatible to what we had in March, but they went up substantially in the past semesters. Despite this important component with foreign exchange, ballast or guarantee, in constant currency, they went up, but we have an important portion of U.S. dollars. We have maintained that number. A trend is that we are moving on to 27% to 35% of these applications is to have hedging of our technical provisions because that was a major issue we had last year. So it's a completely hedged portfolio. It's very appropriate, and it is consistent with this. We've had an important increase in cash. There was a drop of foreign exchange exposure, but still it's very robust, above BRL 9.1 billion. BRL 4.2 billion, that's our total assets. That's a very interesting equation to all of you, a very important information to you. Let me point out that our profitability for both Q1, when we consider these U.S. dollars assets, 146% of with CDI and the second quarter, 163% in 2021. Our covenants are appropriate too, they're suitable. There are no risks as to the debentures issued last year. On to the next slide. Here, we would like to highlight our total written premium. If you take a look at our financial statements, and we will go into details on that soon, we did have a reduction in the premium volume of about 10%. And this was basically due to reunderwriting, how we clean that portfolio, but just to give you some more detail on that, we can show you that in the domestic market. We have grown, and we've grown strongly. Therefore, our portfolio, as you can see in these last 2 graphs, has turned around. So in the last semester, our portfolio was more based on titles issued abroad of 55%. And now they represent 44%. So Brazilian issuance has taken protagonism in our premium as we had disclosed in our last presentations. So this is in line with our strategy except that here, we had a foreign exchange effect. But when you look at it in constant currency, we did see this switch due to the entire process that we mentioned before, and Isabel will go deeper into this during this presentation. So we continue to be a robust company. We have BRL 22.2 billion in assets. We have BRL 4.2 billion in equity. And we do have an excess that is significant in comparison to regulatory requirements. So we have liquidity. We've maintained a good level of cash, which is very relevant for our position today. And if that were not enough, on the next slide, we see our compliance with sufficiency of reserve coverage and the regulatory liquidity. And in June, it was the peak of the problem we had when we published the statements, we had over BRL 3 billion -- we were under BRL 3 billion below the required sufficiency. So with all the actions that we took and communicated last year, which continued this year and aligned to the potential cash -- the powerful cash that was generated during this time. We have advanced since December with positive levels in March. These conditions were maintained. They were at a very similar level to December. And now in June, we're at an even higher level, BRL 644 million in surplus of assets available for guarantee. And we -- when we consider that additional 20% required by legislation, we can see that our sufficiency is BRL 335 million. That's very important. And as you can see, we have the potential to even expand this sufficiency and liquidity due to a number of factors that have been changed in our regulations. So besides these numbers, it's also important to state that we completed our reunderwriting process. That was one of the main actions that the company took from the beginning. We started in June last year and Isabel will tell us about it, and it was concluded in July 2021. And it was very successful from our point of view. We have all the numbers on canceled business, and we managed to maintain the business we wanted to renew. And this was at a great level, of around 85% of the business we wanted to keep, we did with better conditions, with better rates, with better adjusted terms. And moreover, you'll notice that we added new contracts with better margins. So that is also a very important indication. The next slide, although this might be trivial, although people might say that this is in the financial statements, it's true. On the right, we have the financial statements for the first half of 2021, all the consolidated data. And you can find this in the quarterly results. And here, we can see how the written premium dropped, how claims had a significant improvement. Underwriting was also much better than in the first half of 2020. Our financial results were positive. And we had a net loss of BRL 156 million this quarter versus BRL 916 million last year. So this was an important step-up. But I'd like to highlight the claims ratio that was 76.8%. And last year, when we made this presentation in September, when we presented results for the second quarter of 2020, we set a target, which was an overall claims ratio of 68% to 73%. We're now at 73.8%. The conditioning level has all been adjusted by nonrecurring business. So nonrecurring business has been excluded. This is based only on recurring data. So you can see that our efficiency is still very good. We have good financial results and also a good cash flow. So I'd just like to show that this is a good snapshot of IRB. We understand that this is a very important basis to be considered by all analysts. And this is going to be the solid path that we have already gone through and that we will continue to follow. We haven't published any guidance yet, but this shows all the indications of the current situation, which, in our opinion, should be kept and improved as we'll discuss later on. So this is a quick summary of the main highlights that we'd like to show you. So of course, this is not only accounting, this is not only what we have to show you, but we also are giving you some expectations for the future. Isabel will continue on the next topic, and I'd like to ask you to please pay attention because we have talked about the tail of the discontinued business and what it will generate, what's the time and the effects that we have. And we tried to show it graphically to give you a better understanding of how it will work. I always say that we're different from a manufacturing company. Like, for example, Petrobras. Tomorrow, they could set an increase or decrease for gas prices. And the next day, they are already getting new income from the new prices. So their results are based on their prices. But we, on the other hand, we have to set prices and then have long and medium-term contracts, which will then provide you with the results. So right now, we have a mix of businesses. Those that started in the past that still affect our results, and although we have revisited them in renewals, some canceled contracts will still remain in our basis for some time. So this is what we're trying to show you visually so that we can -- we hope that we can convey what is happening under our management. So we'll pass it on to Isabel, who will continue.

