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
Main lines	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.