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Insurance contracts and private pension | 12 Months Ended
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Dec. 31, 2018
Text block1 [abstract] |
Insurance contracts and private pension |
Note | 27 – Insurance contracts and private pension
ITAÚ UNIBANCO HOLDING, through its subsidiaries, offers to the market insurance and private pension products, with the purpose of assuming risks and restoring the economic balance of insured’s equity affected. Products are offered through insurance brokers (third parties operating in the market and their own), Itaú Unibanco’s electronic channels and branches, in compliance with regulatory requirements, issued by the National Council of Private Insurance – CNSP and by the Superintendence of Private Insurance - SUSEP.
| I – | Insurance
Contract entered between the parties to protect the client’s goods, that, upon payment of a premium, is protected by means of replacement or pre-established financial compensation, against damages that may cause property or personal destabilization. ITAÚ UNIBANCO HOLDING insurance companies then recognize technical reserves, through specialized areas within the conglomerate, with the objective of indemnifying the policyholder’s loss in the event of claims of insured risks. The insurance risks sold by insurance companies of ITAÚ UNIBANCO HOLDING are divided into property and casualty, that covers losses, damages or liabilities for assets or persons, and life insurance that includes coverage for death and personal accidents.
| II – | Private pension
Developed to ensure the maintenance of the quality of life of participants, as a supplement to the government plans, through long term investments, private pension products are divided into three major groups:
| • |  | PGBL - Plan Generator of Benefits: The main objective of this plan is the accumulation of financial resources, but it can be purchased with additional risk coverage. Recommended for clients that file the full version of income tax return, because they can deduct contributions paid for tax purposes up to 12% of the annual taxable gross income.
| • |  | VGBL - Redeemable Life Insurance: This is an insurance structured as a pension plan. Its taxation differs from the PGBL; in this case, the tax basis is the earned income.
| • |  | FGB - Fund Generator of Benefits: This is a pension plan with minimum income guarantee, and possibility of receiving earnings from asset performance. Although there are plans still in existence, they are no longer sold.
| III – | Technical reserves for insurance and private pension
The technical provisions of insurance and private pension are recognized according to the technical notes approved by SUSEP and criteria established by current legislation, as follows:
| • |  | Provision for unearned premiums (PPNG) - this provision is recognized, based on insurance premiums, for the coverage of amounts payable related to claims and expenses to be incurred. In the calculation, term to maturity of risks assumed and issued and risks in effect but not issued (PPNG-RVNE) in the policies or endorsements of contracts in force are considered , on a pro rata-die basis;
| • |  | Provision for unsettled claims (PSL) - this provision is recognized for the coverage of expected amounts related reported and unpaid claims, including administrative and judicial claims. It includes amounts related to indemnities, reserve funds and income past-due, all gross of reinsurance operations and net of coinsurance operations. When required, it should contemplate IBNER (claims incurred but not sufficiently reported) adjustments for the aggregate development of claims reported but not paid, which mounts may be changed throughout the process up to final settlement;
| • |  | Provision for claims incurred and not reported (IBNR) - this provision is recognized for the coverage of expected unsettled amounts related to claims incurred but not reported up to the calculation base date, including administrative and judicial claims. It includes amounts related to indemnities, reserve funds and income, all gross of reinsurance operations and net of coinsurance operations;
| • |  | Mathematical provisions for benefits to be granted (PMBAC) - recognized for the coverage of commitments assumed to participants or policyholders, based on the assumptions set forth in the contract, while the event that gave rise to the benefit and/or indemnity has not occurred;
| • |  | Mathematical provisions for granted benefits (PMBC) - recognized for the coverage of commitments to payment of indemnities and/or benefits assumed with participants or insured parties, based on the assumptions established in the agreement, after the event has occurred.
