Statements
INDEX
Management comments on performance 01
Consolidated Financial Statements ... 07
Statement of Income ... 08
Balance Sheet ... 09
Statement of Cash Flows ... 10
Statement of Changes in Equity ... 11
Statement of Value Added... 12
Notes to the Consolidated Financial Statements ... 13
Note 1 – Operations ... 13
Note 2 – Acquisitions, Disposals and Corporate Reestructuring ... 13
Note 3 – Presentation of Financial Statements ... 17
Note 4 – Significant Accounting Practices ... 19
Note 5 – Main Judgments and Accounting Estimates ... 27
Note 6 – Risk Management ... 29
Note 7 – Information by Segment ... 50
Note 8 – Cash and Cash Equivalents ... 55
Note 9 – Financial Instruments ... 55
Note 10 – Investment in Associates ... 56
Note 11 – Dividends Receivable ... 90
Note 12 – Taxes ... 90
Note 13 – Commissions receivable ... 92
Note 14 – Other Assets ... 93
Note 15 – Dividends Payable ... 93
Note 16 – Provisions and Contingent Liabilities ... 93
Note 17 – Unearned Commissions ... 94
Note 18 – Other Liabilities ... 94
Note 19 – Equity ... 95
Note 20 – Financial Income ... 96
Note 21 – Personnel Expenses ... 96
Note 22 – Administrative Expenses ... 98
Note 23 – Other Operating Income/(Expense) ... 98
Note 24 – Commissions Income ... 98
Note 25 – Currents and Non-Currents Assets and Liabilities ... 99
Note 26 – Related Party Transactions ... 100
Note 27 – Other Informations ... 101
Members of the Management Bodies 104
Management comments on the Guidance performance 105
Report of Independent Auditors for Financial Statements 107
Dear Shareholders,
We submit for your appreciation the Management Report and the corresponding financial statements with the independent auditors’ report, in relation to the financial year 2014.
Corporate Structure and Business Model
The Company operates in the insurance, pension plan, premium bonds, reinsurance and dental insurance through private partnerships, as well as acting in the distribution, through its own broker.
The Company operates in the insurance segment with a partnership with the Spanish group Mapfre, through the Grupo Segurador BB Mapfre Group that consists of two holding companies:
• BB Mapfre SH1 – operates in the life, rural and housing segments. BB Seguridade has 49.99% of its voting capital and 74.99% of its total capital.
• Mapfre BB SH2 – focused on the P&C segments. Its main products are auto insurance, besides others linked to P&C, as large risks. BB Seguridade has 49.00% of its voting capital and 50.00% of its total capital.
In the pension plans segment, BB Seguridade has a partnership with Principal Financial Group in Brasilprev Seguros e Previdência S.A. This Company sales private solutions for pension, with a highlight for PGBL and VGBL products. BB Seguridade owns 49.99% of the voting capital and 74.99% of the total capital.
In the premium bonds segment, BB Seguridade operates through Brasilcap in partnership with Icatu Hartford and Aliança da Bahia, in which it holds 49.99% of the voting capital and 66.66% of total capital.
In August 2013, BB Seguridade acquired 20.51% of the share capital of the IRB Brasil Resseguros S.A., and started to operate in the reinsurance segment. In 12.29.2014, the amendments to the company’s bylaws to change the number of stocks from 1,035,663 to 1,040,000 in order to take into account 4,337 stocks that were in shares in treasury, were approved by the General Shareholders Meeting. That way, BB Seguridade’s reduced its participation to 20,43% in IRB.
In August 2014, with the aim to implement its access into the dental insurance market, BB Seguridade, through its subsidiary BB Seguros, in partnership with Odontoprev S.A., started selling dental care products at Banco do Brasil branches by Brasildental Operadora de Planos Odontológicos S.A. BB Seguridade has 49.99% of its voting capital and 74.99% of its total capital and made initial investment in the company of R$3.75 milions.
The shareholdings in the business of insurance, pension plan, premium bonds, reinsurance and dental insurance are concentrated in BB Seguros Participações SA, a wholly owned subsidiary of BB Seguridade.
Through its wholly owned subsidiary BB Cor Participações, the Company holds the share control in BB Corretora, which sells insurance products, pension plans and premium bonds, exploring the bancassurance channel through an exclusive contract signed with Banco do Brasil.
New Business
In November 2013, BB Seguridade and Empresa Brasileira de Correios e Telégrafos - ECT started studies and evaluate the feasibility of establishing a partnership to offer insurance products in the ECT branches. The partnership continued during the year 2014.
In addition, BB Seguridade is constantly seeking alternatives to make its portfolio more complete and adherent to the needs of its customers. In this regard, the Company is looking for alternatives for distribution of health insurance products.
Corporate Governance
The commitment of BB Seguridade to transparency in relation to the market and, in particular, with its minority shareholders is ratified by its membership since the IPO at the Novo Mercado of BM&FBOVESPA, the segment that brings together companies that meet the highest governance requirements by the Brazilian stock market.
Ϯ The corporate governance structure of the BB Seguridade is formed by the Board of Directors - consisting of six members, among them, one appointed by minority shareholders - by the Executive Board - consisting of four statutory Officers, one Chief Executive Officer and one Investor Relations Officer. BB Seguridade maintains a Fiscal Council on a permanent basis, consisting of three members and three alternate members.
The Company adopts a structure of collective decision-making and advisory committees. On June 13th 2014, was installed the Third Party Committee, composed of three members, including one member appointed by minority shareholders. The statute also provides for the establishment of the Audit Committee.
Economic Scenario
Throughout 2014, the global economy continued to post moderate growth rates, with different expansion paces among the main regions. In the US, the Federal Reserve interrupted its asset buyback program, following the strengthening of the labor market and GDP growth. This movement contributed to the appreciation of the dollar against other major currencies. The Europe remained in difficulties regarding sustainable economic recovery and efforts to avoid deflationary risk, despite the recovery observed in some economies. In Asia, the slight decline in China’s growth rate has contributed to a more moderate reduction in commodities price.
The external conditions affected the performance of Brazilian economy. Net exports were impacted by less intense momentum in external demand, due to the challenges faced in the international scenario. The difficulties faced in the macro environment impacted the indicator of confidence, thus reducing the dynamism of domestic economic activities in 2014, with a more moderate expansion in household consumption and decline in the level of investments. The labor and credit markets reduced its dynamism, but still remained robust.
In light of the process of relative price adjustment, due to greater currency devaluation and the adjustment of government managed prices, inflation remained resilient and above the path projected in the targets. In this context, the Central Bank Monetary Policy Committee (Copom) resumed the cycle of raising the reference interest rate, leading it to the level of 11.75% per year at the end of 2014.
Insurance Market
In segments of insurance, pension plan and premium bonds - the total revenue of industry in terms of premiums and collections totaled R$177.3 billons until November 2014, representing an increase of 11.3%, compared with the same period of 2013, according to more recent information provided by Superintendência de Seguros Privados (SUSEP). Market data mentioned in this report do not include revenues from health insurance, dental segment and reinsurance.
