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Insurance contracts and private pension | 12 Months Ended
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Dec. 31, 2019
Text Block [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 the insured’s assets. Products are offered through insurance brokers (independent and captive brokers), Itaú Unibanco’s electronic channels and branches, in compliance with the regulatory requirements, of the National Council of Private Insurance – CNSP and the Superintendence of Private Insurance – SUSEP. I – Insurance A contract entered into by the parties to protect the customer’s assets, upon payment of a premium, by means of replacement or pre-established financial compensation, against damage their property or their person. As backing, ITAÚ UNIBANCO HOLDING insurance companies set up technical reserves, through specialized areas within the conglomerate, with the objective of indemnifying policyholders’ losses in the event of claims of insured risks. The insurance risks sold by ITAÚ UNIBANCO HOLDING’s insurance companies are divided into property and casualty insurance, covering loss, damage or liabilities for assets or persons, and life insurance that includes coverage for death and personal accidents. II – Private pension Designed 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 – Free Benefit Generating Plan: The main objective of this plan is the accumulation of financial resources, but it can be purchased with additional risk coverage. Recommended for customers that file the full version of the income tax return, because they can deduct contributions paid for tax purposes up to 12% of their annual taxable gross income.
| • |  | VGBL – Free Benefit Generating Life Plan: This is insurance structured as a pension plan. Its taxation differs from the PGBL; in this case, the tax basis is the earned income.
| • |  | FGB – Benefit Generator Fund: 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 provision for insurance and private pensions The technical provisions for insurance and private pensions 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, to cover amounts payable for future claims and expenses. In the calculation, the 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 is taken pro rata on a daily basis;
| • |  | Provision for unsettled claims (PSL) – this provision is recognized to cover expected amounts to reported and unpaid claims, including administrative and judicial claims. It includes amounts related to indemnities, reserve funds and past-due income, all gross of reinsurance operations and net of coinsurance operations. When necessary, it must cover adjustments for IBNER (claims incurred but not sufficiently reported) for the total of claims reported but not yet paid, a total which may change during the process up to final settlement;
| • |  | Provision for claims incurred and not reported (IBNR) – this provision is recognized for the coverage of expected amount for settlement of 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 provisions of the contract, while the event that gives rise to the benefit and/or indemnity has not occurred;
| • |  | Mathematical provisions for benefits granted (PMBC) – recognized for the coverage of commitments to payment of indemnities and/or benefits to participants or insured parties, based on the provisions of the contract, after the event has occurred.
| • |  | Provision for financial surplus (PEF) – it is recognized to guarantee amounts intended for the distribution of financial surplus, if provided for in the contract. 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, provided for in the regulations;