| • |  | Provision for financial surplus (PEF) - it is recognized to ensure the amounts intended for distribution of financial surplus, if the event is stated in the agreement. Corresponds to the financial income exceeding the minimum return guaranteed in the product;
| • |  | Supplemental Coverage Reserve (PCC) - recognized when technical reserves are found to be insufficient, as shown by the Liability Adequacy Test, which follows specific provisions in the prevailing regulation;
| • |  | Provision for redemptions and other amounts to be regularize (PVR) - this provision is recognized for the coverage of amounts related to redemptions to regularize, returns on premiums or funds, transfers requested but, for any reason, not yet transferred to the insurance company or open private pension entity beneficiary, and where premiums have been received but not quoted;
| • |  | Provision for related expenses (PDR) - recognized for the coverage of expected amounts related to expenses on benefits and indemnities, due to events which have occurred and will occur.
IV - | Main information related to Insurance and Private Pension operations
a) | Indexes
|  | Sales ratio |  |  | Loss ratio |
|  | % |  |  | % |
Main Insurance Lines |  | 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |  |  | 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |
Group accident insurance |  |  | 34.3 |  |  |  | 38.0 |  |  |  | 9.4 |  |  |  | 7.8 |
Individual accident |  |  | 14.1 |  |  |  | 12.5 |  |  |  | 20.8 |  |  |  | 23.5 |
Commercial multiple peril |  |  | 21.1 |  |  |  | 21.2 |  |  |  | 29.3 |  |  |  | 36.4 |
Internal credit |  |  | 0.7 |  |  |  | 0.9 |  |  |  | 134.5 |  |  |  | 139.6 |
Mandatory insurance for personal injury caused by motor vehicles (DPVAT) |  |  | 0 |  |  |  | 1.2 |  |  |  | 0 |  |  |  | 84.5 |
Serious or terminal diseases |  |  | 16.1 |  |  |  | 10.7 |  |  |  | 17.5 |  |  |  | 21.1 |
Extended warranty - assets |  |  | 62.0 |  |  |  | 62.1 |  |  |  | 13.9 |  |  |  | 16.0 |
Credit Life |  |  | 20.4 |  |  |  | 18.7 |  |  |  | 18.3 |  |  |  | 16.9 |
Income from Uncertain Events |  |  | 20.3 |  |  |  | 16.3 |  |  |  | 17.1 |  |  |  | 18.4 |
Multiple risks |  |  | 48.1 |  |  |  | 57.8 |  |  |  | 53.3 |  |  |  | 27.2 |
Home insurance in market policies – Credit Life |  |  | 20.4 |  |  |  | 20.7 |  |  |  | 15.3 |  |  |  | 13.0 |
Group life |  |  | 15.1 |  |  |  | 8.3 |  |  |  | 33.2 |  |  |  | 24.2 |
b) Income related to insurance and private pension
Main lines |  | Premiums and contributions |
| 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |  |  | 01/01 to 12/31/2016 |
Group accident insurance |  |  | 689 |  |  |  | 666 |  |  |  | 776 |
Individual accident |  |  | 280 |  |  |  | 289 |  |  |  | 212 |
Commercial multiple peril |  |  | 52 |  |  |  | 53 |  |  |  | 56 |
Internal Credit |  |  | 78 |  |  |  | 64 |  |  |  | 63 |
Mandatory insurance for personal injury caused by motor vehicles (DPVAT) |  |  | 0 |  |  |  | 24 |  |  |  | 37 |
Serious or terminal diseases |  |  | 188 |  |  |  | 172 |  |  |  | 166 |
Warranty extension - Assets |  |  | 0 |  |  |  | — |  |  |  | 112 |
Disability Savings Pension |  |  | 291 |  |  |  | 319 |  |  |  | 295 |
PGBL |  |  | 2,193 |  |  |  | 2,084 |  |  |  | 1,955 |
Credit Life |  |  | 879 |  |  |  | 621 |  |  |  | 570 |
Income from Uncertain Events |  |  | 235 |  |  |  | 177 |  |  |  | 146 |
Multiple risks |  |  | 209 |  |  |  | 151 |  |  |  | 162 |