Presentation of financial statements and management analyzes
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
It is worth mentioning that this report presents financial data of BB Seguridade affiliated companies that, compared to those disclosed by portfolio companies, could have different values due to the accounting standard used, any goodwill amortization and eliminations results among the participants. In this context, the net profit allocated to the affiliated, for this report, reflects the results obtained by BB Seguridade, allocated to each business segment, in the form of the Explanatory Note of the Equity Investments.
Highlights of the period
The BB Seguridade net income reached R$3.5 billion in 2014, an increase of 39.7% compared to 2013. The results presented, deducted from shareholders' compensation, allowed the gradual expansion of equity, which reached R$7.9 billion at the end of 2014.
The BB Seguridade exercise result is due to a consistent growth in insurance, pension plan and premium bonds income in all related companies and the expansion of the financial result.
Highlight for BB Mapfre SH1, Brasilprev and Brasilcap, which registered growth in net profit, respectively, 31.3%, 67.2% and 75.2%. Along with BB Corretora, whose results showed growth of 42.2%, these Companies mostly explain the growth in the year of BB Seguridade.
Besides the expansion of business, net income of 2014 was driven by the following items:
• Adequacy of Brasilprev to CNSP Resolution #281/13 and SUSEP Circular #462/13, clarified by guidel ines issued by SUSEP in April 2013, which resulted in the suspension of new Provisions for Floating Risk (POR), Insufficient Contributions (PIC), Insufficient Premiums (PIP) and Financial Fluctuation (POF), beginning in February 2013 and the reversal of the total accrued balance in December 2014, positively impacting the result of BB Seguridade for the year at R$195.6 million.
• Revaluation of IRB’s lawsuits - A review of equity impacts arising in proceedings in which IRB appears as defendant, author or interested party. BB Seguridade had a positive impact of R$27.4 million in 2013 net income, regarding the recognition of part of the tax credits arising from the court final decision, in October 2013, for a lawsuit in which IRB was claiming the unconstitutionality, approved by RFB (Brazilian Federal Revenue Office) in February 2014. The extraordinary event of R$38.5 million in 2014 is related to the recognition of the remaining balance of those tax credits.
Segregating the events considered non-recurring, the adjusted income (proforma) of BB Seguridade reached R$3.2 billion in 2014, an increase of 42.6% over the pro forma adjusted income from the previous year. Extraordinary items for the years 2013 and 2014 are detailed in the MD&A of BB Seguridade, available in the Company website (www.bancodobrasilseguridade.com.br).
Performance of Subsidiaries and Affiliates
The total revenue of the companies affiliated to BB Seguridade, which includes revenues from insurance, pension plan and premium bonds, grew 24.3% over 2013 and reached R$54.0 billion. The revenues of affiliated assured the Company's leadership in total revenues in the segments in which it operates, with 27.1% of market share compared with accumulated until November 2014, growth of 2.8 p.p. over the same period of 2013, according to SUSEP.
BB Mapfre Group
BB Mapfre SH1, the company behind the segments of life, credit life, rural and housing, reported net income of R$1.3 billion in 2014, 31.3% higher than in 2013. Premiums written reached R$7.4 billion, 19.0% growth compared to 2013. The products Ourovida Grupo Especial, Ourovida Garantia, BB Seguro Crédito Protegido, BB Seguro Agrícola, Ourovida Produtor Rural and Penhor Rural are the most outstanding products in the year.
Mapfre BB SH2, responsible for auto and P&C segments, posted net income of R$274.7 million, a decrease of 29.4% compared to 2013. The written premiums reached R$8.8 billion, 13.5% growth over the previous year. The automotive segment grew by 10.9% and remained as the main product of Mapfre BB SH2, accounting for 55.2% of premiums issued on the period.
In the insurance segment, the SUSEP data in November 2014 shows that were maintained leadership in the life segments of persons and rural respectively with 21.6% and 72.6% of the market.
The Insurance Group, BB Mapfre SH1 and Mapfre BB SH2, invested in 2014 the amount of R$138.4 million in information technology and infrastructure of their headquarters and its branch offices. The funds came from the cash of companies.
Brasilprev
In the pension segment, Brasilprev revenues reached R$31.0 billion in 2014, representing growth of 34.7% compared to 2013. Net income reached R$989.6 million, 67.2% higher than 2013. During the year, the data from Quantun Axis Consulting show that Brasilprev maintained its leadership in net funding with 53.8% of market share.
The Company is also a leader in the revenues on the accumulated period until November 2014, with 37.8% of market share, according SUSEP’s data. VGBL products were the highlights of the period, representing 90.5% of total revenue in 2014.
ϰ In 2014 Brasilprev invested R$9.6 million in new IT platform development and R$2.5 million in software and servers to technologic development. The resources used were from the company's cash.
Brasilcap
Brasilcap reported net income of R$324.4 million, 75.2% higher compared to that observed in 2013. The result was influenced by record revenues in the period, reaching R$6.7 billion and better financial results. Brasilcap maintained the leadership in its segment, with 29.6% of market share until November, according to data from SUSEP. The unique payment plans boosted the company's revenues in the year, with 60.7% of the total collection.
In 2014 Brasilcap invested R$5.2 million in buildings, equipments and softwares, mainly aiming to modernize and expand the IT infrastructure. The resources used were from the company's cash.
BB Corretora
BB Corretora, company that distributed BB Seguridade’s products in banking channel, reported net income of R$1.3 billion in 2014, an increase of 42.2% over 2013. The brokerage revenues reached R$2.3 billion, an increase of 32.9% over the previous year. The segments life, housing and rural, accounted for 52.9% of brokerage revenues in 2014 and remained the main source of income of BB Corretora. Another highlight was the increase of participation of the pension plans in brokerage revenues, which increased from 15.6% in 2013 to 16.5% in 2014.
IRB Brasil RE
In 2014, net profit of IRB-Brasil Resseguros S.A. reached R$604.2 million. The BB Seguridade started to recognize the result of the IRB in its financial statements in proportion to their shareholding, from August 2013. The investment income reached R$123.9 million in 2014.
In 2014 IRB invested on the acquisition of 4.8% of the capital from the African Re company. The source of funds was the company's own cash.
Launch of Products and Services
In 2014, BB Seguridade went on with the strategy of selling a portfolio even more complete in terms of insurance products. Along with its affiliates, it has launched new products and have made adjustments in the previous portfolio. In April, it was allowed the selling of Ourocap premium bonds in the branches formely owned by BNC – Banco Nossa Caixa. This change increased the business potential as well as the Ourocap distribution in the state of São Paulo, which accounts for 35% of premium bonds total revenues in the country.
In June, it was launched a credit life focused on Small and Medium Enterprises (SMEs) – first Banco do Brasil’s insurance product to assure the SMEs’ loans. The product was initially available to BB Giro Empresa Flex – Liberações Estruturadas, BB Capital de Giro Mix Pasep and Giro Décimo Terceiro Salário. In October, it was included the renegotiation lines BB Giro Flex - Padrão and BB Giro Rápido.