| • |  | Provision for redemptions and other amounts to be regularized (PVR) – this provision is recognized for the coverage of amounts related to redemptions to be regularized, returned premiums or funds, transfers requested but, for any reason, not yet transferred to the recipient insurance company or open private pension entity, 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 or will occur.
IV - Main information related to Insurance and Private Pension operations a) Indexes
|  | Sales ratio % |  |  |  |  |  | Loss ratio % |
Main Insurance Lines |  | 01/01 to 12/31/2019 |  |  | 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |  |  | 01/01 to 12/31/2019 |  |  | 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |
Group accident insurance |  |  | 35.1 |  |  |  | 34.3 |  |  |  | 38.0 |  |  |  | 6.8 |  |  |  | 9.4 |  |  |  | 7.8 |
Individual accident insurance |  |  | 18.8 |  |  |  | 14.1 |  |  |  | 12.5 |  |  |  | 24.1 |  |  |  | 20.8 |  |  |  | 23.5 |
Commercial multiple peril |  |  | 21.2 |  |  |  | 21.1 |  |  |  | 21.2 |  |  |  | 29.8 |  |  |  | 29.3 |  |  |  | 36.4 |
Domestic Credit Insurance |  |  | 0.6 |  |  |  | 0.7 |  |  |  | 0.9 |  |  |  | 56.8 |  |  |  | 134.5 |  |  |  | 139.6 |
Critical or terminal diseases |  |  | 27.0 |  |  |  | 16.1 |  |  |  | 10.7 |  |  |  | 24.4 |  |  |  | 17.5 |  |  |  | 21.1 |
Extended Guarantee |  |  | 61.8 |  |  |  | 62.0 |  |  |  | 62.1 |  |  |  | 5.5 |  |  |  | 13.9 |  |  |  | 16.0 |
Credit Life Insurance |  |  | 23.7 |  |  |  | 20.4 |  |  |  | 18.7 |  |  |  | 18.0 |  |  |  | 18.3 |  |  |  | 16.9 |
Random Events |  |  | 23.5 |  |  |  | 20.3 |  |  |  | 16.3 |  |  |  | 26.3 |  |  |  | 17.1 |  |  |  | 18.4 |
Multiple Peril |  |  | 46.4 |  |  |  | 48.1 |  |  |  | 57.8 |  |  |  | 60.2 |  |  |  | 53.3 |  |  |  | 27.2 |
Mortagage Insurance in market policies – Credit Life |  |  | 20.0 |  |  |  | 20.4 |  |  |  | 20.7 |  |  |  | 17.3 |  |  |  | 15.3 |  |  |  | 13.0 |
Group life |  |  | 23.2 |  |  |  | 15.1 |  |  |  | 8.3 |  |  |  | 34.4 |  |  |  | 33.2 |  |  |  | 24.2 |
b) Revenues from insurance premiuns and private pension
|  | Premiums and contributions |
Main lines |  | 01/01 to 12/31/2019 |  |  | 01/01 to 12/31/2018 |  |  | 01/01 to 12/31/2017 |
Group accident insurance |  |  | 867 |  |  |  | 689 |  |  |  | 666 |
Individual accident |  |  | 222 |  |  |  | 280 |  |  |  | 289 |
Commercial multiple peril |  |  | 50 |  |  |  | 52 |  |  |  | 53 |
Internal Credit |  |  | 68 |  |  |  | 78 |  |  |  | 64 |
Serious or terminal diseases |  |  | 211 |  |  |  | 188 |  |  |  | 172 |
Disability Savings Pension |  |  | 269 |  |  |  | 291 |  |  |  | 319 |
PGBL |  |  | 2,282 |  |  |  | 2,193 |  |  |  | 2,084 |
Credit Life |  |  | 946 |  |  |  | 879 |  |  |  | 621 |
Income from aleatory events |  |  | 227 |  |  |  | 235 |  |  |  | 177 |
Multiple risks |  |  | 290 |  |  |  | 209 |  |  |  | 151 |
Home Insurance in Market Policies – Credit Life |  |  | 324 |  |  |  | 288 |  |  |  | 272 |
Traditional |  |  | 115 |  |  |  | 122 |  |  |  | 129 |
VGBL |  |  | 12,335 |  |  |  | 17,154 |  |  |  | 20,318 |
Group life |  |  | 947 |  |  |  | 937 |  |  |  | 990 |
Other lines |  |  | 471 |  |  |  | 502 |  |  |  | 571 |
Total |  |  | 19,624 |  |  |  | 24,097 |  |  |  | 26,876 |
c) Technical provisions balances
|  | 12/31/2019 |  |  | 12/31/2018 |
|  | Insurance |  |  | Private Pension |  |  | Total |  |  | Insurance |  |  | Private Pension |  |  | Total |
Unearned premiums (PPNG) |  |  | 2,343 |  |  |  | 13 |  |  |  | 2,356 |  |  |  | 2,111 |  |  |  | 13 |  |  |  | 2,124 |
Mathematical reserve for benefits to be granted (PMBAC) and benefits granted (PMBC) |  |  | 205 |  |  |  | 212,272 |  |  |  | 212,477 |  |  |  | 195 |  |  |  | 195,348 |  |  |  | 195,543 |
Redemptions and Other Unsettled Amounts (PVR) |  |  | 13 |  |  |  | 318 |  |  |  | 331 |  |  |  | 12 |  |  |  | 298 |  |  |  | 310 |
Financial surplus (PEF) |  |  | 2 |  |  |  | 611 |  |  |  | 613 |  |  |  | 2 |  |  |  | 605 |  |  |  | 607 |
Unsettled claims (PSL) |  |  | 570 |  |  |  | 48 |  |  |  | 618 |  |  |  | 642 |  |  |  | 43 |  |  |  | 591 |
