2009 SulAmérica Annual Report
Transcrição
2009 SulAmérica Annual Report
2009 SulAmérica Annual Report relatorioanualsulamerica09.com.br 2009 Annual Report contents Introduction...............................................3 Business Market.................................... 42 Profile...........................................................4 Intangible Assets................................... 54 Key facts in 2009....................................16 Capital Market....................................... 70 Main indicators......................................19 Investments..............................................73 Message from the president.............. 21 Results 2009 ...........................................75 Strategy......................................................23 Corporate information.......................156 Corporate governance......................... 28 About the report..................................159 Risk Management................................. 39 Credits......................................................167 2009 ANnual Report Introduction Welcome to the SulAmérica 2009 Annual Report. Here you will find all information about the performance of the Company last year. This website was carefully designed for easy browsing through the subjects that traditionally are most interesting to the SulAmérica’s audiences. The report brings together a full analysis of the Company’s operational and financial performance, an overview of its business strategy and management model, and prospects in all segments in which SulAmérica operates. The report also presents the main aspects of the Company’s business conduct, always based on ethics and accountability, and the path SulAmérica is tracking to incorporate sustainability into its corporate policies and day-to-day operations. SulAmérica also seeks to summarize in the videos featured in this report the highlights of its performance in 2009, presented by its executive officers. This website serves as a tool to promote communication and interaction with all those involved or interested in the performance of SulAmérica. In line with this, please send your questions, comments or suggestions to Investor Relations, by e-mail or by telephone +55 (21) 2506-9111. Additional corporate information is available at www.sulamerica.com.br/ir. Thank you for visiting SulAmérica’s report and enjoy reading this. 3 2009 ANnual REPORT PROFILE About SulAmérica 114 years combining tradition and modernity to create value Largest independent insurance company in Brazil, SulAmérica built over its 114-year history a solid reputation, by blending tradition and modernity. Along this period, the company has remained faithful to the principles that led it to earn the confidence and respect of society, without losing focus on creating value, and maintaining a leading position in its markets. SulAmérica has 6.7 million customers, and its portfolio of diversified products and services includes the areas of health insurance, auto insurance, industrial and commercial risk insurance, life insurance, private pension, and asset management. The company is present throughout the country with a structure consisting of 14 branch offices and 13 subsidiaries, which offer support to more than 28 thousand insurance brokers, the main agents in the SulAmérica’s structure of product distribution. The company relies also on 20 business partnerships entered with some of the leading institutions in the country. [GRI 2.2; 2.5; 2.8] A staff of more than 5 thousand employees, in line with the values of the company, endeavors to obtain the best results, with ethics, social responsibility, responsiveness and transparency. With a view toward sustainability, connecting operational and financial excellence to ethical relationship with all stakeholders, SulAmérica has extended this approach to all management initiatives in recent years, in order to strengthen its commitment to the perpetuation of its generation of value to society and environmental preservation. Since September 2007, Sul América S.A. has been listed as Corporate Governance Level 2 Listing Rulesin BM&FBovespa S.A. – Securities, Commodities and Futures Exchange (). The company carried out the largest IPO by a Brazilian insurance group, by offering 25 million units and raising R$775 million. SulAmérica has been a partner of the ING Group since 2002 and has a free float of 37%. [GRI 2.1; 2.6] 4 2009 ANnual REPORT PROFILE Sulasa ING 55% 45% Sulasapar 33% 21% Managers and controlling group Free float 9% 37% [GRI 2.3] 5 2009 ANnual REPORT PROFILE Mission, Vision and Values [GRI 4.8] Principles guiding business to ensure customers peace of mind Mission Assure financial protection and tranquility to our customers, in a unique experience of agility, confidence and transparency. Vision Up to 2012, be the preferred company to customers and brokers, in the main markets in which it acts, being among the most profitable. Values • We always focus on the best results • We carry out what we promise • We are accessible and dynamic • Vocation for serving • We value the employees and teamwork • We are committed to sustainability 6 2009 ANnual REPORT PROFILE SulAmérica 114 years of transparency and agility 19th Century SulAmérica Foundation On December 5, 1895, Sul América Companhia Nacional de Seguros de Vida was founded by Don Joaquim Sanchez de Larragoiti. Joaquim Sanchez de Larragoiti, founder of SulAmérica. Early 20th Century Brazil expands its urban changes First life insurance policy, issued by SulAmérica on behalf of its founder, on December 18, 1895. Rodrigues Alves government is characterized by an effort to break off with the country’s colonial past and integrate Brazil to the modern world. Companhia Sul América de Seguros de Vida, the only company of its kind in Brazil, headquartered in the then capital city of the country, is an active player in the urban transformation. Foundation of Sul América Terrestre Marítima In December 1913, SulAmérica founds Companhia de Seguros Terrestres e Marítimos e de Acidentes, firstly by the name Anglo Sul Americana and, later, in 1928, named Sul América Terrestre Marítima (Satma). Elementary business areas are established in a timely manner, after the republic consolidates and immediately before the country’s urbanindustrial and port infrastructure growth efforts. Central Avenue, in Rio de Janeiro, under construction. 7 2009 ANnual REPORT PROFILE Sul América magazine covers, including its first issue. 1920-1940 Launching of Sul América magazine In 1920, Sul América magazine is launched to become a true publishing sensation. Published initially as a communication tool of the company with its policyholders, it attracts the attention of other audiences due to the quality of its contents, with pages dedicated to literature, science, humor, and other subjects of general interest. Front view, SulAmérica headquarters in Rio de Janeiro. Inauguration of new headquarters In 1925, SulAmérica inaugurates its new headquarters, Rua do Ouvidor with Rua da Quitanda, downtown Rio de Janeiro. The initiative demonstrates the company’s boldness, willing to overcome the extremely unfavorable moment, culminating with the world crisis in 1929. First car insurance claim. First car insurance claim In 1929, insurance scope is further expanded with the car insurance segment, and SulAmérica pays its first car insurance claim. 1940-1960 Steady as the Sugar-Loaf Mountain In 1941, SulAmérica’s new visual identity is created, providing a single identification for all communication activities and actions of the company. First SulAmérica’s brand. 8 2009 ANnual REPORT PROFILE Supporting modern art In 1949, at the inauguration of a branch office in Rio de Janeiro, SulAmérica holds the country’s largest modern art exhibition to date. Larragoiti Hospital, now Hospital da Lagoa. SulAmérica Hospital In 1951, through the Larragoiti Institute, SulAmérica launches the construction of the Larragoiti Hospital – now Hospital da Lagoa –, a reference in the South Zone of Rio de Janeiro. 1960-1980 Rio de Janeiro Stock Exchange, in the 1970’s. Initial public offering In 1969, Sul América Companhia Nacional de Seguros (Salic) makes its initial public offering with stock listed in the Rio de Janeiro Stock Exchange. 1960-1980 Initial public offering In 1969, Sul América Companhia Nacional de Seguros (Salic) makes its initial public offering with stock listed in the Rio de Janeiro Stock Exchange. Association with foreign insurance groups In 1977, a SulAmérica associates with groups Gerling Konzern Welt-Versicherungs Pool A.G., from Germany, and Societá Assicuratrice Industriale (SAI), from Italy, to found companies Gerling Industrial and SAI. 9 2009 ANnual REPORT PROFILE Creation of Sul América S.A. In 1978, as the group expands, Sul América S.A. is created as the holding company for the financial group. 1980-1995 Private pension start of operations In 1987, endeavoring to diversify and expand services, the Group starts its pension plan operations, with Sul América Previdência Privada S.A. Health Insurance and 24-hour Assistance In 1989, the company launches SulAmérica Saúde, the most comprehensive and flexible health insurance plan in the market. In the same year, in another innovative action, the company launches Sul América 24-hour Assistance services, as part of car, life, health and personal accident insurance. 1995 – SulAmérica’s First Centennial In 1995, the company celebrates its 100th anniversary. In that same year, the company takes the lead in the Brazilian health insurance market, the sector with its most significant growth rate in the period. 10 2009 ANnual REPORT PROFILE 1995-2000 Brasilveículos and Brasilsaúde In 1995, a successful business partnership of SulAmérica with Banco do Brasil creates Brasilsaúde Companhia de Seguros. Soon, in 1996, Brasilveículos Companhia de Seguros is also set up, for the segment of car insurance. Growth through acquisitions After successfully acquiring Iochpe Seguradora S.A., in December 1994, SulAmérica maintains its consolidation strategy by acquiring insurers Santa Cruz Seguros S.A. and Itatiaia Seguros S.A., in 1996. This is also the year in which SulAmérica entered the asset management segment, by setting up Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. Joint venture with Aetna In 1997, SulAmérica enters into a joint venture with Aetna International Inc., one of the largest U.S. insurance companies, world leader in the health insurance segment, in order to expand its health, life and pension operations. Inauguration of new office building, in Sao Paulo In December 1999, SulAmérica inaugurates its new building in Sao Paulo, with a service structure that integrates all the company’s business areas in the region. 11 2009 ANnual REPORT PROFILE SulAmérica in the 21st Century Association with ING In 2001, ING acquires Aetna’s stake and, in 2002, enters into a partnership agreement with SulAmérica’s holding company. Launching of C.A.S.A. In 2005, the first Auto Super-Service Center (C.A.S.A.) is opened in Sao Paulo, a milestone in the provision of services in the car insurance segment. C.A.S.A. Bandeirantes, in Sao Paulo. Partnership with Axa In 2006, by means of a contract with Axa Corporate Solutions, SulAmérica becomes the primary supplier of Axa’s products to its international customers in Brazil. Open doors and open capital – 2007-2009 Issuance of US$ 200 million in Eurobonds In February 2007, SulAmérica completes its first issuance of US$ 200 million in Eurobonds. With this, SulAmérica becomes the first insurance company in Latin America to issue these bonds to raise funds in the international market. 12 2009 ANnual REPORT PROFILE Innovative communication actions At the end of February 2007, SulAmérica launches Rádio SulAmérica Trânsito 92.1 FM, for 24-hour broadcast of traffic bulletins, news and tips in the city of Sao Paulo. The initiative helps consolidate our brand name awareness in the country’s largest insurance marketplace. Initial public offering raises R$775 million On October 5, 2007, SulAmérica makes an initial public offering and becomes a listed company. The company’s shares start trading on BM&FBovespa, listed as Level 2 Corporate Governance, a segment intended for trading shares in companies that voluntarily agree to adopt best corporate governance practices and meet certain information disclosure requirements. Consolidation and growth with new partnerships On May 27, 2008, SulAmérica enters into an exclusive business partnership with BV Financeira, to promote SulAmérica Auto insurance. In the same year, the company successfully completes the tender offer for outstanding shares of Sul América Companhia Nacional de Seguros. A new home in Rio de Janeiro In August 2009, SulAmérica inaugurates its new facilities in Rio de Janeiro, located at the RioCidadeNova Complex. The new building features modern energy and information technology systems, and meets the highest standards in sustainability and operational efficiency. The complex is also the site for the first Auto Super-Service Center (C.A.S.A.) in Rio de Janeiro, an exclusive service developed by the company for more convenient attention to Seguro Auto SulAmérica policyholders. 13 2009 ANnual REPORT PROFILE Awards and recognitions Below is a full list of awards and recognitions received by the company SulAmérica’s leading role is demonstrated by the awards received in 2009. They represent the recognition by society of the pioneering vision of the company, which, in a comprehensive way, remains as a reference in customer services, in the relationship with employees, in the management of its resources, in the creation of products and services, in the management of its brand reputation, and in investor relations. Among the awards accepted by SulAmérica in 2009, we highlight: • DMA Echo Awards 2009 – Best Use of Direct Mail Channel with case Picasso (home owner insurance) – Direct Marketing Association; • Best Customer Relations Company, category Insurance – Associación Iberoamericana de Relaciones Empresa Cliente (Aiarec); and • Four-time winner of “Consumidor Moderno” Award for Excellence in Customer Services - category: Insurance, Pension and Capitalization – Padrão Editorial. [GRI 2.10] Read on by visiting the complete list of awards and recognitions. 14 2009 ANnual REPORT PROFILE Area Insurance Customer Services Human Resources Communication Investor Relations Awards and recognitions Entity “Segurador Brasil” - categories: Individual Life, Corporate and Property Risks, and Pension Segurador Brasil Magazine “Desbravadores” Trophy - Pioneer implementation of digital certification Segurador Brasil Magazine Best in insurance segment Padrão Editorial Fastest growing insurer by net income - large insurance groups Property insurance group Conjuntura Econômica Magazine / FGV Top Corporate Excellence 2009 - Insurance sector Organização Nacional de Eventos e Pesquisas (O.N.E.P.), Minas Gerais “Segurador Brasil” - Best performance in segments: auto, condominium and civil liability Analysis by Economist Luiz Roberto Castiglione JRS Trophy - Regional Highlight, National Executive (Marcus Vinícius Martins) and Regional Executive (Luciano Silveira) JRS Comunicação Highlight in Insurance Market (Rádio SulAmérica Paradiso) and Best Technical Manager (Gildete Bornolini) CVG-RJ “Cobertura” Performance Award - Category “Best Economic-Financial Performance (Maritime and Air Insurance Portfolio)” Cobertura Magazine “Consumidor Moderno” Award for Excellence in Customer Services - category: Insurance, Pension and Capitalization Padrão Editorial Champions of the Decade Award - Zeca Vieira / Edison Kinoshita / Patrick Larragoiti Padrão Editorial Quality Standard Award in Contact Center - category: Insurance and Pension Padrão Editorial Best Customer Relations Company - category: Insurance Associación Iberoamericana de Relaciones Empresa Cliente (AIAREC) Best in People Management Hewitt and Valor Econômico Wave Festival 2009 Award - Gold for play “Animal Perigos” home owner insurance) Associação Brasileira de Marketing Direto – Abemd “Aberje Award” - Communication and Community Relations Case Praças da Paz SulAmérica (Regional São Paulo) Aberje DMA Echo Awards 2009 - “Best Use of Direct Mail Channel with case Picasso (home owner insurance) Direct Marketing Association POP - Category Public Relations in Private Organizations case SulAmérica Health Studies Conselho Regional de Relações Públicas TOP 3 Best Evolution in IR (small & mid cap companies) IR Magazine, with IBRI and RI Magazine TOP 8 Best Meeting with Analyst Community (small & mid cap companies) IR Magazine, with IBRI and RI Magazine TOP 10 Best IR Professional (Arthur Farme d’Amoed Neto) (small & mid cap companies) IR Magazine, with IBRI and RI Magazine TOP 9 Best Annual Report (with net income R$1 billion or higher) Associação Brasileira das Companhias Abertas - Abrasca 15 2009 AnNual REPORT Key facts in 2009 Highlights of the year January • SulAmérica restructures its technical board, Life and Private Pension areas. Administrator Carolina de Molla takes over the position, with responsibility for managing a team where challenges are to promote the growth of these areas and identify new opportunities in the sectors of life insurance and private pension. Graduated from Universidade Mackenzie and specializing in Insurance Management, Carolina has been in the market for 14 years now, and has experience in pension funds, instituted plans, and group life. • Gabriel Portella becomes SulAmérica’s Health Vice-President. His challenge is to expand even further the company’s successful health operations, whose income represents about 50% of total premiums. Economist, with post-graduate degree in Business Administration, Portella has his professional history closely linked to SulAmérica, which he joined in 1974 and has held a number of positions. In the period 1999-2003, he was ahead of the company’s Health area. • SulAmérica opens a new unit of its chain of Auto SuperService Centers (C.A.S.A.), in Curitiba, the first city to receive the services in Paraná. • SulAmérica was awarded with ‘Segurador Brasil 2009’, by Editora Brasil Notícias. The company was recognized by its performance in the portfolios Individual Life, Corporate and Property Risks, and Pension portfolios. In addition, the company accepted the ‘Desbravadores’ Trophy, for its pioneer implementation of digital certification. March April February • SulAmérica inaugurates a subsidiary in Jundiaí, Sao Paulo upstate. The new unit is part of the project for expansion in Sao Paulo, the country’s large market in insurance premiums, representing about 50% of the sector income. • SulAmérica is the first Brazilian insurance company to use water-based paint for repairs to vehicles of Seguro Auto insured members. The new technology is the result of a partnership with Basf and allows reduction of up to 90% of solvent emissions in 16 2009 AnNual REPORT KEY FACTS IN 2009 the air compared to traditional automotive paint, in addition to improving significantly the working conditions of repair professionals. with the successful Rádio SulAmérica Trânsito FM 92.1. The radio went on air in February 2007 to strengthen the SulAmérica Auto insurance brand name in Sao Paulo. • For the fourth time running, SulAmérica receives the ‘Consumidor Moderno’ Award for Excellence in Customer Services, promoted by Grupo Padrão. The company was recognized as the best in the segments of Health, Pension and Capitalization. It was also awarded in the main category of the insurance market, being considered the Best in the Insurance Sector. • SulAmérica reorganizes its Other P&C, uniting under a single coordination segments Auto, Mass Insurance, and Industrial and Commercial Risk Insurance. The measure provides better conditions to make use of synergies and increase operating efficiency. The unit is coordinated by Carlos Alberto Trindade Filho, specialist in Personal Insurance from the American College, Philadelphia, USA, and MBA from Universidade de Sao Paulo (USP). With over 15 years experience in the insurance sector, the executive joined SulAmérica in 2004. He has been working in the areas of Life, Sales and Marketing and, since 2008, he has been responsible for the Unit of Auto and Massify Insurance. May • Fitch Ratings affirms the long-term ratings in foreign currency BB- on the issuance of US$ 200 million in senior notes by SulAmérica, with stable outlook. • SulAmérica is selected by Conjuntura Econômica magazine as the fastest growing company by net income among large insurance groups, in the property insurance category. • SulAmérica is awarded gold in Wave Festival 2009, with ‘Animal Perigoso’, a direct mail piece created by Sun/MPM to offer homeowner insurance. Distributed to about 5 thousand people, the piece encouraged SulAmérica Auto policyholders to learn the advantages of homeowner insurance products offered by the company. • Member of SulAmérica Board of Directors Roberto Teixeira da Costa was recognized by Ibri (Brazilian Institute of Investor Relations) as Capital Market Personality in 2009, for 50 years contributing to the best practices in capital market. • SulAmérica expands operations by opening another subsidiary in Sao Paulo, in the district of Aricanduva, East Zone of the capital city. • SulAmérica is appointed one of the three listed companies with the best evolution in Investor Relations (small & mid cap companies), an award promoted by IR Magazine, jointly with RI magazine and Ibri. In the award, SulAmérica is also appointed one of the 10 companies holding the best meeting with the community of investment analysts (small & mid cap companies), and Vice-President, Corporate and Investor Relations, Arthur Farme d’Amoed Neto, is selected one of the 10 best IR professionals (small & mid cap companies). June July • SulAmérica sets up the Sustainability Committee, consisting of eight executive officers and managers, whose mission is to increasingly integrate this concept to the policies and day-to-day affairs. To demonstrate the materiality of the topic for the company, the Committee reports directly to the Chief Executive Officer. • With investment of R$15 million, rádio SulAmérica Paradiso (95.7 FM) is launched in Rio de Janeiro, an innovative partnership between SulAmérica and Dial Brasil group. The objective is to offer the audience in Rio de Janeiro a programming with more information on traffic and quality of life, public services and good music, by combining these two companies’ concepts of well-being and health. • SulAmérica receives the Champions of the Decade Award, promoted by Grupo Padrão and Consumidor Moderno magazine. The company was honored in two segments: Contact Center Director, Edison Kinoshita, was awarded Relationship Personality of the Decade, and Marketing Director, Zeca Vieira, was awarded Marketing and Communication Personality of the Decade. SulAmérica receives the Insurance Market Award 2009 – ‘Gaivota de Ouro’ Trophy, for excellence in communication • SulAmérica Investimentos receives grade AMP-1 – Very strong, best rating for management of third parties’ resources, thus reflecting the company’s good business profile. Another points contributing to reach this level: diversified portfolio, wide range of products, proper operating and control practices, expertise of management body, disciplined processes for investment management, and good fiduciary principles. SulAmérica Investimentos is the only independent management company in the Brazilian market to receive highest rating from Standard & Poor’s. August • SulAmérica inaugurates its new facilities in Rio de Janeiro, located at the RioCidadeNova Complex. The new headquarter represents another milestone in the company’s record of accomplishment. In addition to contributing to the revitalization of Cidade Nova, the new building features modern energy and information technology systems, and meets the highest standards in sustainability and operational efficiency. The complex is also the site for the first Auto Super-Service Center (C.A.S.A.) in Rio de Janeiro, an exclusive service developed by the company for more convenient attention to Seguro Auto SulAmérica insured members. 17 2009 AnNual REPORT KEY FACTS IN 2009 • SulAmérica creates a new Corporate Sustainability Management area, to align all concepts of sustainability, social responsibility and private social investment. The creation of the new area demonstrates that sustainability really matters in the company’s strategy. for the acquisition of up to 1,046,872 units, corresponding to 3% of outstanding units, and approximately 1.1% of the total shares issued by the company by September 30, 2009. The lead-time for acquisition is up to 365 days, from the date of the material fact, ending on October 7, 2010. • Marcelo Benevides becomes Commercial Director, Sao Paulo branch office. His major challenge is to accelerate even further the SulAmérica’s growth in the state. Benevides has 24 years of experience in the insurance market, dedicated to sales and marketing areas, with distinguished projects in the Rio-Sao Paulo marketplace, in medium and large size insurance companies. • SulAmérica 2008 Annual Report is appointed top 10 among companies with net income equal to or above R$1 billion by the Brazilian Association of Listed Companies (Abrasca). The evaluation reinforces the importance of information transparency of listed companies and recognizes the best reports in terms of quality of information. September • Member of SulAmérica Board of Directors Roberto Teixeira da Costa is honored by CPC (Accounting Pronouncements Committee) for his support to the committee in the convergence of companies to international accounting standards. • SulAmérica innovates in customer relations and launches SulAmérica Lab, to act as its Council of Customers. The initiative is in line with the priority the company has been giving to the engagement of its stakeholders, aimed at identifying the perceptions of its customers, enabling the development of new relationship practices. October • Standard & Poor’s raises SulAmérica ratings from B+ to BB-, with stable outlook. The agency found that the company’s financial performance has been solid and consistent in recent years, and SulAmérica has a strong capital position to support future growth. • SulAmérica wins three golden prizes at Echo Awards 2009, Direct Marketing Association (DMA), the most important international awards in the direct mailing sector. The company is awarded for the case Picasso, created to win customer loyalty and encourage homeowner insurance renewal. The company receives the top award in the categories Financial Products and Services, and Best Use of Direct Mail Channel. It is also selected by popular voting as the best case in the sector, therefore winning its third golden prize. • SulAmérica informs its shareholders and the market in general that it has received a letter from Banco do Brasil, in which the bank expresses its interest in acquiring the entire interest held by a subsidiary of the company in Brasilveículos Companhia de Seguros, representing 60% of the voting stock and 30% of total capital. • The Board of Directors approves a tender offer for outstanding shares of the company, to be held in treasury to be used later in its General Plan for Stock Acquisition Option. The program calls November • SulAmérica is recognized by a survey conducted by Hewitt Associates, in partnership with newspaper Valor Econômico, as one of the 5 best companies in people management. This assessment reflects the quality of the actions implemented by the company to develop and appreciate its employees. December • SulAmérica is listed in the Corporate Sustainability Index (ISE) with BM&FBovespa 2009-2010, to become the first insurance company to be a part of this selected group of companies with a differentiating factor in sustainability. The ISE portfolio consists of 43 shares in 34 companies, representing 15 industries and totaling R$730 billion in market value. • Patrick de Larragoiti Lucas, SulAmérica’s Chief Executive Officer, submits to the Board of Directors his decision not to stand for another term on the Board of Executive Officers, effective March 2010. The executive officer stands as Chairman of the Board, but will no longer serve simultaneously as CEO and Chairman of the Board, a measure that reinforces SulAmérica’s commitment to the best practices of corporate governance. • SulAmérica receives the 29th National Award in Public Relations, from Conrerp 2nd Region–SP/PR, considered a major award in the segment of corporate communication. The company is the winner in the category Public Relations in Private Organizations, with the work developed with the media in the preparation and release of the SulAmérica Health Studies. 18 2009 ANNUAL REPORT Main indicators Highlights of SulAmérica’s performance in 2009 Results – R$ million 2007 2008 2009 Insurance premiums 7,005.4 7,723.2 8,679.6 Earned premiums 6,574.1 6,985.1 7,777.2 Retained claims and benefits expenses (4,482.8) (4,958.1) (5,700.1) Sales costs (692.7) (776.4) (880.7) Gross margin 1,398.6 1,250.5 1,196.4 Income before income tax, social contribution and profit sharing 676.2 805.4 620.4 Net income 321.5 415.9 419.1 Adjust net income 339.5 381.8 419.1 Results per share 2007 2008 2009 Number of shares 281,295,931 280,913,431 279,657,196 Net income – R$ 1.1092 1.4796 1.4986 19 2009 ANNUAL REPORT MAIN INDICATORS Results per share 2007 2008 2009 Adjusted net income – R$ 1.1732 1.3580 1.4986 Shareholder's equity – R$ 6.9708 8.1364 8.8769 Unit price – R$ 30.24 16.00 51.99 Market captalization – R$ million 2,835.5 1,498.2 4,846.5 Balance sheet – R$ million 2007 2008 2009 Technical reserves – insurance and reinsurance 2,992.3 3,909.5 4,651.8 Technical reserves – private pension 1,369.8 1,653.5 1,906.6 Shareholder's equity 1,960.9 2,285.6 2,482.5 Total assets 9,097.9 10,881.8 12,433.4 Financial and operational ratios (%) 2007 2008 2009 ROAE 22.3% 19.6% 17.6% Adjusted ROAE 23.6% 18.0% 17.6% ROA 3.5% 3.8% 3.4% Adjusted ROA 3.7% 3.5% 3.4% Payout 25.0% 26.3% 50.0% Combined ratio 97.0% 98.4% 99.4% Loss ratio 68.2% 71.0% 73.3% Gross margin 21.3% 17.9% 15.4% Administrative expenses + tax expenses 16.1% 15.2% 13.5% Material data 2007 2008 2009 Assets under management (R$ million) 11,493 11,976 14,440 Number of employees 5,582 5,506 5,112 Number of branches 15 14 14 Number of auto service centers (C.A.S.A.s) 6 13 17 20 2009 ANNUAL REPORT Message from the president Record-breaking result shows ability to overcome scenario of uncertainties Dear Reader, 2009 will certainly be a year remembered for the great steps forward taken in SulAmérica. For the fourth year running, we are presenting record results where performance is all the more significant upon looking back and realizing that it was accomplished in the midst of a context marked by uncertainty in both the internal and external markets. This proves that our business strategy was on the right course and demonstrates that our groundwork is solid. Over the twelve months of 2009, we pressed on with the implementation of our plan for growth and endeavored to expand our business in all our fields of action, maintaining a policy of discipline in financial management and according special treatment to our operational efficiency. [GRI 1.1; 1.2] We thus concluded 2009 showing net incomeof R$419 million, a 9.8% increase in the year on a recurring basis. Return on equity reached the 17.6% mark and revenue from premiums totaled R$8.7 billion, an evolution of more than 12% over the period. In the health segment, the quality of our products and services made allowed us to keep up growth rhythm of insured membersand premiums. Our group health portfolio was thrust forward by an expansion of over 24% in business with small and medium-sized companies. Our dental care portfolio increased 50% in 2009, demonstrating the success of our Customer Relationship Management actions and cross-sellingincentives. The increase in the loss ratioobserved over the year, a reflection of the scenario experienced by the Brazilian labor market, which led to greater frequency of use, is already showing signs of reversion with indexes for the last two quarters exhibiting a drop as compared to what we had been experiencing during the first half of the period. The recovery of the Brazilian economy in 2010 and improvements in employment figures will favor growth of the health portfolio, especially in the small and medium-sized company sector, one of the targets our actions have focused on, which will contribute to improved results. 21 2009 ANNUAL REPORT Message from the President We also had an outstanding year in the auto segment, with growth of over 25% in premiums, while the expansion of industry reached the 13% mark, an increase of 170 bps in our market share. Additionally, the loss ratiodecreased more than 250 bps, which is evidence of the quality of our work on improving our pricing and risk acceptance process, and improvements put in place in claim management. In 2009 we maintained a winning strategy of segmentation and innovation in creating new products with the launch of SulAmérica Zero Km, targeting the growing new vehicle market, and SulAmérica Caminhão Km Rodado (trucks’ mileage), which innovated in the pricing method in this segment on linking the premium to actual use of the vehicle and its exposure to risk. Results attained are also a reflection of our multiline model. We diversified our pension and investment products with the launch of a new line targeting high-income public, SulAmérica Prestige. Another newcomer was SulAmérica Você Mulher, life insurance with specific services covering needs of the female public. In addition, we reformulated SulAmérica Condomínio insurance, with new coverage and guarantees for residential or commercial condominiums. In addition to excellent financial results, SulAmérica’s investment area also gained recognition for its good management practices. We were the only independent management entity in the Brazilian Market to be awarded maximum ratings for administration of third-party resources in Standard & Poor’s assessment. For the fourth time running, we were also awarded the ‘Consumidor Moderno Magazine’ Award for Excellence in Customer Services in the Health and Pension and Capitalization segments. In 2009, we once again reinforced our historical links with insurance brokers, promoting new action aiming at further improving our relationship with these professionals and entrepreneurs who comprise our main distribution channel. With this thought in mind, we carried forward the most important sales promotion campaign in the insurance market, Campeões SulAmérica, and we put our additional commission programs into sequence, extending the range of participating products. Another innovating initiative was the creation of SulAmérica Broker’s Radio, a vehicle designed exclusively for brokers active with SulAmérica, which provides new up-to-date information about the company and the insurance market. All our action was backed up by marketing and relationship campaigns strengthening customers’ and society’s image of SulAmérica. The successful communication strategy adopted with SulAmérica Traffic Radio in Sao Paulo encouraged us to create a vehicle for Rio de Janeiro residents, Paradiso SulAmérica Radio, which has an estimated audience of over 860 thousand people tuning in. 2009 also marked the start of a new stage in SulAmérica’s history. In August, we inaugurated new headquarters in Cidade Nova, in Rio de Janeiro. The modern building meets requirements for sustainability and operational efficiency, allowing for a reduction of up to 30% in the use of energy and natural resources. In our new location, we will have an opportunity to contribute to the revitalization of this new urban development area in Rio de Janeiro, the city which has generously provided a home for SulAmérica for more than 114 years. I cannot omit highlighting our evolution in making sustainability an increasingly important part of our culture, operations and day-to-day routine in managing the company. We have set up a Sustainability Committee and an area working exclusively on this issue, as well as including specific sustainability targets in our new cycle of strategic planning. In 2009, two initiatives strengthened and provided examples of this commitment: the use of water-based paint for repairs to our insured parties’ vehicles, benefiting the environment, partner workshops and clients; and digital certification of exchanges of documents between the insurer and providers of medical services, which increases security of transactions and even economizes on paper. Another occurrence we are extremely proud of was the recognition of SulAmérica, for the second year running, as one of Brazil’s best companies in terms of people management, according to a study published in Valor Econômico newspaper. Value attached to human capital is one of SulAmérica’s guidelines, and we are fully aware of the huge value of the tasks performed by every employee in the company’s results. May I take advantage of this opportunity to thank all the employees, customers, brokers, shareholders, suppliers and partners for the commitment and dedication they have contributed to help us achieve record results once again. With this short introduction, I take pleasure in inviting you to learn further details about the company and its action in 2009 set out in this annual report. We present these results with immense pride, utterly convinced that SulAmérica will continue on its trajectory of growth and leadership for a great many more years. 