Thank you, Toneto. Good morning, everyone, and thank you for being in our call. As was mentioned, we're going to be talking about our reunderwriting strategy and its cycle. And as a consequence, the importance that it will take in our recovered growth. We have to have a much more sustainable portfolio, of course. On Slide 11, you can see the time line for our reunderwriting strategy. It began in July 2020. And for the entire reinsurance market, there are 3 main renewal periods: April, January and July. So after this, reappraisal of the portfolio, we started cleaning it, starting with 4 contracts that were analyzed. Meaning that they had significant impacts on the negative results on our company. So we discontinued these 4 contracts. And in January 2021, we got better organized to continue this cleaning effort. In January, we managed to remove 6 more contracts, especially in agro, aviation, maritime and life segments. We continued in April and recently in July, but as you can see, we're becoming more gradual. As renewal dates get closer, then contracts are being assessed and this becomes a recurring movement. So when we look at our year-to-date figures, we've left 17 large contracts, 4 in 2020 and 13 in 2021. The next slide, Slide #12, illustrates the effects of these discontinued contracts, what we call runoffs. Of course, this is merely a conceptual image. And we can still look at monthly changes up ahead. So as you can see, starting with the renewals, so in July, January, April and July again, contracts were discontinued and we start seeing them tail-off, which is represented by the yellow triangle there. So these sales continue and still affect us in the following years. As you can see, we had 4 renewal periods through our clean, fix and growth process. And all of these tails represent the total contracts. The 17 contracts represented below, which still affect our financial results. So during the 2021 financial year, we saw that there was a higher concentration of these tails. So you can see that these tails stack up higher and the effect of the discontinued contracts will be higher than -- of course, they will be during the 2022 financial year. On the other hand, what do we have? We have new renewed businesses being developed with new conditions, rates and this is what we're showing here in green. This is what we call the fixed portion of our strategy. So this means that with the new contracts, what's going to happen is that it will dilute the negative effects of the yellow runoff business sale. So as you can see for 2022, the positive effects of the fixed portion will be much more significant than the negative effects shown in yellow due to the runoff business tails. Slide 13 -- continuing with Slide 13, we see a gradual improvement of our underwriting results. Recurring operational losses in the first quarter of 2020 -- excuse me, the second quarter of 2021 was at BRL 262 million. But if we exclude the runoff effect, it's BRL 55 million. So our runoff effect was negative by BRL 208 million in our operational results. With the combined ratio on the right, you can see how it will improve -- how it improved in the second quarter of 2021. In the first half of 2021, our run-on was 108%. It's important to highlight that we identified -- or excuse me, we excluded these questionable contracts in our runoff figures, but we are analyzing all of this portfolio and our strategy and we are seeing how it affects our business. Since they are questionable, we don't add to the company's results. And this is clear on Slide 14. With the closing of the initiative cycle, it was concluded in June of 2021, and as you can see, we refused 107 contracts -- excuse me, 27 contracts, while year-to-date, we refused 162. So our reunderwriting process looked at our entire portfolio. So it's important to highlight that we refused 162 contracts. Obviously, there was a reduction in the portfolio. And on the other hand, it's leveraged by the new business that we have achieved. So 17 in the last quarter and 239 year-to-date. It's important to remind you that all the new businesses are already having different market conditions and fees. So despite that, we have to highlight that we were able to renew them with better fees in 84% of the businesses we wanted to renew year-to-date, especially in July, this even went higher to 87%. So with that, we continue with Guerra, who is going to tell us about the new regulatory requirements. Thank you.