Home Insurance in Market Policies – Credit Life |  |  | 288 |  |  |  | 272 |  |  |  | 243 |
Traditional |  |  | 122 |  |  |  | 129 |  |  |  | 142 |
VGBL |  |  | 17,154 |  |  |  | 20,318 |  |  |  | 18,153 |
Group life |  |  | 937 |  |  |  | 990 |  |  |  | 1,234 |
Other lines |  |  | 502 |  |  |  | 547 |  |  |  | 433 |
Total |  |  | 24,097 |  |  |  | 26,876 |  |  |  | 24,755 |
c) Technical provisions balances
|  | Insurance |  |  | Private Pension |  |  | Total |
|  | 12/31/2018 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | 12/31/2017 |
Unearned premiums (PPNG) |  |  | 2,111 |  |  |  | 1,883 |  |  |  | 13 |  |  |  | 15 |  |  |  | 2,124 |  |  |  | 1,898 |
Mathematical reserve for benefits to be granted (PMBAC) and benefits granted (PMBC) |  |  | 195 |  |  |  | 173 |  |  |  | 195,348 |  |  |  | 175,992 |  |  |  | 195,543 |  |  |  | 176,165 |
Redemptions and Other Unsettled Amounts (PVR) |  |  | 12 |  |  |  | 11 |  |  |  | 298 |  |  |  | 264 |  |  |  | 310 |  |  |  | 275 |
Financial surplus (PEF) |  |  | 2 |  |  |  | 2 |  |  |  | 605 |  |  |  | 604 |  |  |  | 607 |  |  |  | 606 |
Unsettled claims (PSL) |  |  | 548 |  |  |  | 560 |  |  |  | 43 |  |  |  | 34 |  |  |  | 591 |  |  |  | 594 |
Claims / events incurred but not reported (IBNR) |  |  | 348 |  |  |  | 401 |  |  |  | 25 |  |  |  | 27 |  |  |  | 373 |  |  |  | 428 |
Related Expenses (PDR) |  |  | 31 |  |  |  | 28 |  |  |  | 98 |  |  |  | 95 |  |  |  | 129 |  |  |  | 123 |
Other |  |  | 562 |  |  |  | 406 |  |  |  | 948 |  |  |  | 737 |  |  |  | 1,510 |  |  |  | 1,143 |
Total |  |  | 3,809 |  |  |  | 3,464 |  |  |  | 197,378 |  |  |  | 177,768 |  |  |  | 201,187 |  |  |  | 181,232 |
d) Change in technical provisions
|  | 12/31/2018 |  |  | 12/31/2017 |
|  | Insurance |  |  | Private pension |  |  | Total |  |  | Insurance |  |  | Private pension |  |  | Total |
Opening balance |  |  | 3,464 |  |  |  | 177,768 |  |  |  | 181,232 |  |  |  | 3,926 |  |  |  | 150,150 |  |  |  | 154,076 |
(+) Additions arising from premiums / contribution |  |  | 4,340 |  |  |  | 19,764 |  |  |  | 24,104 |  |  |  | 4,059 |  |  |  | 22,854 |  |  |  | 26,913 |
(-) Risk adjustments |  |  | (3,937 | ) |  |  | (297 | ) |  |  | (4,234 | ) |  |  | (4,225 | ) |  |  | (323 | ) |  |  | (4,548 | )
(-) Payment of claims / benefits |  |  | (1,184 | ) |  |  | (580 | ) |  |  | (1,764 | ) |  |  | (1,228 | ) |  |  | (472 | ) |  |  | (1,700 | )
(+) Reported claims |  |  | 1,325 |  |  |  | 0 |  |  |  | 1,325 |  |  |  | 1,291 |  |  |  | — |  |  |  | 1,291 |
(-) Redemptions |  |  | (1 | ) |  |  | (13,771 | ) |  |  | (13,772 | ) |  |  | (2 | ) |  |  | (12,534 | ) |  |  | (12,536 | )
(+/-) Portability of insurances |  |  | 0 |  |  |  | 3,758 |  |  |  | 3,758 |  |  |  | — |  |  |  | 3,436 |  |  |  | 3,436 |
(+) Adjustment of reserves and financial surplus |  |  | 9 |  |  |  | 11,622 |  |  |  | 11,631 |  |  |  | 16 |  |  |  | 7,754 |  |  |  | 7,770 |
(+) Corporate Reorganization |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | (282 | ) |  |  | — |  |  |  | (282 | )
(+/-) Other (recognition / reversal) |  |  | (207 | ) |  |  | (886 | ) |  |  | (1,093 | ) |  |  | (91 | ) |  |  | 6,903 |  |  |  | 6,812 |
Closing balance |  |  | 3,809 |  |  |  | 197,378 |  |  |  | 201,187 |  |  |  | 3,464 |  |  |  | 177,768 |  |  |  | 181,232 |