22 2009 ANNUAL REPORT Strategy SulAmérica makes use of all opportunities to ensure competitiveness SulAmérica is on constant lookout for changes in business environment and seeks to anticipate market moves, in order to seize all possible opportunities and ensure its competitiveness. Having this in mind, strategic planning establishes the direction of the company over a three-year period, and is revised periodically, setting the focus for management performance. In order to maintain its ability to generate value, SulAmérica has identified the following priority guidelines for the development of its business: • To strengthen SulAmérica brand name; • To expand the portfolio of products and services; • To promote continuous review of its policy for relations with brokers, and develop a new value proposition for this channel; • To improve the level of customer services, aimed at achieving higher satisfaction rates; • To enhance the cross-selling model through investments in relationship actions with customers; • To adopt the best practices in underwriting, by conducting a thorough review of the acceptance and pricing strategy; • To implement a strategy to balance administrative costs, by adopting best practices to streamline procedures and trim overhead costs; • To incorporate innovation in the process of developing products and services; • To enhance the process for control of operating risks. Challenges for 2010 • To strengthen partnership with brokers through relationship programs; • To increase the focus on market segmentation (large companies, small amd medium enterprises (SME), partnerships and families); 23 2009 ANNUAL REPORT Strategy • To develop a portfolio of products and services that is tailored to customer needs; • To promote – with customers and partners – a unique brand experience, with greater adroitness, transparency and trust; • To continue developing pricing intelligence for products and services; • To pursue an efficient operating model, by fighting waste and all barriers to productivity; • To appreciate human capital as great differentiating factor; • To invest in technology to increase the potential of business strategies; • To keep a firm commitment to sustainability, in order to help build a better world. In order to ensure that its strategy is disseminated to all employees, SulAmérica adopts modern management tools. Among them, we highlight: • Balanced Scorecard – converts strategy into action plans, which are developed under four headings: financial; customer; internal; and learning and growth; • Portfolio of strategic initiatives for the company’s growth – the expansion can occur in three ways: organic, through acquisitions, and diversification; • Contract for Executive Management – a tool that formalizes the commitment of executive officers to the strategic guidelines set forth in the strategic planning; • Program for Management of Performance and Development (PGDD) – a systematic model to unfold the strategy to all employees with the company. Integrated Model for Strategic Management PGDD Management Contracts BSC Strategic Planning Program Projects / Initiatives 24 ANNUAL REPORT 2009 Sustainability vision Use of opportunities to secure competitiveness Over the past few years, SulAmérica has advanced in the incorporation of the sustainability vision into day-to-day management. The biggest challenge for the company is permeating the entire organization in a comprehensive way, so that the development of new products and services in insurance, pension and asset management addresses the mitigation of economic, social and environmental impacts inherent to the activity, following the concept of Triple Bottom Line, or tripod of sustainability. [GRI 1.2] Consistent with this vision and convinced that this is a strategic issue, in 2009 SulAmérica invested in developing governance and sustainability, and brought the topic into its strategic planning for 2010-2012. The first step was the creation of the Sustainability Committee and the Management of Corporate Sustainability. The Sustainability Committee’s mission is to define guidelines, evaluate proposed projects and programs, approve and monitor the sustainability initiatives implemented by the Management of Sustainability. It consists of eight members, being three vice presidents, a director and three superintendents, representing different areas of SulAmérica, as well as an independent member and the manager of the area of corporate sustainability. Evidencing its strategic importance, the Committee is not formally subject to another instance of governance, has a member of the Board of Directors, and reports directly to the CEO. Established in August 2009, the Management of Corporate Sustainability is responsible for implementing various programs and projects for environmental responsibility and social private investment. It encourages the adoption of sustainability concepts in the relationship of the different areas of SulAmérica with customers, brokers, service providers and suppliers. It reports to the Vice President of Relations and Human Capital, has its own budget and, like other management areas, starting in 2010, will have performance and variable compensation tied to results. Alongside the creation of the governance structure, the company outlined, as part of its planning for 2010-2012, a specific strategic goal in sustainability - Be Committed to Sustainability. Processes and management systems will be implemented seeking to perpetuate the business and sustainable development of the communities where SulAmérica operates. In 2010, part of the board of executive officers will be assessed by means of a sustainability target tied to variable compensation. 25 ANNUAL REPORT 2009 STRATEGY During the second half of 2009, the Committee established preliminary pillars of sustainability at SulAmérica: Supporting the Community; Developing Human Capital; Respecting the Environment; and Work with Ethics and Transparency. The goal is to organize the company’s initiatives to consolidate and clarify its vision on how sustainability permeates the business. [GRI 4.15] Support the community In the relation with the community, SulAmérica invest in campaigns, actions and social projects that rely on voluntary work by employees and partners. Some of them have become reference of good citizenship practice and environmental preservation. Additional information about private social investment and volunteering at the company can be found in chapter 10.8, on Intangible Assets - Social Investment. [GRI 4.16] Develop Human Capital The development of the Human Capital through a clear Human Resources policy and consistent investment in initiatives for relationships and development of people is the only way to make the business increasingly more profitable and sustainable. For additional information about the actions for people development, please refer to chapter 10.2, on Intangible Assets - Human Capital. [GRI 4.16] Respect the environment In recent years, consumption of natural resources became a systematic and conscious concern at SulAmérica, reinforced also by the potential impact, on its entire line of products, of environmental disasters caused by climate change. With the increase in the number of events of major proportions, losses to be indemnified also increase every year. [GRI 4.16] Work with ethics and transparency The responsible corporate behavior requires an approach guided by ethics and transparency, attitudes integrated into all SulAmérica’s activities. Among the several initiatives, we should mention the Code of Ethics and Conduct (which gathers the standards of professional conduct in the relationship, internally and with third parties), the manuals for shareholders and the various committees that evaluate all the activities of the company. Please, refer to chapter 7, Corporate Governance. Also in 2009, SulAmérica started a diagnostic work of existing practices, actions and evidence related to corporate sustainability. This study contributed to the creation of a basis for the sustainability strategy. During the process, several leaders and managers from different business units were involved. The target is to have a sustainability strategy and action plans implemented in 2010. Since 2008, the Company has been adopting the guidelines of the Global Reporting Initiative (GRI) in the annual report as a way to integrate socio-environmental information to economic-financial information. This practice contributes to the development of an internal culture on the topic, and to the identification of opportunities for improvement of processes, from the standpoint of sustainability. [GRI 4.16] Stakeholder engagement The relevance of the engagement of different stakeholders directly and indirectly related to the activities of SulAmérica, taking into account their needs, expectations and demands, is part of company culture. [GRI 4.16] Council of Customers In September 2009, SulAmérica innovated in the relationship with customers by launching the SulAmérica Lab, a series of meetings that the company will promote with insured members to listening to them directly what they think about the products and services of the company. The meetings take place every two months in Sao Paulo and Rio de Janeiro as Council of Customers, and rely on the participation of about 40 customers. The pioneering initiative reflects the concern of the company in structuring its businesses. [GRI 4.16] Climate Committees SulAmérica created Climate Committees in all its Vice President areas to promote greater integration in the areas and improve matters identified as lower than expected in the Climate Survey conducted biannually. The committees consist of employees and managers who define the action plan for the improvement of the points identified in the survey. The action plans are carried out by the Climate Committee with the involvement of other employees in each area. [GRI 4.16; 4.17] Charters, Principles and Other Initiatives (GRI 4.12) To clarify its position internally and externally, SulAmérica declares its commitment to sustainability by participating in charters, principles and conventions relative to issues that are critical to its business. In line with this, it was the first insurance company to be listed in the portfolio of BM&FBovespa’s Corporate Sustainability Index (ISE). By joining the index, SulAmérica had its dedication to the topic recognized in recent years, both in its strategic priorities, and in its operations. ISE consists of 43 shares in 34 companies, representing 15 industries and totaling R$730 billion in market value. Listed shares are selected among the 150 most actively traded on the floor, in terms of liquidity, and weighted in the portfolio at market value of assets available for trading. Being part of this group of companies allows SulAmérica, among other gains in reputation and image, accessing a fund industry dedicated to sustainability, which has a net worth estimated at R$1.13 billion in Brazil. [GRI 4.12; 4.13] Is also worth stressing that, in 2009, SulAmérica Investimentos – an area dedicated to the segment of asset management – has become a signatory to the Principles for Responsible Investment (PRI), a platform developed by the United Nations and by a group of 20 representatives from 12 countries. The initiative aims at encouraging investment companies to incorporate actions related to environmental, social and corporate governance issues while assessing the performance of its portfolio. In September 2009, the Ministry of the Environment, the National Confederation of Insurance Companies (CNSeg) and 26 ANNUAL REPORT 2009 STRATEGY the Rio de Janeiro and Espirito Santo Insurer Trade Association signed the Green Insurance Protocol (see box). SulAmérica, along with other insurance companies, was a pioneer in engaging into the discussions of the working group formed to draft the protocol of intent. Now, the challenge is to incorporate environmental criteria, as suggested in the protocol, in the assessment of socio-environmental impacts and costs in managing its assets, in risk analysis of insured enterprises, and in the development of new products. Within its sphere of activity and influence, SulAmérica adopts and supports a set of values relative to human rights, improved working conditions and environmental preservation, through clauses that do appear on all contracts. In addition to contractual clauses, the company reinforces these commitments in its Code of Ethics and Conduct, which is distributed to all employees and is available to all stakeholders in the company’s website. Green Insurance Protocol – Main Proposals 1 – Offer insurance, pension, and capitalization products that foster life quality to the population, and the sustainable use of the environment, observing the following guidelines: I) Continuously improve the supply of products and services to promote projects that have socio-environmental additions; II) Offer products designed to cover damage to the environment and encourage their purchasing; III) Guide the consumer of its products to the adoption of sustainable practices of production and conscious consumption. 2 – Consider the socio-environmental impacts and costs in managing its assets and risk analysis, based on internal policies of each institution and the following guidelines: I) Require in the analysis of proposals relating to insurance coverage of plant and equipment potentially causing significant environmental degradation, the presentation by the proponent of environmental permits required by applicable law; II) Incorporate socio-environmental criteria to the process of risk underwriting, considering its potential impacts and the need to recommend technical protection measures; III) When compatible with the nature of the capitalization title, consider the allocation in projects of socioenvironmental interest part of the proceeds received; IV) Consider, in investing the assets guaranteeing technical provisions, the exclusion of securities issued by companies with socio-environmental standards with performance below the acceptable. Examples of Commitment a) Supports and respects the protection of internationally proclaimed human rights; b) Makes sure its own corporations are not complicit in abuses and violations of human rights; c) Upholds the freedom of association and the effective recognition of the right to collective bargaining; d) Supports the elimination of all forms of illegal work, among them, but not limited to, forced, compulsory, analogous to slavery, and in irregular or similar situation; e) Supports the effective eradication of child labor; f) Supports the elimination of discrimination in respect of employment and occupation; g) Supports a precautionary approach to environmental challenges; h) Undertakes initiatives to promote greater environmental responsibility; i) Encourages the development and dissemination of clean technologies that do not harm the environment; j) Works against corruption in all its forms, including extortion and bribery. 27 2009 AnNual REPORT Corporate governance SulAmérica is structured to ensure confident decision-making and quality Corporate governance practices SulAmérica has always been committed to quality and excellence in management and the satisfaction of its stakeholders. When going public in 2007, it joined the Special Corporate Governance Level 2 Listing Rules with BM&FBovespa S.A. – Securities, Commodities and Futures Exchange (“BM&FBovespa Level 2 Listing Rules”), calling, additionally, for 100% tag-along to all shareholders in case of change in the company’s ownership structure. [GRI 2.6] provided to shareholders, in order to facilitate and encourage their participation in Shareholders’ Meetings; In search of greater transparency and efficiency in management, SulAmérica endeavors to improve its system of corporate governance on an ongoing basis. In addition to complying with the regulations and the Level 2 Listing Rules, the company adopts additional corporate governance practices, among which: • BM&FBovespa indexes The company’s units, which had been already listed in indexes IGC (Special Corporate Governance Stock Index) and ITAG (Special Tag Along Stock Index) since 2008, are now part of ISE portfolio (Corporate Sustainability Index) and IBrX (Brazil Index) in 2009. SulAmérica’s inclusion in these indexes shows the market’s recognition and confidence regarding the corporate governance and sustainability practices adopted by the company, in addition to the liquidity of the assets that are traded. •Manual for shareholders’ participation at Shareholders’ Meetings Since 2009, SulAmérica has been offering a manual with detailed orientation for participation in Shareholders’ Meetings. By preparing the manual, the company aims at improving the transparency and quality of information • Outstanding shares in percentage higher than the amount required by BM&FBovespa’s Level 2 Listing Rules The company continuously monitors its outstanding shares. In 2009, it kept average 37% of outstanding shares in the market, which remains above the 25% baseline required by BM&FBovespa’s Level 2 Listing Rules. • Assessment of the Board of Directors [GRI 4.10 e 4.7] In line with the best corporate governance practices, every 28 2009 AnNual REPORT Corporate Governance year SulAmérica’s board members evaluate their individual performance as well as that of the Board of Directors itself, identifying and proposing actions that may improve performance. • Setting up a Sustainability Committee In March 2009, in another measure to show its commitment to sustainability, SulAmérica created a Sustainability Committee, as the body that is responsible for formulating and implementing the strategic program for corporate social responsibility and providing guidance to the executive bodies on matters relating to sustainability. • Charter and Guide of Information on the Board of Directors In addition to the charter that governs the Board of Directors’ operations and provides for measures to avoid conflict of interests, SulAmérica prepared a Guide of Information for the Board’s members in 2009. The material – provided to all board members and alternates – gathers and makes immediately available to them all the database that makes up the legal, regulatory and corporate knowledge to the activities inherent to the Board of Directors, thus catalyzing the integration of the members to the company’s decision-making process and evidencing the expectations of all stakeholders. [GRI 4.9] • Transparency and wide disclosure of information SulAmérica has policies that provide for a wide dissemination of material information in compliance with applicable standards. In its website, it publishes all material facts, communiqués to the market and main corporate actions and information, making them available both in Portuguese and in English at the same time. • 100% Tag-Along All SulAmérica shareholders owning common or preferred shares are entitled to the same conditions offered to the controlling shareholders in the event of sale of the company’s control (100% tag-along), an amount higher than the 80% required by BM&FBovespa’s Level 2 Listing Rules. • Blackout period To maintain good corporate governance practices, SulAmérica adopts a 15-day blackout period prior to the public disclosure of its financial statements, thus ensuring that the communication of this information is equal to all stakeholders. During this period, the company does not make comments or disclose information about its results. However, in order not to hinder the market’s monitoring of SulAmérica’s activities, the company’s routine information is communicated normally during the blackout period. • Stock option program Since March 2008, the company has been adopting a purchase option plan for Sul América S.A. shares, as part of the variable compensation of executive officers. The stockbased compensation consists of options to buy shares or units issued by Sul América S.A., granted to members of SulAmérica’s board, aimed at stimulating the expansion and success of its corporate objectives, by aligning the interests of its shareholders and directors, both in the medium and long term, by linking the compensation to the future performance of the company’s shares. • Impairment to vote in case of conflict of interest SulAmérica’s by-laws expressly determine that board members shall not vote regarding matters in connection with which there is a conflict of interest. [GRI 4.6] Corporate governance structure Within the administration scope, the SulAmérica’s corporate governance system, based on the transparency, equity and accountability, has as its main decision-making instance the Board of Directors and its advisory committees, comprised by members of the Board and external experts. The organization chart below shows the main authorities in SulAmérica’s corporate governance system: 29 2009 AnNual REPORT Corporate Governance Shareholders’ Meeting Fiscal Council Board of Directors Audit Committee Investment Committee Compensation Committee Governance and Disclosure Committee Executive Board of Directors Internal Audit External Audit Asset-Liability Management Committee Executive Committee Sustainability Committee Action Plans Evaluation Committee Corporate Risks Comitee Credit Comitee [GRI 4.6] 30 2009 AnNual REPORT Corporate Governance General Meetings Every year, the General Meeting convenes ordinarily to take the accounts of the management, examine, discuss and vote on the management report and the financial statements; to approve the allocation of the fiscal year’s income; to elect the members of the Board of Directors, and to establish the compensation of the management (Board of Directors and Board of Executive Officers). On an extraordinary basis, the General Meeting convenes whenever necessary to resolve on matters that are relevant for the company. The company has adopted some procedures to facilitate and increase the participation of shareholders in the Meetings, such as: (i) early disclosure of documents and information related to matters that will be discussed at these meetings; (ii) holding the Meetings at times and locations that allow the attendance of the largest possible number of shareholders; and (iii) making available a manual providing instructions for participation in Meetings. [GRI 4.1] At the Shareholders’ Meeting held by Sul América S.A. on March 31, 2009, the following members were elected to its Board of Directors, with terms ending on March 31, 2010: Board of Directors Sul América S.A.’s Board of Directors is composed of nine1 members. An equal number of alternates may be elected, all of them shareholders of the company, and with a unified one-year term of office, reelection permitted. In 2009, two members of the Board of Directors complied with the independence as requested by BM&FBovespa’s Level 2 Listing Rules. At the General Meeting to be held on March 31, 2010, Sul América S.A.’s management will propose raising to 3 the number of Independent Members, equivalent to 33% of the members, a percentage that is higher than the required by the above-mentioned rules. CHAIRMAN Patrick Antonio Claude de Larragoiti Lucas was first elected to the Board of Directors of Sul América S.A. and its affiliates in 1998, and he presides over the Investments, Compensation, and Governance and Disclosure committees. He joined Sul América S.A. in 1987, and since 1998 he has been the CEO for the company and affiliates. He is Chairman of the Board with Brasilsaúde Companhia de Seguros, as well as a Member of the Board with Brasilveículos Companhia de Seguros. In addition, he has been a board member of the Geneva Association since 1999, Chairman of the Board with the Institute of Supplemental Health Studies (IESS) and First Vice President of CNSeg, and also served as member of the board with Unibanco Holding. In 1987, he worked for Compagnie Suisse de Reassurances Schweizer Ruck in Switzerland. From 1985 to 1986, he worked in the Capital Market department of Chase Manhattan Bank in Sao Paulo and in New York. He holds a degree in Business Administration from Fundação Getúlio Vargas in Sao Paulo. [GRI 4.1; 4.2] The Mission of the Board of Directors is to collaborate to protect and appreciate the company’s assets and act toward its perenniality. It shall ensure the return on investment for shareholders, based on long-term prospects, sustainability and adoption of best corporate governance practices in the definition of business. Since 2007, the Board of Directors has been adopting a continuous improvement program, aimed at improving its performance and its contribution to defining the business strategy. In 2009, this resulted in a new process of selfassessment and evaluation of the performance of the Management Board as a collegial body. This annual initiative allows board members to identify and propose actions to improve its performance. [GRI 4.7, 4.10] The Board also has an internal charter that governs its operation and a document with Guidelines and Information, delivered to all members. [GRI 4.1] Members: Patrick Antonio Claude de Larragoiti Lucas (Chairman) [GRI 4.2] Robert William Crispin (Vice Chairman) Carlos Jaime Muriel Gaxiola Isabelle Rose Marie de Ségur Lamoignon Joaquim de Mello Magalhães Júnior Jorge Hilário Gouvêa Vieira Rony Castro de Oliveira Lyrio Pierre Claude Perrenoud (Independent Member) Roberto Teixeira da Costa (Independent Member) Arthur John Kalita (alternate to Member Carlos Jaime Muriel Gaxiola) Carlos Alexandre Larque Lobo de Castro e Silva (alternate to Member Robert Willian Crispin) Carlos Infante Santos de Castro (alternate to member Isabelle Rose Marie de Ségur Lamoignon) [GRI 4.1; 4.2; 4.3] VICE CHAIRMAN Robert William Crispin has served as Vice Chairman of the Board of Directors since 2006, having previously served as a member of its Compensation Committee from 2005 too 2008. From 2001 to 2007, he served as Chairman of the Board of Directors and Executive Board at ING Investment Management LLC and as a member of ING’s Executive Management Team for the Americas, where he was responsible for all ING’s insurance management and investment activities in the Americas. During the past 35 years, Mr. Crispin has held a number of positions in insurance and financial services firms, directing several business units, including investments, finances, distribution, reinsurance, international operations and technology. He holds an MBA from the University of Connecticut and is also a Chartered Financial 1 The number of members of the Board of Directors of Sul América S.A. does not include the number of members of the board of directors of its subsidiaries. On 31 December 2009, the Company had, consolidated, including indirect subsidiaries Brasilveículos Companhia de Seguros and Brasilsaúde Companhia de Seguros, 18 members on the board. 31 2009 AnNual REPORT Corporate Governance Analyst (CFA). [GRI 4.1] MEMBERS Carlos Jaime Muriel Gaxiola has been a member of the SulAmérica’s Board of Directors since March of 2008, serving also as a member of the Compensation Committee. Since December 2002, he has been working in ING Group companies, currently serving as CEO and Executive Vice President of ING Latin America. He holds degrees in Industrial Engineering from Universidade IberoAmericana, in Mexico City, and in Economics and Business Administration from Austin Community College. Isabelle Rose Marie de Ségur Lamoignon has been a member of Sul América S.A.’s Board of Directors since 1997, and a member of the Board of Directors of affiliates since 2005. She has been a Director at Sulasa Participações S.A. since 1993 and has served on the Board of Directors with Sul América Capitalização S.A. – Sulacap since 2002. She served on the Strategy Committee from 1998 to 2002, and attended the Management Development Program in Rio de Janeiro. Joaquim de Mello Magalhães Júnior has been a member of the company’s Board of Directors since 1992. He served as Executive Officer with Sul América Companhia Nacional de Seguros from 1962 to 1977 and has been the President of the Board of Executive Officers of Companhia Comercial do Rio de Janeiro since 1962. He specializes in Political Economics at Lausanne University’s École des Hautes Études Commerciales in Switzerland and holds a degree in Law from the Rio de Janeiro Federal University. Jorge Hilário Gouvêa Vieira has been a member of Sul América S.A.’s Board of Directors since 1996 and has served on its Auditing Committee since 2002. He has also served as Finance Secretary in the Rio de Janeiro State government from 1987 to 1990, as President of Brazil’s National Private Insurance Council (CNSP) from 1985 to 1987, as a member of the National Monetary Council from 1985 to 1987 and from 1979 to 1981, as a Board Member at the Rio de Janeiro Stock Exchange from 1983 to 1985 and President and Executive Director of the Brazilian Securities Commission from 1979 to 1981 and from 1977 to 1979, respectively. He was Vice-President of ABRASCA from 1981 to 1985 and Board Member in 1995. In addition, he was a Member of the Board with IBMEC – Brazilian Institute of Capital Markets and member of the management boards with Companhia Brasileira de Petróleo Ipiranga, MBR – Mineração Brasileiras Reunidas S.A., Generali do Brasil – Companhia Nacional de Seguros, White Martins S.A., MRS Logística S.A., Caemi Mineração and Metalurgia S.A., VARIG – Viação Aérea Rio Grandense, Viva-Cred and IRB-Brasil Resseguros S.A. Mr. Vieira is currently a partner with Gouvêa Vieira Advogados and a Board Member at Boa Esperança S.A. He holds a degree in Law from the Rio de Janeiro Catholic University and a Master’s in Law from the University of California-Berkeley. Pierre Claude Perrenoud has been a member of Sul América S.A.’s Board of Directors since 2000. Between 1960 and 1990, Mr. Claude held several positions at Swiss Re and was responsible for the company’s operations in Latin America and other countries. He is currently a board member with captive insurance and reinsurance companies in several countries. He holds degrees in Business Administration from Switzerland’s Neuchatel Business School and in Hispanic Studies from the University of Madrid. He complies with the independence requirements as set forth in BM&FBovespa’s Special Corporate Governance Level 2 Listing Rules. Roberto Teixeira da Costa has been a member of Sul América S.A.’s Board of Directors since 1999, has served on the Compensation Committee since 2002, and since 2008, he has been a member of the company’s Auditing, and Governance and Disclosure committees. He was the International President of the Business Council of Latin America – CEAL from 1998-2000, and the first President of the Brazilian Securities Commission. He is currently a member of the Board of Directors of BNDESPAR - BNDES Participações S.A., and of the Inter-American Dialogue in Washington, DC, as well as member of the advisory boards of Bunge Alimentos, Companhia Brasileira de Distribuição (Pão de Açúcar), Comercializadora de Energia Elétrica Ltda. (COMERC) and Banco Latinoamericano de Exportaciones S.A. He holds a degree in Economics from the Rio de Janeiro Federal University. Mr. Costa is a founding partner and current member of CEBRI – Brazilian Center for International Relations, and a member of University of Sao Paulo’s GACINT – International Conjuncture Analysis Group. He complies with the independence requirements as set forth in BM&FBovespa’s Special Corporate Governance Level 2 Listing Rules. Rony Castro de Oliveira Lyrio has been a member of Sul América S.A.’s Board of Directors since 1992 and has served on the Compensation Committee since 2002 and on the Auditing Committee since 2005. He has also been serving in the boards of Brasilveículos Companhia de Seguros, since 1997, and Brasilsaúde Companhia de Seguros, since 1988. He joined SulAmérica in 1974 as Director of one of its subsidiaries, has been serving as a member of the board for several companies in the group since 1975, and served as President of the Board of Executive Officers from 1985 to 1999. Between 1955 and 1974, he held several positions at Companhia Vale do Rio Doce. He holds a degree in Law from the Rio de Janeiro Federal University. ALTERNATE MEMBERS Arthur John Kalita is an alternate member of Sul América S.A.’s Board of Directors, in which he has been serving since 2006, and was a member of the Investment Committee from 2002 to February 2008. Before joining ING Group, where he serves as Investment Advisor for Latin America, he worked for J.P. Morgan and Company from 1982 to 1998, Public Securities Association, as Director 1978-1982, and Power Authority of the State of New York, 1976-1978. He holds degrees from Hamilton College and Albany Law School – Union University. Carlos Alexandre Larque Lobo de Castro e Silva has been an alternate member of Sul América S.A.’s Board of Directors since March 2008. He is partner, Pinheiro Neto Advogados. From 2000 to 2002, he served as foreign partner with Shearman & Sterling 32 2009 AnNual REPORT Corporate Governance in New York. He is a member with OAB/RJ, ABRASCA and NY Bar Association. He holds a degree in Law from the Rio de Janeiro State University and holds an LLM in Corporate Law from the University of Columbia, USA. Carlos Infante Santos de Castro has served as an alternate member of Sul América S.A.’s Board of Directors since 2006 and as a member of its Investments Committee since 2002. He is currently CEO of Sul América Capitalização S.A. – Sulacap, and serves as member of the Board of Directors with Brasilcap Board of Directors’ Advisory Committees Committee Audit Committee Capitalização and Caixa Capitalização. Mr. Castro has served as Corporate Vice President and as CFO, as well as serving as a member and Vice Chairman on the boards of several of the company’s operational subsidiaries focused on insurance such as P&C, health, pension, life and capitalization. He was a member of the Board of Directors with Brasilveículos, Brasilprev, Brasilsaúde and Brasilcap, served as CEO for GTE-Multitel, and served as Director of New Businesses at Grupo CataguazesLeopoldina in Rio de Janeiro. He holds a degree in Electrical Engineering from the Pontifical Catholic University of Rio de Janeiro, and MBA and MS in Production Engineering, from Function It is responsible for monitoring and assessing the internal and external audit activities, risks and internal controls, technical compliance, transparency and quality of information included in the company’s financial reports. It oversees the fulfillment of the company’s Code of Ethics and Compliance and guides the Board of Directors in the selection of the independent auditors and the officer in charge of the internal audit. Investment Committee The committee reviews the investment policy guidelines of the company and its subsidiaries. In addition, it is responsible for monitoring obtained results and for assessing the financial market scenario and trends, as well as the adoption of best risk control practices for investment management. Compensation Committee It assists the Board of Directors in establishing the compensation policy of the management of the company and its subsidiaries. It endeavors to be always in step with the compensation practices adopted by the market, besides reviewing and monitoring the evaluation of the management’s performance. Governance and Disclosure Committee It monitors and oversees the resolutions set forth in the Policy on Disclosure of Material Acts or Facts and on Securities Trading as well as in the obligations established in the Level 2 Rules adopted by the company. Stanford University, USA. Fiscal Council At the General Meeting held on March 31, 2009, the Fiscal Council was installed in SulAmérica on a non-permanent basis, for a term ending on March 31, 2010, comprised of five members, two of them representing minority shareholders. The Fiscal Council meets every three months and its primary duties are to verify the company’s results and the independent auditors’ report, besides expressing an opinion on the management’s accounts. Executive Vice-Presidents responsible for five business areas (Health, Auto and Massified, Investments, Other P&C, and Life and Pension) and for the areas of shared management, institutional, operation and distribution, in addition to twenty one directors. The members of the Board of Executive Officers act as the company’s legal representatives, and are responsible for the business executive management and for implementing the general policies and guidelines set forth by the Board of Directors. Members: Domingos Carelli Netto Jorge Augusto Hirs Saab Nelson Braune Sergio Alfredo Diuana Walter Iorio In December 2009, CEO Patrick de Larragoiti Lucas announced to the market his decision not to stand for another term on the board of executive officers. Effective March 2010, he stands as Chairman of the Board, but will no longer serve simultaneously as CEO and Chairman of the Board, a measure that reinforces SulAmérica’s commitment to the best practices of corporate governance. Board of Executive Officers The Board of Executive Officers of Sul América S.A. and its affiliates is composed of the Chief Executive Officer, ten Internal deliberative bodies For better performance of its attributions, the company’s executive board of directors counts on the following internal 2 The number of board members does not include indirect subsidiaries Brasilveículos Companhia de Seguros and Brasilsaúde Companhia de Seguros. On 31 December 2009, the total number of members of the board was 41, including indirect subsidiaries Brasilveículos Companhia de Seguros and Brasilsaúde Companhia de Seguros. 33 2009 AnNual REPORT Corporate Governance Committees Function Executive Committee (COMEX) It appreciates and decides on corporate and strategic matters for the company. Asset-Liability Management Committee - ALCO It aims at monitoring the SulAmérica’s risk exposure and evaluates strategies related to the management of assets by incorporating the characteristics of liabilities to reach its financial goals. Action Plans Evaluation Committee (COPA) It evaluates and approves projects proposed by the company’s vice-presidencies, which imply in investments (CAPEX) or additional expenses (OPEX) which exceed predetermined materiality limits. Corporate Risks Committee It evaluates and approves risk management policies and examines the limits to be observed in the company’s operations, supporting the company’s strategic risks management. Credit Committee It evaluates and proposes maximum credit and exposure limits to be observed in the routine of investments made by the company. Sustainability Committee It formulates and carries forward the strategic program for corporate social responsibility, in addition to advising COMEX and other stakeholders on sustainability-related matters. deliberative bodies: Administrators’ compensation policy SulAmérica adopts a unique compensation policy3, which establishes the guidelines to be observed relative to the compensation of key management staff members. For the purpose of the policy, SulAmérica’s key management staff are the members of the Board of Directors, Executive Officers, Fiscal Council, and advisory committees to the Board of Directors, statutory and non-statutory (“Key Management Staff”). The Compensation Policy’s main objective is to align the interests of the Key Management Staff to those of SulAmérica’s, providing a total compensation consistent with the best practices observed in its markets, contributing not only to encourage, attract and retain qualified professionals to perform its functions, but also to generate value for shareholders. In 2009, the compensation to Key Management Staff consisted of the following components: fixed remuneration, variable remuneration, post-employment benefits, and compensation based on shares. The fixed remuneration for the Key Management Staff consists of part of the regular pay and is determined on the basis of responsibilities and duties of the position, in accordance with best market practices adopted by companies in the same business segments as SulAmérica, i.e., publicly traded companies of the size and characteristics similar or total compensation strategies similar to those adopted by SulAmérica, as recommended by expert consultants, with the fixed income being an important component of the calculation basis for other elements of the compensation. Part of the Key Management Staff is eligible for variable ordinary pay, represented by additional fees paid in the form of annual bonuses, aimed at promoting greater interest and alignment of their goals with those of SulAmérica. The amounts allocated are the result of an evaluation process based on goals set in management contracts. The portion of the compensation represented by postemployment benefits is made up of pension plan established for the benefit of members of the SulAmérica’s board, aimed at the formation of long-term savings and a source of supplementary income in retirement. The stock-based compensation consists of options to buy shares or units issued by Sul América S.A., granted to members of SulAmérica’s board, aimed at stimulating the expansion and success of its corporate objectives, by aligning the interests of its shareholders and directors, both in the medium and long term, by linking the compensation to the future performance of the company’s shares. The total compensation paid to Key Management Staff observes the global amounts approved at general meetings of shareholders of the respective companies. In 2009, the total compensation paid to Key Management Staff, posted in SulAmérica’s results, including benefits and remuneration based on shares, was R$82 million. [GRI 4.5] (3) The Compensation Policy does not include indirect subsidiaries Brasilveículos Companhia de Seguros and Brasilsaúde Companhia de Seguros. 