Thank you, Isabel. Good morning, everyone. I would like to mention 2 important items related to the company's solvency and its liquidity. On Slide 16, on your left, you have the breakdown of our minimum capital requirement. According to SUSEP's regulations, these are individual calculations for each type of risk. Based on this calculation, we have a capital of BRL 1.5 billion. And to match that, we have net assets. When you take into account BRL 4.2 billion of total equity, we have BRL 2.7 billion of surplus. That solvency calculate based on the total assets, each common practice internationally. So SUSEP determines that we exclude a few items at the bottom. At the footnote, you can see those items that have been disconsidered. We have, therefore, an adjusted equity of BRL 2.7 billion, which means that we still have a surplus of BRL 1.2 billion. That gives us a way better situation, much more comfortable situation than that we had last year, that's 175%, therefore. Moving on to the next slide on Page 17. This is the regulatory liquidity. As you will remember, that was one of the major problems we had in 2020 that actually SUSEP imposed that special supervision that ended back in April once we complied with all their requirements. So when we talk about regulatory liquidity, we compare the number of assets that can be used to cover technical provisions, be them a guarantee or a reducer of those provisions. In July 2021, provisions that had to be covered amounted to BRL 13.9 billion, and qualified assets added up to BRL 14.5 billion. BRL 644 million in excess, therefore, according to SUSEP's regulation. They require a cushion, a 20% safety margin that amounted to BRL 309 million. So when you perform the same calculation, this is what SUSEP uses to analyze us. The regulatory liquidity is BRL 336 million. We're better when we compare it to last year's numbers, and which we suffered for some months just like Toneto showed us at the beginning of the presentation. The peak of that problem was in June last year. We have a very important additional item that has to do with that regulatory adaptation of SUSEP has conducted for about 3 months. Several regulations have been published to strengthen our industry. That's Regulation 634. That introduced 2 important elements. Number one, it does away with the need of those 20% safety margin of above BRL 309 million to calculate regulatory liquidity. Ever since then, or from then on, insurers will use their own methodology for that cushion, but there's no mandatory requirement. As of August, we'll be able to use resources abroad as reducers of that calculated liability. As you remember in previous calls, in the past, we had double guarantee, double collateral for some partners. So as of August now, we'll be using some of these assets, of course, abiding by the limitations imposed by the regulation itself. Those will then strengthen our liquidity because we'll be able to use more assets. And number two, we'll be able to bring costs down. We've already started that process. We'll be transforming some letters of credit in what we call trust accounts. These are cheaper instruments, easier to manage and they can be used as reducers. Okay. So when we take into account the limits we have today for both those 20% safety margin above the regulatory and those foreign assets, we'll have some leeway in our liquidity of up to BRL 644 million. So this is good news to all of us. It's great news for the company. It'll give us some more leeway so that we can operate more comfortably in that sense. I'll turn over to Werner. He'll be talking about the results and financial indicators.