Through actuarial models based mainly on the portfolio historical experience and on macroeconomic projections, ITAÚ UNIBANCO HOLDING establishes the assumptions that influence the assessment of technical provisions. The assumptions are reassessed annually by experts of the actuarial and risk area, and are subsequently submitted to the executive’s approval. The effects on assumptions are recognized in income for the period in which they occurred. V - Deferred acquisition costs They are recorded in assets and charges are shown in the table below:
|  | 12/31/2018 |  |  | 12/31/2017 |
Opening Balance |  |  | 253 |  |  |  | 429 |
Increase |  |  | 1,001 |  |  |  | 772 |
Amortization |  |  | (845 | ) |  |  | (948 | )
Closening Balance |  |  | 409 |  |  |  | 253 |
Balance to be amortized in up to 12 months |  |  | 334 |  |  |  | 209 |
Balance to be amortized after 12 months |  |  | 75 |  |  |  | 44 |
VI - Table of Claims Development The amounts shown in the tables express the position at 12/31/2018, since the actuarial calculations are made semi-annually:
Provision for unsettled claims (PSL) (*) |  |  | 591 |
(-) IBNER |  |  | 170 |
(-) Reinsurance |  |  | 35 |
(-) Retrocession and other estimates |  |  | (25 | )
Liability claims presented in the development table (a + b) |  |  | 411 |
(*) | It stated in Note 27lV c at 12/31/2018.
Changes in the amount of obligations of the ITAÚ UNIBANCO HOLDING may occur at the end of each annual reporting period. The table below shows the development by the claims incurred method. The first part of the table shows how the final loss estimate changes through time. The second part of the table reconciles the amounts pending payment and the liability disclosed in the balance sheet. a) Administratives claims
Occurrence date |  | 12/31/2014 |  |  | 12/31/2015 |  |  | 12/31/2016 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | Total |
At the end of reporting period |  |  | 910 |  |  |  | 1,009 |  |  |  | 938 |  |  |  | 934 |  |  |  | 992 |  |  |  |  |
After 1 year |  |  | 935 |  |  |  | 1,054 |  |  |  | 981 |  |  |  | 977 |  |  |  | 0 |  |  |  |  |
After 2 years |  |  | 958 |  |  |  | 1,082 |  |  |  | 1,001 |  |  |  |  |  |  |  | 0 |  |  |  |  |
After 3 years |  |  | 964 |  |  |  | 1,091 |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  |  |
After 4 years |  |  | 967 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  |  |
Current estimate |  |  | 967 |  |  |  | 1,091 |  |  |  | 1,001 |  |  |  | 977 |  |  |  | 992 |  |  |  |  |
Accumulated payments through base date |  |  | 962 |  |  |  | 1,078 |  |  |  | 978 |  |  |  | 956 |  |  |  | 815 |  |  |  | 4,789 |
Liabilities recognized in the balance sheet |  |  | 5 |  |  |  | 13 |  |  |  | 23 |  |  |  | 21 |  |  |  | 178 |  |  |  | 240 |
Liabilities in relation to prior periods |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  | 12 |
Total administratives claims |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  | 252 |
b) Judicial claims
Occurrence date |  | 12/31/2014 |  |  | 12/31/2015 |  |  | 12/31/2016 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | Total |
At the end of reporting period |  |  | 27 |  |  |  | 30 |  |  |  | 26 |  |  |  | 28 |  |  |  | 16 |  |  |  |  |
After 1 year |  |  | 37 |  |  |  | 41 |  |  |  | 35 |  |  |  | 40 |  |  |  | 0 |  |  |  |  |
After 2 years |  |  | 46 |  |  |  | 52 |  |  |  | 43 |  |  |  |  |  |  |  | 0 |  |  |  |  |
After 3 years |  |  | 54 |  |  |  | 64 |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  |  |
After 4 years |  |  | 60 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  |  |