34 2009 AnNual REPORT Corporate Governance Remuneration posted in SulAmérica’s consolidated results1 Year ended on December 31, 2009 (R$ thousand) Board of Directors Directors Fiscal Council Amount of highest individual compensation 881 5,722 0 Amount of lowest individual compensation 180 964 0 Average amount of individual compensation 216 1,843 0 3,894 78,328 1 Total amount per body ¹ Information extracted from items 13.2 and 13.11 from Reference Form (Instruction CVM no. 480/09). Investor Relations The Investors Relations area has as main audience shareholders, investment professionals, media specialized in finance, and academics who study the financial and capitals markets. SulAmérica has been strengthening its contact with analysts and investors, seeking to expand the capital market knowledge on the insurance business, and to add greater transparency to the relations with stakeholders. In 2009, executives of the company participated in more than 200 events, including conferences and meetings with investors in Brazil and abroad, more than 130 individual meetings in Brazil, and about 65 abroad. The company also held eight conference calls on its results, four in Portuguese and four in English, and held public meetings with analysts and investors of the capital market (Apimecs). [GRI 4.4] In 2009, SulAmérica also released a new version of its Investor Relations website (www.sulamerica.com.br/ir). In this update, new features and latest and more dynamic tools have been incorporated. The contents offered by the website were expanded and its access became easier, for more convenient browsing and interactivity with users. A new feature was the access to the training module developed by SulAmérica’s Corporate University - UNIVERSAS, allowing investors, analysts and interested persons in general to benefit from the knowledge base offered by this e-learning tool. In recognition for its greater contact point and transparency with market agents, SulAmérica was appointed one of the three listed companies with the best evolution in Investor Relations (small & mid cap companies), an award promoted by IR Magazine, jointly with RI magazine and IBRI. In the award, the company was also appointed one of the 10 companies holding the best meeting with the community of investment analysts (small & mid cap companies), and Corporate Vice-President and Investor Relations, Arthur Farme d’Amoed Neto, was selected one of the 10 best IR professionals (small & mid cap companies). Another recognition that reinforces the quality of information provided by SulAmérica was its Annual Report 2008 appointment as top 10 among companies with net income equal to or above R$1 billion by the Brazilian Association of Listed Companies (Abrasca). In this edition of the Annual Report, for the first time, the contents are available exclusively through the internet, promoting greater interactivity, easy navigation and information about the company and its latest results. The greater contact with the capital market also positively influenced the liquidity of the units in 2009. In May, SulAmérica was listed in the portfolio of Small Cap Index - SMLL, consisting of 90 shares in companies listed in BM&FBovespa, and from January 2010, it was also listed in the BM&FBovespa’s Financial Index (IFNC) and Brazil Index (IBrX). IFNC consists of 14 shares in 13 companies representative of financial intermediation segments, general financial services, and pension and insurance, selected by their liquidity. The IBrX portfolio consists of the 100 most traded shares at BM&FBovespa, in number of transactions and financial volume. Audit and internal controls Internal controls and compliance SulAmérica disseminates the culture of controls, focusing on ethical principles and strict compliance with the law. Every employee is a control agent responsible for maintaining internal controls and contributing to their enhancement. Since 2004, SulAmérica has been implementing a broad program seeking to ensure compliance with the laws and regulations applicable to the company’s activities, through an ongoing process of adhering to and updating regulations, monitoring compliance with the calendar of regulatory requirements, and fulfilling requirements from regulators. In addition, the company develops campaigns, training sessions, events and workshops aimed at its customers, brokers, partners and employees, to strengthen the fraud prevention culture. In 2009, distance-learning courses were held on legal compliance, ethics and prevention of money laundering. These initiatives were attended by, respectively, 87%, 88% and 97% of the company’s active personnel. 35 2009 AnNual REPORT Corporate Governance Aware of the risks inherent to the use of the insurance market to conceal resources stemming from illegal activities, SulAmérica is committed to efforts for money laundering prevention, as well as to compliance with the laws providing for the matter. [GRI 4.4] Internal audit The SulAmérica internal audit reports directly to the Board of Directors and Audit Committee, and one of its main functions is to develop works or investigations required by the Audit Committee. The purpose of the internal audit is to assess the adequacy and efficiency of the processes of risk management and control of its products and services, ensuring the identification of the highest points of risk for the company, making recommendations and monitoring as set forth by its internal charter. SulAmérica adopts internal codes and standards such as the Code of Compliance, which brings the guidelines to be observed by managers and employees in performing their functions, as per the term of agreement signed by all, and highlights the ethical principles and standards of conduct to be adopted. Policy on Disclosure of Material Acts or Fact and on Securities Trading SulAmérica has a Policy on Disclosure of Material Acts or Facts and on Securities Trading. In addition to the requirements set forth in CVM Instruction 358, the company adopts additional procedures, such as adherence by independent auditors and consultants who have access to material information, with the policy remaining in effect up to 5 years after the end of the relationship with the Company. To ensure compliance with the policy, the company is advised by the Governance and Disclosure Committee. In addition, the internal audit sets forth mechanisms to minimize legal and regulatory sanctions, financial losses or reputation risk. The Company also has a Code of Compliance, which helps in the dissemination of guidelines adopted by SulAmérica, and a channel for receipt and investigation of complaints, which facilitates the timely identification of possible irregularities. In 2009, SulAmérica had an outstanding performance in the development of preventive actions to combat fraud, by promoting: (i) workshops with the areas that work with the direct or indirect prevention of fraud; (ii) campaigns with employees and brokers; and (iii) events for the insurance market. Code of Ethics SulAmérica conducts its business within the highest ethical and moral standards. It understands that the administrators and employees, regardless of hierarchical levels, are responsible for the fulfillment of this goal. In the same year, the company acquired a computer system that, after its full implementation, will optimize the works of internal audit and promote the integration of information between the areas. This will increase the adroitness in the exchange of information and enable a unified management of risk prevention. Since 2001, the company observes and causes the observation of its Code of Ethics, which establishes the rules that will govern the behavior of its employees in internal and external relations, being all responsible for ensuring that the code is widely disseminated and appropriately fulfilled. [GRI 4.8] The internal audit reports the outcome of the work to the Audit Committee, quarterly. This ongoing monitoring allows timely identification of any defect that would jeopardize its effectiveness. In 2009, the Audit Committee concluded that the internal audit and internal controls of the company meet its current needs, finding no deficiencies that could jeopardize its effectiveness. The SulAmérica Code of Ethics is delivered to all employees upon their admission and is available for consultation at the Employee Portal and in the company’s Investors Relations site. Ombudsmanship Created in January 2005, the Ombudsman position acts in compliance with the SulAmérica values, intermediating conflicts between the consumers and the company. The main goals of the ombudsman are not only acting towards the customers’ rights, but also in the clarification of their duties relative to the service purchased. [GRI 4.4] Dial Fraud SulAmérica also has a communication channel to report situations that are contrary to the guidelines of the Legal Compliance Program. This channel allows sending messages to the areas of Compliance, Internal Audit and Fight against Fraud. In addition, the Ombudsman seeks to improve products and processes through the analysis of cases received, thus minimizing the risk of financial loss for fines and litigation, ensuring a continuous improvement. Report Your report is the best protection and chief responsible for solving these cases. Confidentiality is absolute. In 2009, the Ombudsman conducted a review of the SulAmérica Manual of the Policyholder and the Auto Insurance policy, to increase the quality and transparency of information provided to its customers. Dial Fraud 4002-3433 Mail Caixa postal 971 – CEP 20001-970 Rio de Janeiro – RJ Internet www.sulamerica.com.br As a result of its actions, in cases where the Ombudsman participated in 2009, about 50% were fully met, as reported by the customers themselves, strengthening the relationship between SulAmérica and consumers. 36 2009 AnNual REPORT Corporate Governance External audit Deloitte Touche Tohmatsu Independent Auditors is the independent audit firm hired by the company to provide external audit services related to the examination of financial statements for the year 2009, and issued an unqualified opinion on them. In December, SulAmérica hired KPMG Independent Auditors to perform services for a period of four years, starting in fiscal year 2010. The external auditors of the company comply with the standards of the Federal Accounting Council - CFC on the independence of their activities. Interested parties Internal channels [GRI 4.4] SulAmérica maintains a transparent dialog as basis for a consistent, ethical and sustainable relationship with all the audiences directly and indirectly involved in its operations (stakeholders), endeavoring to identify their need and expectations. As tools for planning its initiatives in this area, the company uses a number of channels for communication with stakeholders. In 2008, SulAmérica adopted a new corporate communication manual, to unify the company’s speech and make its communication with stakeholders more agile and transparent. Canais de comunicação A SulAmérica dispõe de vários canais de comunicação para que seus stakeholders possam esclarecer dúvidas e enviar críticas e sugestões: [GRI 4.4] Function Customer Complaints Employees register the complaints from SulAmérica external clients (friends, acquaintances, relatives, etc.) to facilitate problems resolution. Talk to Us (Universas) Space for employees to submit doubts, suggestions and criticism regarding the training provided. Talk to Compliance Employees are encouraged to access the Talk to Compliance to report cases they identify as any situation that might be in disagreement with the Legal Compliance Program guidelines. They can send messages to the Compliance Department, Internal Audit and Fraud Prevention, with total secrecy. External channels [GRI 4.4] Function Talk to IR To facilitate the communication with its shareholders and investors, SulAmérica maintains in its portal a session where it publishes financial reports, communications and relevant facts, in addition to information regarding the company. Call Center In addition to conventional telephone attention, SulAmérica developed an exclusive call center system for people with special needs regarding hearing and speech (all the products) and segmented the services to its customers (Automobile, Massified Insurance and Other P&C, Investments, Pension, Health and Life). Institutional portal The institutional portal was set up focused on segmented communication. It offers relevant contents directed to several audiences, thus improving the relations with customers, brokers and service providers. SulAmerica.com You This platform aims at strengthening the digital presence of SulAmérica in interactive media through a portal that allows the participation of interested parties in discussions and polls, as well as simulations with different plans and products. Regulated activities SulAmérica’s activities are regulated and supervised by the regulatory bodies and agencies listed below: • Brazilian Securities Commission (CVM) • Superintendence of Private Insurance (Susep) •National Agency for Supplementary Health (ANS) • Council for Supplementary Health (CONSU) • Brazilian Central Bank (Bacen) • National Council for Private Insurance (CNSP) • Brazilian Institute of Reinsurance (IRB) 37 2009 AnNual REPORT Corporate Governance • Council of Resources of the National Private Insurance System (CRSNSP) •National Council for Self-Regulatory Advertising (Conar) The company maintains a control system for compliance with applicable standards and regulations, conducting periodic processes of verification and accountability to the abovementioned regulatory bodies and agencies, as well as continuous monitoring of new standards that may affect these processes. • Association of Analysts and Investment Professionals in the Capital Market (Apimec) http://www.apimec.com.br/, • National Confederation of Companies in General Insurance, Private Pension and Life, Health Insurance and Capitalization (CNSeg) http://www.fenaseg.org.br, • National Federation of Security (Fenaprevi) http://www.fenaseg.org.br/, SulAmérica also developed a close relationship with regulatory bodies and agencies in order to participate actively in discussions and public hearings, contributing to the development of standards subject to public audit and aligned with the new market trends. • National Health Federation (Fenasaúde) http://www.fenaseg.org.br/, The company is part of the following representative entities: • National Federation of Insurance (Fenseg) http://www.fenaseg.org.br/ and • Brazilian Institute of Investors Relations (IBRI) http://www.ibri.com.br/home/, • Brazilian Association of Listed Companies (Abrasca) http://www.abrasca.org.br/capa.asp, • National Federation of Capitalization (Fenacap) http://www.fenaseg.org.br/, • Brazilian Association of Advertisers (ABA) http://www.aba.com.br/Home.aspx. 38 2009 ANNUAL REPORT Risk management SulAmérica acts consistently in anticipating scenarios that interfere in business Accepting risks is an essential part of SulAmérica’s business. In order to ensure that the acceptance of risks, inherent to the insurance business, is made consistently and in line with the company’s strategic goals and policy, risk management is concentrated in five main aspects: [GRI 4.8; 4.9;4.11] with an integrated view of the company’s risks. The instance consists of the Chief Executive Officer (CEO), Vice-President, Control and Financial Operations (CFO) and Actuarial Director (CIRO). The duties of the Committee are: • control of the impact of negative events; • to align the risk policy with the corporate strategy; • management of uncertainties inherent to the accomplishment of goals; • to support the company’s strategic risk management aimed at improved allocation of capital; • search for opportunities, aiming at obtaining competitive advantage and increasing value to shareholders; • to report to the Management and Board of Directors the treatment given to material risks; and • alignment of the company’s risk policy with the strategies adopted; and • to approve retention levels per insurance segment, and significant changes in underwriting policies. • optimization of the capital allocation structure. The Board of Directors plays the important role of supervising risk management, by determining the general guidelines to be observed and their limits. The CEO is responsible for periodically reviewing, with the Risk Management Committee, the global To define the corporate risk management strategies, SulAmérica created the Corporate Risk Committee in 2008, a collegial body • to approve the risk management policy; 39 2009 ANNUAL REPORT Risk Management strategies of the business to analyze and manage the material risks by keeping them at acceptable levels. Responsible for planning and coordinating the work of preventive audit (operating and systems), the Internal Audit is in charge of verifying the existence of adequate internal operational and systemic controls. These controls allow the identification and management of risks present in daily operations at SulAmérica, as well as the company’s adherence to existing standards and laws. In order to become possible to apply the guidelines throughout all business areas, the company relies on a complete, comprehensive and integrated Enterprise Risk Management (ERM) system. Data about processes, identification and classification of risks and controls are input into the system, which in turn provides information for the implementation of action plans. SulAmérica makes also available for all employees the electronic documentation of its policies and procedures, manuals of organizational structure and resolutions of the executive board, allowing for the circulation of updated material information on risk management. ERM comprehends the following categories of risk: [GRI EC2] Credit Risk It is the risk that a debtor or borrower does not comply with the terms of an agreement. It is present in all activities where success depends on compliance with the agreement reached by the other party, issuer or borrower. For the classification of this risk, every institution or fund that performs financial transactions with SulAmérica receives a rating (score) in relation to their credit risk. For each business segment, maximum exposure limits are set for investment in institutions or private funds, in addition to maximum exposure limits for each of the scores. For reinsurance operations, the company has determined rules of assignment, consolidated exposure limits for each business, limits of assignment per rating, and credit limits per reinsurer. Finally, any contract of reinsurance has to abide to internal rules set by the Risk Committee. Market Risk It is the risk that the value of a financial instrument or a financial instrument portfolio changes due to the volatility of market variables (interest rates, exchange rates, stock and commodities performance indexes, etc.) caused by adverse factors. Since 2003, SulAmérica has been using asset and liability management techniques (ALM - Asset Liability Management) as a major tool to determine the parameters to be observed in the allocation of its investments. According to the guidelines set by internal committees, and following the policies defined by an investment mandate (updated periodically), fund managers allocate financial assets in investments that are consistent with the behavior of the liabilities. The investment mandates reflect important points for the proper management of resources, such as the company’s investment policy, the composition of portfolios per asset, limits for each portfolio, the existing legislation, description of products and liabilities, among others aspects. In general, the SulAmérica’s investment policy aims to establish a degree of alignment between the minimum liquidity needed for each segment of the company, and the investment guidelines to optimize the return on assets, considering the characteristics of liabilities in each business. The methodology for market risk management is based on the calculation of Parametric VaR (Value at Risk). In addition to VaR calculation, stress tests are performed to verify the expected loss in worst scenarios. Market risk is monitored by daily reports with information on VaR, in addition to monthly assessments of investment. Underwriting Risk It is the risk arising from an adverse situation that goes against the expectations of the company at the time of preparing the underwriting policy. It includes both the uncertainties existing in the actuarial and financial assumptions, and in the constitution of technical provisions. For the management and control of these risks, the company conducts a periodic routine review of the Procedures for Analysis and Review of Products (PARP). It aims at reviewing the bases of the products marketed, such as product definition, marketing studies, expected sales, and pricing. Based on these analyses, if necessary, action plans are determined to bring the product back to the company’s expectations. For the management and control of the risk of provision, due to a deviation in the type/and or average value of claims, SulAmérica adopts the following procedures: – tests for consistency of the methodologies for creating provisions; – recalculation of technical provisions; and – monthly monitoring on the variation of technical provisions. With those analyses, whenever needed, the company applies changes to the methodology for calculation of provisions, and reviews calculation and decision-making procedures. These measures contribute to maintaining technical provisions at proper levels. In addition to these controls, the company relies on internal actuarial models to determine the economic capital due to underwriting risks. The models determine the exposure value for each business line and enable a more effective risk management, as they make it possible to quantify gains or losses when adopting new action plans to control or mitigate underwriting risks. Operational Risk It is the risk of loss resulting from faulty, deficient or inadequate internal processes, people and systems, or external events. Frauds are an example. Since 2001, SulAmérica has been relying on specific communication channels as well as an area exclusively dedicated to fraud prevention and the development of preventive policies. In addition, in order to reduce risks even further, the company promotes ongoing training on the topic to employees. All internal processes are mapped out into a data system that shows the flow of activities and allows the identification of 40 2009 ANNUAL REPORT Risk Management respective risks and the controls involved in each operating procedure. Every risk and control provides qualitative information, allowing for the classification of processes according to their risk levels, and the identification of possible action plans to mitigate operating losses. SulAmérica is currently developing a project for management of operational risks aimed at attaining excellence in management. The project is in line with best practices and recommendations of international agreements and treaties, such as Basel II, Solvency II and COSO (Committee of Sponsoring Organizations), among others. The plan for business continuity is handled corporately, and, assisted by proper tools and methodologies, it provides for the operation of SulAmérica’s essential activities in crises, avoiding and minimizing financial losses to the company and its customers. Strategic Risk It is the risk of losses resulting from processes or decisions made, which affect the company’s sustainability, growth or competitive advantage. SulAmérica has a Committee for Assessment of Plans of Action (COPA), consisting of members from the management, which examines the initiatives that result in investment or additional expenses. In order to ensure compliance with the goals outlined in its strategic planning, SulAmérica adopts internal controls based on the Balanced ScoreCard (BSC) methodology as a management tool. This tool allows monitoring the achievement of goals in the short term and guiding its direction in the long term. Therefore, it allows identifying and correcting possible distortions in conduction during the implementation of the plan. In addition, BSC seeks to make the strategy more clearly communicated throughout the organization, as all employees will know about the future vision, the strategic objectives and the targets to be conquered. The cost of capital used in the company’s projects is calculated based on the methodology for calculating the Weighted Average Cost of Capital (WACC). The values of the assumptions are reviewed annually during the preparation of the annual budget plan or, more often, whenever the SulAmérica’s Corporate Committee deems necessary. Legal and Compliance Risk It is the risk of loss resulting from the non-compliance with laws or regulations, loss of reputation and poorly formalized operations. To reduce these risks, SulAmérica has a legal department present in each business area, aligned with the corporate vision. It is responsible for reviewing the insurance contracts to mitigate legal risks, and provides support to the judicial proceedings. The legal department contributes actively for the continuous improvement in the management of legal proceedings, by providing regular subsidies for corrective actions aimed at reducing legal risks in transactions. In addition, SulAmérica set up a Compliance structure with the position of Compliance managers in each department. The objective is to adapt the activities in the areas of the company to the determinations of regulatory and surveillance agencies, through a solid culture of internal controls, high standards of integrity and excellence in ethics and adherence to legislation. The Compliance managers are in charge of disseminating both the methodology and the determinations in the business areas, thus ensuring the effectiveness in risk management. They are guided by some basic procedures: the details of the key activities and their processes, the identification of risks and controls, and the creation of action plans. The process of self-assessment of the system of internal controls is performed, at least, twice a year. 41 2009 ANnual REPORT BUSINESS MARKET Overview Activities in diversified segments enhance growth opportunities Throughout its history, SulAmérica, the largest independent insurance group in Brazil, has been ensuring financial protection and peace of mind to its customers, today more than 6.7 million people. They have at their disposal a full line of products that offer solutions in the sectors of health insurance, auto insurance, other P&C segment, and life insurance and pension, as well as asset management. This multiline model provides a number of growth opportunities for the company’s businesses through a business structure that is supported by about 28 thousand independent insurance brokers and distribution partnerships with more than 20 financial and retail institutions. To support the work of insurance brokers, SulAmérica has a sales-support infrastructure made up by 14 branches and seven business units, in addition to more than 100 points of presence throughout the country. The company also has exclusive channel relationships with insurance brokers who rely on an extranet to facilitate their access to a number of services, including online proposals, consultation to commission statements, and reports relating to products and services. Rádio Corretor SulAmérica was another innovative channel launched to brokers in 2009, which can be accessed through the website www.portaldocorretor. com.br and has an exclusive programming 24 hours a day, including complete coverage of the insurance industry such as market movements, events, courses, sales tips, and news about the company, such as releases, promotions, sponsorships and the results of campaigns to foster SulAmérica sales. [GRI 2.7] In addition, to recognize the contribution of insurance brokers for SulAmérica’s success, and to motivate them even further, over the years the company has increased its campaigns to promote sales by offering a number of awards and the possibility of brokers to participate in the largest campaign for additional commissioning in the market. As a result of this successful partnership in 2009, the broker satisfaction rate with the company increased by 6o bps compared to 2008, with emphasis on the Southern Region, which grew by 120 bps. Based on its extensive experience gained over more than 114 years of operation, SulAmérica consolidated its vocation to enter in quick and innovative distribution partnerships with several institutions such as Santander, HSBC, Banrisul, Banco do Nordeste, and Banco de Brasília, allowing the expansion of the scope of its distribution structure. 42 2009 ANnual REPORT Business Market In another successful initiative toward the expansion of these partnerships, in 2009, SulAmérica concluded an agreement with Gol Airlines for exclusive distribution of life and personal accident insurance. With the agreement, customers who purchase Gol air tickets through its website have the option of hiring a personal accident insurance for the trip. This partnership, innovative in the way it is implemented, has brought excellent results for the life segment at SulAmérica. We have been accomplishing a significant portion of our insurance activities through joint ventures and strategic alliances with major financial institutions operating in Brazil, such as Banco do Brasil, Nossa Caixa, HSBC Bank, Safra and Citibank. The integration between sales force and the marketing area is one of the advantages that SulAmérica has in order to offer a better service to customers. SulAmérica uses modern segmentation techniques to identify new opportunities to expand its business base and guide its customer relationship actions. As an evidence of the quality of services provided to customers and brokers, the SulAmérica’s Call Center was considered, for the fourth year running, the best service in the insurance and private pension industry, and twice in a row, as the best service in all industries through popular vote in an award promoted by Consumidor Moderno magazine. The assessment is based on the criteria of GFK Indicator, which analyzes the quality of attention, coherence and consistency of information provided and the level of responses. For a better implementation of its strategic goals and to respond to market demands, SulAmérica is structured in four business units that represent the segments in which the company does business, and also has six support units. In 2009, as part of an ongoing process of optimization, the organizational structure has undergone changes that led to the unification of the units Auto and Other P&C. The measure sought to increase the synergy and optimize the structure of attention, pricing and claims management, in addition to encouraging cross-selling. CEO VP Corporate and IR VP IT and Contact Centers VP Sales and Marketing VP Auto and P&C VP Health VP People and Private Pension VP Asset Management VP Control and Finance VP HR and Administrative VP Industry Relations 43 2009 ANnual REPORT BUSINESS MARKET Health insurance Prevention and treatment for 1.8 million beneficiaries SulAmérica has been working in the private healthcare market since 1970, when it started to offer the administration of medical services to insured members in its portfolios of life insurance. Since 1989, with the regulation of health insurance, the company expanded its operations in this segment, which now represent a major part of its product portfolio. In 2009, health insurance represented 52% of the total insurance premiums at SulAmérica. According to data released by ANS in September 2009, SulAmérica had a market share of 38% among the insurance companies specializing in health. Today, the segment portfolio comprises more than 1.8 million members, distributed in the modes of group health insurance, including small and medium-sized businesses, and dental, individual and in ASO (administrative service only). SulAmérica offers its customers a wide referenced network with more than 26 thousand providers of medical and dental services, comprising more than 8 thousand clinics, 1.4 thousand hospitals, and over 2.7 thousand laboratories, distributed throughout the country, present in all states with more concentration in the Southeast, where is also the largest number of members, in line with the Brazilian population demographics. Covered individuals Total / 1.8 million beneficiaries (2009) Individual: 16.2% Dental: 15.4% SME: 9.7% Group: 58.7% 44 2009 ANnual REPORT BUSINESS AREAS This broad network is only possible thanks to the model adopted by SulAmérica, which focuses on risk management, thus enabling to have the country’s best doctors, laboratories and hospitals as service providers. In 2009, the network of medical service providers 184 thousand 16.2% reported 15.4% hospitalizations, 34.8 million clinical examinations and 13.5 million doctor visits. The SulAmérica 24-hour Healthcaare Center (CAS) held average 500 thousand calls per month, for a total of six million calls a year. Its Portal receives over 400 thousand hits per month, offering over 100 services to insured members, companies and providers. The combination of a number of attributes differentiates the company’s performance in the healthcare segment: the experience of more than 40 years in this market, the strength and credibility of the brand, diverse product offerings, the quality of the network of service providers and innovative operational processes. Distinguished in the product portfolio, the Saúde Ativa program, launched in 2002, promotes health and quality of life to SulAmérica policyholders, acting preventively in the management of risk factors and monitoring of chronic diseases. Since 2002, over 150 thousand insured members and approximately 586 corporate customers have benefited from this program, including 23 thousand cases of chronic disease monitoring. With the same goals, but geared toward a specific audience, SulAmérica launched the Idade Ativa program, for policyholders over 60 years. The information gathered along the years allowed SulAmérica to develop two studies, which have been published annually, and has become a reference, whose purpose is to disclose the main risk factors existing in the insured population, a good sample for the entire Brazilian population. Respondents are men and women ages 20-49 years, and represent the economically active population. With the survey, it was possible to identify that among the main risk factors are high cholesterol, overweight and high stress levels. Smoking, sedentary lifestyle and unbalanced diet also stand out among the health problems. There were about 100 mentions in TV reports, printed newspapers, websites, news agencies and female magazines. More than 15 million people were reached by the contents presented in different ways. In keeping with its vocation of always looking for innovations in operational processes, SulAmérica was the first company in the segment of private healthcare to embrace the digital certification technology to exchange electronic documents with their service providers. With the certification, electronic transactions are protected by security mechanisms that can ensure authenticity, confidentiality and integrity of information. The system is used, among other things, for medical and hospital providers – doctors, dentists, hospitals and diagnostic companies, among others – to send their invoices to the company, making it even faster to process the services provided. With the new process, SulAmérica no longer circulates about 700 thousand printed invoices. Group Health Insurance The portfolio of group health insurance represents about 36% of total insurance premiums and approximately 70% of health insurance premiums. It ended 2009 with more than 1.2 million insured members, an increase of 11.5% when compared to 2008. The portfolio consists of over 27 thousand client-companies and has a broad portfolio of products developed to meet a variety of customer needs. New products, coupled with incentive programs for sales, ensured the successful outcome of SulAmérica’s portfolio of health in 2009. The segment of small and medium-sized enterprises (covering insured groups from 4 to 49 individuals), which is part of the portfolio of group health insurance, has been experiencing a significant expansion. In 2009, the insured base of products for small and medium-sized enterprises grew 21.0% over 2008, ending the year with more than 178 thousand members. Another distinguished segment is dental insurance, which ended 2009 with about 168 thousand members, with a significant growth of 51% over 2008. Customers who purchase the SulAmérica dental insurance have, among other advantages, the benefit of Saúde Bucal Ativa, a program of prevention and oral health promotion aimed at addressing the causes of chronic oral diseases. Individual Health Insurance Since 2004, SulAmérica had not been marketing new policies for individual health insurance. The portfolio ended 2009 with 278 thousand members, representing 16% of the total of insurance premiums and 31% of health insurance premiums. Administered Post-Paid Plans The portfolio of SulAmérica’s Administrative Service Only represents another option in health care for customers. This portfolio serves more than 40 companies, which represented about 272 thousand covered individuals at the end of 2009. 45 2009 ANnual REPORT BUSINESS MARKET Auto insurance Pioneering and innovation for 2.3 million insured members Auto insurance SulAmérica stands out in the auto insurance segment by offering distinctive products, suited to the profile of each customer. The diversification of offers is a differentiating factor that demonstrates the company’s pioneer activity in the segment, which has recorded a 25% revenue growth in 2009 when compared to 2008, accounting for about 34% of SulAmérica’s total income. In 2009, the company increased its market share by 170 bps, reaching the new level of 17.0%, and closed the year with a fleet of 2.3 million vehicles insured. Insered fleet – thousand vehicles 2,288 1,771 1,922 The national comprehensiveness of SulAmérica’s operations allows the Company not only exploring successfully growth opportunities in several regions, but also contributes to a lower concentration of risks posed by climate conditions. SulAmérica also distinguishes itself in the auto insurance market for its innovation and announcement of new products and services. In 2009, two new auto insurance products were launched, deserving highlight. The company introduced SulAmérica Auto Zero Km, intended for light vehicles and pick-up trucks. Among the advantages of SulAmérica Auto Zero Km is the possibility of contracting the insurance by the value actually paid, throughout the length of the contract and in case of total loss claims. Another benefit is the “Take & Bring” service for the first scheduled maintenance of the car, picking up the insured vehicle at the customer’s residence or work address to take it to the dealer selected by the customer to make the revision. In case the policyholder prefers to drive to the dealer, the company offers a complimentary taxi service to take him/her back home or to the dealer to pick up the vehicle. In addition to SulAmérica Auto Zero Km, the company 2007 2008 2009 46 2009 ANnual REPORT BUSINESS AREAS introduced an innovation in pricing by announcing SulAmérica Km Run, a product aimed at owners of cargo vehicles. Among the key attributes of the new product, highlighting goes to the fact that there is only premium payment when the truck is in use, and the amount of premium depends on the location and time the vehicle is used. As a result, insurance has become a variable cost for the truck owner, allowing policyholders to have better control of their risk and win from the cost reduction. In addition, it reduces the risk of theft and accidents, as routes and times that are more adequate are more often selected by the policyholder. Therefore, the product represents lower price for the customer and less risk to the insurer. In 2009, SulAmérica expanded its chain of Auto Super-Service Centers (C.A.S.A), by opening a new unit in Rio de Janeiro, two in Sao Paulo, and one in Curitiba. In addition, the company launched a national plan to modernize its business units, by transferring the units of Campinas, Porto Alegre and Manaus to their respective C.A.S.A.’s in these cities, thus offering increased support to brokers across the country. The infrastructure of the Blumenau unit was updated, and remodeling works were started in facilities located in Belém, Fortaleza, Cuiabá and Ribeirão Preto. SulAmérica was also a pioneer in adopting water-based paint to repair vehicles of SulAmérica Auto Insurance customers. The new technology is the result of a partnership with Basf and allows reduction of up to 90% of solvent emissions in the air compared to traditional automotive paint. In addition, it improves significantly the working conditions of repair professionals. The first stage of the new painting system was implemented in the chain of repair shops associated to C.A.S.A in Porto Alegre (RS), in March 2009, and was later extended to the cities of Sao Paulo, Ribeirão Preto and Santo André. With this technology, customers enjoy the same quality as that provided by carmakers, as the repair service matches the pattern of the original painting. The water-based painting system provides increased productivity in repair shops, saves material, and adds accuracy to match hues. 47 2009 ANnual REPORT BUSINESS MARKET Other elementary fields insurance Synergies and efficiency to serve better the market demands SulAmérica began its operations in the segment of other P&C in 1913 when Companhia de Seguros Terrestres e Marítimos (land and maritime insurance) was founded, seizing the opportunities brought by a moment of strong urban-industrial and port growth in the country. The main SulAmérica businesses in this segment include fire insurance, transportation and civil liability, as well as products for masssale to condominiums and small businesses. The portfolio represents 8.5% of total SulAmérica premiums, with accumulated revenue of R$733 million in 2009. In order to meet the market demands, the company is structured to act in the areas of large property risks and engineering risks, with the insured amount over R$100 million; small and midsized enterprises, with the insured amount up to R$100 million; transportation, civil liability and financial risks and special risks, such as those involving aeronautical and marine hulls. Segment composition 2009 Total – R$733.4 million Massified insurance: 7.6% Fire: 23.3% Others: 21.9% Engineering: 8.5% General Civil Liability: 5.6% DPVAT: 18.3% Transportation: 14.8% 48 2009 ANnual REPORT BUSINESS AREAS In 2009, SulAmérica reorganized its area of Other P&C, uniting under a single coordination segments Auto, Mass Insurance, and Industrial and Commercial Risk Insurance. With this measure, the company believes it can better exploit the potential of this segment, creating conditions to benefit from synergies and increase operational efficiency. In the area of large risks, SulAmérica consolidated its leadership as one of the largest insurance companies for sugar and alcohol mills, a sector with high potential for expansion through the growth of the biofuel industry in Brazil. The company has added new features to the product, which provides insurance coverage to industrial parks in the alcohol-sugar sector and has more than 80 different coverage types, protecting not only facilities, as well as stocks of raw materials, and semi-finished and finished products. In 2009, insurance for mills grew by approximately 100% compared to the previous year, already having more than 100 plants insured. SulAmérica also operates in other areas of the energy sector in the country, providing insurance coverage for plants generating electricity, including wind mills. In the segment of small and mid-sized enterprises, the company has increased its participation in the corporate and condominium modes, with the launch of new products and services. In line with this, SulAmérica developed a line designed to offer coverage and meet the needs of specific sectors, such as bars, restaurants, hotels, shopping malls and bakeries. The intention is to offer the best conditions and services for insurance brokers and customers, through an attractive pricing structure and exclusive coverage for each of these niches that have been identified. Moreover, in 2009, the company recorded a growth of over 12% in the purchase of its product Seguro SulAmérica Residencial. A growing concern about damage caused by weather events are among the factors that have contributed to the acceptance of the product. With the home insurance, in addition to property protection, the policyholder enjoys the various services hired, and with 24-hour Assistance, a service increasingly valued by customers, as evidenced by the growth of more than 100% in the use of the services available in 24-hour-assistance plans. 