In July, it was launched a new type of home insurance to be contracted in the new operating platform of BB’s branches, under the name of BB Seguro Residencial, replacing the Ouro products line (Seguro Ouro Residencial and Seguro Ouro Residencial Estilo). The change enabled not only a more friendly environment for quotation and hiring the product at the branches, but also provided to the customers a product with bigger and better coverage and more adequate assistance packages to their needs.
Stock Performance
In 2014, the Company's shares (BBSE3) has valued in 31.3%, while Ibovespa declined 2.9%. The shares ended the year at R$32.16, and the market value of the Company amounted to R$64.3 billion. The average daily trading volume of shares was R$134.0 million and the book value per share was R$3.96 in 12.31.2014.
Dividend Distribution
The low capital requirements of BB Seguridade and its affiliates, the ability to generate cash flow and maintaining adequate solvency ratios, allowed the distribution of 80% of profits to shareholders as dividends (payout). The result for the year of 2014, allowed to allocate R$2.8 billion for the payment of dividends, equivalent to R$1.38 per share.
Social Environmental Responsibility
In 2014, BB Seguridade began its own actions of sustainability, besides continuing to support its subsidiaries in the development of socio-environmental policies signed in the public commitments of its controller, Banco do Brasil, as Agenda 21, UN Global Compact, Equator Principles, Green Protocol and National Agreement for Eradication of Slave-Like Working Conditions, proposed by Ethos Institute.
The Company sponsored the BB Seguridade Children's Theatre Festival “Play in the Garden”, held on Sundays from November 23, 2014 to February 8, 2015 in the Botanic Garden, in Brasília.
In the affiliates’ actions, it is worth noting:
Brasilprev, the company from private pension segment, constantly seek ways to reduce the environmental impact of its operations and at the same time, encourages its audiences to adopt green initiatives.
In 2014, Brasilprev allocated resources to Fundo Municipal da Criança e do Adolescente (Fumcad) of São Paulo and to buy drugs for oncology to the Hospital of Cancer of Barretos.
The company operates in the measurement and compensation of greenhouse gas emissions, through adherence to voluntary agreements (Pacto Global and CDP) and carbon credit purchase in the project Cerâmica Lara, located in Cachoeira Paulista (Consulting Sustainable Carbon), which in 2014 reached 691 tons.
Brasilprev also promoted the third edition of Circuito Pedalar, a project that aims to encourage the use of bicycles, in order to make this practice a leisure habit, a form of urban transportation or a fun for family and friends. The 10 km bike rides occurred in Brasília, Rio de Janeiro, Belo Horizonte and São Paulo.
Grupo Segurador Banco do Brasil and Mapfre (BB Mapfre) transfers part of resources from the products (Seguro Ouro Vida, Ouro Vida Empresa, Vida Mulher, Ouro Residencial, Ouro Máquina e Ouro Empresarial) to the entities Fundação Banco do Brasil (FBB) and Federação Nacional das AABBs, using the resources in the implementation and maintenance of socio-environmental programs.
The company was chosen again as one of the most sustainable companies in Brazil by “Guia Exame de Sustentabilidade 2014” and it is among the four most sustainable companies in the Finance / Insurance segment. Brasilcap, aligned with the policies proposed in Agenda 21 transfers 0.5% of total funds raised from the sale of the products Ourocap Estilo Flex, Ourocap Multichance and Ourocap Torcida Brasil to Fundação Banco do Brasil, which uses the resources in the maintenance of the programs “Projeto Água Brasil” and BB Educar. In 2014, the amount transferred to the two programs totaled R$ 6.8 million.
In addition, the company implements the program Brasilcap Solidário, which coordinates and implements projects such as Natal Solidário, actions for the Instituto Nossa Senhora das Dores, from Rio de Janeiro, donations to the Ação Cristã Vicente Moretti (RJ), totaling R$ 152,626.42. The incentive is also directed to sports, for which it was invested R$ 835,830.96, with the encouragement of projects such as Nadadores do Futuro and Vôlei de Praia Adriana Samuel (RJ).
More information on the subject is available in the BB Seguridade website: www.bancodobrasilseguridade.com.br
The Main Awards in the Period
In January 2014, BB Seguridade won the IFR Americas Award in the category Latin America Equity Issue, for performing the biggest world's IPO in the year of 2013, in a public offering of R$ 11.5 billion (US$ 5.7 billion).
Received prizes in the Affiliates:
In April, Brasilcap received the “Prêmio Segurador Brasil”, organized by Brasil Notícias Editora e Comunicação Empresarial in the category "Market Leader: Premium Bonds". In July, the company won the “Prêmio Marketing
ϲ Contemporâneo” of Associação Brasileira de Marketing e Negócios for the case Ourocap Torcida. Also received the “Prêmio Marketing Best”, totaling five achievements. In November, the company received the “Certificado Empresa Cidadã”.
Brasilprev was recognized in the 2014 list “100 Melhores Empresas em Cidadania Corporativa” and received the “Prêmio Segurador Brasil”, promoted by Brasil Notícias Editora e Comunicação Empresarial in the category "Melhor Desempenho Global em Previdência Privada". It was also, for the tenth consecutive time, the preferred brand in Private Pension segment in the search “Marcas de Quem Decide”, which ranks the most important brands from Rio Grande do Sul.
Grupo Segurador Banco do Brasil and Mapfre were included in the “Guia Exame de Sustentabilidade 2014” in the category "Empresas Mais Sustentáveis no Setor Financeiro/Seguros".
People
The BB Seguridade staff is exclusively composed of assigned employee by the Banco do Brasil, against the costs payments, provided the acceptance of trainees and, in special cases defined by the Executive Board, the hiring of labor for a specified period. On 12.31.2014, the Company had 125 employees assigned by the Banco do Brasil, in addition 03 trainees and 07 outsourced employees, based in Brasilia and Sao Paulo.
BB Seguridade assures employees assigned, similar benefits to those granted by the Banco do Brasil, with emphasis on private pension and health plans.
The training of its employees is a strategic priority for the BB Seguridade. In 2014, we invested R$135,636.00 thousand in external training which added to the internal trainings reached 7,347 thousands hours of training. At the end of the year, 95.28% of employees had degrees in higher education, and 63.93% had postgraduate degree or master's degree.
Outlook
The insurance market has shown in recent years higher growth than observed in the Brazilian GDP. According SUSEP’s data, until November 2014, it increased by 11.3% over the same period of the previous year. Pursuant the confederation, insurance market will grow 12.4% in 2015 (base of September of 2014), higher than projected forecasts for the economy as a whole.
Given the expectations for the Brazilian economy and the insurance industry, BB Seguridade intends to continue the strategy of exploiting the opportunities arising from the low penetration of the insurance market in GDP, particularly in the current customer base of the Banco do Brasil, and will continue analyzing and studying the feasibility of exploiting new niches of customers, products, services and distribution channels.