Current estimate |  |  | 60 |  |  |  | 64 |  |  |  | 43 |  |  |  | 40 |  |  |  | 16 |  |  |  |  |
Accumulated payments through base date |  |  | 45 |  |  |  | 49 |  |  |  | 34 |  |  |  | 30 |  |  |  | 10 |  |  |  | 168 |
Liabilities recognized in the balance sheet |  |  | 15 |  |  |  | 15 |  |  |  | 10 |  |  |  | 10 |  |  |  | 5 |  |  |  | 55 |
Liabilities in relation to prior periods |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  | 104 |
Total judicial claims |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0 |  |  |  | 159 |
The breakdown of the table development of claims between administrative and legal evidences the reallocation of claims up to a certain base date and that become legal ones afterwards, which may give the wrong impression of need for adjusting the provisions in each breakdown. VII – Liability Adequacy Test The ITAÚ UNIBANCO HOLDING carry out the Liability Adequacy Test, comparing the amount recognized for its technical reserves with the current estimate of cash flow of its future obligations. The estimate should consider all cash flows related to the business, which is the minimum requirement for carrying out the adequacy test. The Liability Adequacy Test did not indicate significant insufficiency in the periods ended of 2018, 2017 and 2016. The assumptions used in the test are periodically reviewed and are based on the best practices and the analysis of subsidiaries’ experience, therefore representing the best estimates for cash flow projections. Methodology and test grouping Specifically for insurance products, cash flows were projected using the method known as run-off triangle of quarterly frequency. For social security products, cash flows for the deferral and assignment phases are tested on a separate basis. The risk grouping criterion considers groups subject to similar risks that are jointly managed as a single portfolio. Biometric tables Biometric tables are instruments to measure the biometric risk represented by the probability of death, survival or disability of a participant. For death and survival estimates, the Brazilian Market Insurer Experience (BR-EMS) tables in effect are used, adjusted according to life expectancy development of Scale G, and the Álvaro Vindas table is adopted to estimate benefit requests for disability. Risk-free interest rate The relevant risk-free forward interest-rate structure is an indicator of the pure time value of money used to price the set of projected cash flows. The relevant structure of risk-free interest rate was obtained from the curve of securities deemed to be credit risk free, available in the Brazilian financial market and determined pursuant to an internal policy of ITAÚ UNIBANCO HOLDING, considering the addition of spread, which took into account the impact of the market result of Financial assets at amortized cost of the guarantee assets portfolio. Income conversion rate The income conversion rate represents the expected conversion of balances accumulated by participants in retirement benefits. The decision of conversion into income by participants is influenced by behavioral, economic and tax factors. Other assumptions Related expenses, cancellations and partial redemptions, future increases and contributions, among others, are assumptions that affect the estimate of projected cash flows since they represent expenses and income arising from insurance agreements assumed.

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