Good morning, everyone. Slide 19 now. This is the breakdown of what Toneto mentioned initially. That's the normalized net income, excluding the runoff businesses, just like Isabel put it, and some one-off impacts. We'll be breaking that down for the semester and for the quarter. But number one, we were at BRL 156 million. When we exclude the runoff, run-on is BRL 53 million positive. When we include runoff, BRL 57 million of net income of our operation when compared to the first half of the year last year. It's an important comparison. That's where we're coming from, right, first half of last year. The profit was minus BRL 621 million. When you exclude them, BRL 732 million, that was our loss back then. So we have come a long way from 2020 to 2021. And these are the main impacts, the runoff issue, we already explained that. We have specific claim. That was the BRL 76 million effect, that is the run-on. It hasn't been separated. But this is an event that was a one-off. It's an important impact, and it's important to point that out. For the one-off -- for the runoff, when you take into account, the industries or the segments that had the most important impacts in the renewed contracts, that's in yellow, this is aviation, life, maritime and international, and we separate some effects, some one-off effects. They are described their PIS, COFINS, some taxes and some other items, BRL 3.8 million. The most important impact in our net income, that's the run-off, that's the tail effect just like Isabel explained it. And of course, there's the positive effect. This is something we'll benefit from on a monthly basis. On the next slide, the same thing, but quarterly. We had the BRL 656 million loss. The total amount was BRL 17 million. With the one-offs, we would have a BRL 31 million loss for the quarter. But again, when we compare to the second quarter of last year, this is very -- our position was BRL 657 million of losses. That's the comparison basis from BRL 657 million, the BRL 31 million loss for the quarter. The same effects ended up impacted these numbers here, just like in the previous slide. On the next slide, written premium. I think it's important to point out what Toneto and Isabel said. Written premium in Brasil, both on a quarterly and on a half year basis, almost 12%, BRL 2.3 billion in the first half of 2021. And those that were written abroad, we have a significant decrease. This has been explained by the FX devaluation. It went down 33% on a quarterly basis, 27.6% back to BRL 1.8 billion in the first half, reaching BRL 4.1 billion of written premiums in the first half of this year. On to the next slide now, another very important part of our strategy, that is the reduction of retrocession expenses. We have now lower exposure and better performance in acquiring from BRL 278 million in the first quarter of 2020, we're now back to BRL 165 million; from BRL 292 million to BRL 210 million on a half year basis. The index was 20.1%, 11.7% abroad. Major decreases in retrocession expenses overall from 32.8% to 26.4%, and again, a major drop from 2020 to 2021. The 23rd slide now, Slide #23. This is some more color on what I was talking about the claims. On a quarterly basis and on a half year basis, when you look at accounting information and the normalized run-on information, in both scenarios, we have major improvements in the ratios 39.7% dropped to 57.7% -- to 50.7%; run-on from 135% to 85%, a 50 percentage points drop. And the half year basis, we see a major drop of 108% to 85%, 23% drop and that comparison of 78% last year. That number was 108%, a 30.2% drop in claim ratios. That helped us improve the most important indicator in our industry. It's a combined -- a drop in the combined accounting or run-on vision to, that was a major drop, 