49 2009 ANnual REPORT BUSINESS MARKET Life and pension Innovative services provide well-being and peace of mind SulAmérica was founded in 1895 as a life insurance company and, with more than a century of experience, it continues to invest in modernizing and developing its portfolio of life insurance. This segment, which encompasses the company’s business segments of life insurance and personal Covered individuals – thousand VGBL accident, reported revenues of R$394.1 million in 2009, which represents the equivalent to 5.2% of SulAmérica’s overall revenues, keeping in line with the previous year. The company ended the year with about 2.5 million insured members in this portfolio. Total reserves – R$ million Life + PA +20.0% 2,484 2,382 2,291 +4.3% 2,342 40 2008 +4.2% +10.0% 2,440 1,910 44 2009 2008 2009 50 2009 ANnual REPORT BUSINESS AREAS With efforts aimed at meeting the needs of different customer segments, and following the success of other SulAmérica initiatives with targeted products, the company has expanded the options available in the life insurance segment by launching SulAmérica Você Mulher, a life insurance that incorporates features specifically geared to female audiences. Its main differentiating factor is the advantage of supporting services such as nutritional counseling and psychological support, and provision of innovative services focused on quality of life. The product offers coverage for death, total permanent disability by accident and funeral, and a specific coverage for the diagnosis of various types of cancer, in addition to those specifically related to women. Besides expanding the product portfolio in the life insurance segment, SulAmérica invested in developing new distribution channels, acting differently in the private pension segment, and entering into new partnerships for greater distribution of life insurance. The company has developed a new relationship concept with the high income public, Prestige. The starting point was the launch of a package of special services for private investors, consisting of a line of pension funds in the modalities PGBL and VGBL, with different allocation strategies, such as fixed income, referenced, balanced and multimarket. SulAmérica, which already had a structure in place to serve high-income customers, has introduced the Prestige brand name in its actions to this segment. With the Prestige concept, SulAmérica began offering private pension customers an open platform for asset management, which allows greater diversification of investments and managers. As the largest independent insurance company in the country, SulAmérica is able to offer the open platform as an important differentiating factor. The Prestige client has several services and tools to monitor their investments, such as weekly newsletters on the macroeconomic situation, personalized service, statements via e-mail or regular mail, internet banking and conference calls with the chief economist at SulAmérica Investments and those responsible for funds management. With these actions, the company sought to increase the synergy between the areas of private pension and investment. In 2009, high-income customers represented 10% of SulAmérica’s portfolio of pension plans, totaling approximately R$1.9 billion in reserves. In 2009, by expanding its distribution channels, SulAmérica concluded a partnership for exclusive distribution of life insurance and personal accident with Gol Airlines. With this partnership, Gol customers who buy air tickets through the website may also acquire, in a simple and easy way, a personal accident insurance for their trip. This partnership, innovative in the way it is implemented, has brought good results for the life segment in 2009. 51 2009 ANnual REPORT BUSINESS MARKET Asset management Solutions to meet each investment profile The fast recovery of the Brazilian economy in 2009 contributed to the good performance of the SulAmérica’s asset management area, which ended the year with R$14.4 billion in assets under management, and growth of 20.6% when compared to R$12.0 billion recorded in 2008, according to the Brazilian Association of Financial and Capital Market Entities ( “ANBIMA”). In the segment of asset management, SulAmérica operates with institutional investors, external distributors and private clients, offering investment options in over 120 funds, open and exclusive, with conservative, aggressive and moderate profiles, including shares, fixed income, multimarket and derivatives. Managed assets – R$ million Third-party assets – R$8.4 billion (2009) Proprietary Institutional: 92.3% External distribution: 4.5% 11,976 6,758 Third-party 20.6% 24.8% Private: 3.1% 5,219 2008 15.1% 14,440 8,432 6,008 2009 Source: Anbima 52 2009 ANnual REPORT BUSINESS AREAS In 2009, SulAmérica Investimentos was the only independent manager in the Brazilian market to get the highest rate – AMP-1 Very Strong – from Standard & Poor’s, for the management of third-party resources. Several attributes contributed for the company to reach this level of quality: diversified portfolio, wide range of products, proper operating and control practices, expertise of management body, disciplined processes for investment management, and good fiduciary principles. Innovation is also a requirement for success in this segment. Together with the area of People and Pension segment, SulAmérica Investimentos has developed a new concept in the relationship with the high income public, called Prestige. This new product is a multimarket fund, with no equity in the composition, with starting amount of at least R$1 million. The fund’s objective is to overcome CDI through a long-term strategy in the market of interests and allocation in long-term securities. The Prestige client has several services and tools to monitor their investments, such as weekly newsletters on the macroeconomic situation, personalized service, statements via e-mail or regular mail, internet banking and conference calls with the chief economist at SulAmérica Investimentos and those responsible for funds management. Relying on a fully structured private channel is a differentiating factor, from the synergy between two segments of financial investments, pension plans and funds, which enabled to offer greater diversification and a chance to maximize the return on investment. SulAmérica Investimentos has also diversified its portfolio of dividend funds with the creation of SulAmérica Dividendos FI Ações. The product’s differentiating factor is the possibility of increased profitability through the payment of dividends. It is also less exposed to volatility, as it consists of shares in already consolidated companies with a good history of dividend payment. SulAmérica Dividendos FI Ações invests chiefly in the electric energy sector, and also has positions in the telecommunications and media, steel, financial services and sanitation. With minimum investment of R$25 thousand and management fee of 1.5% per year, the fund has an accumulated net worth of R$13 million. In response to the demand of the investment market for assets with higher returns, SulAmérica Investimentos has intensified its activity in the stock market with an enhanced equity team, structuring a team of professionals specialized in risky assets. The new team has six managers, and its goal is to increase this type of allocation in the total resources managed by the company. The portfolio under management has accumulated more than R$600 million in equity. 53 2009 AnNual REPORT Intangible Assets Brand Credibility and respect ensure value toward the market SulAmérica is one of the best-known and respected brands in the Brazilian insurance and private pension market. Its solid reputation has been built over more than 114 years of existence. One of the latest evidences of the brand’s strength was a study conducted in 2009 by IDS consultants aimed at assessing the brand-name awareness of insurance and private pension companies. SulAmérica was the most frequently cited independent insurer, with over 94% of the total of prompted and spontaneous recalls. Likewise, a survey conducted by Brand Finance pointed the company as the most valuable brand in the Brazilian insurance market in 2008. SulAmérica’s brand reputation favors its marketing strategy, representing a competitive advantage that contributes significantly to the continued development of relations with customers, brokers and distributors. The brand’s visibility has gained a new momentum in 2007, with the launch of Rádio SulAmérica Trânsito in the Sao Paulo marketplace. The radio station provides information on the city, service and music, 24 hours, seven days a week. While general radio audience grows average 1.5% per year, SulAmérica Trânsito reached a 149% growth in its first year of operation. Considered an ally of drivers against traffic jams, the radio records over 17 thousand listeners per minute at peak hours, who deem revolutionary the possibility of obtaining realtime guidance on alternative routes through the city traffic. Currently, it is the top-ranked news radio among listeners in cars at peak hours. Since early 2008, people in Rio de Janeiro have been living more closely with the SulAmérica brand, thanks to the partnership developed by the company with the city of Rio de Janeiro to install bicycle lockers at the city’s bicycle lanes, thus encouraging the use of bicycles as an alternative means of transportation and reducing pollution. The initiative is fully consistent with Rio’s climate, topography and way of life, by combining physical activity with urban mobility, helping promote a healthier lifestyle. Continuing investment to increase its participation in the Rio’s daily life, SulAmérica launched Rádio SulAmérica Paradiso in 2009, and inaugurated its new headquarters, in Rio de Janeiro. The radio offers programming with more information on traffic 54 2009 AnNual REPORT Intangible Assets and quality of life, service and good music, allowing its brand name to profit by combining the concepts of well-being and health. The new corporate headquarters was built with the most advanced technological resources, at Cidade Nova, next to the SulAmérica Convention Center, encouraging the renewal of an old section of the city. These initiatives are significant contributions to the city of Rio de Janeiro. The experience with the radio service was the inspiration to create a new vehicle intended specifically to strengthen the relationship with insurance brokers. Rádio Corretor SulAmérica is a web channel dedicated to news about the insurance market and the initiatives of the company, in addition to quality music, and news on sports, politics, economy and information on the auto market. To reinforce its brand-name awareness, SulAmérica promoted advertising campaigns for products Auto, Health and Dental Insurance, and Child Private Pension. The company also promoted the 2nd Meeting of Business Brokers in a river cruise through Negro River, and was present at key events in the insurance industry, such as the Brazilian Congress of Insurance Brokers, held in Florianópolis, and 2nd Enconseg – Meeting of Rio de Janeiro State Insurance Brokers. Throughout its history, the company has been supporting culture by means of sponsorship and promotion of a number of artistic events. In 2009, SulAmérica Circuit for Music and Movement, which promotes cultural activities, offered the population a number of shows, such as the tour of the International Magic Festival, and gave prestige to national artists such as Skank, Vanessa da Mata, and Maria Rita. For SulAmérica, the sponsorship of cultural events is another example of the company’s commitment to contribute to the socio-cultural development of the country. 55 2009 AnNual REPORT Intangible Assets Human capital Operating efficiency is sustained by qualified, motivated professionals Human Capital In line with this, it became necessary to strengthen the foundations of a culture of high performance in the company, which relies on a clear and transparent relationship with employees. The way adopted by the Human Resources area was involving them, so that they would understand their role in meeting the targets, and this contributed to the positive results achieved in the year. To achieve the strategic goal of enhancing operational efficiency, in 2009 SulAmérica focused on identifying opportunities for synergy between different areas, investing not only in the consolidation of systems and processes, but also professional development and quality of life for employees. Profile of Employees a) Nature of position and nature of position per gender in management Executives Management Technical/Operational Interns Grand total - TOTAL 37 907 4,205 185 5,334 Gender Total % F 426 45% M 518 55% Total 944 100% [GRI LA1; LA13] 56 2009 AnNual REPORT Intangible Assets b) Per gender [GRI LA1; LA13] Gender Total % F 2,857 54% M 2,477 46% Total 5,334 100% c) Per type of employment, labor contract and region Office - BRANCH Belém Commissioned + fixed 2 Brasília 1 Campinas 1 Curitiba 1 Cuiabá Fortaleza 2 Ribeirão Preto 3 Rio de Janeiro Salvador São Paulo Total 1 15 119 1 8 17 66 39 17 185 37 18.3% Total 19 1,210 853 592 380 290 5,334 % Education Total Secondary 3,093 Graduated Post-graduated Total 133 1,794 314 5,334 Race 0.4% Yellow 22.7% Indigenous 16.0% 11.1% 54 54 64 84 25 78 41 42 68 71 62 65 46 49 2,423 2,574 1,929 2,020 76 77 5,073 5,334 7.1% Qty % 37 1% White 4,107 77% Black 182 3% Mulatto Total 6 0% 1,002 19% 5,334 100% * Self-declared upon admittance. 5.4% 100% g) Per specific job posts – interns, people with special needs, and outsourced services [GRI LA1] [GRI LA1; LA13] e) Per education level Elementary 87 f) Per race [GRI LA1; LA13] 977 46-50 44 2 19.0% Over 51 42 1 1,013 36-40 84 77 19-25 41-45 1 25 Qty 31-35 Grand total 83 Age 26-30 Monthly 63 d) Per age [GRI LA1; LA13] Under 18 Executive EXECUTIVE OFFICER 1 Porto Alegre Recife Intern 2 Belo Horizonte Blumenau [GRI LA1] % 2% 58% 34% 6% 100% Type Qty Special Needs 106 Outsourced 1,748 Interns Apprentices 186 77 57 2009 AnNual REPORT Intangible Assets Employee Turnover (GRI – LA2) The turnover of the company’s employees is calculated by the number of admissions and dismissals, disregarding executives and interns. In 2009, the turnover rate at SulAmérica was 15.58%. This calculation included layoffs by contract termination, dismissals, resignations and deaths. Turnover rate 2009 15.58% 2008 15.95% 2007 15.08% Diversity and equal opportunity [GRI LA13] Equal opportunity for all persons regardless of race, belief, economic class or gender is a premise at SulAmérica. The human resources policy includes programs to promote the inclusion of these groups. Read on the initiatives: • Special Opportunities Program – Created in 2006 in compliance with Law No. 8213/1991, in units of Rio de Janeiro and Sao Paulo, the program encourages the employment of people with special needs to fill the position of trainee. It provides intensive training in IT, tutoring, and technical content about the insurance industry. • Teen Insurance Program – Created in 2007 in compliance with Law No. 10097/2000, it opens opportunities for young people ages 16-19 years to work 4 hours a day. It provides apprentices with technical and professional training compatible with their physical, moral and psychological development. After the 24-month program, the company intends to hire the largest possible number of young people as regular employees in its various areas. • SulAmérica Messenger Program – This program is part of the set of social responsibility initiatives by SulAmérica. Since 1996, the company has been developing work in partnership with Cruzada do Menor NGO, for young people who have difficulty entering the job market. After a period of training, they are hired to work as messengers, or in the areas of courier, administrative assistance and warehouse. More in Social Investment. In addition, the SulAmérica’s remuneration policy provides equal pay for men and women (GRI - LA14). After 2009, women represented 54% of headcount. At the management level, there were 426 female employees, or 45% of the managers. [GRI LA14] Remuneration and Benefits The remuneration to employees consists of a fixed amount, a variable portion (based on targets and individual goals) and a package of benefits defined by the Collective Bargaining of Employees in the Insurance Industry (CCT), as well as voluntary benefits. The remuneration policy is reviewed periodically, to align the practices of the company to the trends and best practices of the market. The variable remuneration, or Profit Sharing Program (PPR), is based on the operational net income after income tax and social contribution, calculated on the balance sheet of the company in each year. 10% of the profit made is allocated to pay PPR/PLR. The amount paid in advance is deducted from this percentage, in accordance with the rules set under CCT. The program is institutional and directed to all employees. In 2009, R$31.6 million1 were paid. In 2009, the lowest remuneration at the company was equal to 186.5% of the minimum wage. The ratio between the lowest and highest pay, considering only employees, is 2,784.7%2. (GRI – EC5). [GRI EC5] Lowest salary vs. minimum wage Year Administrative assistant Minimum Wage Rate 2007 R$770.00 R$380.00 202.6% 2008 R$812.35 R$415.00 195.7% 2009 R$867.00 R$465.00 186.5% [GRI EC5; LA14] 1. Employees only. 2. Considering only fixed salary for 40-hour-week employees. 58 2009 AnNual REPORT Intangible Assets Remuneration and benefits * Description Expenses with social taxes Total R$69,985,957.20 Expenses with meals R$31,312,730.83 Expenses with transportation R$6,785,743.36 Expenses with private pension R$2,516,016.96 Expenses with health R$11,448,187.63 Expenses with safety and occupational medicine R$1,002,755.56 Expenses with qualification and professional development R$6,517,237.43 Expenses with day care aid and nurse aid R$2,221,289.53 Profit sharing R$31,635,637.00 * Employees, administrators, outsourced and freelancers. SulAmérica adopts a remuneration policy that aims at attracting and retaining talent. The benefits offered by the company exceed those established in CCT. They are extended to all fulltime employees and include meal vouchers, food vouchers, transportation vouchers, day-care aid, and nurse aid. In addition to the benefits set in CCT, SulAmérica includes: Recruitment and Selection SulAmérica adopts a process for recruitment and selection that prioritizes internal hiring. The Internal Opportunities Program involves those employees who stand out and demonstrate potential for career development. In 2009, the company filled 76% of the openings with internal candidates. • Pension Plan - the company offers the PGBL PrevSAS plan to all employees on an optional basis, in accordance with the conditions set by each employee. SulAmérica’s monthly basic contribution is 1.035% to all employees, applicable to up to R$4,496.28 of the monthly basic salary. [GRI EC3]V When there is no internal resource compatible with the position, the company uses a database of resumes to search for suitable professionals in the market. SulAmérica prioritizes the hiring of employees from nearby communities, including members of senior management. [GRI EC7] • Health and Dental Plan - the company offers three options for Health and Dental Plan to all employees, with the possibility of paying the total cost with employee counterpart or reimbursement of part of the amount spent for providers who are not part of the referenced network; Performance Evaluation The Performance and Development Management Program (PGDD) allows relating the most important asset of the organization – the employees – to the company’s strategic objectives, thus ensuring the continuous improvement of performance standards. The annual performance evaluation is applied to 100% of the employees. According to the degree of achievement of set goals, a career development plan is drawn up and circulated on the company’s intranet. [GRI LA12] • Life Insurance - all employees receive life insurance when they are hired by the company at no cost; • Discount network - SulAmérica has a network of partners that offer discounts to its employees in places like movie theaters, supermarket, pharmacy, and car rental; • Funeral grant; • Disease grant; • Guidance by social assistance; • Program for management and treatment to the chronically ill; and • Personal accident and collective insurance. Employees on a temporary basis receive transportation voucher and meal voucher as benefits. [GRI LA3] Training, Awareness and Education SulAmérica invests in the qualification of its employees through a program of training and development that offers a wide variety of contents not only for employees and their families, but also to brokers, customers, service providers, and suppliers. With a budget of over R$2.6 million in 2009, the company offered 93 distance-education courses through its corporate university, Universas, on topics such as ethics, product portfolio, insurance market and fraud prevention. The program totaled over 342 thousand hours of training to more than 61 thousand participants, with 108 thousand hours of hands-on classes and 233 thousand hours of distance learning. [GRI LA10] In 2009, 5,065 employees attended training on Money Laundering Prevention, in compliance with Susep Circular Letter no. 340, March 23, 2007. The course aims at illustrating situations 59 2009 AnNual REPORT Intangible Assets of money laundering, so that employees are able to identify and address the risks related to this illegal practice in their daily activities. [GRI SO3] 341,980 SulAmérica invests every year in several programs to improve the quality of life for employees and their families. In 2009, it created the Health in Harmony to evaluate the activities, measure results and set priorities for investment. The company has no special focus on serious diseases in its efforts to quality of life or other programs, because the activity of the company does not expose employees to a different level of risk. The main programs are: Leadership Training SulAmérica invests in various programs to enhance skills and abilities, and to develop the management skills of employees. Through skill management programs and lifelong learning, the company trains managers so that in the future they may take leadership positions. • Athletes SulAmérica - Created in February 2005, it seeks to encourage healthy practices through sports, providing even more flexibility and good physical and mental performance to its professionals, in addition to relieving stress in a healthy way. Initially intended for employees in Rio de Janeiro, the project was very successful and has been extended to Sao Paulo, Belo Horizonte and Recife. Total training 2008 Participants 61,364 Hours 392,061 2009 61,661 • Wellness Space – An area where various activities are offered for free, such as shiatsu, yoga, singing, choir, ballroom dancing, embroidery and handicrafts, in addition to paid services like sewers, manicure and hairdressing. • Language Programs • Management Development Program • Project Management Program • Technical Certification Program – Susep Regulation • Multiplier Program • Internship Program • Managing stress - After completing a test, employees are selected to attend lectures and receive information to reduce stress. Those with a high stress rate receive weekly psychological attention, focusing on guidance for the difficulties presented. • Potential Identification Program (PIP) • Talent Program • Continuing Education Program • MBA Program Organizational climate and personal support programs Since 2001, every two years the company has been conducting a climate survey to assess the level of employee satisfaction. The results are widely disseminated and action plans are defined to identify the strengths and opportunities for improvement. In 2008, 4,197 employees representing 81% of the personnel completed the organizational climate survey. The rates achieved were very positive. Favorability rate 47% 55% 60% • Smoke Zero, Health Ten - The anti-smoking program to improve the quality of life of those who smoke and those who share the environment with them. The company promotes lectures, offers medical monitoring, and distributes free medicine to those who would like to quit smoking. 63% • Management of risk factors – tests performed include glucose and cholesterol, as well as measurement of blood pressure, weight and height. With a report on the health of its employees, SulAmérica organizes actions aimed at quality of life tailored to their needs. • Orientation to pregnant women - Held twice a year, the program provides lectures and exercises, ensuring baby’s health during pregnancy. • Living Well - A program of personal assistance designed to provide well-being, peace of mind and safety to employees and their families. The service is available 24 hours a day, 7 days a week. There is a direct channel for personal support with specialists in various fields (psychology, social service, physiotherapy, pedagogy, legal counseling, etc.), guiding those interested, quickly and free. • Nutritional Attention. • SulAmérica Football Club. • Flu immunization. 2002 2004 2006 2008 60 2009 AnNual REPORT Intangible Assets • Ecological walks. In 2009, there were 26 labor-related accidents, resulting in 18,669 lost hours. The company also had seven cases of RSI sent to Official Social Security due to the Epidemiological Social Security Technical Nexus. [GRI LA7] • Health Emporium. • Workplace exercises. Occupational safety and health The administrative area of the company is responsible for all programs related to occupational safety and health. Issues related to these topics are in full compliance with the specifications of the Brazilian labor laws, and are not detailed in CCT. [GRI LA8; LA9] Some of the actions in 2009: • SIPAT - Internal Week for Accident Prevention; • PPRA - Program for Prevention of Environmental Risks (work environment); • Training for fire fighting and prevention; • First aid Training; • Counseling on prevention of urban violence; and • Emergency simulation. Besides these activities, SulAmérica provides courses and lectures in all its units on the following subjects: • Course on CIPA and accident prevention; • Training for the Fire Brigade; • Lecture on first aid; • Lecture on defensive driving; and • Lecture on urban violence. The table below presents the percentage of employees represented in formal committees of safety and health [GRI LA6] Programs PCMSO (Program for Medical Control and Occupational Health) Number of employees involved Human Rights Consistent with its values, SulAmérica does not tolerate discrimination of any kind, whether race, gender or other reason. In 2009, no incident or case of discrimination was reported. Additionally, there were no specific cases of violation of rights of indigenous peoples in any unit of the company, and there were no incidents of human rights violation, such as forced or compulsory labor, child labor, or operations with significant risks of this type of violation within the units of the company. [GRI HR6; HR7] The company uses outsourced security services in all its units and requires that contractors offer basic training on human rights. The security personnel receive at least 6 hours of training on Human Rights and Human Relations at Work. At every two years, the learning of these service providers is recycled. [GRI HR8] The core curriculum of training for all staff includes an ethics course, which covers issues relating to the rights of people and citizenship. In 2009, 1,268 employees attended the course, with a workload of two hours. [GRI HR3] All SulAmérica employees are under collective bargaining agreement. For this reason, the company has not identified in its units any operations that generate significant risk to the exercise of freedom of association and collective bargaining. The collective bargaining, however, does not include a clause specifying the minimum lead-time to inform employees about operational changes, such as change of address. The company adopts, however, a policy of re-placement of those who do not opt for the move, and provides enough lead time for those who are on the move. In 2009, the company consolidated five units located in the city of Rio de Janeiro, transferring their activities to the new building. This process, administered by a specially hired team, took two years from the choice of location to the effective move. The process involved extensive communication campaign and engagement of all employees. [GRI 2.9; LA4; LA5; HR5] 4 CIPA (Internal Commission for Accident Prevention) 33 BVI (Voluntary Fire Brigade) 363 61 2009 ANnual REPORT Intangible Assets Technological assets Implementation of new systems increases process efficiency Technology performs an essential role in ensuring reliability to services provided to SulAmérica customers, suppliers and brokers in the various segments. In 2009, the Company invested R$50.4 million in technology and information management, focusing on the tools of business intelligence (BI), which allowed the company to enhance the management of its sales force. The implementation of new information systems brought more efficiency to key processes for the business, for instance, the adjustment of claims in the auto segment. In the massify insurance segment, the technology evolution has allowed a 300% increase in the number of price proposals made monthly. A new tool for price quotation and purchase of insurance went into operation, facilitating sales and reducing issuance times. Technology has supported the improvement of key channel relationships, such as the Broker Portal, which was redesigned in 2009 with renewed navigation structure and services. Another differentiating factor in SulAmérica’s structure of Information Technology (IT) is the ability to timely integrate with new distribution channels and service providers, which speeds up the expansion of business. In 2009, six new large distribution channels were integrated to SulAmérica. To support this increased automation, the company now has an infrastructure of IT consisting of more than 450 servers and a storage capacity of more than 100 terabytes. In the mainframe environment, over 50 million transactions are processed with average availability above 99.96%. Focused on efficiency, SulAmérica was capable to optimize the capital invested by renegotiating its trade agreements with technology providers. In line with this, the company invested in the adoption of free software along 2009. Currently, over 2 thousand users make use of these applications. With actions like this, the company reduced the need for new investments and reduced the IT expenditure participation in the company’s revenue by 24 bps. 62 2009 ANnual REPORT INTANGIBLE ASSETS Quality attention Vocation to serve cordially 6.7 million customers Today, only a few companies have a robust structure to serve its customers effectively as SulAmérica does. Over 6.7 million customers all over the country are served by our own call centers, located in Sao Paulo and Rio de Janeiro. These units provide specialized services and have the autonomy to solve problems and make timely decisions on matters relating to all segments of the company, such as insurance, private pension and asset management. In 2009, the rate of FCR (First Call Resolution), i.e., the resolution of requests at the first call, reached 93% in platforms such as prior medical authorization. This performance is the result of ongoing investments in the qualification of attention professionals – all certified in accordance with the standards of the National Federation of Private Insurance and Capitalization Companies (Fenaseg) and the National Agency of Supplementary Health (ANS) – and technological tools that allow a prompt and safe attention. In order to reach this level, the company had to change its management structure. For that purpose, in 2004, the company set up an Executive Area responsible for taking care of all stages in the customer relationship – acquisition, service selling, cross selling, up selling, retention and recovery – another aspect that demonstrates the strategic importance of customers to SulAmérica. The quality attention provided by SulAmérica has been recognized by a number of awards received over the recent years. In 2009, for the fourth year running, the company was distinguished with the ‘Consumidor Moderno’ Award for Excellence in Customer Services, segments of Insurance, Health and Private Pension. Created by Grupo Padrão in partnership with the consultancy International IZO System, the award aims to identify and disseminate the best practices in customer service in Brazil, and recognize companies that focus on service excellence, not only gaining new customers, but also, above all, maintaining high level of satisfaction and loyalty. Among the company’s differentiating factors regarding its quality attention, one of the values of the company stands out: “vocation to serve”. With cordiality and clarity, our employees seek to identify, right from the beginning of the call, the customer needs, with accessible questions, endeavoring to resolve their request on the first call. 63 2009 ANnual REPORT INTANGIBLE ASSETS To maintain its levels of quality service to customers, policyholders and brokers, SulAmérica invests in three pillars: people, processes and technology. Our Contact centers rely on our own team, formed by professionals who are qualified and prepared to exceed the customer expectations. The Company has support areas to supervise the service operation, providing monitoring and training, and implementing new projects to ensure quality attention. In addition, the company maintains partnership agreements with the best companies in information technology management. In addition to reflecting in the practice one of the company’s values - “we are accessible and dynamic” -, the investment in internet solutions is a competitive differentiating factor, as it offers accessibility and responsiveness to increasingly demanding customers, accustomed to receiving services through digital channels. As in all action areas, the company develops its customer attention services with ethics and social responsibility, in compliance with all standards. Proof of this was the timely adaptation to Decree 6523/2008, known as “Law of Call Centers”. [GRI PR5] 64 2009 ANnual REPORT Intangible Assets Innovation Bold stance to search for increasingly better solutions Along its history, SulAmérica has been building a consistent track record of innovation. New products, services with differentiating factors, communication increasingly more directed, and partnerships in distribution channels reaffirm the company’s bold stance and constant quest for better solutions. Among the recent innovations are the radios to provide public services in Rio de Janeiro and Sao Paulo, offering quality information and entertainment for audiences in the largest Brazilian cities. Year after year, pioneering examples multiply. Based on CRM (Customer Relationship Management) actions and market research, the company launched a number of differentiated products in 2009. SulAmérica Truck Km Run is the only insurance in the market for heavy trucks and tow trucks that have a new pricing model, allowing the customer to pay according to the usage of the vehicle. SulAmérica Auto 0Km came up to serve specifically the growing market of new vehicles in Brazil. In the asset management area, SulAmérica Prestige was especially designed for high-income clients. SulAmérica Você Mulher, in turn, is a life insurance developed exclusively for female audiences, offering health, beauty and wellness services. Willing to gain greater operational efficiency, SulAmérica was the first company in the industry to adopt the technology of digital certification for electronic document exchange with its 26 thousand providers of health and dental care, ensuring authenticity, confidentiality and integrity of information. In the segment of auto insurance, the company was a pioneer in launching a new system that uses water-based paint to repair vehicles in the chain of shops accredited by the Auto Super-Service Centers (C.A.S.A.). The new technology is the result of a partnership with Basf and allows reduction of up to 90% of solvent emissions. Besides innovating in the development of new products, processes and services, SulAmérica also seeks new solutions to improve its relationships. In 2009, the Company held with insurance brokers, a major stakeholder group, the largest sales campaign in the insurance market. Under the theme Champions League, the campaign offered new awards, encouraging brokers to achieve their goals and promoting integration between SulAmérica and its partners. 