Legal Information
Considering the article 243 of Law 6.404/76, BB Seguridade reports those investments in subsidiaries companies:
RI7RWDO &DSLWDO 6KDUHKROGHUV ,QFRPH 5WKRXVDQG $FWLYLW\ 'HF 'HF 'HF &RQVROLGDWHG+ROGLQJV %%6HJXURV3DUWLFLSDo}HV6$ +ROGLQJ %%0DSIUH6+3DUWLFLSDo}HV6$ ,QVXUDQFH 0DSIUH%%6+3DUWLFLSDo}HV6$ ,QVXUDQFH %UDVLOSUHY6HJXURVH3UHYLGrQFLD6$ 3HQVLRQ3ODQV %UDVLOFDS&DSLWDOL]DomR6$ 3UHPLXP%RQGV %%&DSLWDOL]DomR6$ 3UHPLXP%RQGV ,5%%UDVLO5HVVHJXURV6$ 5HLQVXUDQFH %UDVLOGHQWDO2SHUDGRUDGH3ODQRV2GRQWROyJLFRV6$ 'HQWDO&DUH %%&RU3DUWLFLSDo}HV6$ +ROGLQJ %%&RUUHWRUDGH6HJXURVH$GPLQLVWUDGRUDGH%HQV6$ %URNHUDJH ,QYHVWPHQW%DODQFHIn accordance with CVM 488/05, BB Seguridade reports that, in the condition of holding its investments are mainly related to equity interests that own and wish to purchase. As mentioned in its reference form, the Company doesn’t have the expectation of undertaking significant investments over the next years.
At year end 2013 the BB Seguridade not registered financial debt in its financial statements. The source of obtaining resources consisted primarily of equity, plus any cyclical funding sources.
Investments of its affiliates and subsidiaries will follow their normal flow of execution, according to individual plans structured by each company.
In compliance with CVM 381/03, BB Seguridade and its subsidiaries report that KPMG Auditores Independentes has not provided in 2014, services that could affect its independence from the audit, proven by Independence Letter presented the BB Seguridade. On services not related to external audit, BB Seguridade adopts procedures based on applicable law and internationally accepted that preserve the auditor's independence principles. These principles are: (i) the auditor should not audit their own work, and (ii) the auditor shouldn´t act, managerially, before his client nor promote the interests of that client.
In 2014, the affiliates, subsidiaries and controlling of the BB Seguridade hired KPMG Auditores Independentes for providing non-audit services in the amount of R$6.0 million. Contracted services were:
BB Seguridade, its shareholders, directors and members of the Fiscal Council undertake to resolve any dispute or relating to the Listing Rules of the Novo Mercado dispute by Câmara de Arbitragem do Mercado of BM&F Bovespa as arbitration clause in the Bylaws BB Seguridade, Article 52.
Executive Officers Statement
Pursuant to the provisions of CVM Instruction Nº 480/09, the Executive Officers states that it has discussed reviewed and agreed to the financial statements for the year 2014 and the conclusions expressed in the report of the independent auditors.
Acknowledgments
We want to thank the shareholders, customers, authorities and regulators, Banco do Brasil distribution network, brokers, other partners and society for the support and confidence shown. We also thank the employees for continued dedication. Brasilia – 2015 The Management
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R$ thousand Note
Parent Consolidated Dec 31, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013 CURRENT ASSETS
Cash and cash equivalents [8] 56,385 186,615 2,094,427 1,785,284 Financial assets at fair value through profit or loss [9] -- -- 572 2,966 Financial assets available for sale [9] -- -- 77 80 Dividends receivable [11] 1,666,647 1,077,382 -- 35,356 Current tax assets [12] 12,772 1,439 128,414 88,120
Commissions receivable [13] -- -- 740,535 509,216
Other assets [14] -- -- 55 122
NON-CURRENT ASSETS
Investments in associates [10] 6,660,086 6,024,029 7,267,146 6,221,050
Deferred tax assets [12] -- -- 7,857 6,377
Other assets [14] -- -- 143,598 136,907
TOTAL ASSETS 8,395,890 7,289,465 10,382,681 8,785,478
Note
Parent Consolidated Dec 31, 2014 Dec 31, 2013 Dec 31, 2014 Dec 31, 2013 CURRENT LIABILITIES
Dividends payable [15] 466,102 344,719 466,102 344,719
Contingent liabilities [16] -- -- 14,557 8,637
Current tax liabilities [12] -- -- 218,978 152,910
Unearned commissions [17] -- -- 699,141 526,085
Other liabilities [18] 5,804 3,473 33,143 42,009
NON-CURRENT LIABILITIES
Deferred tax liabilities [12] -- -- 273,977 273,977
Unearned commissions [17] -- -- 752,799 495,868 TOTAL LIABILITIES 471,906 348,192 2,458,697 1,844,205 EQUITY [19] Capital 5,646,768 5,646,768 5,646,768 5,646,768 Capital reserves 266 -- 266 --Income reserves 2,290,014 1,311,186 2,290,014 1,311,186 Other accumulated comprehensive income (12,798) (16,681) (12,798) (16,681)
Treasury shares (266) -- (266)
--TOTAL EQUITY 7,923,984 6,941,273 7,923,984 6,941,273
TOTAL LIABILITIES AND EQUITY 8,395,890 7,289,465 10,382,681 8,785,478 See the accompanying notes to the financial statements.
STATEMENTS OF CASH FLOWS
R$ thousand
Parent Consolidated
2014 2013 2014 2013
Cash From Operations
Earnings before income taxes 3,456,683 2,473,752 4,139,012 2,947,721 Adjustments to income (loss) before income taxes
Equity in the earnings of subsidiaries and associates (3,490,950) (2,484,807) (2,190,398) (1,560,955) Other revenues/(expenses) 8,263 7,977 8,433 (63,746) Income adjusted before income taxes (26,004) (3,078) 1,957,047 1,323,020 Changes in assets and liabilities
Net change in financial assets at fair value through profit -- -- 2,394 (2,675) Net change in available for sale financial assets -- -- 3 27 Income and social contribution taxes paid -- (687) (581,507) (511,656) Net change in current taxes (9,742) (1,439) (40,349) (9,868)
Net change in deferred taxes -- -- (1,480) 3,708
Net change in contingent liabilities -- -- 5,920 2,919 Net change in other assets and liabilities 2,331 2,951 183,179 311,006 Net cash from operating activities (33,415) (2,253) 1,525,207 1,116,481
Cash from investment activities
Dividends received 2,298,074 1,003,903 1,182,573 1,346,421 Acquisition of interests in associates -- -- (3,748) (547,409) Capital contribution in subsidiaries -- (1,080) -- --Net cash from investment activities 2,298,074 1,002,823 1,178,825 799,012
Cash from financing activities
Capital subscription/increase -- 13,500 -- 13,500
Dividends paid (2,394,889) (828,955) (2,394,889) (1,471,640) Net cash from financing activities (2,394,889) (815,455) (2,394,889) (1,458,140)
Net change in cash and cash equivalents (130,230) 185,115 309,143 457,353
Opening balance 186,615 1,500 1,785,284 1,327,931
Closing balance 56,385 186,615 2,094,427 1,785,284
Increase (decrease) in cash and cash equivalents (130,230) 185,115 309,143 457,353 See the accompanying notes to the financial statements.