Claims / events incurred but not reported (IBNR) |  |  | 277 |  |  |  | 22 |  |  |  | 299 |  |  |  | 254 |  |  |  | 25 |  |  |  | 373 |
Related Expenses (PDR) |  |  | 28 |  |  |  | 89 |  |  |  | 117 |  |  |  | 31 |  |  |  | 98 |  |  |  | 129 |
Other |  |  | 250 |  |  |  | 1,273 |  |  |  | 1,523 |  |  |  | 562 |  |  |  | 948 |  |  |  | 1,510 |
Total |  |  | 3,688 |  |  |  | 214,646 |  |  |  | 218,334 |  |  |  | 3,809 |  |  |  | 197,378 |  |  |  | 201,187 |
d) Change in technical provisions
|  | 12/31/2019 |  |  | 12/31/2018 |
|  | Insurance |  |  | Private pension |  |  | Total |  |  | Insurance |  |  | Private pension |  |  | Total |
Opening balance |  |  | 3,809 |  |  |  | 197,378 |  |  |  | 201,187 |  |  |  | 3,464 |  |  |  | 177,768 |  |  |  | 181,232 |
(+) Additions arising from premiums / contributions |  |  | 4,634 |  |  |  | 15,008 |  |  |  | 19,642 |  |  |  | 4,340 |  |  |  | 19,764 |  |  |  | 24,104 |
(-) Risk adjustments |  |  | (4,216 | ) |  |  | (273 | ) |  |  | (4,489 | ) |  |  | (3,937 | ) |  |  | (297 | ) |  |  | (4,234 | )
(-) Payment of claims / benefits |  |  | (1,349 | ) |  |  | (566 | ) |  |  | (1,915 | ) |  |  | (1,184 | ) |  |  | (580 | ) |  |  | (1,764 | )
(+) Reported claims |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | 1,325 |  |  |  | — |  |  |  | 1,325 |
(-) Redemptions |  |  | — |  |  |  | (15,623 | ) |  |  | (15,623 | ) |  |  | (1 | ) |  |  | (13,771 | ) |  |  | (13,772 | )
(+/-) Net Portability |  |  | — |  |  |  | 1,754 |  |  |  | 1,754 |  |  |  | — |  |  |  | 3,758 |  |  |  | 3,758 |
(+) Adjustment of reserves and financial surplus |  |  | 10 |  |  |  | 16,507 |  |  |  | 16,517 |  |  |  | 9 |  |  |  | 11,622 |  |  |  | 11,631 |
(+/-) Other (increase / reversal) |  |  | (665 | ) |  |  | 461 |  |  |  | (204 | ) |  |  | (207 | ) |  |  | (886 | ) |  |  | (1,093 | )
Closing balance |  |  | 3,688 |  |  |  | 214,646 |  |  |  | 218,334 |  |  |  | 3,809 |  |  |  | 197,378 |  |  |  | 201,187 |
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:
|  | 12/31/2019 |  |  | 12/31/2018 |
Opening Balance |  |  | 409 |  |  |  | 253 |
Increase |  |  | 1,156 |  |  |  | 1,001 |
Amortization |  |  | (1,070 | ) |  |  | (845 | )
Closing Balance |  |  | 495 |  |  |  | 409 |
Balance to be amortized in up to 12 months |  |  | 389 |  |  |  | 334 |
Balance to be amortized after 12 months |  |  | 106 |  |  |  | 75 |
VI - Table of Claims Development The amounts shown in the tables express the position at 12/31/2019, since the actuarial calculations are made on a half-yearly basis:
Provision for unsettled claims (PSL) |  |  | 618 |
(-) IBNER |  |  | 258 |
(-) Reinsurance |  |  | 37 |
(-) Retrocession and other estimates |  |  | (17 | )
Liability claims presented in the claims development table (a + b) |  |  | 340 |
a) Administratives claims
Occurrence date |  | 12/31/2015 |  |  | 12/31/2016 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | 12/31/2019 |  |  | Total |
At the end of reporting period |  |  | 1,009 |  |  |  | 938 |  |  |  | 934 |  |  |  | 993 |  |  |  | 1,149 |  |  |  |  |
After 1 year |  |  | 1,054 |  |  |  | 981 |  |  |  | 977 |  |  |  | 1,012 |  |  |  |  |  |  |  |  |
After 2 years |  |  | 1,082 |  |  |  | 1,001 |  |  |  | 975 |  |  |  |  |  |  |  |  |  |  |  |  |
After 3 years |  |  | 1,091 |  |  |  | 1,078 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 4 years |  |  | 1,084 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current estimate |  |  | 1,084 |  |  |  | 1,078 |  |  |  | 975 |  |  |  | 1,012 |  |  |  | 1,149 |  |  |  |  |
Accumulated payments through base date |  |  | 1,075 |  |  |  | 1,061 |  |  |  | 961 |  |  |  | 994 |  |  |  | 1,028 |  |  |  | 5,119 |
Liabilities recognized in the balance sheet |  |  | 10 |  |  |  | 17 |  |  |  | 14 |  |  |  | 18 |  |  |  | 121 |  |  |  | 180 |
Liabilities in relation to prior periods |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 17 |