65 2009 ANnual REPORT Intangible Assets Innovation Bold stance to search for increasingly better solutions Along its history, SulAmérica has been building a consistent track record of innovation. New products, services with differentiating factors, communication increasingly more directed, and partnerships in distribution channels reaffirm the company’s bold stance and constant quest for better solutions. Among the recent innovations are the radios to provide public services in Rio de Janeiro and Sao Paulo, offering quality information and entertainment for audiences in the largest Brazilian cities. Year after year, pioneering examples multiply. Based on CRM (Customer Relationship Management) actions and market research, the company launched a number of differentiated products in 2009. SulAmérica Truck Km Run is the only insurance in the market for heavy trucks and tow trucks that have a new pricing model, allowing the customer to pay according to the usage of the vehicle. SulAmérica Auto 0Km came up to serve specifically the growing market of new vehicles in Brazil. In the asset management area, SulAmérica Prestige was especially designed for high-income clients. SulAmérica Você Mulher, in turn, is a life insurance developed exclusively for female audiences, offering health, beauty and wellness services. Willing to gain greater operational efficiency, SulAmérica was the first company in the industry to adopt the technology of digital certification for electronic document exchange with its 26 thousand providers of health and dental care, ensuring authenticity, confidentiality and integrity of information. In the segment of auto insurance, the company was a pioneer in launching a new system that uses water-based paint to repair vehicles in the chain of shops accredited by the Auto Super-Service Centers (C.A.S.A.). The new technology is the result of a partnership with Basf and allows reduction of up to 90% of solvent emissions. Besides innovating in the development of new products, processes and services, SulAmérica also seeks new solutions to improve its relationships. In 2009, the Company held with insurance brokers, a major stakeholder group, the largest sales campaign in the insurance market. Under the theme Champions League, the campaign offered new awards, encouraging brokers to achieve their goals and promoting integration between SulAmérica and its partners. 65 2009 ANnual REPORT Intangible Assets Social investment Tradition in investing in projects that contribute to sustainable development In addition to generating value for various stakeholders, SulAmérica also contributes to the development of the country by encouraging and supporting projects aimed at education, health and the environment. In its relationship with the community, the company targets investments in campaigns, actions and social projects that rely on voluntary activities by employees and partners, focused on the practice of citizenship and environmental preservation. The social projects have as their target audience teenagers and adolescents from communities around the SulAmérica units in regions of high vulnerability. All investments are analyzed by the area of Corporate Sustainability and subject to the approval of the Sustainability Committee. In 2009, SulAmérica supported the following social projects: [GRI SO1] PROJETO PRAÇAS DA PAZ SULAMÉRICA (SAO PAULO) Committed to the population’s safety and well-being, since 2007, in partnership with Instituto Sou da Paz, SulAmérica has been developing an innovative project to promote best practices to encourage citizenship: PROJETO Praças da Paz SulAmérica. The goal is the participatory revitalization of public squares, providing living space for young people and adolescents from the outskirts of Sao Paulo. The mobilization of these communities and training of youth in these regions are the main objectives of the project, which turns abandoned and devalued areas into community centers to promote sports, cultural and educational activities. The project has already revitalized three squares in the districts of Lajeado (East Zone), Jardim Ângela (South Zone) and Brasilândia (North Zone). [GRI EC8] 66 2009 ANnual REPORT Intangible Assets Over the four-year long project, SulAmérica will have invested about R$2.5 million in the revitalization of squares and support for cultural and sporting activities. Those new spaces are expected to contribute to the prevention of violence, since, once revitalized with the participation and involvement of the community, new areas become public spaces for safe coexistence, cared for by the residents themselves. Sports courts, playground, benches and tables, covered spaces, stages and areas for cultural shows are some of the features of these squares. In addition to the financial investment, SulAmérica encourages voluntary work by inviting employees to participate in several social projects in SulAmérica Peace Squares. A PRIMEIRA INFÂNCIA VEM PRIMEIRO CRECHE PARA TODAS AS CRIANÇAS (RIO DE JANEIRO) In partnership with the Abrinq Foundation for the Rights of the Child and Adolescent, in 2009 SulAmérica contributed to expand access to early childhood education and improve its quality. The program envisages reforms for expansion of day care centers, installation of thematic facilities for children, and promotes continuing education for teachers and coordinators in four units near the company’s new headquarters in Cidade Nova, Rio de Janeiro. The four day care centers benefited by the project - Instituto Central do Povo, Abrigo Teresa de Jesus, Creche Florescer and Casa de Jacira - serve about 1 thousand children. In 2009, the 20 educators and pedagogical coordinators responsible for the centers have undergone 40-hour training to improve the care provided to children. The project also relies on the participation of voluntary SulAmérica employees who over 2009 developed several activities, such as distributing gifts and children’s books on Children’s Day and Christmas. The plan calls for an expansion to serve additional 120 children in 2010. [GRI EC8] CRIANÇAS SAUDÁVEIS, FUTURO SAUDÁVEL This initiative is an alliance of public and private sectors and civil society, developed to promote better nutrition and self-sufficiency for around 1,000 students and their families, as well as teachers from public schools in Sao Paulo. In 2009, 516 children underwent anthropometric and biomedical evaluation, 123 PROJETO SAÚDE BUCAL (RIO DE JANEIRO and SAO PAULO) Oral health promotion and health education raise self-esteem and prevent diseases, in addition to creating conditions so that each one becomes aware of their rights as citizens. In Sao Paulo, the project aims at increasing oral health knowledge in the areas surrounding SulAmérica units in Real Parque and Jardim Panorama, through training of multiplying agents, development of educational and preventive activities, and treatment of children and adolescents. The project is carried out within the Casulo NGO facilities, installed in the had hemoglobin examination and 92 had stool tests. The rate of anemia found in the group was over 54%, and 20% are overweight. Based on these results, different actions have been planned to occur in 2010 in the schools, with children and their parents. Schools that are part of the program and reach the expected results will be certified with the Inmed/SulAmérica Sign: “Crianças Saudáveis, Futuro Saudável”. [GRI EC8] community of Real Parque, and has benefited 434 children and adolescents. [GRI EC8] In Rio de Janeiro, the project was developed in partnership with Ação da Cidadania NGO and the Brazilian Dental Association (ABO). The goal is to provide guidance on oral health for 1,500 public school children from Cidade Nova. In 2009, 264 children from Canadá school, in Morro de Sao Carlos, and 128 community leaders were trained in matters related to oral health. [GRI EC8] 67 2009 ANnual REPORT Intangible Assets CRIANÇAS SAUDÁVEIS, FUTURO SAUDÁVEL Aimed at promoting sporting culture in the communities, Instituto Esporte & Educação created the Socio-Educational Sports Nucleuses, providing direct care to children and adolescents. In addition, it trains and supports Physical Education professionals who work in the nucleuses, through reflective teaching practice, management of the centers and ongoing education. SulAmérica supports the project through the Law for Incentive to Sports (Law 11472/2007) and, in 2009, involved 1,096 children in 30 public schools in Sao Paulo. The sporting, cultural and social service is provided to children and adolescents aged 6 to 18 years from social classes C, D and E. To participate in the program, they must be enrolled in public schools and have their attendance controlled by the institution. The project also helps to empower educators and mentors, as well as young people from the communities interested in spreading the culture of sports. Cruzada do Menor Since 1996, SulAmérica has been supporting Cruzada do Menor NGO, which trains and teaches basic courses for teenagers, benefiting young people seeking access to the labor market. . After their course conclusion, SulAmérica accesses a database with information from these people, who may be hired to work in various areas of the company. Campaigns and Social Actions Every year, SulAmérica creates opportunities for its employees to engage in citizenship and solidarity. In 2009, there were five institutional campaigns, developed in all units, with the participation of corporate volunteers: • Christmas Action – SulAmérica annually promotes a campaign to encourage employees to sponsor a child at Christmas. In 2009, the action took place in all units of the company and benefited more than 2 thousand children in 20 institutions. • SOS Northeast Campaign – In response to the floods occurred in the states of North and Northeast in May 2009, the company’s employees were mobilized and collected more than 3 thousand items, including clothing, cleaning supplies and food for the homeless in several states affected. • Solidarity Committee – The Committee was formed to improve even further the results of social campaigns undertaken by SulAmérica. Hundreds of employees, from various units, contribute new ideas, suggestions and proposals, and encourage the participation of their colleagues. Supported by the Solidarity Committee, new social activities are performed annually in all locations. In 2009, the committee mobilized more than 2,000 employees in the various actions and institutional campaigns. • Campaign of warm clothes and food donation – Since its inception in 2005, the campaign of warm clothes and food donation has raised over 11 thousand pieces of clothes and blankets and more than 70 thousand kg of food. In 2009, employees collected more than 1 thousand items during the June festivals throughout the country. • Campaign for donation of toys and children’s books on Children’s Day – The campaign is held every year during September and October in all business units. The action has the support of employees who donate books and toys, new or used, benefiting institutions near the units. In 2009, about 6 thousand toys were collected and distributed to 20 institutions. • Campaign for blood donation – Since 2003, SulAmérica has been holding a campaign to encourage its employees to donate blood. Employees from all SulAmérica units engaged in the action, which, in 2009, collected about 170 liters of blood in a single day. • Program Guiding to the Labor Market – Aimed at young people participating in social projects who are receiving training for the labor market, it offers the opportunity to experience the corporate environment, by visiting the SulAmérica facilities. During the tour, young people get closer acquaintance with the activities of various areas of the company, such as Human Resources, Property Administration, Finance, Sales and IT. They also attend presentations provided by SulAmérica employees and interact with volunteers from the Solidarity Committee. In the 2009, the actions took place in Rio de Janeiro, Porto Alegre, Blumenau, Campinas, Recife and Cuiabá, with the participation of over 170 young people. 68 2009 ANnual REPORT Intangible Assets Results – Campaigns and social actions 2009 Total volunteers 312 Total qualified educators 28 Total employees involved in campaigns and social actions * 7,873 Total employees participating in speeches on citizenship * 640 Total directly benefited from campaigns and social actions * 4,840 Total directly benefited from projects * 3,418 Total institutions served in campaigns and social actions 74 Total items donated in campaigns 12,272 * Participants in more than one action were counted for number of participations. Respecting to the Environment For SulAmérica, the consumption of natural resources in recent years has become a significant issue for management, especially regarding the impact that environmental disasters caused by climate change may have on the insurance business. It is increasingly necessary to invest in technologies and processes to reduce emissions, improve the analysis of environmental risks and offer new products that encourage the adoption of environmental management practices. workstations, it led to a reduction of about 4.2 million sheets of A4 paper, or 18% less when compared to the previous year (figures only for Rio de Janeiro and Sao Paulo). SulAmérica follows the rules and guidelines of regulatory agencies in the sector on issues of environmental impact, and develops various campaigns, initiatives and actions to improve the management of natural resources. • Conscious consumption of water and electricity - Since 2008, SulAmérica has been developing campaigns to educate its employees about the campaign ‘Turn on and off’, which encourages the conscious use of energy. The move to the new building in the district of Cidade Nova, Rio de Janeiro, provided high reduction in water consumption and electricity. The design included systems to improve the use of water and lighting in order to reduce the consumption of water and electricity and, therefore, reduce emission of pollutants in the activities of the company, a concern right from the new building design. The water from restroom sinks is reused for flushing and washing the external areas. The use of doubleglazing creates a layer for heat retention, thus reducing the need for air conditioning. The whole building is glazed, which allows for better use of natural lighting, and all lights near the windows have photoelectric controls (which regulate the output according to the ambient brightness). In addition, the building has automated elevators, or smart elevators, which consume less energy. [GRI EN5; EN18] Some of these initiatives include: • Reduction in paper consumption: In 2009, SulAmérica implemented a series of initiatives, processes and tools to reduce paper consumption, working intensively with employees, service providers and customers. Because of the initiatives, the company saved about 6 million A4 sheets. - New User Kits for all SulAmérica products present the general insurance conditions briefly and safely, while the content in its entirety can be accessed at the SulAmérica’s website. With the kit, customers receive at home a leaflet explaining the main advantages, guarantees and insurance services, the policy sheet, with the agreed conditions, in addition to policyholder cards as per the distribution rules. The initiative has eliminated over 1.5 million A4 sheets of paper only in the Auto Insurance Kit. In 2010, the company will adopt the kit in all products. - Why Printing? The campaign was created to encourage employees to print less. Coupled with the installation of printer pools and the use of two-sided printing as standard on all - Health Insurance Digital Certification: Through this process, introduced in 2009, the company adopted the technology of digital certification for electronic document exchange with its more than 26 thousand service providers. With the new process, SulAmérica no longer circulates about 700 thousand printed invoices. • Selective waste collection - Since 2004, the company has been adopting a selective collection system in its units. With the daily collection of plastic and paper, it recycled about 200 thousand tons of waste in 2009. It also implemented new systems and promoted campaigns to reduce waste generation. [GRI EN7, EN18, EN22] 69 2009 AnNual REPORT Capital market SulAmérica shares’ appreciation is higher than Ibovespa Index SulAmérica is a listed company, since October 5, 2007, when it began trading shares grouped into units (sets consisting of one common share and two preferred shares). In September of that year, it adhered to Level 2 Special Corporate Governance Practices. Below is the shareholding structure of the company: Shareholders* Common stock** % Preferred stock** % Total % of Total Units Sulasapar Participações S.A. 92,362,873 59.6563 - 0.0000 92,362,873 33.0272 - ING Insurance International BV 19,862,103 12.8287 39,724,207 31.8221 59,586,310 21.3069 19,862,103 Controlling Individuals 6,216,043 4.0149 12,432,088 9.9590 18,648,131 6.6682 6,216,043 Board Members and Executive Officers 1,671,342 1.0795 3,342,669 2.6777 5,014,011 1.7929 1,671,334 100 0.0001 200 0.0002 300 0.0001 100 Fiscal Council Members * Shareholding structure as per Bovespa’s concept. ** 62,415,920 of the total common stock and 124,831,840 of the total preferred stock are arranged in units, with each unit consisting of 1 common share and 2 preferred shares. 70 2009 AnNual REPORT Capital Market Shareholders* Common stock** % Preferred stock** % Total % of Total Units Outstanding shares*** 34,712,590 22.4205 69,333,281 55.5410 104,045,871 37.2047 34,666,440 Subtotal shares 154,824,951 100.00 124,832,245 100,00 279,657,196 100.00 62,415,920 Shares in treasury Total shares 546,245 1,092,490 1,638,735 0 155,371,196 125,924,735 281,295,931 62,415,920 * Shareholding structure as per Bovespa’s concept. ** 62,415,920 of the total common stock and 124,831,840 of the total preferred stock are arranged in units, with each unit consisting of 1 common share and 2 preferred shares. *** Including those held by Fiscal Council members. In 2009, SulAmérica units achieved an appreciation of 224.9%, one of the largest recorded in BM&FBovespa over the period. The unit ended the year priced at R$51.99, raising the company’s market value to R$ 4.9 billion. This appreciation was higher than that recorded by the Exchange’s composite, 82.7%, which reflected the economic recovery of the Brazilian market. The daily average financial volume grew 100.5% over 2008, reaching R$5.3 million, with daily average of 221 transactions, 206.9% over the previous year. Performance of units 55,000 50,000 300 45,000 40,000 250 35,000 200 30,000 150 25,000 100 15,000 20,000 10,000 50 5,000 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Volume SULA11 Volume Ibovespa 0 SULA11 Dec 07 Dec 08 Dec 09 281,295,931 280,913,431 279,657,196 1.45 0.66 1.88 Profit/unit R$3.4236 R$4.4420 R$6.7145 Profit/share R$1.1412 R$1.4807 R$1.4986 Maximum price R$32.00 R$34.95 R$51.99 Minimum price R$27.94 R$13.00 R$16.01 Average price R$30.30 R$24.75 R$30.72 Number of shares P1/B Volume (R$ thousand) Price (Dec 30, 2008 = 100) 350 71 2009 AnNual REPORT Capital Market Compensation To Shareholders The management submitted to the Shareholders’ Meeting a proposed distribution of income, which includes the payment of dividends amounting to R$199.1 million. This amount supports the proposal, approved by the Board of Directors at a meeting held on February 23, 2010, for a policy of dividend distribution of 50% of adjusted annual net income, calculated in the financial statements for fiscal years 2009, 2010 and 2011. Since the company went public, SulAmérica units are part of portfolios ITAG (Special Tag Along Stock Index) and IGC (Special Corporate Governance Stock Index). With increased liquidity in 2009, in May, SulAmérica was included in the portfolio Small Cap Index - SMLL, consisting of 90 shares in companies listed on BM&FBovespa. Starting in January 2010, the shares are also part of BM&FBovespa’s Financial Index (IFNC) and Brazil Index (IBrX). IFNC consists of 14 shares in 13 companies representative of financial intermediation segments, general financial services, and pension and insurance. The IBrX portfolio consists of the 100 most traded shares at BM&FBovespa, in number of transactions and financial volume. The distribution, in each case, is subject to the respective proposals for allocation of net income by the company’s management, and the relevant approval by the Shareholders’ Meeting, and may be revised based on the company’s needs and plans, such as significant acquisitions and investments, and compliance with regulatory requirements. In any case, possible interim distribution of dividends or interests on own capital during the year in question will be taken into account. In December 2009, SulAmérica was recognized for the materiality it attaches to the sustainability topic, becoming the first insurance company listed on the ISE portfolio (Corporate Sustainability Index). The ISE portfolio consists of 43 shares in 34 companies, representing 15 industries and totaling R$730 billion in market value. This group is selected among the 150 most actively traded on the floor, in terms of liquidity, and weighted in the portfolio at market value of assets available for trading. Ratings Since its issuance of Eurobonds (Senior Notes) in February 2007, SulAmérica has been periodically evaluated by Standard & Poor’s Ratings Services and Fitch Ratings Brazil. In March 2007, Standard & Poor’s assigned rating B to SulAmérica. In May 2008, the agency raised the rating to B+. In 2009, it raised again to BB-, with stable outlook. The agency found that the insurance company’s financial performance has been solid and consistent in recent years, and SulAmérica has a strong capital position to support future growth. Stock Repurchase Program As already occurred in 2008, on October 7, 2009, the Board of Directors approved a tender offer for outstanding shares of the company, to be held in treasury to be used later in its General Plan for Stock Acquisition Option. The program calls for the acquisition of up to 1,046,872 units, representing 1,046,872 common shares and 2,093,744 preferred shares, corresponding to 3% of the outstanding units, and approximately 1.1% of the total shares issued by the company by September 30, 2009. The lead-time for acquisition is up to 365 days, from the date of the material fact, ending on October 7, 2010. Agency Fitch Date of reference May 8, 2009 Rating Standard and Poor‘s Type AA- Long term national rating F1+ Short term national rating BB Problematic to predict future development (IDR), long term in foreign currency - IDR of long term in foreign currency B IDR of short term in foreign currency BB IDR of long term in local currency B IDR of short term in local currency BBAgency Fitch Ratings assigned SulAmérica rating B for emission of Eurobonds (Senior Notes), in February 2007. In July that same year, it raised the rating to BB-. In July 2008, it raised again to BB, which was confirmed in 2009. Long term rating in foreign currency for emission of US$ 200 million in senior notes Date of reference October 20, 2009 Rating Type BB- Global scale local currency BB- Global scale foreign currency 72 2009 AnNual REPORT Investments SulAmérica constantly earmarks resources to keep competitiveness and efficiency SulAmérica invests in processes and services that increase its efficiency, add value to its products, and are seen as a differentiating factor by its customers. In 2009, the total budget earmarked for the improvement of processes and services was approximately R$90 million. system development lead-times and increase the quality of delivery. We also started projects aimed at the achievement of excellence in processes of insurance purchasing in the segments of auto and life insurance, strategic areas for the company. The major investments were directed to the area of information technology, which received funds to the tune of R$50.4 million. The company incorporated new product segmentation and customization tools, which enabled the development of new customer relationship management (CRM) activities. In line with this, it became possible to improve product mapping to meet the needs of specific audiences. The main processes for customer attention in specialized channels were centralized to improve operational efficiency and quality of communication. This has expedited the services to customers, who seek information about their insurance policies or need to file a claim, as well as brokers interested in clarifying technical issues when preparing proposals. In the same vein, in the allocation of resources, the company prioritized technology projects aimed at better supporting operational activities. An example is the new support system for the regulation of auto claims, which implementation will be completed in 2010. Another initiative was the development of a supporting tool to create test environments to reduce The move to the SulAmérica’s new facilities in Rio de Janeiro, completed in August 2009, allowed the company to enjoy greater efficiency through the adoption of sustainable technologies incorporated into the new building, which can generate savings of up to 30% in energy and natural resources. The project started in 2007, requiring investments of R$30 million. 73 2009 AnNual REPORT In 2009, SulAmérica also expanded its chain of Auto SuperService Centers (C.A.S.A), by opening a new unit in Rio de Janeiro, two in Sao Paulo, and one in Curitiba. In addition, the company launched a national plan to modernize its business units, by transferring the units of Campinas, Porto Alegre and Manaus to their respective C.A.S.A.’s in these cities, thus offering increased support to brokers across the country. The infrastructure of the Blumenau unit was updated, and remodeling works were started in facilities located in Belém, Fortaleza, Cuiabá and Ribeirão Preto. 74 2009 ANNUAL REPORT 2009 Results Economy The performance of the Brazilian economy in 2009 was marked by the set of stimulus measures taken by the Government, which boosted demand on the main productive sectors. The reduction on the Excise Tax (IPI) rate and the successive cuts in the country’s base rate, which dropped 5 percentage points, ended the year standing at 8.75% p.a., for example, have contributed to the sales of 3.1 million new vehicles in the domestic market in 2009, an increase of 8% in relation to the prior year’s figures. The Broad National Consumer Index (IPCA) accumulated a variation of 4.31% and the GDP shall reveal a stable performance, thus confirming the rapid response of Brazil to the gloomy outlook for international markets. Besides, data for the fourth quarter indicates that the Brazilian economy grew over that period at rates that truer represent its potential, characterizing in most part the restoration of the consumer confidence. The good outlook for the Brazilian economy contributed to the good performance of BM&FBOVESPA S.A. – Securities, Commodities and Futures Exchange, the Ibovespa having ended 2009 at 68,588 points, a rise of 82.7%. The US dollar closed 2009 recording a devaluation of 24.5%, being quoted at R$1.7445. In this context, the insurance industry had a good performance in 2009, with a total of R$46.7 billion in premiums issued by insurance companies and a growth in 5.0% in relation to 2008, taking into consideration only the data of the market under the regulation of the Superintendency of Private Insurance (SUSEP), not including the health insurance or the VGBL. The industry benefited from the stimulus measures adopted by the Government, supported by a regulatory framework that gives emphasis on liquidity and solvency. With this result, the sector will increase its share in the GDP, confirming the strong potential for growth in the insurance industry in Brazil. In 2010, GDP shall reveal growth, led by the expansion of the industry and increase in demand. 75 2009 ANNUAL REPORT 2009 RESULTS Main consolidated financial information Results (R$ million) 2009 2008 Δ% 8,679.6 7,723.2 12.4% 7,777.2 6,985.1 11.3% (5,700.1) (4,958.1) 15.0% Acquisition costs (880.7) (776.4) 13.4% Gross margin 1,196.4 1,250.5 -4.3% 620.4 805.4 -23.0% Net income (loss) 419.1 415.9 0.8% Ratios 2009 2008 Δ% Lossratio (% of earned premiums) 73.3% 71.0% 2.3 p.p. Acquisition cost ratio (% of earned premiums) 11.3% 11.1% 0.2 p.p. Administrative expense + tax ratio 13.5% 15.2% -1.7 p.p. Gross margin ratio (% of earned premiums) 15.4% 17.9% -2.5 p.p. 99.4% 98.4% 1.0 p.p. 17.6% 19.6% -2.0 p.p. 1.4986 1.4796 1.3% Insurance premiums* Earned premiums Retained claims and benefit expenses Income before income tax and social contribution and profit sharing Combined ratio ROAE 2008 Earnings per share – parent company 2009 *Includes premiums of mandatory third-party liability for vehicles owners (dpvat) and premiums ceded in coinsurance Comments on performance SulAmérica ended the year 2009 recording a net income of R$419.1 million, which corresponds to a growth rate of 9.8% in relation to the recurring net income for 2008. The return on average equity in 2009 stood at 17.6%. Net income – R$ milion ROAE – % + 0.8% 416 -200bps 419 19,6% 2008 2009 2008 17,6% 2009 (*) Return on average equity – annualized 76 2009 ANNUAL REPORT 2009 RESULTS soruges ed soimêrP Insurance premiums – 2009 Total / R$ 8.7 billion 9002 – seõhlib 7,8 $R I latoT Insurance premiums – R$ million +12.4% Other property & casualty: 8.680 7.723 8.4 % Automobile: 33.8% Life 5.8% 2008 2009 Health: 52% Overall lossrate stood at 73.3%, whereas the combined ratio stood at 99.4% at the end of the year. Combinated ratio – % +99,4% +98,4% 1,1% 2,4% 11,1% 12,8% 73,3% 71% 2008 1.3% 2.1% 11.3% 11.4% 2009 Loss ratio Administrative expenses Acquisition cost Tax expenses Other operating income (expenses) 77 2009 ANNUAL REPORT 2009 RESULTS The positive results of the Company’s program for improving operational efficiency improved by 1.4 p.p. the rate that measures administrative expenses in relation to retained premiums, which stood at 11.4% at the end of the period, whereas it stood at 12.8% in the prior year. Administrative expenses – R$ million 937 +0.8% 2009 The balance of marketable securities increased 17.2% in 2009 in relation to 2008, totaling R$6.8 billion, of which approximately 97.0% is allocated to fixed-income assets. The return on marketable securities was equivalent to 115.9% of the Interbank Deposit Rate (CDI) in 2009. Business areas Health insurance: Health insurance premiums totaled R$4.5 billion (52.0% of total insurance premiums), a growth of 10.2% in relation to 2008. Insurance premiums – R$ million 4,099 2008 140 bps 945 2008 +10.2% Administrative expenses ratio – % retained premiums 4,515 2009 12.8 11.4 2008 2009 Group health insurance premiums increased 15.8% in 2009, totaling R$3.1 billion, and representing 35.9% of the Company’s total insurance premiums and 69.0% of health insurance premiums. The portfolio of the group health insurance segment counted on a total of 1,245 thousand insured members at the end of the year, an increase of 11.5% in relation to 2008. The growth in group health insurance premiums in 2009 is explained by the increase in the number of insured members and adjustments to existing policies. Premiums of the health insurance segment of small and medium-sized companies (SME) showed an expansion of 21.4% in 2009 in relation to 2008, reaching a total of R$579.2 million, in line with the increase of 21.0% in the number of insured members, with a portfolio comprising 178,595 members at the end of the period. Dental care portfolio ended the year with 167,621 members, a growth of 51.0% in relation to 2008, reflecting the positive result of promotional campaigns andcross-selling efforts in the insured base . In individual health insurance, premiums amounted to R$1.4 billion, a fall of 0.6%, and corresponded to 16.2% of total insurance premiums and 31.0% of health insurance premiums. The portfolio of individual health insurance showed a reduction of 8.5% in the year in relation to 2008, ending the period with 278,320 members. In 2009, the National Healthcare Agency (ANS) approved an increase of 6.76% to individual health insurance policies issued from the time Law No. 9,655/1998 became effective, and the same proportional rate to policies 78 2009 ANNUAL REPORT 2009 RESULTS issued before such Law entered into effect, applied according to the provisions of the rules in effect. The total loss ratioof health insurance stood at 80.8%, an increase of 450 bps as compared to 2008, partially attributed to the increase in costs of medical services and more frequency of utilization observed industry wide. The acquisition cost ratio stood at 5.9% in 2009, an increase of 50 bps in relation to 2008. Automobile insurance: Insured fleet – Vehicles in thousand Life and personal accident insurance: In the life insurance segment, which also includes personal accident insurance and VGBL and represents 5.7% of the Company’s total insurance premiums for the year, premiums totaled R$497.6 million. The loss ratio in life insurance stood at 57.0%, whereas the acquisition cost ratio stood at 22.3%. Income from private pension operations: +19.1% 1,922 premiums reached R$733.4 million in 2009, a fall of 6.2% in relation to 2008. This decrease is partially explained by the revision of the risk acceptance policy adopted in the portfolio, which led the company to adopt a more selective approach. In the period, the loss ratio stood at 80.9% and acquisition costs represented 18.6% of earned premiums. 2,288 Income from the private pension operations increased by R$12.7 million or 87.0% in 2009 from the previous year, mainly due to the lower provisions for the financial variation in plans pegged to inflation indexes. In 2009, income from private pension operations grew by 28.3% on the previous year to R$202.1 million. Private pension provisions increased by 14.1% on the previous year to R$1,904 million. Income from Administrative Services Only: 2008 2009 Income from the administrative services only (ASO) grew by 8.0% over 2008 to R$30.9 million, impacted by the increase in the average fee per member. The portfolio ended the period with 268,500 covered individuals, which represents contraction of 1.5%. Income from asset management operations: Automobile insurance premiums, which represent 33.8% of total insurance premiums of the Company, grew 25.0% in 2009, ending the period with a total of R$2.9 billion. The increase noted in automobile insurance premiums is explained by the growth in the insured fleet that reached 2.3 million vehicles in the end of 2009, having increased 19.1% in relation to 2008, in addition to the increase in the average annual premiums. The loss ratio stood at 61.5%, a fall of 270 bps, explained by the continued optimization pricing policy and a better acceptance policy adopted by the Company, as well as an increase in the average premium in line with market conditions, being partially offset by the increase in judicial reserves as a result of changes in estimates that has been made since the second quarter of 2009. The acquisition costs ratio showed an improvement of 50 bps in relation to 2008, ending the period at 18.3%. The volume of assets managed by the indirect subsidiary Sul América Investimentos D.T.V.M. S.A. grew 20.6%, ending the year with a total of R$14.4 billion (according to the criteria of Brazilian Financial and Capital Markets Association (ANBIMA)). The result of asset management operations showed a reduction by R$3.8 million in 2009, in line with the increase in the portion of investments of clients in funds with a more conservative profile, therefore, with lower management fees. Assets under management – R$ million Proprietary 11,976 In 2009, SulAmérica increased by 170 bps its share in the automobile insurance market, holding 17.0% of total premiums, according to SUSEP data. The insured fleet reached 2.3 million vehicles. 6,758 Other property and casualty insurance: 5.219 In the area of other property and casualty insurance, segment that represents 8.4% of the Company’s total insurance premiums, 2008 Third-party +20.6% 14,440 +24.8% 8,432 +15.1% 6,008 2009 79 2009 ANNUAL REPORT 2009 RESULTS Net income for the year and proposals for its use In July 2009, the indirect subsidiary Sul América Investimentos DTVM S.A. received the “AMP-1 – Very Strong” rating from Standard & Poor’s, the highest rating in relation to practices of management of customer’s assets, reflecting the good profile of the company’s business. Among the points that took the company to this rating are the diversification of its portfolio, the scope of its product portfolio, the several practices adequate to operations and controls, the expertise of its management body, disciplined processes of investment management and good fiduciary principles. The Board of Directors, at a meeting held on February 23, 2010, approved a proposal according to which the Company will adopt as policy the distribution of dividends of the earnings recorded in the financial statements for the years 2009, 2010 and 2011 at the amount of 50% of annual adjusted net income. In each case distributions will be subject to the respective proposals for use of net income by the Company’s management and the proper approval at Annual Shareholders’ Meeting, and they may be reviewed based on plans and needs of the Company, considered at the time, such as, among others, acquisitions and relevant investments and meeting of regulatory requirements. In any case, such percentages of possible distribution of interim dividends or interest on shareholders’ equity shall be computed in the course of the year in question. Investments At December 31, 2009, the Company had direct investments in the following companies: Sul América Companhia Nacional de Seguros in the amount of R$431.5 thousand, Sul América Companhia de Seguro Saúde in the amount of R$569.7 thousand, and Saepar Serviços e Participações S.A. in the amount of R$1.5 million. Net income for the year and proposal for its use (parent company): 2009 2008 Net income for the year 419,093 415,641 Recognition of legal reserve (5%) (20,955) (20,782) Adjusted net income (Article 202 – Laws Nos. 6,404/76 and 10,303/01) 398,138 394,859 99,535 98,715 199,069 103,910 199,069 290,949 Mandatory dividends Proposed Dividends Use: Setting up a reserve for business expansion The distribution of earnings shown in the chart above was reflected in the Financial Statements, on the assumption that it will be approved at the Annual Shareholders’ Meeting. Indebtedness In February 2007, SulAmérica issued a total of US$200,000,000 in Eurobonds (Senior Notes), at an annual interest of 8.625%, with a maturity period of five years. On 26 November 2007, with the use of part of the funds from the Initial Public Offering (IPO) and as provided by the contract, it carried out the early redemption of US$ 71.7 million, corresponding to 35% of the adjusted balance. This issue is the object of a swap transaction aimed at substituting the foreign exchange exposure by the CDI variation. At the end of 2009, the adjusted debt balance was R$ 9.9 million in current and R$254.8 million in non-current, and represented 11.6% of net assets. totaled R$430.0 million; remuneration of third-party interests reached R$94.9 million; minority interest on retained earnings to R$36.6 million; and retained profit totaled R$419.1 million. Distribution of added value – R$1.4 billion [GRI EC1] Personnel expenses: 31% Retained profit: 30% Minority interest on retained earnings: 2% Remuneration of third-party interests: 7% Distribution of Added Value SulAmérica’s added value reached R$ 1.4 billion in 2009. Personnel expenses amounted to R$432.7 million; taxes and contributions Taxes and contributions expenses: 30% 80 2009 ANnual REPORT Demonstrações financeiras Balance sheets as of december 31, 2009 and 2008 (In thousands of brazilian reais – R$) ASSETS Parent Company Consolidated Notes 2009 2008 2009 2008 CURRENT ASSETS – 433.181 456.203 7.791.712 6.395.565 CASH AND CASH EQUIVALENTS – 22.232 156.088 618.564 511.994 – 173 32 59.942 54.726 3.1 22.059 156.056 558.622 457.268 5 306.012 214.536 4.411.877 3.507.331 Fixed income securities – 21.703 86.832 4.144.408 3.412.298 Equity securities – – – 172.074 89.504 Equity funds quotas – 284.309 127.704 96.558 12.421 Other – – – 1.554 2.356 (–) Provision for losses – – – (2.717) (9.248) – – – 1.765.839 1.468.083 Premiums receivable 6 – – 1.263.023 1.091.441 Insurance companies – – – 45.918 48.278 11.2 – – 453.792 362.354 – – – 47.242 32.396 6.1 – – (44.136) (66.386) – – – 1.520 4.383 Receivables – – – 838 3.775 Reinsurance credits – – – 682 608 ACCOUNTS RECEIVABLE – 104.072 83.506 381.480 373.534 Accounts receivable – 86.992 68.005 115.750 88.926 Recoverable taxes and contributions 7 18.516 14.994 123.062 126.777 Recoverable taxes and contributions – tax loss carryfowards 7 – 1.992 32.098 56.551 Other – 98 49 124.486 116.549 (–) Allowance for doubtful accounts – (1.534) (1.534) (13.916) (15.269) OTHER ASSETS – – – 120.376 74.511 PREPAID EXPENSES – 865 2.073 12.469 6.577 DEFERRED ACQUISITION COSTS – – – 370.834 298.129 11 – – 367.874 295.603 11.3 – – 2.960 2.526 Cash and Banks Securities purchased under resale agreement MARKETABLE SECURITIES RECEIVABLES FROM INSURANCE AND REINSURANCE OPERATIONS Reinsurance companies Other (–) Allowance for doubtful accounts RECEIVABLES FROM PRIVATE PENSION OPERATIONS Insurance and reinsurance Private Pension The accompanying notes are an integral part of these financial statements. 