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S T A T E M E N T S O F C H A N G E S I N E Q U IT Y s E d ^ N o te C a p it a l C a p it a l R e s e rv e s In c o m e R e s e rv e s T re a s u ry s h a re s R e ta in e d e a rn in g s / a c c u m u la te d l o s s e s A c c u m u la te d o th e r C o m p re h e n s iv e In c o m e L e g a l R e s e rv e S ta tu to ry R e s e rv e P ro p o s e d A d d it io n a l D iv id e n d B a la n c e s a t D e c 3 1 , 2 0 1 2 5 ,6 3 3 ,2 6 8 --5 ,1 0 6 P a id -u p c a p ita l [1 9 .a ] 1 3 ,5 0 0 --R e v e n u e r e se rv e s [1 9 .b ] --1 2 3 ,6 8 8 3 7 1 ,0 6 2 --(4 9 4 ,7 5 0 ) --D iv id e n d s --8 1 6 ,4 3 6 --(1 ,9 7 9 ,0 0 2 ) --O th e r c o m p re h e n si v e in c o m e [1 9 .d ] --(2 1 ,7 8 7 ) N e t in co m e f o r th e p e ri o d --2 ,4 7 3 ,7 5 2 --B a la n c e s a t D e c 3 1 , 2 0 1 3 5 ,6 4 6 ,7 6 8 --1 2 3 ,6 8 8 3 7 1 ,0 6 2 8 1 6 ,4 3 6 --(1 6 ,6 8 1 ) C h a n g e s i n t h e P e ri o d 1 3 ,5 0 0 --1 2 3 ,6 8 8 3 7 1 ,0 6 2 8 1 6 ,4 3 6 --(2 1 ,7 8 7 ) B a la n c e s a t D e c 3 1 , 2 0 1 3 5 ,6 4 6 ,7 6 8 --1 2 3 ,6 8 8 3 7 1 ,0 6 2 8 1 6 ,4 3 6 --(1 6 ,6 8 1 ) S h a re -b a se d p a ym e n t tr a n s a ct io n s --2 6 6 --(2 6 6 ) --A d d iti o n a l D iv id e n d s 2 n d h a lf 2 0 1 3 --(8 1 6 ,4 3 6 ) --R e v e n u e r e se rv e s [1 9 .b ] --1 7 2 ,8 3 4 5 1 8 ,5 0 3 --(6 9 1 ,3 3 7 ) --A d d iti o n a l D iv id e n d s 1 s t h a lf 2 0 1 4 [1 9 .c ] --8 4 0 ,4 5 7 --(8 4 0 ,4 5 7 ) --M in im u m m a n d a to ry d iv id e n d 1 st h a lf 2 0 1 4 [1 9 .c ] --(3 5 4 ,8 6 0 ) --A d d iti o n a l D iv id e n d s p a id 1 st h a lf 2 0 1 4 [1 9 .c ] --(8 4 0 ,4 5 7 ) --M in im u m m a n d a to ry d iv id e n d 2 n d h a lf 2 0 1 4 [1 9 .c ] --(4 6 6 ,1 0 2 ) --A d d iti o n a l D iv id e n d s p a id 2 n d h a lf 2 0 1 4 [1 9 .c ] --1 ,1 0 3 ,9 2 7 --(1 ,1 0 3 ,9 2 7 ) --O th e r c o m p re h e n si v e in c o m e [1 9 .d ] --3 ,8 8 3 N e t in co m e f o r th e p e ri o d --3 ,4 5 6 ,6 8 3 --B a la n c e s a t D e c 3 1 , 2 0 1 4 5 ,6 4 6 ,7 6 8 2 6 6 2 9 6 ,5 2 2 8 8 9 ,5 6 5 1 ,1 0 3 ,9 2 7 (2 6 6 ) --(1 2 ,7 9 8 ) C h a n g e s i n t h e P e ri o d --2 6 6 1 7 2 ,8 3 4 5 1 8 ,5 0 3 2 8 7 ,4 9 1 (2 6 6 ) --3 ,8 8 3 S e e t h e a cc o m p a n yi n g n o te s to t h e f in a n ci a l s ta te m e n ts .STATEMENT OF VALUE ADDED R$ thousand Note Parent Consolidated 2014 2013 2014 2013 Income -- -- 2,308,045 1,736,407 Commissions income [24] -- -- 2,308,045 1,736,407
Input Acquired From Third Parties (12,569) (6,431) (323,664) (309,783) Administrative expenses [22] (9,910) (304) (279,419) (277,515) Other expenses [23] (2,659) (6,127) (44,245) (32,268)
Gross Added Value (12,569) (6,431) 1,984,381 1,426,624
Net Added Value Generated By The Entity (12,569) (6,431) 1,984,381 1,426,624
Added Value Received Through Transfer 3,502,201 2,491,098 2,370,420 1,677,253 Equity in the earnings of associates [10] 3,490,950 2,484,807 2,190,398 1,560,955
Financial income [20] 11,251 6,291 180,022 116,298
Total Added Value to Distribute 3,489,632 2,484,667 4,354,801 3,103,877
Distribution of Added Value 3,489,632 2,484,667 4,354,801 3,103,877
Personnel [21] 31,520 10,904 40,858 25,581
Taxes, fees and contributions [12] 1,429 11 857,260 604,544 Income reserves [19] 691,337 494,750 691,337 494,750 Retained earnings 2,765,346 1,979,002 2,765,346 1,979,002 See the accompanying notes to the financial statements.
1 – OPERATIONS
BB Seguridade Participações S.A. ("BB Seguridade" or "Group") was incorporated as a subsidiary of Banco do Brasil S.A. on December 20, 2012, in accordance with Brazilian law. The purpose of the Group is to participate in insurance companies, capitalization, open private pension funds, health insurance companies, reinsurance companies, as well as other companies whose corporate purpose is to broker and facilitate business involving personal, health, property and vehicle insurance, offer capitalization plans, private pension plans and manage asset.
BB Seguridade Participações S.A., enrolled with the CNPJ (Brazilian equivalent of IRS Registry of Legal Entities) 17.344.597/0001-94, is headquartered in Setor de Autarquias Norte, Quadra 05, Bloco B, 2nd Floor, Banco do Brasil Building, Brasilia, Distrito Federal, Brazil.
The Group's operations are conducted through its wholly owned subsidiaries BB Cor Participações S.A. (BB Cor) and BB Seguros Participações S.A. (BB Seguros), which are under common administrative and corporate control.
2 – ACQUISITIONS, DISPOSALS AND CORPORATE RESTRUCTURING
a) Structuring of BB Seguridade and organization of subsidiaries BB Seguridade Participações S.A. and BB Cor Participações S.A.