37% drop for the quarter from 164% to 128.7% and the quarter, 47 percentage points, reaching 117% in the second quarter of 2021. And now for the half the semester, the combined, was a 20% drop, reaching 116% and the normalized reaching 108%. That's the semesteral view from 135%, an almost 27% drop. It's very clear the size of the recovery of our company in accounting numbers, but especially, just like Toneto put it, in the normalized run-on. Moving on to the next slide. With the financial results, we can see that it went up to BRL 90.6 million and BRL 194 million in the first half of the year. So this was a significant result from -- difference from what we had before. So some of the important impacts that we have still to come and which we will face in the second half of the year is the impact of higher financial revenue because we have a financial stock. Due to a capture that we had last year, we issued debentures and also the operational cash generation that Toneto mentioned, for 4 consecutive quarters with a strong generation. So this helps us to have a higher level of assets, as Toneto said. And the Selic rates are still going up. So the curve is still signaling that it will grow from the level we have today and the cycle. After the focus survey comes out, we'll be at about 7.5% for the year. So when we look at the financial results at this level of interest rates and with the percentage we got from our investments, we can see a very robust financial result and that will definitely improve the company's results. On the other hand, we have to see that our administrative expenses are also improving. So we expect to have lower expenses than what we have right now. As Guerra said, the main expense line has to do with our credit portfolio, and with the operations we have in SUSEP, we can change our guarantees, and this is also going to bring a significant savings in our financial expenses. So this is a cycle that will start now in August. And after we migrate from credit to other strategies, we'll also see a significant reduction in our financial expenses for the next quarters, and this will come as a result of this strategy. So continuing with administrative expenses. Here, we can see that the company's efficiency is maintained or slightly increased, 6.1% for this semester and 5.4% in the quarter. We had already covered the one-off effects, but the administrative expenses are quite positive. This is a good level or benchmark for the industry, and the company will continue to improve its efficiency in administrative expenses. So we had BRL 37 million one-off impacts. And our administrative results were BRL 168 million versus BRL 149 million during the first half of 2020. So one final comparison that's important to draw as we have in the last quarters is to look at the company's obligations and also our clients' obligations with the company. So this is a comparison and an update of our equity. It's important to highlight on Column B, where we have our credit rights with our clients, we have B2 showing the provision to be covered with liquidity, and it's BRL 7.8 billion. And on Column H, we see our high liquidity assets, representing BRL 9.1 billion. So this efficiency, as Guerra said, was generated by the company's movement since June last year when we got at the most critical level. And we managed to overcome and create a considerable level of comfort. So we continue to be robust in assets, BRL 4.2 billion in total equity. So we remain a solid company. And as Guerra said, we have excess regulatory adjusted equity of BRL 2.7 billion. And when we look at the -- and we can see here that we're liquid with cash of BRL 9.1 billion. So the company continues to be robust and liquid. So we'll continue with Toneto, who will give his closing remarks.