81 2009 ANnual REPORT 2009 results Parent Company ASSETS Consolidated Notes 2009 2008 2009 2008 11.2 – – 108.753 151.023 NON–CURRENT ASSETS – 2.552.927 2.227.263 4.641.699 4.486.274 LONG–TERM ASSETS – 1.698 7.721 4.451.509 4.269.615 MARKETABLE SECURITIES 5 11 9 1.887.634 1.883.765 Fixed income securities – – – 1.871.900 1.869.302 Equity securities – – – 120 120 Equity funds quotas – – – 10.659 9.880 Other – 95 95 31.560 31.358 (–) Provision for losses – (84) (86) (26.605) (26.895) – – – 98.757 54.491 6 – – 37.306 131 REINSURANCE AND RETROCESSION EXPENSES RECEIVABLES FROM INSURANCE AND REINSURANCE OPERATIONS Premiums receivable Insurance companies Reinsurance companies – 560 11.2 – – 60.891 54.360 – 825 2.511 2.261.165 2.145.157 Recoverable taxes and contributions 7 8.779 7.672 575.290 579.153 Recoverable taxes and contributions – tax loss carryfowards 7 11.278 10.636 150.322 172.230 16 825 648 1.655.182 1.617.724 Other – – – 51.469 57.560 (–) Allowance for doubtful accounts – (20.057) (16.445) (171.098) (281.510) OTHER ASSETS – – – 2.912 7.118 PREPAID EXPENSES – 862 5.201 12.896 6.674 DEFERRED ACQUISITION COSTS – – – 140.909 142.763 11 – – 138.632 141.372 11.3 – – 2.277 1.391 11.2 – – 47.236 29.647 2.551.229 2.219.542 190.190 216.659 – 2.546.034 2.217.255 6.899 10.144 8.1 2.546.034 2.217.255 – – Property for rent – – – 15.515 21.453 Other investments – – – 15.903 16.319 (–) Provision for losses – – – (15.041) (15.214) (–) Depreciation – – – (9.478) (12.414) ACCOUNTS RECEIVABLE Judicial deposits Insurance and reinsurance Private Pension REINSURANCE AND RETROCESSION EXPENSES PERMANENT ASSETS INVESTMENTS Equity in associated companies The accompanying notes are an integral part of these financial statements. 82 2009 ANnual REPORT 2009 results Parent Company ASSETS Consolidated Notes 2009 2008 2009 2008 8.2 – – 75.216 131.197 Land and building – – – 3.960 116.267 Furniture, fixtures and equipament – – – 85.087 78.007 Other – – – 44.136 25.317 (–) Provision for losses – – – (189) (594) (–) Depreciation – – – (57.778) (87.800) 8.3 5.195 2.287 104.586 72.442 Goodwill – 5.138 5.138 20.573 20.573 Software – 3.242 317 148.070 102.326 (–) Amortization – (3.185) (3.168) (64.057) (50.457) – – – 3.489 2.876 Organization, implementation and installation costs – – – 7.554 5.115 Goodwill from merger – – – (–) Amortization – – – (4.065) (2.239) 2.986.108 2.683.466 12.433.411 10.881.839 PROPERTY AND EQUIPMENT INTANGIBLE ASSETS DEFERRED CHARGES TOTAL ASSETS – The accompanying notes are an integral part of these financial statements. 83 2009 ANnual REPORT 2009 results Balance Sheets as of december 31, 2009 and 2008 (In thousands of brazilian reais – R$) Parent Company LIABILITIES AND SHAREHOLDERS' EQUITY Notes CURRENT LIABILITIES Consolidated 2009 2008 2009 2008 214.279 127.147 5.544.884 4.658.248 ACCOUNTS PAYABLE – 214.279 127.147 671.385 556.649 Accounts payable 17 201.120 110.272 348.983 254.873 Taxes and other social charges payable – 1.104 2.414 106.834 96.619 Labor liabilities – – – 31.428 32.245 14 5.763 9.952 5.763 9.952 Taxes and contributions payable – 3.395 4.509 66.442 68.682 Other – 2.897 – 111.935 94.278 – – – 421.388 363.929 Refundable premiums – – – 9.392 10.947 Insurance companies – – – 24.708 14.133 9.1 – – 145.730 139.367 Commissions on insurance premiums – – – 157.518 134.611 Other – – – 84.040 64.871 – – – 2.687 1.801 Reinsurance payable – – – 291 355 Other operating payable – – – 2.396 1.446 THIRD–PARTY DEPOSITS 10 – – 59.255 41.951 TECHNICAL RESERVES – INSURANCE 11 – – 3.898.013 3.254.455 PROPERTY AND CASUALTY AND GROUP LIFE – – – 2.987.768 2.482.677 Unearned premium reserve – – – 1.799.282 1.474.527 Premium deficiency reserve – – – 12.939 1.852 Reserve for claims and claims adjustment expenses – – – 958.127 831.067 IBNR reserve – – – 201.954 152.829 Other – – – 15.466 22.402 – – – 795.621 689.739 Unearned premium reserve – – – 84.466 76.734 Reserve for benefits granted – – – 5.297 5.067 Reserve for claims and claims adjustment expenses – – – 218.717 188.918 IBNR reserve – – – 487.141 419.020 Loans and financing (Note 13) INSURANCE AND REINSURANCE Reinsurance companies PRIVATE PENSION TECHNICAL RESERVES – HEALTH INSURANCE The accompanying notes are an integral part of these financial statements. 84 2009 ANnual REPORT 2009 results Parent Company LIABILITIES AND SHAREHOLDERS' EQUITY Consolidated Notes 2009 2008 2009 2008 TECHNICAL RESERVES – LIFE INSURANCE WITH SURVIVORSHIP COVERAGE – – – 114.624 82.039 Reserve for benefits to be granted – – – 91.683 63.256 Reserve for benefit granted – – – 121 152 Unexpired risk reserve – – – 136 234 Financial surplus reserve – – – 11 5 IBNR reserve – – – 6.671 4.970 Premium deficiency reserve – – – 1.782 1.784 Reserve for future policy benefits – – – 14.175 9.951 Other – – – 45 1.687 – – – 431.215 378.937 11.3 – – 431.215 378.937 Reserve for benefits to be granted – – – 370.641 318.331 Unexpired risk reserve – – – 191 540 Risk fluctuation reserve – – – 5 1 Reserve for benefit granted – – – 55.280 54.506 Reserve for future policy benefits – – – 696 2.660 Financial surplus reserve – – – 1.313 582 IBNR reserve – – – 2.009 973 Other – – – 1.080 1.344 16 – – 60.000 59.240 Labor contingencies – – – 3.981 4.161 Civil contingencies – – – 56.019 55.079 – – – 941 1.286 – – – 941 1.286 NON–CURRENT LIABILITIES 289.333 270.681 4.156.840 3.716.624 LONG–TERM LIABILITIES 289.333 270.681 4.156.840 3.716.624 ACCOUNTS PAYABLE 289.333 270.681 1.458.389 1.329.975 TECHNICAL RESERVES – PRIVATE PENSION UNRESTRICTED PLANS ACCRUED LIABILITIES FOR CONTINGENCIES OTHER Other Taxes and contributions payable 17 1.436 6.255 1.008.912 913.491 Deferred taxes 7.2 9.642 9.642 114.201 103.895 Loans and financing 14 278.250 254.784 278.250 254.784 – 5 – 57.026 57.805 Other The accompanying notes are an integral part of these financial statements. 85 2009 ANnual REPORT 2009 results Parent Company LIABILITIES AND SHAREHOLDERS' EQUITY Consolidated Notes 2009 2008 2009 2008 – – – 21.706 2.581 Insurance – – – 19.026 – Other – – – 2.680 2.581 TECHNICAL RESERVES – INSURANCE 11 – – 753.801 655.036 PROPERTY AND CASUALTY AND GROUP LIFE – – – 403.584 421.116 INSURANCE AND REINSURANCE Unearned premium reserve – – – 83.731 38.416 Premium deficiency reserve – – – 24.386 23.407 Reserve for claims and claims adjustment expenses – – – 295.467 359.293 – – – 28.373 29.281 Reserve for benefits granted – – – 8.453 7.535 Reserve for claims and claims adjustment expenses – – – 19.920 21.746 – – – 321.844 204.639 Reserve for benefits to be granted – – – 307.473 191.232 Premium deficiency reserve – – – 13.797 12.379 Other – – – 574 1.028 – – – 1.475.434 1.274.540 11.3 – – 1.475.434 1.274.540 Reserve for benefits to be granted – – – 1.163.972 950.155 Risk fluctuation reserve – – – 3.804 1.219 Reserve for benefits granted – – – 238.411 255.517 Contribution deficiency reserve – – – 65.715 50.436 Other – – – 3.532 17.213 16 – – 445.025 451.409 Tax Contingencies – – – 157.673 143.100 Labor contingencies – – – 36.816 36.687 Civil contingencies – – – 250.536 271.622 – – – 2.485 3.083 – – – 2.485 3.083 TECHNICAL RESERVES – HEALTH INSURANCE TECHNICAL RESERVES – LIFE INSURANCE WITH SURVIVORSHIP COVERAGE TECHNICAL RESERVES – PRIVATE PENSION UNRESTRICTED PLANS ACCRUED LIABILITIES FOR CONTINGENCIES OTHER Other MINORITY INTEREST – – – 249.191 221.329 18 2.482.496 2.285.638 2.482.496 2.285.638 18.1 1.185.831 1.185.831 1.185.831 1.185.831 Capital reserves – 386.045 382.570 386.045 382.570 Treasury stock – (21.622) (2.210) (21.622) (2.210) Earnings reserves 18.4 916.590 696.705 916.590 696.705 Valuation adjustments to shareholder's equity 18.5 15.652 22.742 15.652 22.742 2.986.108 2.683.466 12.433.411 10.881.839 SHAREHOLDERS' EQUITY Domestic capital TOTAL LIABILITES AND SHAREHOLDERS' EQUITY The accompanying notes are an integral part of these financial statements. 86 2009 ANnual REPORT 2009 results Statements of income for the years ended december 31, 2008 and 2007 (In thousand of brazilians reais – R$) Parent Company Consolidated Notes 2009 2008 2009 2008 – – – 8.289.159 7.316.461 Insurance Premiums – – – 8.648.242 7.680.366 DPVAT (mandatory third–party liability for vehicles owners) – – – 133.962 105.007 Coinsurance Premiums ceded – – – (102.627) (62.200) Reinsurance Premiums Ceded – – – (324.567) (352.288) Retrocessions Premiums – – – 1.134 458 Premiums Ceded to Consortiums and Funds – – – (66.985) (54.882) CHANGES IN TECHNICAL RESERVES – – – (511.969) (331.385) EARNED PREMIUMS – – – 7.777.190 6.985.076 ASSET MANAGEMENT FEE – – – 4.773 3.067 RETAINED CLAIMS – – – (5.675.420) (4.939.622) Direct claims – – – (6.067.206) (5.208.881) Claims – consortiums and funds – – – (50.819) (37.616) Assistance service – – – (45.262) (38.900) Recovery for claims – – – 418.609 163.736 Salvage and recoveries – – – 166.738 218.759 Change in IBNR reserves – – – (97.480) (36.720) – – – (24.635) (18.509) Benefits expenses – – – (23.296) (18.118) Change in IBNR reserves – – – (1.339) (391) 19.2 – – (880.726) (776.399) Commissions – – – (972.973) (840.782) Recovery of commissions – – – 31.022 23.238 Other acquisition costs – – – (1.821) (1.995) Change in deferred acquisition costs – – – 63.046 43.140 (110.678) (86.986) INSURANCE OPERATIONS RETAINED PREMIUMS BENEFITS EXPENSES ACQUISITION COSTS OTHER INSURANCE OPERATING INCOME/ EXPENSES – Other insurance operating income 19.4 – – 166.616 131.118 Other insurance operating expenses 19.5 – – (277.294) (218.104) INCOME FROM RETAINED CONTRIBUTIONS – – – 202.107 157.486 Income from retained contributions – – – 202.107 157.486 PRIVATE PENSION OPERATIONS The accompanying notes are an integral part of these financial statements. 87 2009 ANnual REPORT 2009 results Parent Company Consolidated Notes 2009 2008 2009 2008 CHANGES IN TECHNICAL RESERVES – – – (169.230) (126.923) ASSET MANAGEMENT FEE – – – 15.095 12.290 BENEFIT AND REDEMPTION EXPENSES – – – (14.676) (22.041) Benefits expenses – – – (13.662) (21.989) Changes in IBNR reserve – – – (1.014) (52) ACQUISITION COSTS – – – (5.417) (4.698) OTHER INSURANCE OPERATING INCOME/ EXPENSES – (470) (1.453) OTHER PRIVATE PENSION OPERATING EXPENSES – – – (470) (1.453) NET OPERATING INCOME FROM ASO BUSINESS – – – 30.936 28.644 NET OPERATING INCOME FROM ASSET MANAGEMENT BUSINESS – – – 19.465 23.371 19.3 (12.036) (5.757) (944.521) (936.911) TAX EXPENSES – (1.283) (5.803) (177.858) (175.438) NET FINANCIAL INCOME – 16.557 27.635 564.492 496.966 Financial income 19.6 153.589 221.758 1.043.065 1.042.855 Financial expenses 19.7 (137.032) (194.123) (478.573) (545.889) – 434.929 453.480 9.975 187.509 – – – 1.307 2.405 8.1 424.058 458.862 (5.770) 12.433 – 10.871 (5.647) 7.507 (7.661) 19.8 – 265 6.931 180.332 438.167 469.555 620.402 805.429 ADMINISTRATIVE EXPENSES EQUITY INCOME Income from property for rent Adjustments to investments in subsidiaries Other equity income/ expenses Profit from sale of permanent assets INCOME BEFORE INCOME TAX, SOCIAL CONTRIBUTION AND PROFIT SHARING Income tax 20 (5.872) 2.173 (97.150) (161.323) Social contribution 20 (2.044) 747 (32.614) (50.603) – – – (34.926) (47.370) 430.251 472.475 455.712 546.133 (36.619) (130.192) Profit sharing INCOME AFTER INCOME TAX, SOCIAL CONTRIBUTION AND PROFIT SHARING Minority interest – – INCOME BEFORE REVERSAL OF INTEREST ON SHAREHOLDERS' EQUITY Interest on shareholders' equity 430.251 472.475 419.093 415.941 (11.158) (56.834) – – 419.093 415.641 419.093 415.941 279.657.196 280.913.431 1.498,60 1.479,61 – NET INCOME NUMBER OF SHARES OUTSTANDING EARNING PER THOUSAND SHARES (R$) The accompanying notes are an integral part of these financial statements. 88 2009 ANnual REPORT 2009 results Statement of added value for the years ended december 31, 2009 and 2008 (In thousand of brazilians reais – R$) Parent Company Consolidated 2009 2008 2009 2008 1.325 265 9.528.531 8.655.900 Revenues from insurance operation – 9.014.382 8.054.095 Revenues from private pension operation – 202.107 157.486 Asset management fee – 19.867 15.357 1.325 265 4.522 180.332 – – 30.936 28.644 Net operating from asset management activities – 19.465 23.371 Other – 219.518 166.269 Priovision for doubtful accounting – Reversion – 17.734 30.346 – (681.461) (458.308) Insurance operating – (511.957) (331.385) Private pension operation – (169.504) (126.923) 1.325 265 8.847.070 8.197.592 – (4.546) (6.481.213) (5.523.167) Retained claims – (6.190.966) (5.288.153) Change in IBNR reserves – (99.908) (36.743) Benefits and redemption expenses – (192.484) (207.434) Change in IBNR reserves – private pension – – (420) – (4.546) 2.145 9.583 (5.405) (4.860) (1.585.389) (1.430.732) Material, power and other (1.080) (1.484) (151.606) (152.401) Third–parties service, net comission (4.325) (3.376) (1.496.496) (1.320.949) Change in deferred acquisition costs – – 63.046 43.140 Lost/ Assets value recuperation – – (333) (522) (4.080) (9.141) 780.468 1.243.693 – – (34.039) (35.159) 8 – NET ADDED VALUE PRODUCED (6–7) (4.080) (9.141) 746.429 1.208.534 9 – ADDED VALUE RECEIVED/ CEDED IN TRANSFER 491.947 478.127 666.823 392.460 Financial income (30.245) 91.043 609.144 685.390 Net of equity accounting (Note 9.1) 424.058 458.862 – 8.529 Net of reinsurance ceded operation – – (3.933) (164.865) 1 – REVENUES Net from disposal of assets – permanent asset Net operating from ASO business 2 – CHANGES IN TECHNICAL RESERVES 3 –NET INCOME OPERATION (1+2) 4 – RETAINED CLAIMS AND BENEFITS Other 5 – INPUT PURCHASE FROM THIRD–PARTIES 6 – GROSS ADDED VALUE (3–4–5) 7 – DEPRECIATION, AMORTIZATION AND DEPLETION – The accompanying notes are an integral part of these financial statements. 89 2009 ANnual REPORT 2009 results Parent Company Consolidated 2009 2008 2009 2008 – – (134.216) (140.870) 79.010 (74.209) 78.948 (75.277) – – 33.603 (12.314) 52 53 68.159 74.549 19.072 2.378 15.118 17.318 10 – ADDED VALUE TO BE DISTRIBUTED (8+9) 487.867 468.986 1.413.252 1.600.994 11 – DISTRIBUTION OF ADDED VALUE 487.867 468.986 1.413.252 1.600.994 5.918 5.214 432.655 422.794 2.116 3.578 311.164 330.014 3.802 1.636 91.645 67.800 – – 29.846 24.980 8.825 3.294 429.996 542.203 8.684 3.284 418.204 530.771 – – 99 238 141 10 11.693 11.194 42.873 44.837 94.889 89.948 Interest 42.722 44.759 62.353 68.619 Rentals 151 78 32.536 21.329 430.251 415.641 455.712 546.049 11.158 – – – – – – (84) 419.093 415.641 419.093 415.941 – – 36.619 130.192 Net of coinsurance ceded operation Exchange variation – loans and commitments receivable Monetary and exchange variation – insurance and private pension Monetary variation – Judicial Deposits Other 11.1) Personnel Direct remuneration Benefits F.G.T.S 11.2) Taxes, fees and contributions Federal State Municipal 11.3) Income from managed assets 11.4) Interest on shareholders' equity Interest on shareholders' equity Dividends Retained earnings (accumulated deficit) Minority interest on retained earning The accompanying notes are an integral part of these financial statements. 90 2009 ANnual REPORT 2009 results Statements of income for the years ended december 31, 2009 and 2008 (In thousand of brazilians reais – R$) Parent Company Consolidated 2009 2008 2009 2008 – – 9.099.587 8.197.453 Insurance Premiums – – 8.261.115 7.417.773 Income from Retained Contributions / Income Portability – – 273.029 261.074 Aso Healthcare Plans – – 532.958 488.707 Other – – 32.485 29.899 – – (6.088.679) (5.313.906) Insurance – – (5.432.261) (4.748.144) Private Pension Benefits / Redemption / Outgoing Portability – – (175.385) (128.254) Aso Healthcare Plans – – (481.033) (437.508) – – (986.710) (861.787) (399) 24 (135.699) (152.410) (6.654) (6.248) (934.033) (770.730) Personnel Expenses (1.530) (1.682) (424.074) (352.773) Other (5.124) (4.566) (509.959) (417.957) (9.274) (5.758) (320.685) (520.659) (8.799) (2.216) (176.321) (203.805) (1) (434) (82.340) (118.398) (474) (3.108) (62.024) (198.456) 75.957 90.095 – 8.299 (23.260) (18.877) (57.594) (74.562) (107.040) 275.764 222.528 1.128.040 (435.474) (578.612) (5.612.848) (9.681.935) Selling 294.796 843.837 5.304.026 10.413.636 Income 33.638 10.539 531.350 396.339 (227) 4.242 (14.291) 2.104 (70.897) 339.242 784.424 1.641.842 60.898 (81.453) (418.513) (912.606) Payments to Acquire Marketable Securities (33.555) (91.091) (2.330.973) (2.512.493) Proceeds and Maturities from Sale Marketable Securities 94.453 9.638 1.912.460 1.599.887 OPERATING ACTIVITIES COLLECTION CLAIMS AND BENEFITS COMMISSIONS OPERATING INCOME/ EXPENSES ADMINISTRATIVE EXPENSES TAXES AND CONTRIBUTIONS PAYABLE Income tax and social contribution PIS and COFINS Other DIVIDENDS AND INTEREST ON SHAREHOLDERS' EQUITY FINANCIAL CHARGES MARKETABLE AT FAIR VALUE THROUGH PROFIT OR LOSS Purchase OTHER NET CASH FROM (USED IN) OPERATING ACTIVITIES Investing Activities OTHERS MARKETABLE SECURITIES The accompanying notes are an integral part of these financial statements. 91 2009 ANnual REPORT 2009 results Parent Company Consolidated 2009 2008 2009 2008 784 (182) (39.154) (223.585) (216) (198) (189.092) (247.930) 1.000 16 149.938 24.345 – (36.178) 6.103 261.005 (1.576) (240) (65.147) (25.556) It Equipment/Software (944) (232) (37.928) (14.960) Leasehold Improvements (632) (8) (27.219) (10.596) 60.106 (118.053) (516.711) (900.742) (104.089) (63.244) (115.824) (214.319) (60) (60) (24.346) (24.507) (18.916) (1.849) (20.973) (7.194) NET CASH (USED IN) FINANCING ACTIVITIES (123.065) (65.153) (161.143) (246.020) INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (133.856) 156.036 106.570 495.080 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 156.088 52 511.994 16.914 22.232 156.088 618.564 511.994 (133.856) 156.036 106.570 495.080 JUDICIAL DEPOSITS AND REDEMPTIONS Investing Activities Judicial Deposits Redemption of Judicial Deposits PURCHASE AND SALE OF PROPERTY AND EQUIPMENT EQUIPMENTS NET CASH (USED IN) FROM INVESTING ACTIVITIES Financing Activities DIVIDENDS AND INTEREST ON SHAREHOLDERS' EQUITY PAES - SPECIAL PLAN FOR TAX PAYMENT IN INSTALLMENTS OTHER PAYMENTS CASH AND CASH EQUIVALENTS AT END OF PERIOD INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS The accompanying notes are an integral part of these financial statements. 92 2009 ANnual REPORT 2009 results Conciliation between net income and net cash from (uded in) operating activities for the years ended december 31, 2009 and 2008 (In thousand of brazilians reais – R$) Parent Company 2009 NET INCOME 2008 Consolidated 2009 2008 419.093 415.641 419.093 415.941 Minority interest – – 27.862 – Depreciation and Amortization – – 38.767 35.897 39.781 87.658 39.781 87.658 Interest and Monetary Variations on PAES – SPECIAL PLAN FOR TAX PAYMENT IN INSTALLMENTS 34 36 6.559 7.437 Interest and Monetary Variations on Provisions for Contingencies and Taxes and contributions liabilities 55 – 26.648 15.310 3.336 2.371 4.795 4.751 – – – (55.055) (424.058) (458.862) – (8.529) – (265) (16.460) (180.484) (57) (670) (61.357) (73.501) (2.632) – (1.634) – (155.579) 245.624 (493.089) 565.611 – – 758.308 547.771 1.030 (129.415) (141.864) 50.510 675 2.684 (70.713) (64.464) Dividends and interest on shareholders' equity in subsidiaries 75.957 90.095 – 8.298 Change in accounts payable and other (5.340) 148.477 242.665 338.835 Change in loans and financing (23.192) (64.132) (23.192) (64.132) Change in third–party deposits – – 17.304 13.789 Change in accrued liabilities for contingencies – – 10.949 (3.801) NET CASH FROM (USED IN) OPERATING ACTIVITIES (70.897) 339.242 784.424 1.641.842 ADDITIONS Interest and Monetary Variations on Loans and swaps Other DEDUCTIONS Minority interest Equity Gains in Subsidiaries Profit from sale of permanent assets Interest and Monetary Variations on Judicial Deposits Other OPERATING ACTIVITIES Change in marketable securities Change in receivables from insurance, reinsurance and private pension operations Change in accounts receivable Change in deferred acquisition costs and other assets The accompanying notes are an integral part of these financial statements. 93 2009 AnNual REPORT 2009 RESULTS Statements of changes in shareholders’ equity for the years ended december 31, 2009 and 2008 (In thousands of brazilian reais – R$) Parent Company Capital Goodwill for merger reserves Goodwill on subscription for merger reserves 1.185.831 25.995 355.000 – – 381.187 165 23.445 – 329.808 192 31.529 384.974 8.411 – 1.960.376 Adjustments of marketable securities – – – – – – – – – – – – – (4.387) – (4.387) Adjustments of derivatives financial instruments – – – – – – – – – – – – – 18.718 – 18.718 Acquisition stock for treasury (Note 18.2) – – – – (2.210) (2.210) – – – – – – – – – (2.210) Reversal of revaluation reserve (Note 4.1.8) – – – – – – (165) – – – – – – – – (165) Realized on unrealized profit reserves – – – – – – – – – – – (31.529) (31.529) – 31.529 – Increase on capital reserves – – – 1.575 – 1.575 – – – – – – – – – 1.575 Realized on unrealized profit reserves – – – – – – – – – – – – – – – – NET INCOME – – – – – – – – – – – – – – 415.641 415.641 BALANCES AS OF DECEMBER 31, 2007 Option to be granted and recognized Treasury stocks Capital reserves Revaluation reserves Legal reserves Suplemmentary reserves Reserve for business expansion Fiscal incentive reserves Unrealized profit reserves ALLOCATION OF INCOME: Total Adjustments of marketable securities Retained earnings Total – – Legal reserve – – – – – – – 20.782 – – – – 20.782 – (20.782) – Unrealized profit reserve – – – – – – – – – – – 31.529 31.529 – (31.529) – Reserve for business expansion – – – – – – – – – 290.949 – – 290.949 – (290.949) – – – – – – – – – – – – – – – (103.910) (103.910) 1.185.831 25.995 355.000 1.575 (2.210) 380.360 – 44.227 – 620.757 192 31.529 696.705 22.742 – 2.285.638 Adjustments of marketeble securities - reflex – – – – – – – – – – – – – (7.090) – (7.090) Recognitional of capital reserve (Note 13.2) – – – 3.746 – 3.746 – – – – – – – – – 3.746 Acquisition stock for treasury (Note 18.2) – – – – (19.412) (19.412) – – – – – – – – – (19.412) Dividends paid – – – – – – – – – (139) – (139) – – (139) Loss on option to be granted – – – (271) – (271) – – – – – – – – – (271) Realized on unrealized profit reserves – – – – – – – – – – – (31.529) (31.529) – 31.529 – NET INCOME – – – – – – – – – – – – – – 419.093 419.093 Proposed dividends – R$0.3694 per thousand common/ preferred shares BALANCES AS OF DECEMBER 31, 2008 ALLOCATION OF INCOME: – – Legal reserve – – – – – – – 20.955 – – – – 20.955 – (20.955) – Unrealized profit reserve – – – – – – – – – – – 31.529 31.529 – (31.529) – Reserve for business expansion – – – – – – – – – 199.069 – – 199.069 – (199.069) – – – – – – – – – – – – – – – (199.069) (199.069) 1.185.831 25.995 355.000 5.050 (21.622) 364.423 – 65.182 – 819.687 192 31.529 916.590 15.652 – 2.482.496 Proposed dividends – R$0.71068 per thousand common/ preferred shares BALANCES AS OF DECEMBER 31, 2008 The accompanying notes are an integral part of these financial statements. 94 2009 ANnual REPORT Accompanying Notes (1) OPERATIONS SUL AMÉRICA S.A. is a corporation, established on March 13, 1978 and headquartered in Rio de Janeiro. The Company obtained from the Brazilian Securities and Exchange Commission (CVM) its registration as public company on October 3, 2007, and all of its 21,739,132 units started to be traded at the Securities, Commodities and Futures Exchanges (BM&FBOVESPA) on October 5, 2007 under the trading symbol “SULA11”, listed in the Level 2 of Differentiated Corporate Governance Practices. On November 6, 2007, the over allotment option comprising 3,260,868 units was exercised, totaling a distribution of 25,000,000 units amounting to R$775,000. The Company, through its direct and indirect subsidiaries, is engaged in the business of health, automobile, other property and casualty and life insurance, private pension, management of health care services and asset management. (2) PRESENTATION OF THE FINANCIAL STATEMENTS The accompanying financial statements have been prepared in accordance with the accounting practices adopted in Brazil. These aforementioned financial statements comprise the balance sheets, the statements of income, of cash flows, which consolidated balances take into account the buy and sell movements of each marketable security of exclusive investment Companies funds, of added value and of changes in the shareholders’ equity of the parent company and its direct and indirect subsidiaries for the years ended December 31, 2009 and 2008. The financial statements for the year ended December 31, 2008 were reclassified and adjusted, when applicable, to allow readers to compare them to the current period. These reclassifications and adjustments are mainly related to liabilities of reinsurance contracts, which cannot be offset against liabilities of insurance contracts, as defined in the chart of accounts issued by Superintendency of Private Insurance (SUSEP) Circular No. 379, of December 19, 2008, which became effective on January 1, 2009, for indirect subsidiaries that operate insurance and private pension businesses. Accordingly, the reserves related to risks contracted by insureds with these indirect subsidiaries that operate insurance and private pension businesses are accounted for in the group of accounts Technical Reserves – Insurance and Technical Reserves – Private Pension in current and non-current liabilities, whereas the portion related to risk insured by reinsurance companies related to premiums is accounted for in the group of accounts Deferred Reinsurance and Retrocession Expenses in current and noncurrent assets, and the portion related to claims is recorded in the group of accounts Receivables from Insurance and Reinsurance Operations in current and non-current assets. Listed below are the consolidated companies: Ownership interest (%) in total capital Ownership interest (%) in total capital 2009 2008 Main activities Headquarters Direct Indirect Direct Indirect Insurance company RJ 24.45 75.55 23.89 76.11 Equity interest holding and service company RJ 100.00 – 100.00 – Brasilsaúde Companhia de Seguros (IV) and (V) Insurance company RJ – 50.05 – 50.05 Sul América Seguros de Pessoas e Previdência S.A. (New corporate name of Sul América Seguros de Vida e Previdência S.A.) (XI) and (XIII) Insurance company RJ – 100.00 – 100.00 Sul América Companhia de Seguro Saúde Insurance company RJ 33.95 66.05 33.95 66.05 Sul América Companhia de Seguros Gerais (II) Insurance company RJ – 100.00 – 100.00 Insurance company RJ – 30.00 – 30.00 Equity interest holding RJ – – – 100.00 Insurance company RJ – 100.00 – 100.00 Sul América Companhia Nacional de Seguros (I), (II) and (VI) Saepar Serviços e Participações S.A. Brasilveículos Companhia de Seguros (I), (V) and (VII) Sul América Investimentos e Participações S.A. (IX) Sul América Seguro Saúde S.A. (III) and (IV) 95 2009 ANnual REPORT 2009 RESULTS Companies Ownership interest (%) in total capital Ownership interest (%) in total capital 2009 2008 Main activities Headquarters Direct Indirect Direct Indirect Asset management SP – 100.00 – 100.00 Reinsurance company Cayman Island – 100.00 – 100.00 Equity interest holding RJ – 100.00 – 100.00 Health insurance company SP – 100.00 – 100.00 Partnership RJ – 100.00 – 100.00 Service company SP – 100.00 – 100.00 Sul América International Limited (X) Equity interest holding Cayman Island – – – 100.00 Corcovado S.A. (VI) Equity interest holding Peru – – – 99.46 Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. Cival Reinsurance Company Ltd. (VIII) Sul América Santa Cruz Participações S.A. (IX) Sul América Serviços de Saúde S.A. (III) Clube Sul América Saúde, Vida e Previdência (XII) Executivos S.A. Administração e Promoção de Seguros (XII) and (XIII) (I) As of December 31, 2009 and 2008, the Company has a total of 100.00% indirect interest in Sul América Companhia Nacional de Seguros, which in turn has a 60.00% interest in the voting capital of Brasilveículos Companhia de Seguros; (II) On July 3, 2008, the prior authorization for the transfer of the insurance business, except for the portfolio related to DPVAT, to the indirect subsidiary Sul América Companhia Nacional de Seguros, was required from SUSEP, which is still analyzing it; (III) On June 18, 2008, National Supplementary Health Plan Agency (ANS) granted authorization for the split followed by merger of Sul América Serviços Médicos S.A., and for the voluntary cession of its managed health portfolio. On June 30, 2008, the shareholders of the indirect subsidiaries Sul América Serviços de Saúde S.A., Sul América Serviços Médicos S.A. and Sul América Seguro Saúde S.A. approved the split and merger, including the cession of the managed plan portfolio of Sul América Serviços Médicos S.A. to Sul América Serviços de Saúde S.A. Of the total net book value amounting to R$89,248, at the base date May 31, 2008, the amount of R$58,714 was directed to Sul América Seguro Saúde S.A. and R$30,534 to Sul América Serviços de Saúde S.A. The operations carried out during June 2008 were also directed at the same previously informed proportions, in view of the need of fiscal calculation; (IV) As of December 31, 2009, the Company has a total of 100.00% indirect interest in Sul América Seguro Saúde S.A., which in turn has a 50.05% direct interest in the voting capital of Brasilsaúde Companhia de Seguros; (V) The financial statements of these companies for the years ended December 31, 2009 and 2008 were audited by BDO Trevisan Auditores Independentes which opinions were issued unqualified by Luiz Carlos de Carvalho – CRC 1 SP197193/O-6 “S” – RJ as of December 31, 2009 and Mateus de Lima Soares - CRC 1RJ079681/O-0 as of December 31, 2008; (VI) On August 20, 2009, the indirect subsidiary Sul América Companhia Nacional de Seguros sold all of the interest, comprising 12,586,880 shares, it held in Corcovado S.A. to A.J. Vierci Perú S.A.C., for the amount of R$6,109, which was fully received by September 30, 2009. This transaction resulted in a profit of R$870, recorded under Income from Sale of Permanent Assets; (VII) At the Extraordinary Shareholders’ Meeting held on June 9, 2008, the shareholders of the subsidiary Brasilveículos Companhia de Seguros resolved, based on the Protocol of Merger and Management Justification, dated June 6, 2008, and the corresponding Appraisal Report of net asset value prepared by an independent appraisal company, to merge 50.00% of the Net Book Value of the indirect subsidiary Alutrens Participações S.A. amounting to R$244,679; (VIII) At present, Cival Reinsurance Company Ltd. does not have any operating activities; (IX) On April 30, 2009, at the Extraordinary Shareholders’ Meeting of indirect subsidiary Sul América Santa Cruz Participações S.A., the shareholders approved, based on the Protocol of Merger and Justification of Management, dated March 31, 2009, and the corresponding Appraisal Report on the net asset value prepared by an independent expert company, the merger of 100.00% of the Net Book Value of the subsidiary Sul América Investimentos e Participações S.A. in the amount of R$283,144, upon the issuance of 5,247 registered common shares, without par value. Net assets as of March 31, 2009, object of the aforementioned merger, are summarized as follows: 96 2009 ANnual REPORT 2009 RESULTS March 31, 2009 Assets Current Liabilities 264,138 Cash and cash equivalents Marketable securities Accounts receivable Non-current Long-term assets 133 262,840 51,518 39,406 Accounts payable 4,349 Other current liabilities 2,006 Non-current Accounts payable 26,157 19,058 Tax and labor contingencies 6,175 39,326 Other non-current liabilities 924 3,086 Property and equipment 9,026 315,656 (X) On October 30, 2009, the termination of the operations of Sul América International Limited was approved; (XI) On March 31, 2009, at the Extraordinary Shareholders’ Meeting, the shareholders changed the corporate name of Sul América Seguros de Vida e Previdência S.A. to Sul América Seguros de Pessoas e Previdência S.A; this act was approved by SUSEP on June 2, 2009; (XII) On November 30, 2009, at the Extraordinary Shareholders’ Meeting of the indirect subsidiary Executivos S.A. Administração e Promoção de Seguros, shareholders approved, based on the Protocol of Merger and Justification of Management, dated November 30, 2009, and the corresponding Appraisal Report on the net asset value prepared by an independent expert company, the merger of 100.00% of the Net Book Value of the subsidiary Clube Sul América Saúde, Vida e Previdência in the amount of R$1,927; (XIII) On December 30, 2009, at the Extraordinary Shareholders’ Meeting of the indirect subsidiary Sul América Seguros de Pessoas e Previdência S.A. shareholders approved, based on the Protocol of Merger and Justification of Management, dated December 30, 2009, and the corresponding Appraisal Report on the net asset value prepared by an independent expert company, the partial split of the Net Book Value of the subsidiary Executivos S.A. Administração e Promoção de Seguros in the amount of R$6,169. Transactions and balances with related parties, shareholders and direct and indirect subsidiaries are described in Note (13). (2.1) SIGNIFICANT PRACTICES ADOPTED IN CONSOLIDATION (a) Elimination of intercompany balances and transactions between the parent company and its direct and indirect subsidiaries included in consolidation and among its subsidiaries; 6,355 80 Investments Total assets Current 1,165 Marketable securities Accounts receivable March 31, 2009 Merged net assets 283,144 Total liabilities 315,656 (b) Elimination of the parent company’s investments in the direct and indirect subsidiaries included in consolidation, as well as intercompany investments; (c) Disclosure of minority interest in the balance sheets and statements of income; (d) Consolidation of exclusive investment funds; (e) The indirect subsidiary Alutrens Participações S.A. until May 31, 2008 was consolidated, under the proportionate consolidation method, using the total interest percentage in capital. Alutrens Participações held 10.00% in the capital of Telemar Participações S.A. (3) SIGNIFICANT ACCOUNTING PRACTICES The significant accounting practices adopted by the parent company and its direct and indirect subsidiaries are summarized below: (a) RESULTS OF OPERATIONS Determined on the accrual basis of accounting, except for private pension contributions, and considers: • Insurance premiums are recorded from the commencement date of risk coverage of the related policies/invoices as Direct Premiums. Premiums issued prior to the risk coverage period are recognized in income upon the beginning of the risk coverage period. Premiums related to risks in force, associated with policies/invoices not yet issued are actuarially calculated; • Amounts received for private pension contributions are recognized as Income from Retained Contributions on a cash basis. The contributors’ rights are reflected in technical reserves through charges to income; • Commissions from insurance relating to automobile and property and casualty lines, except for the expired risks lines, 97 2009 ANnual REPORT 2009 RESULTS are deferred and amortized over the insurance contract period, and are recorded under the heading Deferred Acquisition Costs - Insurance and Reinsurance. Commissions related to expired risks lines are not deferred. Commissions related to risks in force associated with policies/invoices not yet issued are calculated statistically. Commissions which will be amortized after 12 months are recorded under Deferred Acquisition Costs – Insurance and Reinsurance, in non-current assets; • Commissions from health and life insurance products are deferred and amortized over the average period insureds remain in the portfolio, taking into consideration the term of policies, the coverage period to which the acquisition cost refers, and the expectation of cancellation or non-renewal of policies. Commissions which will be amortized in up to 12 months are recorded under Deferred Acquisition Costs – Insurance and Reinsurance in current assets, whereas those that will be amortized in more than 12 months are recorded under Deferred Acquisition Costs – Insurance and Reinsurance, in non-current assets; • Commissions from private pension plans are deferred and amortized over the average period participants remain in the portfolio. These are recorded under Deferred Acquisition Costs – Private Pension; • Acquisition costs related to life and health insurance products are deferred and amortized over the average period insureds remain in the portfolio, taking into consideration the expectation of cancellation or non-renewal of policies. Acquisition costs, which will be amortized from the next 12 months, are recorded under Deferred Acquisition Costs – Insurance and Reinsurance, in non-current assets; • The calculation of interest on shareholders’ equity is based on the variation of the Long-Term Interest Rate (TJLP) on shareholders’ equity, limited to 50.00% of the net income for the year before income tax or 50.00% of retained earnings and earnings reserves, and the higher of these amounts may be used according to the prevailing legislation. The interest on shareholders’ equity paid is recorded under financial expenses and that earned is recorded under financial income. For purposes of disclosure of financial statements, they are presented as deduction from retained earnings and addition to investments, respectively, with a contra entry in the last line of the statement of income before net income for the year. (b) BALANCE SHEET • Receivables and payables after 12 months are recorded in noncurrent assets and liabilities, respectively; • Foreign currency transactions are recorded at the exchange rate prevailing on the day of the transaction. Assets or liabilities denominated in foreign currency are translated according to the exchange rate prevailing on December 31, 2009 and 2008. Exchange variations are recorded in the statements of income; • Assets and liabilities subject to monetary variation are adjusted based on indexes defined by the Law or agreement; • The adjustment to present value is calculated regarding its current and non-current financial assets and liabilities using the country’s base interest rate (SELIC) as discount rate, except for insurance and private pension operations of companies under SUSEP regulation, pursuant to the provisions of SUSEP Circular No. 379, of December 19, 2008. No effect of the adjustment to present value on non-current financial assets and liabilities was neither found, nor significant effects on current ones. (3.1) CURRENT AND NON-CURRENT FINANCIAL ASSETS From January 1, 2008, these assets are stated at present value based on cost or realizable value, including, when applicable, the respective income and monetary or exchange variations earned through December 31, 2009 and 2008. Except for the insurance and private pension operations of companies under SUSEP regulation, such assets were adjusted to present value, when applicable, taking into consideration that in the case of financial assets in current assets, only those that would produce significant effect were adjusted: • The balance of Cash Equivalents, comprising financial assets subject to repurchase agreement or daily renegotiation, and incurring an insignificant risk of change in value, is shown under Securities Purchased under Resale Agreements; • Marketable securities are recorded and classified according to the trading intent into one of the following categories: - Securities at fair value through profit or loss: Securities acquired for the purpose of being actively and frequently traded are stated at cost, plus income earned in the year, adjusted to fair value and classified in current assets. Earnings, gains and losses on these securities are included in income for the year. - Available-for-sale securities: Securities that cannot be classified as “securities at fair value through profit or loss” or “held-to-maturity securities” are stated at cost, plus income earned in the year, recorded in income, and adjusted to fair value. Gains and losses realizable are reported in a separate shareholders’ equity account until realized, net of their corresponding tax effects and, after realized, are allocated to income as a contra entry to a separate shareholders’ equity account. - Held-to-maturity securities: Securities for which the parent company and its direct and indirect subsidiaries have the intent and ability to maintain in portfolio to maturity are stated at cost, plus income earned through the year, and recorded in income. - Derivative financial instruments: These are classified in current assets, as securities measured at fair value through profit or loss, being composed of swaps and futures contracts held in the investment portfolio or exclusive investment funds, used to manage the exposure related to exchange rate variation and interest rate fluctuation, are stated at fair value, and their related gains or losses are recorded directly in the statements of income. In relation to swap, which purpose is to hedge the principal of Senior Notes, falling due on February 15, 2012, classified in long-term liabilities, the parent company records this derivative instrument stated at fair value according to the method for accounting cash flow hedge transactions, with gains or losses, net of their tax effects, directly recognized in Shareholders’ equity, since this swap is fully effective. 