As of December 2012, the Group established BB Seguridade Participações S.A. (BB Seguridade) and BB Cor Participações S.A. (BB Cor).
After the establishment of BB Seguridade, the company holds the following equity interest: a) 100% of the shares of BB Cor;
b) 100% of the shares of BB Seguros Participações S.A. (BB Seguros) which, in turn, holds interests in the followings companies:
(i) 74.9% of the total shares (49.9% common shares) of BB MAPFRE SH1 Participações S.A., which operates in the field of personal, property and rural insurance in partnership with MAPFRE Group;
(ii) 50.0% of the total shares (49.0% common shares) of MAPFRE BB SH2 Participações S.A., which operates in the field of property insurance also in partnership with MAPFRE Group;
(iii) 74.9% of the total shares (49.9% common shares) of Brasilprev Seguros e Previdência S.A., which operates in private pension plans in partnership with Principal Financial Group;
(iv) 66.7% of the total shares (49.9% common shares) of Brasilcap Capitalização S.A., which operates in the capitalization market in partnership with Icatu Seguros S.A. and Companhia de Seguros Aliança da Bahia;
(v) 100% of the shares of BB Capitalização S.A. (formerly Nossa Caixa Capitalização S.A.), which operates in the capitalization market.
The Group’s objectives for BB Seguridade are as follows:
(i) to consolidate, all BB activities in the areas of insurance, capitalization, open private pension and related activities under a single company, including any future expansion of these activities in Brazil or abroad, either organic or not;
(ii) to realize economies of scale in these operations; (iii) to reduce costs and expenses in the insurance segment.
The administration, backed by monitoring tools that align executives' behavior to the interests of shareholders and society in general, is conducted with the best corporate governance practices, so as to allow BB Seguridade finds itself listed in a special segment of the market shares of BM&FBovespa S.A. - Bolsa de Valores, Mercadorias e Futuros, called New Market.
As of December 2012, BB Cor now holds 100% participation in the capital of BB Corretora de Seguros e Administradora de Bens S.A. (BB Corretora).
The Group's objective is to expand the market share of BB Corretora which will operate in and outside of the distribution channels of Banco do Brasil S.A., BB Corretora will sell third-party products in the fields in which the Group does not have exclusive agreements with partner companies.
BB Cor will also hold interest in the capital of other companies operating in the market as brokers in the markets of insurance, pension plans, capitalization and/or healthcare and dental plans in which the Group will participate in the future.
After the corporate reorganization promoted over the years 2013 and 2014, BB Seguros, in addition to equity investments mentioned above, now holds the following companies:
a) 20.51% of the total shares (20.51% common shares) of IRB Brasil Resseguros S.A., which operates in the field of reinsurance and retrocession; and
b) 74.99% of the total shares (49.99% common shares) of Brasildental Operadora de Planos Odontológicos S.A., which operates in the field of dental plans, in partnership with Odontoprev S.A.
IPO
On February 20, 2013, by Special General Meeting, Banco do Brasil S.A. decided to approve Initial Public Offering (IPO) of BB Seguridade. The minutes of the General Meeting were filed in the Junta Comercial do Distrito Federal (Commercial Registry of the Federal District) on March 14, 2013, under No. 20130248401, published in the Diário Oficial da União (Union Official Gazette) and in the Jornal de Brasília (Journal of Brasilia) on March 25, 2013.
The IPO occurred on April 26, 2013, on the over-the-counter market, according CVM 400 Instruction. Simultaneously, there were efforts to issue shares abroad, in accordance with the Placement Facilitation Agreement, concluded between the Company, the Shareholder Seller and International Placement Agents.
Final data about the IPO, closed as of May 17, 2013, considering the sale of additional stock batches, is shown below:
Investor Quantities of shares buyers Number of shares acquired (1)
Individuals 103,359 105,448,951
Investments clubs 207 3,050,427
Investments fund 586 152,701,554
Pension plan entities 16 1,431,673
Insurance entities 2 1,494,600
Foreign investors 473 393,949,671
Intermediary institutions participants of distribution consortium -- --Financial institutions linked to the Company and/or participants of consortium --
--Other financial institutions 1 10,000
Other legal entities linked to the company and/or participants of consortium 9 8,740
Other legal entities 8,886 12,686,344
Partners, managers, employees, agents and other individual linked to the company
and/or other participants of consortium 794 4,215,644
Others 2 2,396
Total 114,335 675,000,000
(1) Includes 109,484,800 shares acquired for J.P Morgan, 2,500,000 shares acquired for BTG Pactual and 5,810,000 shares acquired for Citi and/or individuals that, directly or indirectly, control, are under control or are under common control of J.P. Morgan, BTG Pactual and Citi, respectively, acting on behalf of its customers, in order to do hedge with derivative transactions, including as a result of contracts of total return swap and/or other financial instruments signed overseas with the same effect.
b) IRB Brasil Resseguros S.A. (IRB Brasil Re)
On May 24, 2013, BB Seguros Participações S.A. and the Federal Government signed an agreement (Contrato de Transferência de Ações) to transfer 212,421 common shares issued by IRB Brasil Re held by the Federal Government to BB Seguros.
Moreover, on the same date, a Shareholders Agreement was signed between BB Seguros, the Federal Government, Bradesco Auto Re – Companhia de Seguros S.A., Itaú Seguros S.A., Itaú Vida e Previdência S.A. and Fundo de Investimento em Participações Caixa Barcelona to create an IRB Brasil Re governance control group in order to regulate the relationship between the partners, as well as the company’s management structure and operation. Common shares were linked to the Shareholders Agreement, representing 20% of the total common shares held by BB Seguros; 15% of the total common shares held by the Federal Government; 15% of the total common shares held by Itaú Seguros Group; 20% of the total common shares held by Bradesco Seguros; and 3% of the total common shares held by FIP Caixa Barcelona.
Besides the Shareholders’ Agreement the restructuring process of IRB Brasil Re involves the following steps: a) conversion of IRB Brasil Re non-voting shares into common shares (1:1);
b) creation of a golden share held by the Federal Government (with the veto right to certain decisions), and; c) capital increase of IRB Brasil Re by its current shareholders, with the issuance of new shares, and the
commitment of the Federal Government not to exercise its preference rights.
On August 20, 2013, a Special Shareholders Meeting occurred to approve the capital increase of the IRB Brasil Re. The capital increase was a required condition for the acquisition of the common shares by BB Seguros..