So thank you. We went a little bit over time, so we just have one final message for you. Some other highlights I'd like you to see on Slide 28. The first is the payment of interest on capital. It had been approved in July of 2020 and it had been postponed because of the company's liquidity situation. So our Board of Directors on the 13th approved this payment of our interest on own capital, and we expect to pay it on September 8. So this will be corrected according to the Selic rates, and this is good news for our shareholders. We executed this because of the company's new level and our current situation. We have some other highlights. I'll go through briefly, but we -- there's always questions about the company's share repurchase process. This process was approved, and it would be effective until tomorrow. So -- last year, we repurchased a number of shares. But right now, the regulatory conditions required to continue with the repurchase process and to maintain the program are not possible. So we have a number of conditions for this program to continue, and they have not been met. So this possibility is no longer there. So what I'd like to say is that since this is a topic about which we get many questions, I'd just like to say that the company is not discussing repurchases now because regulatory conditions do not allow us to. So this is not a possibility. When we no longer have these limitations, this might be up for discussion. But right now, it is not. Another important matter that we have to comment is the Extraordinary General Meeting. So a positive point is that on the 28th of July, the new Board of Directors was approved for the next 2 years. So this is a Board that has a very important term, which will ensure that the company will have good governance and so that we can continue our restructuring process that we started in the past. It's also important to highlight the improvement in our governance due to the approval of amendment of Article 27 of the bylaws. So this will provide the company with more governance in several aspects. So after the new Board has been nominated and approved these changes to the bylaws and the process that was ongoing to define who the new CEO will be, will no longer have any roadblocks or conditions, and it should be announced in the next weeks. This is what we expect at least. But this is something that will be under our Board of Directors. Another thing I have to comment on is our guidance. The company has its short-, medium- and long-term goals. We have our goals very well lined out. And we've concluded an important effort where we gave you indicators and recurring results at unimaginable levels. We don't imagine this is -- that this will decrease in the future. So there is a great indication that it will continue to go up. So we've published our guidance so far. This is something that has been analyzed by our Board. And as soon as we have a new position, we'll communicate it to the market. But it's important to show what we've done so far. I think the guidance was very clear when we look at our recurring results. And looking at the future on the next slide, we've discussed our strategical review of IRB. This process has been concluded, and we now have the project to transform the company. And it involves 80 employees directly who are building and implementing several initiatives related to our company's strategy. Some structural initiatives involving claims, other areas, the company's efficiency. We have been well supported in doing this. And we are convinced that as soon as this project is implemented, we're going to have added value for the next years, which will be very important for the company. So I think this is a highlight that we have to make known. We really believe in this project, and we believe that it will provide great contributions to our results in the medium and long term. We don't believe that we will have any problems and quite confident, we believe that solvency and liquidity will remain at high levels. It will remain robust and without any kind of problem that we can foresee for the next years. I think we overcame this stage, and we're very well prepared to improve our indicators. This is what we believe in, and this is what we're stating. Of course, we have some concern about our costs. The main one is claims. This is a part of our business. And we're working on that in operations, but also underwriting as Isabel said, as we go through this transformation project. But there is a second grade cost line, which is our retrocession expenses. As you've noticed, we had an important proportional reduction of retrocession expenses, will have an important renewal in October with the great protection panel that we have for IRB. But now we have lower international exposure, lower exposure to catastrophes due to the underwriting -- reunderwriting process. So we project that this will be even better on the medium and long term. Just as we are obsessed with efficiency and costs, this will be boosted by the innovation processes. So this gives us positive signs of cost reductions. Finally, not only did we have a great environment in privatizing, concessions and investments in infrastructure, but they will continue to generate opportunities in several segments for us. Of course, we will see that the pandemic will slow down as we all hope it does, which will contribute to our country's economy. So what I'd like to say as a conclusion is that regardless of any seasonality we might have in our results and, of course, it could happen just as it did in July, right, we didn't go into monthly figures. But when we look at monthly results for SUSEP, you can see that June was -- had a big impact due to a number of factors. But even despite these seasonalities, we predict that the results of the businesses that we are continuing and that we have reunderwritten, that we have redefined their terms during this period, will overlap with the discontinued business results. That graph that Isabel showed, although it was only a visual representation, really shows how we will have results overlapping on the short and medium term. And with that, our projection is that there will be a gradual reduction in claims and improvement in our combined ratio. The estimated time is -- well, we expect it to happen in the middle term. Of course, there will be a tail, which could result in some volatility. But this indicates that this will happen gradually without a doubt, and you'll notice these movements. So I think that's what we had to share with you, and we'll now pass it back to the operator who will run the questions-and-answer session. Thank you, and we're now expecting your comments and questions.