98 2009 ANnual REPORT 2009 RESULTS • Deferred income and social contribution tax credits were recognized at the rates in effect on December 31, 2009 and 2008, when applicable. (3.2) PERMANENT ASSETS Stated at cost, monetarily adjusted through December 31, 1995, and, when applicable, reduced by a provision for losses when its net book value exceeds the recoverable value (Impairment), combined with the following aspects: • Permanent investments in subsidiaries are accounted for under the equity method; • The financial statements of foreign subsidiaries have been translated in accordance with the accounting practices adopted in Brazil for consistency with the financial statements of the other companies. These financial statements have been translated into Brazilian Reais at exchange rates prevailing on December 31, 2009 and 2008, as released by the Brazilian Central Bank (BACEN). Translation gains and losses of these financial statements arising from the depreciation (or appreciation) of the currency of the countries of each foreign subsidiary in relation to the Brazilian Real are recorded in income under the heading Equity Income of Subsidiaries, taking into consideration that such subsidiaries operate, basically, as an extension of the SulAmérica Seguros e Previdência Group; • Depreciation of property and equipment is calculated under the straight-line method, based on the estimated useful lives of the assets and rates stated in Note (8.2), taking into consideration that the rates are reviewed at least annually; • Depreciation of property for rent, classified in investments, is calculated under the straight-line method, based on a maximum useful life of 25 years; • The amortization of intangible assets is calculated under the straight-line method, at the rates mentioned in Note (8.3) taking into consideration that the rates are reviewed at least annually. In relation to the goodwill of intangible assets, the amortization was recorded up to December 31, 2009, as its economic rationale is the expected future profitability; • The reserve for impairment is recorded when the net book value exceeds the recoverable value, which is the higher between the estimated sales price and the value in use, determined by the present value of estimated future cash flows as a result of the use of the asset or the cash generating unit, taking into consideration that the need of verification of recoverable value of assets is evaluated at least annually. (3.3) CURRENT AND NON-CURRENT FINANCIAL LIABILITIES From January 1, 2008, these liabilities are stated at present value, based on known or payable amounts, plus, when applicable, the related charges and monetary or exchange variation incurred at December 31, 2009 and 2008. Except for insurance and private pension operations of companies under SUSEP regulation, such liabilities are adjusted to present value, when applicable, taking into consideration that in the case of financial liabilities in current liabilities, only those that would produce significant effect were adjusted: (3.3.1) LOANS AND FINANCING Loans and financing are stated at fair value (agreed-upon amounts plus agreed charges, which include interest and exchange variation incurred), net of transaction costs incurred, and subsequently measured at amortized cost using the effective interest rate method, until the base date of financial statements. In conformity with CVM Resolution No. 566/08, loans and financing in foreign currency are protected by effective derivative financial instruments of cash flow hedge, recorded at fair value. Note (14). (3.3.2) CURRENT AND DEFERRED INCOME AND SOCIAL CONTRIBUTION TAXES The provision for current income and social contribution taxes was recognized at the rates in effect on December 31, 2009 and 2008. The provision for deferred income and social contribution taxes is recognized at the rates in effect on temporary differences. (3.3.3) ASSETS AND LIABILITIES OF INSURANCE AND PRIVATE PENSION Assets are stated at cost or realizable value, including, when applicable, the related interest and monetary or exchange variations earned at December 31, 2009 and 2008, whereas liabilities are stated at the amounts known or payable, plus, when applicable, the related charges and monetary or exchange variation incurred at December 31, 2009 and 2008. (a) PREMIUMS RECEIVABLE Premiums received in installments are recorded as Premiums Receivable in current and non-current assets and written off as installments are received (Note 6); (b) THIRD-PARTY DEPOSITS Third-party deposits refer mainly to insurance premiums received, whose policies have not yet been issued, and to installments not yet written off from Premiums Receivable (Note 10); (c) ASSETS AND LIABILITIES OF INSURANCE, REINSURANCE AND PRIVATE PENSION CONTRACTS As mentioned in Note (2) the criteria adopted for setting up asset and liability balances of insurance, reinsurance and private pension contracts are as follows: (c.1) UNEARNED PREMIUM RESERVE The unearned premium reserve and the deferred reinsurance and retrocession expenses are recognized on a daily pro rata basis, based on the amount of premiums divided by the number of days of total coverage, multiplied by the number of days of unexpired risk coverage, that is, from the base date of the financial statements to the expiration dates of the insurance and reinsurance contracts’ risk coverage periods. The unearned premium reserve is recognized for insurance contracts relating to automobile, property and casualty, health and group life. 99 2009 ANnual REPORT 2009 RESULTS (c.2) UNEARNED PREMIUM RESERVE RELATED TO RISKS IN FORCE ASSOCIATED WITH POLICY/ INVOICE NOT ISSUED The unearned premium reserve related to risks in force associated with policy/ invoice not issued and the respective deferred reinsurance and retrocession expenses are recognized for determining the portion of premiums not yet earned relating to policies/invoices not yet issued which risks are already in force. It is calculated by multiplying the unearned premium reserve and the deferred reinsurance and retrocession expenses by the expected late payment factor. The expected late payment factor is calculated based on the weighted average of late issuances noted in the last 16 (sixteen) months prior to the year ended December 31, 2008, in annual actuarial assessment studies, for insurance contracts relating to automobile, property and casualty and group life. For some lines which individual risk coverage periods do not expire by the following month, the late payment factor is applied and calculated based on the monthly premium issued and not on the unearned premium reserve or deferred reinsurance and retrocession expenses, adopting the above-mentioned methodology for calculating the expected late payment factor. (c.3) UNEXPIRED RISK RESERVE The unexpired risk reserve is recognized on a daily pro rata basis, based on the premium and contribution net of entry fee, divided by the number of days of total coverage, multiplied by the number of days of unexpired risk coverage, that is, from the base date of the financial statements to the expiration dates of the insurance contract’s risk coverage period relating to individual life and private pension. (c.4) UNEXPIRED RISK RESERVE FOR RISKS IN FORCE ASSOCIATED WITH POLICY NOT ISSUED The unexpired risk reserve for risks in force associated with policy not issued is recognized for determining the portion of premiums and contributions not yet earned relating to policies not yet issued which risks are already in force. It is calculated by multiplying the premium and the contribution by the expected late payment factor. The expected late payment factor is calculated based on the weighted average of late issuances noted in the last 16 (sixteen) months prior to the year ended December 31, 2008, in annual actuarial assessment studies, for insurance contracts relating to individual life and private pension. (c.5) SUPPLEMENTARY PREMIUM RESERVE The supplementary premium reserve was introduced by the National Council of Private Insurance (CNSP) Resolution No. 162/06, amended by Resolutions No. 181/07 and 195/08, for private pension and insurance contracts, except for the individual and group health insurance lines, and is recognized under the heading Other – Technical Reserves – Insurance in current liabilities. For insurance contracts relating to property and casualty, except for automobile and group life lines, this reserve is equal to zero (0) or the positive difference between the average unearned premium reserve, calculated daily during the month when it is recorded, and the unearned premium reserve recognized at the end of the respective month, whichever is higher; for individual life insurance and private pension contracts, this reserve is equal to zero (0) or the positive difference between the average unexpired risk reserve, calculated daily during the month when it is recorded, and that recognized at the end of the respective month, whichever is higher. (c.6) RESERVE FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES The reserve for claims and claim adjustment expenses is recognized to cover amounts payable for claims already reported until the base date of the financial statements, comprising the following: (i) For automobile, property and casualty, and group life lines, the reserve for claims and claim adjustment expenses is recognized at the estimated indemnifiable amount, based on the notices of claims received and is adjusted periodically based on analyses made by technical areas. For these lines, the reserve for claims and claim adjustment expenses is also adjusted based on statistical-actuarial calculations, based on the final estimate of unpaid claims incurred, known as IBNP, calculated based on statistical methods known as monthly run-off triangles, which consider the historical development of claims reported and/ or paid in order to make a future projection per period of claim incurrence. Depending on the insurance line, the noted historical development ranges from 60 (sixty) to 140 (one hundred and forty) months. The final estimate of unpaid claims incurred is net of the estimate of salvage receivable, also calculated by run-off triangle methods. The statistical amount of adjustment, which refers to the future development of claims incurred, and that is proportionally recorded, a portion of which as adjustment to the reserve for claims and claim adjustment expenses and another portion as adjustment to the incurred but not reported (IBNR) reserve, corresponds to the final estimate of unpaid claims incurred, subtracted by the final estimate of IBNR; and (ii) For the health insurance line, the reserve for claims and claim adjustment expenses is recognized at the estimated indemnifiable amount, based on the notices of claims received and is adjusted periodically based on analyses made by technical areas. (c.7) RESERVE FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES AND FOR FUTURE POLICY BENEFITS UNDER LEGAL DISPUTE The reserve for claims and claim adjustment expenses and for future policy benefits under legal dispute were periodically reviewed and recorded based on the opinion of the internal legal department, independent legal counsel and Management regarding the probable outcome of lawsuits, and specific factors, obtained based on the analysis of the history of payments made in settled lawsuits, calculated taking into consideration the nature of lawsuits, the respective likelihood of loss, the expected financial loss and the related insurance line, if applicable. Until December 2002, they were monthly adjusted according to the National Consumer Price Index (INPC) and interest of 0.5% per month. In the period from January 2003 to December 2008, they were adjusted by the INPC and interest of 1% per month. From January 1, 2009, they started to be monthly adjusted by 100 2009 ANnual REPORT 2009 RESULTS the Broad National Consumer Price Index (IPCA) and interest of 0.75% per month. In December 2009, this analysis was updated by extending the base period of analysis to 60 months, covering the period from January 2005 to September 2009. Said percentages were calculated based on an analysis of the relationship between the amounts referring to the lawsuits whose outcomes were successful, lawsuits that were settled in court and those whose outcomes were unfavorable, and their corresponding historical estimates of risk exposure. Reserves are recorded under Claims and Claim Adjustment Expenses in current and non-current liabilities and under Future Policy Benefits in current liabilities. The attorney fee awards in civil lawsuits related to contractual claim indemnification are recorded under the heading Reserve for Claims and Claim Adjustment Expenses in current and non-current liabilities, and under Reserve for Future Policy Benefits in current liabilities. The corresponding judicial deposits are recorded under Judicial Deposits in non-current assets, and are monetarily adjusted by the Referential Rate (TR), according to the prevailing legislation. (c.8) RESERVE FOR FUTURE POLICY BENEFITS The reserve for future policy benefits, related to private pension and individual life insurance contracts, corresponds to total lump sum benefits and annuities overdue and not paid to participants and beneficiaries, calculated based on notices received arising from events already occurred, including monetary adjustment. For individual life insurance contracts, the reserve for future policy benefits is adjusted based on statistical-actuarial calculations. Such calculations use the final estimate of unpaid claims incurred, known as IBNP and calculated based on statistical methods known as monthly run-off triangles, which consider the historical development of payments of claims in order to make a future projection per period of claim incurrence. The historical development considered is 140 (one hundred and forty) months. By subtracting from the final estimate of unpaid claims incurred the final estimate of claims incurred but not reported, the result is the statistical amount of adjustment, which refers to the future development of claims incurred, and is proportionally recorded, a portion of which as adjustment to reserve for future policy benefits and another portion as adjustment to IBNR reserve. (c.9) IBNR RESERVE The IBNR reserve is recognized to cover claims incurred but not reported until the base date of financial statements. (i) For insurance contracts relating to automobile, property and casualty insurance and life lines, except individual life insurance contracts and risk benefits of private pension, the IBNR reserve is recognized based on the final estimate of claims incurred but not reported, which is calculated based on statistical methods, known as run-off triangles, that consider the monthly and/or quarterly history development of claim notices to make a future projection per period of incurrence. Such development is made based on the number of claims as well as on volume of claims, depending on the characteristics of contract lines and on the most adequate methodology to the experience. Depending on the insurance line, the noted historical development ranges from 60 (sixty) to 140 (one hundred and forty) months. For all of these contracts, in addition to the final estimate of claims incurred but not reported, the IBNR reserve includes the adjustment related to the future development of claims already incurred. Such adjustment is calculated by subtracting from the final estimate of unpaid claims incurred the final estimate of claims incurred but not reported, and separating the result proportionally between the adjustment to reserve for claims and claim adjustment expenses/ reserve for future policy benefits and the adjustment to IBNR reserve; (ii) For health insurance contracts, the IBNR reserve is recognized based on the final estimate of unpaid claims incurred less the reserve for claims and claim adjustment expenses. The final estimate of unpaid claims incurred for health insurance contracts is calculated based on statistical method, known as run-off triangle, that considers the monthly historical development of payments of claims in order to make a future projection. The historical development considered is from 12 (twelve) to 60 (sixty) months; (iii) For individual life insurance contracts and for private pension contracts, as there is no representative history of internal experience, the IBNR reserve is calculated using the percentages established by SUSEP Circular No. 288, of April 1, 2005, in the sum of contributions or premiums and in the sum of benefits or claims paid over the latest 12 (twelve) months; and (iv) For the DPVAT line, the IBNR reserve is recognized according to National Council of Private Insurance (CNSP) Resolution No. 153/06. (c.10) IBNR RESERVE – JUDICIAL The incurred but not reported reserve related to occasional lawsuits is set up to cover claims that, based on our historical experience, give rise to financial expenses at the judicial level to subsidiaries that operate insurance businesses, even though these claims are denied on technical basis by such subsidiaries, or have not been reported yet because the insured or third-party decided to directly file a lawsuit without requesting first an indemnification to such subsidiaries. The judicial IBNR reserve is recognized for automobile, property and casualty and life insurance lines based on mathematical methods comprising an analysis period of 24 months, for the automobile line, and up to 60 months for property and casualty lines, taking into consideration the history of payments up to December 2009, and up to 55 months for the life line, taking into consideration the history of payments from May 2005 to November 2009, which comprise the following: 1) average historical periods between the date the claim is denied and the date the summons is registered, and between the date of the claim is incurred and the date of summons; 2) percentage of history of indemnification requests which were not granted, administratively, and that the historical experience showed a financial expense later on at the judicial level, and the percentage of claims that directly gave rise to lawsuits, over the same periods, resulting in an estimate number of future expenses at the judicial level; 101 2009 ANnual REPORT 2009 RESULTS 3) average value of judicial claims recorded in the Reserves for Claim and Claim Adjustment Expenses and for Future Policy Benefits in Court Dispute, resulting in the average value of lawsuits. (c.11) MATHEMATICAL RESERVE FOR BENEFITS TO BE GRANTED The mathematical reserve for benefits to be granted is related to private pension and individual life insurance contracts and comprises the commitments taken with participants/insureds while the event that generates the benefit does not occur. The mathematical reserve for benefits to be granted is calculated based on the financial movements of each participant. Allocation to current and non-current liabilities is based on the projected cash flow of benefits payable for the next years, which considers actuarial assumptions, such as mortality table, cancellation rates, and retirement age. (c.12) MATHEMATICAL RESERVE FOR BENEFITS GRANTED The mathematical reserve for benefits granted is related to private pension, health and individual life insurance contracts, and corresponds to the amount of benefits which generating event was occurred and reported. The mathematical reserve for benefits granted related to private pension and individual life insurance contracts is calculated based on the value of the expected future benefits discounted to the base date of the financial statements for the participants who are already receiving the benefits and estimated based on contracted guarantees of mortality tables and interest rates. The mathematical reserve for benefits granted for health insurance lines is recorded to guarantee the benefits of premium refund to beneficiary’s dependant over the term set in each policy, the maximum being 5 years, in view of the death of the policyholder. The reserve is calculated based on the estimated future claims of beneficiaries discounted to the base date of the financial statements. (c.13) FINANCIAL SURPLUS RESERVE The financial surplus reserve, related to private pension plans that have minimum income guarantee, is calculated based on gains that exceed interest and/or monetary adjustment guaranteed in the plans, as established in contract. (c.14) RISK FLUCTUATION RESERVE The purpose of the risk fluctuation reserve is to reduce the risk of possible fluctuations in the volume of private pension claims. The risk fluctuation reserve is calculated stochastically, based on the fluctuations of historical claim rates, by projecting 30,000 (thirty thousand) possible claim rate scenarios, and considering the possible need of an additional reserve for each of such scenarios. The risk fluctuation reserve corresponds to the sum of such additional reserves required for the 29,700 (twenty nine thousand and seven hundred) top scenarios, thus ensuring a reserve that is sufficient to reduce the probability of default of the portfolio to one percent (1%). (c.15) RESERVE FOR ADMINISTRATIVE EXPENSES The reserve for administrative expenses is recognized to cover expenses arising from payments of future benefits due to claims that have been and will be incurred in private pension plans. The reserve for administrative expenses is recorded under Other – Technical Reserves – Private Pension in current and non-current liabilities. The reserve for administrative expenses is calculated based on the administrative expenses estimated for payments of future benefits discounted to the base date of the financial statements. For this purpose, the flow of expected payments is projected, including assumptions of the average time the participant remains in the portfolio, using the AT2000 and the beginning of benefit payments. (c.16) FINANCIAL FLUCTUATION RESERVE The financial fluctuation reserve is recognized for private pension plans. The financial fluctuation reserve is recorded under the heading Other – Technical Reserves – Private Pension in noncurrent liabilities, and is calculated to cover occasional future deviations between the inflation index established for the private pension plans, and the annual variation of the pension benefits paid by the National Institute of Social Security (INSS), according to specific conditions established in a collective agreement entered into by the indirect subsidiary Sul América Seguros de Pessoas e Previdência S.A. The methodology takes into consideration an interest rate in accordance with the minimum guarantee defined and stochastic scenarios of inflation indexes, which from September 2009 takes into consideration the inflation index plus 50% of annual variation of GDP, with a gap of 2 (two) years, from which 100 possible economic scenarios are projected, and also consider the additional amounts of reserve required to cover the differences between the indexes. The financial fluctuation reserve is equivalent to the sum of such additional reserves for the 90 top cases, thus guaranteeing a sufficient reserve with 90% certainty. (c.17) PREMIUM DEFICIENCY RESERVE The premium deficiency reserve is calculated for insurance contracts relating to automobile, property and casualty, life and health lines. The premium deficiency reserve is aimed at covering possible insufficiencies of the premiums of contracts in force to cover the future commitments taken on these contracts. The methodology for health contracts follows the formula set forth by the National Council of Private Insurance (CNSP) Resolution No. 36, of December 8, 2000, and does not indicate the need of recognizing the premium deficiency reserve. For life insurance contracts, the premium deficiency reserve is required because the premium of most contracts is redeemed. In these contracts, the premium deficiency reserve is equivalent to expected future obligations with benefits and other future expenses discounted to the base date of financial statements. For some individual life insurance contracts with a contracting party, the premium deficiency reserve is also required, and is equivalent to the value discounted to the base date of the financial statements of the expected projected flow of claims and future expenses less the corresponding future premiums of these contracts. For the other automobile and other property and casualty lines, a liability adequacy analysis was carried out. This analysis was performed through a future cash flow considering the contracts in force at the balance sheet date and the current actuarial assumptions. The monthly result of cash flow was 102 2009 ANnual REPORT 2009 RESULTS brought to present value using the risk-free rate (SELIC). Contracts were grouped based on insurance contracts that generally incur similar risks, as defined by SUSEP. The result of this analysis indicated that the book value of insurance liabilities is below the expected future cash flows only in insurance contracts of the cargo and property lines. (c.18) CONTRIBUTION DEFICIENCY RESERVE The contribution deficiency reserve relating to private pension aims at covering possible deficiencies of mathematical reserves for benefits to be granted and granted, and unexpired risk reserve in order to cover future benefits and expenses already covered. The reserve is calculated based on expectations of future mortality behavior of the AT2000-Male (AT83-Male until November 30, 2008) mortality table, and the expected time the participant remains in the portfolio, and the beginning of benefit payments discounted to the base date of the financial statements using the rate guaranteed in contracts. (3.4) ACCRUED LIABILITIES FOR CONTINGENCIES • Civil contingencies, which were being challenged in court until December 31, 2008 were periodically reviewed and monthly adjusted according to the National Consumer Price Index (INPC) and interest of 0.5% per month until December 2002, and 1% per month from January 2003 to December 2008. From January 1, 2009, the lawsuits started to be monthly adjusted by the Broad National Consumer Price Index (IPCA) and interest of 0.75% per month. Labor contingencies are adjusted according to the single table for adjustment and inflation and currency translation of labor debts. The accrued liabilities for civil contingencies, not related to contractual claim compensation, as well as those for labor contingencies, are recorded based on the opinion of the internal legal department, independent legal counsel and Management regarding the probable outcome of lawsuits, and specific percentages, obtained based on the analysis of the history of payments made in settled lawsuits, calculated taking into consideration the nature of lawsuits, the respective likelihood of loss, the expected financial loss and the related insurance line, if applicable. In December 2009, this analysis was updated, still considering 60 months, covering the period from January 2005 to September 2009. Said percentages were calculated based on an analysis of the relationship between the amounts referring to the lawsuits whose outcomes were successful, lawsuits that were settled in court and those whose outcomes were unfavorable and their corresponding historical estimates of risk exposure. Accrued liabilities for contingencies are recorded under Accrued Liabilities for Contingencies in current and noncurrent liabilities, and consider the current amounts of the corresponding contingencies. The attorney fee awards in civil lawsuits related to non-contractual claim compensation and labor lawsuits are recorded under the heading Other Accounts Payable in current and non-current liabilities. The corresponding judicial deposits are recorded under Judicial Deposits in noncurrent assets, and are adjusted according to the TR, pursuant to the prevailing legislation; •Accrued liabilities for tax contingencies, contributions and other tax liabilities, which are being challenged in court, are periodically reviewed and monthly adjusted according to the TR and SELIC, pursuant to the prevailing legislation, and are recorded based on the opinion of the internal legal department, independent legal counsel and Management regarding the probable outcome of lawsuits. The parent company and its direct and indirect subsidiaries adopt the procedure of accruing the total tax contingencies whose likelihood of loss was considered probable and for other tax contingencies, based on an individual analysis of the expected financial loss in each lawsuit. In conformity with Accounting Standard and Procedure (NPC) No. 22, issued by the Brazilian Institute of Accountants (IBRACON), and Resolution No. 489/2005, issued by CVM, the amounts referring to challenges related to the illegality or unconstitutionality of taxes, contributions and other tax liabilities, previously classified under Tax Contingencies, are recorded under Accounts Payable in non-current liabilities. The corresponding judicial deposits are recorded under Judicial Deposits in non-current assets, and are adjusted according to the TR and the SELIC, pursuant to the prevailing legislation. The reclassification of judicial deposits from assets to liabilities, in which they would be deducted from Accrued Liabilities for Contingencies and Accounts Payable, provided for by CVM Resolution No. 489/2005, was not made because it is not provided for by SUSEP nor by ANS. (3.5) EMPLOYEE AND POST-EMPLOYMENT BENEFITS The benefits provided by the parent company and its direct and indirect subsidiaries comprise the Defined Contribution Private Pension Plan, through the Plan that Generates Benefits (PGBL), the Single Life Annuity, and the Indemnity to Executives Program. The commitments of such benefits are provisioned on accrual basis and in conformity with CVM Resolution No. 371/2000, based on calculations made by internal actuaries according to the Projected Unit Credit Method and other actuarial assumptions described in Note (21.3). (3.6) STOCK OPTION PLAN The recognition of the compensation of the Stock Option Plan participants at the fair value of stock options is calculated by internal actuaries, based on the Black-Scholes model, taking into consideration the date when each option is vested and accounted for under the heading Administrative Expenses as contra entry to Capital Reserve – Recognized Granted Options. Note (13.2). (3.7) DIVIDENDS The Company’s dividends, in accordance with the bylaws, are recognized at the end of the fiscal year, taking into consideration that the value related to mandatory minimum dividends is equivalent to 25% of annual net income, adjusted pursuant to current legislation. (3.8) USE OF ESTIMATES The preparation of financial statements in accordance with 103 2009 ANnual REPORT 2009 RESULTS the Brazilian accounting practices requires the Management of the parent company and its direct and indirect subsidiaries to adopt estimates and judgments for recording certain transactions that affect assets and liabilities, income and expenses, as well as the disclosure of financial statements data. The final results of these transactions and information, when actually realized in subsequent periods, may differ from these estimates. The main estimates related to financial statements refer to the recording of the effects arising from the allowance for doubtful accounts and other assets, technical reserves, deferral and amortization of acquisition costs and accrued liabilities for contingencies, and the calculation of the fair value of derivative financial instruments and other balances subject to this valuation. (4) FINANCIAL INSTRUMENTS (4.1) RISK MANAGEMENT The main risks arising from the businesses of the parent company and its direct and indirect subsidiaries are: interest risk, credit risk, liquidity risk and exchange rate risk. Management of these risks involves different departments of the Company and its direct and indirect subsidiaries and comprises a series of strategies and policies on use of funds considered adequate by Management. These policies and strategies, in addition to being frequently reviewed by Internal Committees, include the adequacy of marketable securities to liabilities according to a process called Asset and Liability Management. The parent company and its subsidiaries have internal controls that ensure that these policies and strategies are complied with, so that the obtained results are in accordance with the objectives set by the Management of these companies. • Interest risk The interest rate risk is posed by the possibility that the parent company and its direct and indirect subsidiaries face changes in interest rates that may produce impacts on the present value of the investment portfolio. The parent company and its direct and indirect subsidiaries try to reduce the impact of changes in interest rates by preparing mandates of investments established individually for each of the companies. In these mandates, aspects such as the following are considered: business profile of each legal entity, actuarial assessment studies and liquidity. In addition, maximum VaR (Value at Risk) limits are set on consolidated basis, and alternative scenarios known as stress testing are analyzed. As explained in Notes (4.1.1) and (4.1.2), derivative financial instruments may be used as a way to reduce impacts of change in interest rates. • Credit risk Credit risk is posed by the possibility that the parent company and its direct and indirect subsidiaries do not receive the amounts arising from premiums sold and income from financial institutions arising from marketable securities. In relation to the risk regarding the receipt of premiums receivable, the credit policy takes into account the peculiarities of insurance operations and is formulated to maintain the flexibility required by the market and customer needs. The indirect subsidiaries have an approval plan for operations of risk acceptance and respective insurance policy issuance, which also includes analysis of customer credit history and risk exposure of each operation. The method adopted for calculating the Allowance for Doubtful Accounts is described in Note (6.1). In relation to the exposure to credit risk of marketable securities, the limits are set through the Credit Committee. In brief, the criteria for credit exposure adopted by the parent company and its direct and indirect subsidiaries are the following: a) Federal government securities: up to 100% b) State and municipal government securities: 0% c) Non-financial companies (corporate securities): adopt a methodology based on the analysis of quantitative and qualitative aspects. Such analysis determines a score (internal rating). Based on the score set, a credit limit is established, which will be used to limit the maximum exposure to securities issued by a certain non-financial company. d) Financial institutions: adopt a methodology based on the analysis of quantitative and qualitative aspects. Such analysis determines a score (internal rating). Based on the score set, establish a credit limit and maximum risk terms for purchase of securities issued by financial institutions. Regarding the issuances of time deposit with special guarantee (DPGE) of Fundo Garantidor de Crédito (the Brazilian deposit guarantee fund - FGC), maximum limits to the issuance of each bank are set. The risk exposure limits are regularly monitored and assessed on consolidated basis by the Quantitative and Risk Analysis. e) Receivables Investment Fund (FIDC): adopt a methodology based on the analysis of the fund’s structure, assessment of receivables and subordination limits, in addition to the determination of a score (internal rating). Based on the score set, a credit limit and maximum risk terms for the purchase of FIDC quotas are established. These securities are presented as NonExclusive Investment Fund Quotas. The risk exposure limits are regularly monitored and assessed on consolidated basis by the Quantitative and Risk Analysis. • Liquidity risk The main objective of liquidity risk management is to monitor the terms for settling the receivables and payables of the parent company and its direct and indirect subsidiaries, as well as the liquidity of financial instruments. The parent company and its direct and indirect subsidiaries prepare projected cash flow analyses daily and review the liabilities assumed and financial instruments used, principally related to assets held in guarantee of technical reserves. Note (12) – Guarantee of Technical Reserves. • Exchange rate risk The parent company and its direct and indirect subsidiaries are exposed to exchange rate risk, mainly related to its industrial and commercial insurance operations, due to insurance and reinsurance contracts denominated in foreign currencies, to investments (mainly in foreign subsidiaries), and to loans and 104 2009 ANnual REPORT 2009 RESULTS financing. The parent company and its direct and indirect subsidiaries monitor and analyze their foreign currencydenominated accounts receivable and payable through derivative contracts, mainly futures and swap contracts, aiming at balancing exchange rates exposure and reducing the net effect of the impact of exchange rate variations on their income. As of December 31, 2009, the exchange rate risk exposure is composed as follows: Parent Company Amortized Cost Fair Value 2009 2008 2009 2008 Financial instruments - Marketable Securities 20,289 24,371 19,584 24,371 Total 20,289 24,371 19,584 24,371 (7,321) (9,952) (7,321) (9,952) (226,356) (303,810) (212,858) (249,721) 226,356 303,810 212,858 249,721 Financial instruments - Future Contracts (5,907) – (5,786) – Total (13,228) (9,952) (13,107) (9,952) 7,061 14,419 6,477 14,419 Assets Liabilities Interest - Senior Notes Principal - Senior Notes Swap - Principal - Senior Notes - asset portion Total net exposure Consolidated Amortized Cost Fair Value 2009 2008 2009 2008 17,811 – 17,811 – Financial instruments 33,259 24,792 32,554 24,792 Accounts receivable - insurance operation 15,061 79,351 15,061 79,351 Accounts receivable - reinsurance operation 133,985 209,243 132,890 209,243 Total 201,506 331,648 199,706 331,648 (7,321) (9,952) (7,321) (9,952) (226,356) (303,810) (212,858) (249,721) 226,356 303,810 212,858 249,721 Payable accounts - insurance operation (168,572) (248,704) (168,572) (248,704) Payable accounts - insurance operation (12,188) (74,161) (12,188) (74,161) Financial instruments - Future Contracts (5,907) – (5,786) – (320) (6,360) (320) (6,360) (194,308) (339,177) (194,187) (339,177) 7,198 (7,529) 5,519 (7,529) Assets Cash and Cash Equivalents Liabilities Interest - Senior Notes Principal - Senior Notes Swap - Principal - Senior Notes - asset portion Other Total Total net exposure 105 2009 ANnual REPORT 2009 RESULTS Particularly in relation to