On August 27, 2013, BB Seguros held 20.51% of the capital of IRB Brasil Re after the transfer of shares. Selected information about this transfer is as follows:
Fair Value of Assets and Liabilities of IRB Brasil Re
R$ thousand Sep 30, 2013
Cash and bank deposits 15,541
Financial assets 5,465,934
Property and equipment 168,898
Identifiable intangible assets 127,236
Current tax assets 27,742
Deferred tax assets 236,626
Insurance and reinsurance operations 2,515,534
Other assets 4,362,013
Fair value of assets 12,919,524
Provision for labor, tax and civil claims 278,239
Liabilities for insurance contracts and pension plan 7,523,585
Current tax liabilities 73,011
Deferred tax liabilities 54,657
Insurance and reinsurance debts 1,568,776
Other liabilities 716,068
Fair value of liabilities 10,214,336
Fair value of net assets 2,705,188
BB Seguros participation - % 20.51%
BB Seguros participation 554,853
Acquisiton share price (20,51%) (547,409)
Acquisition purchase gain (7,444)
Identified Intangible Assets in the Transaction
R$ thousand Sep 30, 2013
Related to customer portfolios 119,030
Brands 8,206
Total 127,236
The identified intangible assets have been amortized in accordance with the terms presented in the PPA’s report, prepared by a specialized and independent company. In the year 2014, the amortized amounts totaled R$ 4,299 thousand.
The transaction was approved by Conselho Administrativo de Defesa Econômica (CADE) on April 16, 2013 and by Superintendência de Seguros Privados (SUSEP) on September 16, 2013.
Regarding the nature of the transaction and the contractual conditions, the accounting standards were analyzed by the Group to establish which standard was more appropriate for this transaction. In this sense, the acquisition of the shares from IRB Brasil Re is qualified by an associate investment, due to the significant influence of BB Seguros in IRB Brasil Re.
On December 29, 2014, through the General Special Shareholders' Meeting, the amendment to the Bylaws was approved to change the number of shares of 1,035,663 to 1,040,000, in order to include also the amount of 4,337 treasury shares. Thus, BB Seguros holds a stake of 20.43% in the IRB.
On the same day was held the split of shares issued by the IRB Brasil Re, at the rate of 300 common shares for each current common share, without changing the value of the capital. Thus, the total of the IRB Brasil Re shares is 312,000,000 and BB Seguros holds 63,726,600 common shares issued by the IRB Brasil Re, no change in the percentage of participation.
c) Brasildental Operadora de Planos Odontológicos S.A. (“Brasildental”)
On June 11, 2013, Banco do Brasil S.A., BB Seguros Participações S.A. (BB Seguros), BB Corretora de Seguros e Administradora de Bens S.A. (BB Corretora), Odontoprev S.A. (Odontoprev) and Odontoprev Serviços Ltda. (Odontoprev Serviços) signed an Agreement (Acordo de Associação e Outras Avenças) to create a new company named Brasildental. This company will, in connection with BB Corretora, selldental plans under the brand BB Dental, exclusively through BB channels in the Brazilian territory.
Brasildental was created on March 12, 2014, with an R$ 5 million initial capital, distributed in 100,000 common shares (ON) and 100,000 preferred shares (PN) with the following shareholding structure:
Brasildental Operadora de Planos Odontológicos S.A. % of Total Capital % Common stock % Preferred stock
BB Seguros 74.99 49.99 100.00
Odontoprev 25.01 50.01
--On Brasildental’s constitution day it received R$ 1 thousand of its initial capital and R$ 4,999 thousand, on day April 15, 2014. BB Seguros and Odontoprev responded to Brasildental’s initial capital payment according to their respective ownership stake.
The Agreement was approved by the Conselho Administrativo de Defesa Econômica (CADE) on August 02, 2013 and on September 19, 2013, Banco Central do Brasil (BACEN) authorized the indirect participation of Banco do Brasil S.A. in the capital of Brasildental. On May 12, 2014, the register of the company in the Conselho Regional de Odontologia (CRO) was issued and, on July 07, 2014 and August 08, 2014, the operating authorization and registration of dental plans to be sold, respectively, from the Agência Nacional de Saúde Suplementar (ANS). The Agreement will remain effective for 20 years and is renewable for equal periods.
d) Shareholders´ Restructuring - Grupo Segurador BB Mapfre
On November 01, 2014, the Mapfre Vida S.A. incorporated Vida Seguradora S.A., the company belonging to the holding company BB Mapfre SH1 Participações S.A.. On the same date, Mapfre Seguros Gerais S.A. incorporated Mapfre Affinity Seguradora S.A., the company belonging to the holding company Mapfre BB SH2 Participações S.A. Both mergers were carried out in all of their assets, which were deferred by SUSEP, through the letters 206 and 207/2014 / SUSEP-SEGER, respectively.
The merged net assets were evaluated at book value on the date of the transaction, September 30, 2014, in the amount of R$ 160,471 thousand for the Vida Seguradora S.A. and R$ 448,618 thousand for the Mapfre Affinity Seguradora S.A..
As a natural result, Mapfre Vida S.A. and Mapfre Seguros Gerais S.A. passed to the successor of the universal condition under the Vida Seguradora S.A. and Mapfre Affinity Seguradora S.A., respectively, in all its assets, rights and obligations, and assume its net assets.
The mergers promote better synergy and simplifying the operating model, with consequent cost and regulatory capital optimization.
On November 28, 2014, the directors of BB Seguros approved the merger of BB Capitalização to its assets under the Protocol and Justification of Merger. The merged net assets were evaluated at book value on the date of the transaction, November 28, 2014, in the amount of R$ 5,573 thousand. Whereas the base date of the appraisal report coincides with the date of the corporate events that have approved the transaction, there were no changes in equity after the merger.
The merger is justified because it is unnecessary to maintain BB Capitalização verified in the process of business model review in the capitalization segment and due to the lack of prospects for the company were to develop operational activities.
As a natural result, BB Seguros became the universal title successor of the BB Capitalização in all its assets, rights and obligations, and assume its net assets.
Whereas BB Seguros is the single shareholder of the merged at the merger date, there was no exchange ratio of shares of non-controlling shareholders of the merged company by shares of the surviving company, therefore, no change in the capital of BB Seguros occurred.
Shareholding configuration on December 31, 2014:
3 – Presentation of Financial Statements a) Statement of Compliance
The individual financial statements have been prepared in accordance with the accounting guidelines derived from Brazilian corporation law and are presented in compliance with accounting practices adopted in Brazil, including pronouncements issued by the Comitê de Pronunciamentos Contábeis – CPC (Accounting Pronouncements Committee), approved by Conselho Federal de Contabilidade – CFC (Federal Accounting Council).
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and its predecessor institutions.
