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Insurance contracts and private pension
 12 Months Ended
Dec. 31, 2022
Insurance Contracts And Private Pension  
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) and 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. 

a) 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 to 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. 

b) Private pension

Designed to ensure the maintenance of the quality of life of participants, as a supplement to 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 Generating 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.

c) 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 for 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 applicable. 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) - 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.

d) Main information related to Insurance and Private Pension operations

I - Indexes

             
Main Insurance Lines Sales ratio %   Loss ratio %
01/01 to 12/31/2022 01/01 to 12/31/2021 01/01 to 12/31/2020   01/01 to 12/31/2022 01/01 to 12/31/2021 01/01 to 12/31/2020
Group Accident Insurance 30.5% 31.5% 33.8%   17.0% 14.5% 11.3%
Individual Accident Insurance 18.4% 18.7% 18.8%   25.6% 26.7% 29.4%
Credit Life Insurance 22.3% 22.9% 24.2%   19.3% 26.1% 22.3%
Random Events 23.7% 23.3% 23.5%   28.8% 32.0% 34.3%
Multiple Peril 42.7% 43.1% 44.4%   19.3% 24.0% 52.9%
Mortagage Insurance in Market Policies – Credit Life Insurance 20.1% 20.3% 20.4%   11.1% 26.5% 18.5%
Group Life 23.8% 23.8% 24.0%   35.5% 53.5% 41.0%

 

II - Revenues from insurance premiums and private pension

     
Main lines Premiums and contributions
01/01 to 12/31/2022 01/01 to 12/31/2021 01/01 to 12/31/2020
Group Accident Insurance 973 883 847
Individual Accident Insurance 149 175 187
Disability Savings Pension 292 240 258
PGBL 2,974 2,460 2,235
Credit Life Insurance 1,412 1,008 624
Random Events 216 192 195
Multiple Peril 645 542 370
Mortagage Insurance in Market Policies – Credit Life Insurance 571 437 339
Traditional 123 128 117
VGBL 8,496 7,054 8,022
Group Life 1,422 1,165 955
Other lines 849 739 655
Total 18,122 15,023 14,804

 

III - Technical provisions balances

             
  12/31/2022   12/31/2021
  Insurance Private Pension Total   Insurance Private Pension Total
Unearned premiums (PPNG) 3,615 12 3,627   2,846 12 2,858
Mathematical provisions for benefits to be granted (PMBAC) and granted benefits (PMBC) 30 228,786 228,816   19 209,196 209,215
Redemptions and Other Unsettled Amounts (PVR) 23 394 417   19 358 377
Financial surplus (PEF) - 729 729   1 691 692
Unsettled claims (PSL) 503 74 577   506 79 585
Claims / events incurred but not reported (IBNR) 345 26 371   334 27 361
Related Expenses (PDR) 32 49 81   29 65 94
Other provisions 135 397 532   129 665 794
Total 4,683 230,467 235,150   3,883 211,093 214,976
Current 3,588 159 3,747   3,102 541 3,643
Non-current 1,095 230,308 231,403   781 210,552 211,333

 

 

IV - Change in technical provisions

             
    12/31/2022   12/31/2021
    Insurance Private pension Total   Insurance Private pension Total
Opening balance - 01/01 3,883 211,093 214,976   3,303 217,697 221,000
(+) Additions arising from premiums / contributions 6,254 11,632 17,886   5,106 9,676 14,782
(-) Deferral due to elapsed risk (5,485) - (5,485)   (4,563) - (4,563)
(-) Payment of claims / benefits (1,506) (465) (1,971)   (1,598) (373) (1,971)
(+) Reported claims 1,477 - 1,477   1,534 - 1,534
(-) Redemptions - (15,127) (15,127)   - (16,872) (16,872)
(+/-) Net Portability - 1,962 1,962   - (3,417) (3,417)
(+) Adjustment of reserves and financial surplus 10 21,591 21,601   14 5,009 5,023
(+/-) Other (increase / reversal) 50 (219) (169)   83 (627) (544)
(+/-) Corporate Reorganization - - -   4 - 4
Closing balance 4,683 230,467 235,150   3,883 211,093 214,976
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.

 

e) Deferred acquisition costs

They are recorded in assets and charges are shown in the table below:

 

   
    12/31/2022 12/31/2021
Opening Balance - 01/01 631 496
Increase 1,559 1,298
Amortization (1,379) (1,163)
Closing Balance 811 631
Balance to be amortized in up to 12 months 573 464
Balance to be amortized after 12 months 238 167

f) Table of claims development

   
Provision for unsettled claims (PSL)   577
(-) IBNER   213
(-) Reinsurance   12
(-) Retrocession and other estimates   (7)
Liability claims presented in the claims development table (I + II)   359
The amount of obligations of the ITAÚ UNIBANCO HOLDING may change. The first part of the table below 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.

I - Administrative claims - net of reinsurance

           
Occurrence date 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Total
At the end of reporting period 954 1,121 1,231 1,401 1,413  
After 1 year 1,012 1,133 1,237 1,491    
After 2 years 1,015 1,133 1,245      
After 3 years 1,012 1,135        
After 4 years 1,007          
Current estimate 1,007 1,135 1,245 1,491 1,413  
Accumulated payments through base date 998 1,126 1,236 1,476 1,316 6,152
Liabilities recognized in the balance sheet 9 9 9 15 97 139
Liabilities in relation to prior periods           55
Total administrative claims           194

 

 

II - Judicial claims - net of reinsurance

           
Occurrence date 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Total
At the end of reporting period 16 20 12 12 15  
After 1 year 33 36 23 27    
After 2 years 47 43 31      
After 3 years 54 50        
After 4 years 58          
Current estimate 58 50 31 27 15  
Accumulated payments through base date 49 37 19 14 5 124
Liabilities recognized in the balance sheet 9 13 12 13 10 57
Liabilities in relation to prior periods           108
Total judicial claims           165
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.

 

g) Liability Adequacy Test

ITAÚ UNIBANCO HOLDING tests for Liability Adequacy semiannually, 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 2022, 2021 and 2020.

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.