Brazilian reinsurer IRB (Re) views Brazil’s insurance coverage gap as a significant long-term opportunity, according to Goldman Sachs, following a meeting with IRB CEO Marcos Falcão and Head of Investor Relations Natasha Nakagawa on November 18, 2024.
The climate events in Brazil in 2024, including floods in the South and droughts in agricultural areas, have underscored the gap in insurance coverage. For example, insurance for the floods in Rio Grande do Sul covered less than 10% of total losses, far below the catastrophe coverage levels seen in developed markets such as the US, Spain, and Japan.
IRB’s management highlighted its solvency ratio of approximately 200% as a strong buffer for managing short-duration risks.
While the company does not anticipate a near-term capital increase, it is evaluating potential acquisitions of smaller reinsurance firms due to the accelerated consumption of deferred tax assets. Management also expects to start paying dividends in 2026, with accumulated losses likely reverting to positive territory earlier in 2025.
IRB noted that reinsurance companies not domiciled in Brazil benefit from a lower income tax rate compared to the firm’s 40% statutory rate. However, IRB’s financial results benefit from higher interest rates in Brazil relative to its global peers. In this context, management is exploring alternatives to enhance competitiveness for international policies. It also acknowledged that intra-group reinsurance transactions reduce its total addressable market in Brazil.
Looking ahead, IRB anticipates over 30% net income growth in 2025, driven by the normalisation of claims and commissions, while also seeing potential for further efficiency gains.
Goldman Sachs maintains a Neutral rating on IRB (Re) with a 12-month price target of R$48. This valuation is based on a DDM valuation model, assuming a 16.3% cost of equity, second-stage growth of 7%, and terminal growth of 6%. The stock currently trades at 6.8x 2025E P/E, while the price target implies it should trade at 7.8x.
Overall, the meeting highlighted that IRB is nearing the end of its operating turnaround and also how contract renewals in January could influence short-term premium growth.
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