Total administratives claims |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 197 |
b) Judicial claims
Occurrence date |  | 12/31/2015 |  |  | 12/31/2016 |  |  | 12/31/2017 |  |  | 12/31/2018 |  |  | 12/31/2019 |  |  | Total |
At the end of reporting period |  |  | 30 |  |  |  | 26 |  |  |  | 28 |  |  |  | 16 |  |  |  | 20 |  |  |  |  |
After 1 year |  |  | 41 |  |  |  | 35 |  |  |  | 40 |  |  |  | 33 |  |  |  |  |  |  |  |  |
After 2 years |  |  | 52 |  |  |  | 43 |  |  |  | 51 |  |  |  |  |  |  |  |  |  |  |  |  |
After 3 years |  |  | 64 |  |  |  | 55 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 4 years |  |  | 71 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current estimate |  |  | 71 |  |  |  | 55 |  |  |  | 51 |  |  |  | 33 |  |  |  | 20 |  |  |  |  |
Accumulated payments through base date |  |  | 61 |  |  |  | 44 |  |  |  | 44 |  |  |  | 27 |  |  |  | 14 |  |  |  | 190 |
Liabilities recognized in the balance sheet |  |  | 10 |  |  |  | 11 |  |  |  | 8 |  |  |  | 7 |  |  |  | 6 |  |  |  | 42 |
Liabilities in relation to prior periods |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 101 |
Total judicial claims |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 143 |
The breakdown of the claims development table into administrative and judicial shows the reallocation of admininstrative claims up to a certain base date and that become judicial claims afterwards, which may give the wrong impression of need for adjusting the provisions in each breakdown. VII – Liability Adequacy Test ITAÚ UNIBANCO HOLDING tests for Liability Adequacy, by comparing the amount recognized for its technical reserves with the current estimate of cash flow of its future obligations. The estimate should include 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 reporting periods 2019, 2018 and 2017. The assumptions used in the test are periodically reviewed and are based on best practices and an analysis of subsidiaries’ experience, thus 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 the run-off triangle for quarterly frequency periods. For pension products, cash flows for the deferral and concession phases are tested separately. The risk grouping criteria include groups subject to similar risks that are jointly managed as a single portfolio. Demographic tables Demographic tables are instruments to measure the demographic risk represented by the probability of death, survival or disability of a participant. For death and survival estimates, the latest Brazilian Market Insurer Experience tables (BR-EMS) are used, adjusted according to Scale G life expectancy development, and the Álvaro Vindas table is used to estimate benefit requests for disability. Risk-free interest rate The relevant risk-free forward interest-rate structure (ETTJ) is an indicator of the pure time value of money used to price the set of projected cash flows. The ETTJ was obtained from the curve of securities deemed to be credit risk free, available in the Brazilian financial market and determined by ITAÚ UNIBANCO HOLDING using its own method, plus a spread, which takes into account the impact of the market result of securities classified as Financial assets at amortized cost in the Guarantee assets portfolio. Annuity conversion rate The annuity conversion rate represents the expected conversion of balances accumulated by participants in retirement benefits. The decision by participants convert into an annuity is influenced by behavioral, economic and tax factors. Other assumptions Related expenses, cancellations and partial redemptions, future additions and contributions, are among the assumptions that affect the estimate of projected cash flows since they represent expenses and income arising from insurance agreements assumed.

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