[Operator Instructions] Daniel Vaz from Credit Suisse asks the first question.

Looking at these reunderwriting strategy, we had a growth of committed premiums and high claim rates. I have 2 questions. Do you expect to increase top line as 2020? And despite that speed, do you believe claim rates would be brought down to normal levels? That was 68% to 73% according to your previous guidance. That was the question.

Hi, this is Isabel. Well, actually, we don't expect after this reunderwriting stage and after all the changes we made, we don't expect that it will accelerate and go back to the same levels. Reunderwriting does not mean that we are looking at the same condition. So basically, if we increase the lines in all of these contracts in the next years, they will be in -- at much better levels. So we'll have other premiums and other conditions that will not take us back to the same claims rate that we had before. This is on one side. But talking about canceled businesses or canceled deals, they have been canceled. And as you saw in that illustration, they still have a contract tail, which is negative and which will affect our results for 2021, but it will be diluted gradually. So we have these 2 events. We've stepped out of these contracts, and we expect that it will drop down, and we expect that it will be diluted and abandoned in the next years.

Yes, this is Toneto. And I just think it's important to highlight a change in policy. Our current policy really does put results first. Of course, it was a very competitive market and that affects our premiums, but we understand that we can remain in the market with expertise, with quality and having a very strict policy of focusing on results and not on issuing. And that doesn't mean that we're not going to grow. Of course, we're going to maintain our business, but we're going to grow healthier and the governance process for the contracts, I believe, is very important. So we're changing our guidelines, we're looking at governance and we have a sustainable growth policy now. It's not that we're not going to grow, quite the opposite. We think that it's important for the company to continue growing, but maybe at a different pace than we saw so far. In the past, when you went into the international market, it responded very quickly. So we're not going to grow at any price. We will grow, but we're seeking sustainable growth. This is the direction that the Board has given us, and this is our understanding and what we want to deliver to the market.

Yes. And if I can add something. If you look at the year-to-date figures on Slide 14, we've presented that there are 239 new contracts there in our portfolio for 2021. So if we consider that, we stepped away from some renewals and with the entire reunderwriting process we refused BRL 2 billion in premium, we can see that we have already recovered BRL 1.6 billion of the premium that we lost through our reunderwriting program. So I think that answers your question.

Yes, I hope that answers your question, Daniel?

[ Mattos Amarao ] from Banco Inter asks the following questions.

I actually have 2. The first one has to do with claims. The second half of the year, especially for the life and rural segments, and we did not see that reflection at IRB. Is that a matter of time, a matter of contracts? Or are we supposed to expect those impacts in the quarters to come? And my second question is about reunderwriting. Should we expect -- are we to expect some signs from the market or the international market? Can you expect some sort of stability for premiums abroad along the lines of these reunderwriting efforts in 2021?

So [ Mattos ], let's start with your first question. The market has been presenting some results in life and agro, which are not in line with what we had forecasted. But I'd just like to say that in the case of life, IRB has a very good insurance program. So it does not pay claims related to the pandemic, which really affected the insurance market, right? So our contracts don't foresee that we will cover the impact of the pandemic. And we have contracts that are only for the very end of elevated levels. So not everything that happens in the life category will necessarily affect us. Of course, we tend to capture the positive changes like price increases and so on. And in agro, we have an important share of the market, but I think these are movements that have good provisions behind them. We have very good protections through our retrocession. So it's expected that we'll have some natural changes in the agro category, but we're not expecting any significant impact. Isabel, do you have anything to add?

Yes, I do. So specifically on agro, during the second quarter, we saw an increase of our claims ratio to 75%. So this is due to the better crop of all the summer crops that are being harvested. Right now, we're looking at the winter crop, and there was a drought. So what the market expects is that its performance will go down now for the next quarters. However, IRB's portfolio is -- while winter crops are -- excuse me, summer crops represent about half of our portfolio and they have been harvested and they had good results, so what we can expect from the drought will now be a lower impact than the soybean harvest that we had earlier. So I just wanted to add that information on agro. Regarding your last question about reunderwriting, if we have concluded the process or not? Well, what we've concluded right now finished a cycle. So from July to July, we managed to review all of the contracts that were yearly in our portfolio. Most of them are yearly. So we looked at 95% of our contracts, all the ones that are yearly, we stepped away from many of them or we improved better rates and fees. So we can say that we have reunderwritten most of our portfolio 95%. We have, of course, some multiyear contracts, some construction contracts. So that will still take place. We're still going to analyze it until -- and it will take some time until we can review these contracts, but when they come to term. But from now on -- well, someone might ask Isabel are we done? Is IRB going to visit our portfolio? Well, of course, we always review our portfolio with every renewal. So it's not -- it's going to continue, obviously, not as we did so far because we were very detailed in our reunderwriting process. And now what we're going to do is just make small adjustments and changes to the conditions that if we believe that the contracts are not behaving the way we expect them to. But this cycle, the first cycle is already over. So I think that answers your question. Thank you.

Thank you, [ Mattos ]. We hope we answered your questions.