These financial statements were approved by the Executive Board of Directors on January 27, 2015.
b) Continuity
Management evaluated that the Group has the resources to continue their business in the future. The Management is not aware of any material uncertainty that might generate significant doubts about the companies ability to continue as a going concern.
c) Measurement Basis of Assets and Liabilities
These individual and consolidated financial statements have been prepared using historical cost as a measurement basis, except for the following items: (i) financial assets and liabilities held for trading, (ii) financial assets and liabilities measured at fair value through profit or loss, and (iii) financial assets available for sale, which were measured at fair value.
d) Functional and Presentation Currency
The financial statements are presented in Brazilian Reais (R$), the functional and presentation currency of the BB Seguridade. Except as otherwise indicated, the quantitative financial information is presented in thousands of Reais (R$ thousand). BB Seguridade did not have transactions in foreign currencies for the period presented.
e) Consolidation Basis
The consolidated financial statements of the Group include the consolidation of assets and liabilities from BB Seguridade and its controlled entities, as follows:
Company Activity Country of
constitution
% Share
Dec 31, 2014 Dec 31, 2013 BB Seguros Participações S.A. Holding Brasil 100% 100%
BB Cor Participações S.A. Holding Brasil 100% 100%
BB Corretora de Seguros e Administradora de Bens S.A. Brokerage Brasil 100% 100% BB Capitalização S.A.(1) Capitalization Plans Brasil -- 100% (1) On November 28, 2014, the directors of BB Seguros approved the merger of BB Capitalização to its assets under the Protocol and Justification of
Merger, as described in note 2.
The intra-group balances and transactions, such as any unrealized income or expenses on transactions between companies, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity method investments are eliminated against the investment to the extent of the BB Seguridade equity interest in the investee.
I&hanges in Accounting Policies
The accounting policies and methods used in preparing these financial statements are equivalent to those applied to the financial statements for the year ended Dec 31, 2013.
g) Seasonality of Operations
BB Seguridade and its subsidiaries consider the nature of their transactions as non-seasonal and non-cyclical, taking into account the activities carried out by the Group. Consequently, no specific disclosures are provided in these notes ended on December 31, 2014 and December 31, 2013.
h) Information for comparability purposes
For comparability purposes in order to better show the nature of operations the following reclassifications were made in the Statement of Income in 2013.
• Inflation correction of appeal bond from the grouping Interest earnings of financial instruments to Other operating income/(expense) – R$ 3,551 thousand.
• Tax expenses from the grouping Other operating income/(expense) to Tax expenses – R$ 130,575 thousand in Consolidated and R$ 11 thousand in Parent.
Statement of Income R$ thousand Parent Consolidated 2013 Original Report Reclassification Adjusted
Balances Original Report Reclassification
Adjusted Balances Interest earnings of financial instruments 6,291 -- 6,291 119,849 (3,551) 116,298 Other operating income/(expense) (6,138) 11 (6,127) (166,394) 134,126 (32,268)
Tax expenses -- (11) (11) -- (130,575) (130,575)
4 – SIGNIFICANT ACCOUNTING PRACTICES a) Revenue and Expense Recognition
Revenue and expenses are recognized on an accrual basis and recorded in the financial statements in the period when they were generated or incurred. This concept is applied to the main revenue streams generated by BB Seguridade and its subsidiaries’ activities, namely:
a.1) Revenue from equity investments – The revenue from the application of equity method of accounting for
equity investments is recognized proportionally to the equity interest held by BB Seguridade in the investees’ results.
a.2) Commission revenue – Commissions revenues are recognized when their value, their associated costs and the
transaction stage can be reliably measured and when it is probable that the economic benefits will occur.
a.3) Interest revenue – Interest revenue and expenses resulting from assets and liabilities that yield and pay interest
are recognized in income for the period on an accrual basis, using the effective interest rate method.
The effective interest rate method is a method used to calculate the amortized cost of a financial asset or of a financial liability (or of a group of financial assets or financial liabilities) and to allocate the interest revenue or expense over the corresponding period.
The effective interest rate is the rate that discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability. The effective interest rate is established upon the initial recognition of the financial asset or liability and is not subject to subsequent reviews. To calculate the effective interest rate, BB Seguridade estimates the future cash flows considering all contractual terms of the financial instrument, but not future credit losses.
The calculation of the effective rate includes all the commissions, the transaction costs and the discounts or premiums that are an integral part of the effective interest rate. The transaction costs correspond to incremental costs directly attributable to the acquisition, issuance or divestiture of a financial asset or liability.
In accordance with IAS 18, BB Seguridade appropriates revenues from finance charges when it is considered probable to receive the economic benefits related to the transaction.
b) Cash and Cash Equivalents
Cash and cash equivalents include funds available and investments immediately convertible into cash and subject to an insignificant risk of a change in value.
c) Financial Instruments
Financial instruments are classified in accordance with their nature and its intention towards the instrument. All financial assets and liabilities are initially recognized on the trading date, i.e., the date on which the Group becomes party to the contractual provisions of the instrument. Classification of financial assets and liabilities is determined on the date of initial recognition.
All financial instruments are initially measured at fair value plus associated transaction costs, except in cases in which the financial assets and liabilities are recorded at fair value through profit or loss. The accounting practices applied to each class of financial instruments are presented below.
c.1) Financial assets at fair value through profit or loss – Financial instruments are classified in this category if
held for trading on the origination or acquisition date, or if designated as such by Management upon initial recognition.
A financial asset is classified as held for trading if: (i) it is acquired mainly to be sold in the near term; or (ii) upon initial recognition it is part of a portfolio of identified financial instruments that are managed jointly and for which there is evidence of a recent actual pattern of short-term profit-taking.
The Group only measures a financial instrument at fair value through profit or loss upon initial recognition when the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would arise from measuring assets and liabilities or recognizing the corresponding gains and losses in different forms; or (ii) the assets and liabilities are part of a group of financial assets, financial liabilities or both, which are managed and have their performances evaluated on a fair value basis, pursuant to documented strategy of risk management or investment.
Financial assets classified into this category will not be transferred to other categories, with the exception of non-derivative financial assets held for trading, which can be reclassified after initial recognition when: (i) in rare circumstances, the financial instrument is no longer held with the purpose of sale in the near term; or (ii) it meets the definition of a loan and receivable, and if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity.
Financial instruments recorded in this category are initially recognized at fair value and their yields (interest and dividends) are appropriated as interest earnings of financial instruments. Transaction costs, when incurred, are recognized immediately in the Consolidated Income Statement.
Realized and unrealized gains or losses related to fair value variations of these instruments are included in net Other operating income/(expense) at fair value through profit or loss.
Financial assets recorded in this category comprise securities and derivative financial instruments held for trading.
c.2) Financial assets available for sale – Securities are classified as financial assets available-for-sale when, in the
opinion of Management, they can be sold in response to or in anticipation of changes in market conditions or they are not classified as (i) loans and receivables, (ii) investments held to maturity, or (iii) financial assets at fair value through profit or loss.
These securities are initially accounted for at fair value, including direct costs and incremental transaction costs. Also, subsequent measuring of these instruments is recorded at fair value.
Unrealized gains or losses (net of taxes) are recorded in a separate component of equity (Other accumulated comprehensive income) until their disposal. The yields (interest, dividends) of these assets are allocated as interest earnings of financial instruments. Gains and losses on disposal of financial assets available for sale are recorded as Other operating income/(expense), on the date of disposal.
When there is a reclassification of financial assets available for sale to the trading category, the unrealized gains or losses until the date of reclassification are recorded in Other accumulated comprehensive income and are deferred over the remaining term of the asset.
Financial assets available for sale are va