loans and financing, with the intent to manage the exposure to exchange variation of the Senior Note’s principal of US$130,000,000, issued in February 2007 and falling due in February 2012, the parent company has swap transactions with the União de Bancos Brasileiros S.A. (Unibanco), as shown in Note (14). The contract, registered with the CETIP - OTC Clearing House, provided for monthly renegotiations until the maturity of Senior Notes. In April 2008, at the event of the renegotiation provided for in the contract, the parent company exercised the right to renegotiate the total US$130,000,000 of the swap contract, according to the conditions described in Note (14). The management of exchange rate exposure regarding the interests at 8.625% per year, paid every six-month period, related to the Senior Notes’ principal, is usually made through assets indexed to exchange rate variation or futures contracts traded at the BM&FBOVESPA. When futures contracts are used, these positions are taken through an exclusive investment fund which rules clearly state the possibility of investment in assets linked to exchange variation, in addition to stating that the face value of transactions in derivative markets shall be equal to or below the sum of the values of other securities, financial assets and operational types that are included in the fund’s portfolio maintained in the spot market, thus the exposure of the fund portfolio at an amount over the net equity of the fund is not permitted. The methodology adopted for the risk management of marketable securities and derivative financial instruments involves the analysis of Credit (mentioned above) and Market Risks. This monitoring is constant and in compliance with the limits set, and according to the internal policies on use of funds set forth by the Investment Committee. In relation to Market Risk, the methodology adopted is the Parametric Value at Risk (VaR) with confidence level at 95%. (4.1.1) DERIVATIVES According to the policies on investment and use of funds set and approved by Management, the parent company and its direct and indirect subsidiaries can make derivative transactions. All transactions related to these instruments are traded and registered with the BM&FBOVESPA or organized over-thecounter market. In indirect subsidiaries that operate insurance and private pension operations, the maintenance of derivative financial instruments, through futures contracts or swaps, which can be held in exclusive investment funds, has the sole purpose of hedging the exchange variations and interest rate fluctuations. In the case of exclusive funds of PGBL and VGBL plans, in addition to interest rate futures contracts, its indirect subsidiary Sul América Seguros de Pessoas e Previdência S.A. also use Bovespa Index futures contracts, in compliance with the investment policy of such funds. The gains and losses arising from these futures contracts do not produce any impacts on income for the year or shareholders’ equity of such subsidiary, because they are reflected at equal amount in the technical reserves of private pensions. Although they do not cause variations in income of the subsidiary, we show in Note (4.1.3) all derivative financial instruments of these funds, in compliance with the provisions of CVM Resolution No. 566. The use of derivative financial instruments by direct and indirect subsidiaries that operate insurance and private pension is made pursuant to BACEN Resolutions Nos. 3,308/05 and 3,358/06, and CNSP Resolutions Nos. 98 and 106, which provide for criteria for the realization of investments for these subsidiaries. The other companies that are not subject to such provisions can hold investments that use derivatives, thus being able to generate exposure higher than 100% of the invested amount provided that the parent company’s Investment Committee pre-approves it. CRITERIA FOR DETERMINING FAIR VALUE The criterion for determining the fair value of derivative financial instruments is the discounted cash flow method using the rates released by BM&FBOVESPA. In the particular case of swaps, the fair value is determined adopting modeling techniques of discounted cash flow that use yield curves. The information to build yield curves is mainly obtained from trading prices available at BM&FBOVESPA. The trading prices adopted to determine the swap contracted used to hedge Senior Notes were the foreign exchange coupon “dirty” rate and the fixed rate of the period from the closing of financial statements to the maturity date of the transaction, in addition to the Dollar ask price traded (PTAX-800) on December 31, 2009 and 2008, released by the Brazilian Central Bank Information System (SISBACEN). (4.1.2) SUMMARY CHART OF EXPOSURE OF DERIVATIVES Derivative financial instruments - swaps and futures contracts held in exclusive investment funds and portfolios by certain indirect subsidiaries, used to manage the exposure related to exchange rate variation and interest rate fluctuation, are stated at fair value, as described in the criteria for determining fair value, and their related gains or losses are recorded in income. In relation to swap, which purpose is to hedge the principal of Senior Notes, mentioned in Note (14) and in accordance with CVM Resolution No. 566, which approved the Technical Pronouncement CPC No. 14 (Financial Instruments), the parent company records this derivative instrument stated at fair value according to the method for accounting cash flow hedge transactions, with total gains or losses, net of corresponding tax effects, recognized directly in Shareholders’ Equity, since this swap is fully effective. The derivative financial instruments of the parent company and its direct and indirect subsidiaries shown below are traded at BM&FBOVESPA, and classified into the securities category at fair value through profit or loss. 106 2009 ANnual REPORT 2009 RESULTS FUTURE CONTRACTS As of December 31, 2009 and 2008, purchase and sale commitments are shown in the charts below, and the counterparty and place of registry of all futures contracts is BM&FBOVESPA. Purchase commitment: Consolidated Reference index Maturity Quantity Notional amount Fair value Value in 2009 2009 2008 2009 2008 2009 2008 2009 2008 Value receivable / received Value payable / paid DI – July/ 2009 – 5 – 500 – 471 – – DI – January/ 2010 – 300 – 30,000 – 26,748 – – DI – July/ 2010 – 263 – 26,300 – 22,194 – – DI January/ 2011 January/ 2011 437 590 43,700 59,000 39,539 46,896 895 1,005 DI July/ 2011 – 20 – 2,000 – 1,703 – 29 29 DI January/ 2012 January/ 2012 616 130 61,600 13,000 49,246 9,195 2,913 2,859 1,073 1,288 107,300 128,800 90,488 105,504 3,837 3,893 Sale commitment: Parent Company and Consolidated Reference index Maturity Quantity Notional amount Fair value Value in 2009 2009 2008 2009 2008 2009 2008 2009 2008 Value receivable/ received Value payable/ paid Dollar January/ 2010 – 1 – USD 50,000 – 87 – 723 798 Dollar February/ 2010 – 65 – USD 3,250,000 – 5,699 – 170 31 66 – USD 3,300,000 – 5,786 – 893 829 107 2009 ANnual REPORT 2009 RESULTS Amounts receivable and payable of futures contracts are accounted for under the heading Accounts Payable in current liabilities. SWAP CONTRACT As of December 31, the parent company has the following swap contracts, which place of registry is CETIP: Reference Index Asset/Liability Dollar Parent Company and Consolidated Funds (a) Maturity Counterparty Unibanco Notional amount Amortized cost Fair value 2009 2008 2009 2008 2009 2008 2009 2008 February/ 2012 February/ 2012 254,800 254,800 226,356 303,810 212,858 249,721 253,031 239,678 232,232 211,318 (26,675) 64,132 (19,374) 38,403 CDI Total Amount payable in 2009 (19,374) (a) Swap initially contracted at the notional value of US$200,000,000, reduced to US$130,000,000 after 35% of the amount of Senior Notes was called away in November 2007. MARGINS PLEDGED IN GUARANTEE As of December 31, 2009 total margins used to guarantee purchase and selling transactions of DI futures contracts, recorded in investment funds classified into securities at fair value through profit or loss, are composed as follows: Asset pledged as collateral Maturity Quantity Value LFT 03/17/2010 659 2,699 LFT 03/16/2011 40 164 LFT 03/07/2013 137 561 LFT 06/07/2013 2,756 11,258 LFT 03/07/2015 1,000 4,098 4,592 18,780 Total There is no requirement of guarantee margin for the swap contract related to the principal of Senior Notes. SENSITIVITY ANALYSIS OF EXPOSURE IN DERIVATIVES The parent company and its direct and indirect subsidiaries have the following derivative transactions: (i) one-day interest rate futures contracts (CDI), (ii) US dollar futures contracts, and (iii) swap contract with an asset position in US dollars for backing the exchange exposure from Senior Notes principal. In addition, the criteria adopted for making estimates of probable, possible and remote scenarios are based on rates/prices released on the closing date of these financial statements by BM&FBOVESPA for the respective maturities. The possible and remote scenarios are constructed by applying 25% and 50% of variation in these rates/prices on a variable that represents the greatest influence over an adverse scenario for the parent company and its indirect subsidiaries. Variations at 25% and 50% correspond to the minimum variations established in CVM rules. Interest rate futures contracts The parent company and its direct and indirect subsidiaries considered that the risk of purchasing at rate in futures contract is the drop in interest rate for the respective maturities. The possible and remote scenarios are derived from the probable scenario that uses the rates practiced on December 31, 2009 by BM&FBOVESPA for the respective maturities: As of December 31, 2009, the positions held by certain indirect subsidiaries in interest rate futures contracts were used with the intent to transform the fixed income of marketable securities of a portion of their investment portfolio into variable income. As of this date, these subsidiaries held the following positions and net value of adjustments in the respective scenarios (in futures contracts and variation in market price in case of marketable securities): 108 2009 ANnual REPORT 2009 RESULTS Maturity Position Future Contract / Object July/2010 January/2011 January/2012 Quantity Rates Scenario Probable Scenario (a) Possible Scenario Remote Scenario 11.35% 8.51% 5.68% Purchased at Rate – DI 20 – (68) (139) LTN 2,000 – 68 139 Net Value of Adjustments – – – Rates 10.50% 7.88% 5.25% Purchased at Rate – DI 437 – (978) (1,986) NTN–F 19,200 – 455 932 LTN 23,100 – 511 1,045 Net Value of Adjustments – (12) (9) Rates 11.86% 8.90% 5.93% Purchased at Rate – DI 616 – (2,721) (5,664) NTN–F 54,377 – 2,355 5,265 – (366) (399) Net Value of Adjustments (a) The value of adjustments in the probable scenario as of December 31, 2009 is zero, because it reflects the market value. The analysis of sensitivity of total fair value of adjustments in relation to the probable scenario is not applicable because the probable scenario is compared to itself. Exchange rate futures contracts – US Dollar The parent company and its direct and indirect subsidiaries consider that the risk of selling in US dollar in futures contract is the appreciation of the US dollar at the respective maturities. The possible and remote scenarios are derived from the probable scenario that uses the rates practiced on December 31, 2009 by BM&FBOVESPA for the respective maturities. As of December 31, 2009, the positions held by the parent company in US Dollar futures contracts were used with the intent to protect it against exchange rate fluctuations. Therefore, the position and the net values of adjustments in the respective scenarios (in futures contracts and variation in market price in case of marketable securities) as of December 31, 2009 were as follows: Parent Company and Consolidated Maturity Position Future Contract / Object January/2010 Quantity Exchange rate Sold at Dollar February/2010 1 Exchange rate Scenario Probable Scenario (a) Possible Scenario Remote Scenario 1.74 2.18 2.61 – (22) (44) 1.75 2.19 2.63 Sold at Dollar 65 – (1,425) (2,850) Senior Notes 4,557,866 – 1,339 2,677 – (108) (217) Net Value of Adjustments Swap: In order to back the exchange exposure of principal arising from Senior Notes issued in February 2007, the parent company has swap transaction with asset position in US dollars and liability position in CDI reduced by 3.967% per year with maturity in February 2012, as described in Note (14). As the values of principal of Senior Notes and that of asset position of swap annuls each other, as they represent US$130,000,000, the parent company 109 2009 ANnual REPORT 2009 RESULTS considers that the risk of holding a liability position in CDI because of swap would be the increase in the CDI rate, and it would be offset by the increase in income from financial investments linked to CDI. The sensitivity analysis of fair value takes into consideration the following variables: - Foreign Exchange Coupon “Dirty” Rate (coupon adjustment) from December 31, 2009 to the maturity date of the transaction; - Fixed-income Rate from December 31, 2009 to the maturity date of the transaction; - Current exchange rate of USD; - Expected exchange rate of USD at the maturity date of the transaction that generates the foreign exchange coupon “dirty” (coupon adjustment) and fixed-income rates. Fair values are calculated by projecting the future flows of transactions (asset and liability) and discounted to present value based on the rates used at BM&FBOVESPA. The following scenarios were built based on the rates practiced as of December 31, 2009: (a) The sensitivity analysis of total fair value of adjustments in relation to the probable scenario is not applicable because the probable scenario is compared to itself. These sensitivity analyses aim at showing the changes in market variables in the financial instruments of the parent company and its indirect subsidiaries. The sensitivity analyses above were made by using assumptions and presuppositions in relation to future events. Despite of the periodical review of estimates and presuppositions, the settlement of transactions involving these estimates can result in different values from those estimated because of the subjectivity inherent to the process adopted in the preparation of these analyses. As of December 31, 2009, the differences between the amortized costs and fair values resulted in a gain of R$20,799 (R$13,727 net of taxes), recognized under Valuation Adjustments to Shareholder’s Equity in Shareholders’ Equity, as shown below: Amortized Fair Value Cost (A) Senior Notes Principal (US$130,000,000) Probable Scenario Possible Scenario Remote Scenario Fixed-income Rate (DI) 12.0% 15.0% 18.0% Foreign exchange coupon (coupon adjustment) (B) Swap asset portion (USD) 2.95% 3.68% 4.42% 2.08 2.17 2.26 R$/USD at the swap maturity Adjustment (226,356) (212,858) 13,498 226,356 212,858 (13,498) (C) Swap liability portion (CDI-3.97% p.a.) (253,031) (232,232) 20,799 Total (A)+(B) +(C) (253,031) (232,232) 20,799 Taking into consideration that the credit risk is equivalent for swap positions and principal of Senior Notes, we obtained for the above scenarios the following fair values: Probable Scenario Possible Scenario Remote Scenario (212,858) (209,731) (206,695) 212,858 209,731 206,695 (C) Swap liability portion (CDI-3.97% p.a.) (232,232) (232,232) (232,232) Net Effect (A)+(B)+(C) (232,232) (232,232) (232,232) (A) Senior Notes Principal (US$130,000,000) (B) Swap asset portion (USD) The table above confirms the effectiveness of hedge for different scenarios. Accordingly, the sensitivity analysis of fair value variation when compared to the probable scenario is shown below: Variation in relation to Probable Scenario Probable Scenario (a) Possible Scenario Remote Scenario Not applicable – – 110 2009 ANnual REPORT 2009 RESULTS (4.1.3) SUMMARY CHART OF DERIVATIVES RELATED TO PGBL AND VGBL INVESTMENT FUNDS The futures contracts related to PGBL and VGBL investment funds, as mentioned in Note (4.1.1), are shown as follows and the counterparty and place of registry of all future contracts is BM&FBOVESPA: Purchase commitment: Reference index Maturity Quantity Notional amount Fair value Value in 2009 Value Value receivable payable / / received paid 2009 2008 2009 2008 2009 2008 2009 2008 DI – January/2009 – 2 – 200 – 200 – – DI – July/2009 – 30 – 3,000 – 2,830 – – DI – January/2010 – 460 – 46,000 – 41,034 – – DI July/2010 July/2010 250 88 25,000 8,800 23,938 7,426 111 125 DI January/2011 January/2011 252 10 25,200 1,000 22,804 796 499 472 DI January/2012 January/2012 492 491 49,200 49,100 39,333 34,729 1,354 1,292 994 1,081 99,400 108,100 86,075 87,015 1,964 1,889 Sale commitment: Reference index Maturity 2009 IND Quantity Notional amount Fair value Value in 2009 Value 2008 receivable / received Value payable / paid 2008 2009 2008 2009 2008 2009 February/ February/ 2010 2009 51 4 3,528 153 3,528 153 77 94 51 4 3,528 153 3,528 153 77 94 Amounts receivable and payable of futures contracts are accounted for under the heading Accounts Payable in current liabilities. MARGINS PLEDGED IN GUARANTEE As of December 31, 2009, total margins used to guarantee Asset pledged as collateral purchase transactions of DI futures contracts and index futures contracts, recorded in investment funds classified into Securities at Fair Value through Profit or Loss, are composed as follows: Maturity Quantity Value LFT 03/17/2010 472 1,933 LFT 06/07/2010 58 235 LFT 12/07/2010 70 287 LFT 01/01/2011 20 18 LFT 03/07/2013 145 592 LFT 06/07/2013 216 882 981 3,947 Total 111 2009 ANnual REPORT 2009 RESULTS SENSITIVITY ANALYSIS OF EXPOSURE IN DERIVATIVES The PGBL and VGBL funds have the following derivative transactions with derivatives: (i) one-day interest rate futures contracts (CDI), and (ii) index futures contracts. In addition, the criteria adopted to estimate probable, possible and remote scenarios are based on rates/prices released on the closing date of these financial statements by BM&FBOVESPA for the respective maturities. The possible and remote scenarios are constructed by applying 25% and 50% of the variation in these rates/prices on a variable that represents the greatest influence over an adverse scenario for the indirect subsidiary Sul América Seguros de Pessoas e Previdência S.A. Variations at 25% and 50% correspond to the minimum variations established in CVM rules. Maturity Position Future Contract / Object July/2010 January/2011 January/2012 Futures Contracts Sul América Seguros de Pessoas e Previdência S.A. considered that the risk of purchasing at rate in future contracts is the drop in interest rate. The possible and remote scenarios are derived from the probable scenario that uses the rates practiced on December 31, 2009 by BM&FBOVESPA for the respective maturities. As of December 31, 2009, the positions held in PGBL and VGBL funds in interest rate futures contracts were used with the intent to transform the fixed income of marketable securities of a portion of its investment portfolio into variable income. As of this date, these PGBL and VGBL funds held the following position and net values of adjustments in the respective scenarios (in future contracts and variation in market price in case of marketable securities): Quantity Rates Scenario Probable Scenario (a) Possible Scenario Remote Scenario 9.22% 6.92% 4.61% Purchased at Rate 250 – (249) (511) LTN 4,000 – 40 82 NTN-F 20,000 – 212 430 Net Value of Adjustments – 3 1 Rates 10.50% 7.88% 5.25% Purchased at Rate 252 – (564) (1,144) LTN 23,500 – 524 1,066 NTN-F 1,582 – 37 77 Net Value of Adjustments – (3) (1) Rates 11.86% 8.90% 5.93% Purchased at Rate 492 – (2,173) (4,523) LTN 43,590 – 2,178 4,538 – 5 15 Net Value of Adjustments (a) The sensitivity analysis of total fair value of adjustments in relation to the probable scenario is not applicable because the probable scenario is compared to itself. 112 2009 ANnual REPORT 2009 RESULTS In addition to interest rate futures contracts (CDI), the PGBL and VGBL funds also hold Bovespa Index futures contracts. As shown in the chart below, such indirect subsidiary considered that the risk of selling at rate in a futures contract is the rise of the Bovespa Index to the respective maturities. The Bovespa Index value in points for Probable, Possible and Remote scenarios is shown below. Maturity February/ 2010 Position Probable Scenario Possible Scenario Remote Scenario Sold at Rate BOVESPA 69 86 103 • Bank certificates of deposit (CDB): calculated according to redemption characteristics: (i) CDBs with early redemption clause at a fixed rate: calculated based on the agreed rate of the operation; (ii) CDBs without early redemption clause and with early redemption clause at market rate: calculated based on the curve from Interbank Deposit (DI) futures contracts released by BMF&FBOVESPA, and, for credit spread, the set formed by CDB operations of managed portfolios/funds in which the Custodian Bank provides asset pricing service; • Time deposit with special guarantee (DPGE): these are variablereturn securities linked to CDI, Selic or inflation indexes, calculated taking into consideration the market rate of the index and credit spread, formed by the set of DPGE operations of managed portfolios/ funds in which the custodian bank provides asset pricing service; As shown below, as of December 31, 2009, the PGBL and VGBL funds do not hold exposure in index, in view that the purchased position in shares held in these funds is higher than the contracts. Maturity Position Probable Scenario (a) February/ 2010 Sold at Rate BOVESPA – (874) (1,749) Stocks – 874 1,749 – – – Net Value of Adjustments the IBNR reserve for DPVAT (mandatory third-party liability for vehicle owners): calculated based on the average market value of securities, as set forth in BACEN Resolution No. 550; Possible Scenario Remote Scenario (a) The value of adjustments in the probable scenario as of December 31, 2009 is zero, because it reflects the market value. The analysis of sensitivity of total fair value of adjustments in relation to the probable scenario is not applicable because the probable scenario is compared to itself. These sensitivity analyses have the purpose of showing the sensitivity to changes in market variables in the financial instruments of Sul América Seguros de Pessoas e Previdência S.A., and were made using assumptions and presuppositions in relation to future events. Despite of the periodical review of estimates and assumptions, the settlement of transactions involving these estimates can result in different values from those estimated because of the subjectivity inherent in the process adopted in the preparation of these analyses. (4.2) CRITERIA ADOPTED TO ESTIMATE MARKET VALUES The assets held in the portfolio or exclusive investment funds are valued at market value, using the prices and indexes disclosed by the National Association of Financial Market Institutions (ANDIMA) and BM&FBOVESPA, except for held-tomaturity securities, which are adjusted based on indexes and rates agreed upon purchase. The criteria adopted to estimate the market value of marketable securities are as follows: • Fixed income securities – government: calculated based on the unit price lists for the secondary market disclosed by ANDIMA; • Fixed income securities - government - held in guarantee of • Debentures: calculated based on the unit price lists (for government securities) for the secondary market disclosed by ANDIMA, or, in case it does not exist, by the criteria established by the Custodian Bank, according to the pricing criteria set forth in its mark to market guidelines; • Promissory notes: these are variable-return securities linked to CDI, calculated taking into consideration the market rate of the index and credit spread, formed by the set of promissory notes of managed portfolios/funds in which the custodian bank provides asset pricing service; • Exclusive and Non-exclusive investment funds: calculated in accordance with the mark to market criteria established by the Manager of each Fund, expressed in the disclosed value of the quota, except for held-to-maturity securities, which are calculated based on the agreed-upon indexes, plus interest incurred; • Equity securities and shares of publicly-held companies traded on stock exchanges or the over-the-counter market: calculated based on the closing price on the last day on which they were traded in the month; • Loans in foreign currency: represented by Senior Notes, which principal, equivalent to US$130,000,000, is hedged and, according to the method for accounting cash flow hedge transactions, is stated at fair value. Its fair value is calculated according to the discounted cash flow method using the rates disclosed by BM&FBOVESPA; • Derivative financial instruments: calculated at fair value according to the discounted cash flow method using the rates disclosed by BM&FBOVESPA. The criteria adopted by the parent company and its direct and indirect subsidiaries to estimate the market value of other current receivables and payables approximate their realizable and payable values, respectively, due to their short-term maturities. 113 2009 ANnual REPORT 2009 RESULTS (5) MARKETABLE SECURITIES Parent Company Parent Company 2009 2008 306,012 127,704 Exclusive investment funds 283,713 127,704 Bank certificates of deposit 21,703 – 596 – Fixed income securities - government – 86,832 National treasury notes – 86,832 Total 306,012 214,536 Current 306,012 214,536 Consolidated Consolidated 2009 2008 1,534,948 1,094,207 Bank certificates of deposit 939,149 880,523 Debentures 190,849 150,356 Time deposit with special guarantee of FGC (deposit guarantee fund) 272,316 – Non-exclusive investment fund quotas 74,003 36,860 Senior Notes 19,584 24,372 Promissory Notes 39,039 2,126 8 (30) 4,555,363 4,190,160 National treasury notes 2,112,146 2,466,408 Financial treasury bills 2,334,309 1,567,836 National treasury bills 92,079 134,477 Agricultural debt securities 8,722 11,704 Federal treasury bonds 7,340 9,001 767 734 205,408 109,158 172,074 89,504 32,212 18,327 Other 1,122 1,327 Other 1,554 2,356 6,297,273 5,395,881 (3,508) (10,374) Total 6,293,765 5,385,507 Current 4,411,877 3,507,331 Non-current 1,881,888 1,878,176 Fixed income securities - private Non-exclusive investment fund quotas Fixed income securities - private Other Fixed income securities - government Other Equity securities Shares Equity investment fund quotas Subtotal Provision for losses 114 2009 ANnual REPORT 2009 RESULTS The portion of marketable securities in non-current assets is recorded under Marketable Securities, which also includes Tax Incentives and its related provision for losses in the parent company and consolidated balance, and Deposits and sundry Funds linked to IRB-Brasil Resseguros S.A and related provision for losses in the consolidated balance. As of December 31, 2009 the parent company balance amounts to R$11 (R$9 in 2008), whereas the consolidated balance amounts to R$1,887,634 (R$1,883,765 in 2008). The classification and maturities of marketable securities as of December 31, 2009 and 2008, in accordance with the recognition and valuation criteria described in Note (3.1), are as follows: Parent Company 2009 Due in 2 years or without maturity Due from 2 to 5 Cost plus income years Market value Unrealized gains (losses) SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Fixed income - private 110,482 26,163 136,645 135,973 (672) Bank certificates of deposit 109,923 – 109,923 109,926 3 596 – 596 596 – Debentures – 5,874 5,874 5,904 30 Senior Notes – 20,289 20,289 19,584 (705) (37) – (37) (37) – Fixed income - government 3,926 112,207 116,133 116,124 (9) Financial treasury bills 3,926 111,962 115,888 115,883 (5) 245 245 241 (4) Non-exclusive investment fund quotas Other National treasury notes Equity securities 32,212 – 32,212 32,212 – Equity investment fund quotas 32,212 – 32,212 32,212 – Total as of December 31, 2009 146,620 138,370 284,990 284,309 (681) Total as of December 31, 2008 19,327 108,422 127,749 127,704 (45) Fixed income - private 21,688 – 21,688 21,703 15 Bank certificates of deposit 21,688 – 21,688 21,703 15 Total as of December 31, 2009 21,688 – 21,688 21,703 15 Total as of December 31, 2008 – 83,615 83,615 86,832 3,217 AVAILABLE-FOR-SALE SECURITIES 115 2009 ANnual REPORT 2009 RESULTS Consolidated 2009 Due in 2 years or without maturity Due from 2 to 5 years Due from 5 to 10 years Due up to 10 years Cost plus income Market value Unrealized gains (losses) Fixed income - private 385,864 162,260 1,803 – 549,927 549,321 (606) Non-exclusive investment fund quotas 63,271 10,732 – – 74,003 74,003 – Bank certificates of deposit 178,975 78,875 – – 257,850 257,185 (665) Time deposit with special guarantee of FGC (deposit guarantee fund) 76,222 – – – 76,222 76,676 454 Debentures 38,506 52,364 1,803 – 92,673 92,983 310 Promissory notes 28,882 – – – 28,882 28,882 – Senior Notes – 20,289 – – 20,289 19,584 (705) Others 8 – – – 8 8 – Fixed income - government 474,873 1,207,313 33,729 96,663 1,812,578 1,819,722 7,144 Financial treasury bills 358,320 1,071,105 21,202 – 1,450,627 1,451,529 902 National treasury bills 54,457 – – – 54,457 55,821 1,364 Federal treasury bonds 1,448 4,486 – – 5,934 7,340 1,406 Agricultural debt securities 3,898 2,954 1,016 46 7,914 8,712 798 56,750 128,768 11,511 96,617 293,646 296,320 2,674 163,409 – – – 163,409 204,327 40,918 130,195 – – – 130,195 171,113 40,918 32,212 – – – 32,212 32,212 – SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS National treasury notes Equity securities Shares Equity investment fund quotas 116 2009 ANnual REPORT 2009 RESULTS Consolidated 2009 Due in 2 years or without maturity Due from 2 to 5 years Due from 5 to 10 years Due up to 10 years Cost plus income Market value Unrealized gains (losses) 1,002 – – – 1,002 1,002 – 1,024,146 1,369,573 35,532 96,663 2,525,914 2,573,370 47,456 Total as of December 31, 2008 1,134,524 890,769 26,822 88,587 2,140,702 2,127,946 (12,756) Fixed income - private 602,368 296,765 84,435 – 983,568 983,349 (219) Bank certificates of deposit 467,525 129,813 84,435 – 681,773 680,320 (1,453) Time deposit with special guarantee of FGC (deposit guarantee fund) 118,740 76,485 – – 195,225 195,234 9 Promissory notes 10,157 – – – 10,157 10,157 – Debentures 5,946 90,467 – – 96,413 97,638 1,225 Fixed income - government 405,762 823,221 54,327 – 1,283,310 1,284,450 1,140 Financial treasury bills 141,963 686,078 51,970 – 880,011 879,900 (111) 1 – 9 – 10 10 – National treasury notes 226,773 137,143 2,348 – 366,264 367,576 1,312 National treasury bills 36,258 – – – 36,258 36,197 (61) Other 767 – – – 767 767 – Equity securities 473 – – – 473 694 221 Shares 353 – – – 353 694 341 Other 120 – – – 120 – (120) 1,008,603 1,119,986 138,762 – 2,267,351 2,268,493 1,142 697,289 804,559 256,239 734 1,758,821 1,762,818 3,997 Other Total as of December 31, 2009 AVAILABLEFOR-SALE SECURITIES Agricultural debt securities Total as of December 31, 2009 Total as of December 31, 2008 117 2009 ANnual REPORT 2009 RESULTS Consolidated 2009 HELD-TOMATURITY SECURITIES Market value Cost plus income Unrealized gains/ (losses) Fixed income - government 336,601 211,487 291,636 610,624 1,565,263 1,450,348 114,915 Financial treasury bills 2,377 357 – – 2,733 2,734 (1) National treasury notes 334,224 211,130 291,636 610,624 1,562,530 1,447,614 114,916 Total as of December 31, 2009 336,601 211,487 291,636 610,624 1,565,263 1,450,348 114,915 115,386 473,991 281,281 621,729 1,534,726 1,492,387 42,339 Total as of December 31, 2009 1,554 – – – 1,554 1,554 – Total as of December 31, 2008 2,356 – – – 2,356 2,356 – Total as of December 31, 2008 Other (6) PREMIUMS RECEIVABLE 2009 Automobile Consolidated 2008 964,281 692,501 Group health 89,344 112,487 Engineering risks 59,901 11,347 Individual health 38,131 56,769 Group life 35,723 34,653 Cargo liability 20,233 17,873 Cargo 14,539 18,605 Named perils and operating risks 13,246 17,626 Personal accidents 10,965 6,936 Business comprehensive 10,790 12,615 Hull 8,573 15,146 Third-party liability 7,206 7,906 Miscellaneous P&C 7,194 11,051 Aeronautic 3,236 57,456 Other Total Current Non-current (a) Premiums receivable consist of direct premiums issued, accepted coinsurance, and retrocession operations. As of 16,967 18,601 1,300,329 1,091,572 1,263,023 37,306 1,091,441 131 December 31, 2009 and 2008 the premiums receivable, by maturity, are as follows: (a) As of December 31, 2009, premiums receivable classified into non-current assets are mainly composed of engineering risks. 118 2009 ANnual REPORT 2009 RESULTS 2009 2008 Overdue 240,573 254,586 Due from 1 to 30 days 391,244 341,505 Due from 31 to 60 days 209,911 162,584 Due from 61 to 180 days 365,292 281,608 Due from 181 to 365 days 56,003 51,158 Due up to 365 days Total (6.1) ALLOWANCE FOR DOUBTFUL ACCOUNTS The Allowance for doubtful accounts is estimated based on premiums, due and falling due of expired risk, net of commissions, Tax on Financial Operations (IOF), reinsurance, judicial deposits and collection agreements. The analysis of doubtful accounts of companies is made based on a chart that shows the score (rating) for likelihood of loss, whereas that of individuals is made based on the history of recovery percentage of premiums due. Premiums due over 366 days, whether they refer to companies or individuals, are fully accrued. 37,306 131 1,300,329 1,091,572 Premiums receivable of unexpired risk are usually cancelled after 32, 60 and 90 days of default, depending on the insurance line. As of December 31, 2009, the Allowance of Doubtful Accounts totals R$44,136 (R$66,386 as of December 31, 2008) in current assets. (7) RECOVERABLE AND DEFERRED TAXES AND CONTRIBUTIONS (7.1) RECOVERABLE TAXES AND CONTRIBUTIONS 2009 2008 Parent Company Consolidated Deferred taxes and contributions - tax loss carryforwards (7.1.2) – 1,992 32,098 56,551 Deferred - temporary differences (7.1.2) – – 4,521 4,478 Deferred - PIS / COFINS (7.1.2) – – 53,448 44,050 Recoverable taxes and contributions (7.1.1) 18,516 14,994 65,093 78,249 Tax loss carryforwards/ recoverable taxes 18,516 14,994 123,062 126,777 Deferred taxes and contributions - tax loss carryforwards (7.1.2) 11,278 10,636 150,322 172,230 Deferred - temporary differences (7.1.2) 8,779 7,672 543,225 525,451 Deferred - PIS / COFINS (7.1.2) – – 12,191 15,161 Tax loss carryforwards/ recoverable taxes (7.1.1) – – 19,874 38,541 8,779 7,672 575,290 579,153 2009 2008 2009 2008 Current Non-current Deferred taxes and contributions 119 2009 ANnual REPORT 2009 RESULTS (7.1.1) TAX LOSS CARRYFORWARDS /RECOVERABLE TAXES The parent company balance is basically composed of Corporate Income Tax (IRPJ) amounting to R$17,505 (R$14,713 in 2008) and the IRPJ consolidated balance amounting to R$43,229 (R$48,151 in 2008), INSS amounting to R$13,482 (R$35,760 in 2008), social contribution on net income (CSLL) amounting to R$6,451 (R$10,354 in 2008) and tax on revenue (COFINS) amounting to R$16,922 (R$12,809 in 2008). (7.1.2) OTHER RECOVERABLE TAXES AND CONTRIBUTIONS Deferred tax bases are composed of the following: Parent Company Tax loss carryforwards Rate (1) Deferred - income tax - tax loss carryforwards Accrued liabilities for contingencies, taxes and contribution liabilities and provision for losses Goodwill on investments Other Consolidated 2009 2008 2009 2008 26,139 30,083 400,431 526,554 25% 25% 25% 25% 6,535 7,521 100,108 131,639 23,487 11,685 1,215,241 1,204,794 3,169 3,169 375,567 375,590 – 8,546 105,843 58,212 26,656 23,400 1,696,651 1,638,596 25% 25% 25% 25% 6,664 5,850 424,163 409,649 (3) = (1) + (2) Total deferred - income tax 13,199 13,371 524,271 541,288 Social contribution tax loss carryforwards 52,706 56,745 637,277 752,879 9% 9% 9% and 15% 9% and 15% (4) Deferred - social contribution - tax loss carryforwards 4,744 5,107 82,312 97,143 Accrued liabilities for contingencies, taxes and contribution liabilities and provision for losses 23,499 16,249 739,393 734,534 Goodwill on investments – – 20,811 19,219 Other – 4,000 89,300 64,124 23,499 20,249 849,504 817,877 9% 9% 9% and 15% 9% and 15% 2,115 1,822 122,522 118,060 6,859 6,929 204,834 215,203 20,058 20,300 729,105 756,491 Tax basis Rate (2) Deferred - income tax - temporary differences Rate Tax basis Rate (5) Deferred - social contribution temporary differences (6) = (4) +(5) Total deferred - social contribution (7) = (3) +(6) Total deferred income tax and social contribution 120 2009 ANnual REPORT 2009 RESULTS Parent Company Consolidated 2009 2008 2009 2008 (20,058) (16,445) (168,095) (274,963) (8) Subtotal (b) – 3,855 561,010 481,528 (9) PIS/ COFINS (taxes on revenue) Credits (c) – – 65,639 59,211 (10) Goodwill - Merger (d) – – 1,061 2,219 (8) + (9) +(10) Total deferred tax and contributions - net – 3,855 627,710 542,958 Current – 1,992 90,067 105,079 Non-current – 1,863 537,643 437,879 Allowance for doubtful accounts (a) As of December 31, 2009, the realizable amount of tax credits, taking into consideration the face value of future results determined in budgets prepared for the next 3 to 10 years, is R$651,380 in consolidated. According to the CVM rules, the realizable amount of tax credits was estimated based on future results discounted to present value at the estimated future SELIC rate. (a) The allowance for doubtful accounts related to deferred income tax and social contribution was recorded based on Management’s estimates as to the realization of future taxable income and on certain temporary differences. In the line of Allowance for Doubtful Accounts, in addition to the previously mentioned allowance, other provisions for accounts receivable are recorded. The variation in allowance for doubtful accounts basically occurred because of the better projection of future taxable income in view of the new economic scenario and the reduction in the estimated projected interest rate used for calculating the adjustment to present value, thus generating an addition to the valuation allowance for doubtful accounts of R$3,613 in the parent company and a reduction of R$106,868 in consolidated; (b) The amounts represent deferred tax credits arising from tax losses, social contribution tax loss carryforwards and temporary differences, net of allowance for doubtful accounts. The estimates of the Management of the parent company and its direct and indirect subsidiaries as to the realization of tax credits are based on budgets prepared and approved for the next 3 and 10 years. As of December 31, 2009, the estimated realization of tax credits by year is as follows: Consolidated Year Income tax Social contribution 2010 12% 6% 2011 17% 16% 2012 24% 30% 2013 5% 6% 2014 7% 6% 2015 to 2016 14% 9% 2017 to 2019 21% 27% The realization of tax credits related to accrued liabilities for contingencies, taxes and contribution payable and provision for losses were allocated in our projections to the years subsequent to the offset of tax loss carryforwards, due to the difficulty in presently estimating the outcome and date of conclusion of these litigations. (c) Refers to the Contribution to the Social Integration Program (PIS) and the Social Contribution on Revenues (COFINS) tax credits calculated on the balance of reserves for claims and claim adjustment expenses and IBNR reserve. (d) Refers to the goodwill recorded by the indirect subsidiary Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. in the merger of Sul América Investimentos S.A. relating to balances of the investment, based on future expected earnings. On November 30, 2000, the indirect subsidiary Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. merged the above-mentioned investor and recorded this goodwill in its accounting records. As provided for CVM Instructions Nos. 319/99 and 349/2001, the mentioned indirect subsidiary set up a reserve on the difference between the merged goodwill and the expected 121 2009 ANnual REPORT 2009 RESULTS future tax benefit arising from its amortization, which is presented for purposes of disclosure under Recoverable Taxes and Contributions in non-current asset. The amortization of this goodwill, after being set up, at 10% per year, is being included in the budgets prepared by Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A.’s Management; As of December 31, 2009, the accumulated balances of tax loss carryfowards are as follows: Parent Company Consolidated Year Income tax Social contribution Income tax Social contribution 1994 – 7,482 4,006 10,787 1995 – – – – 1996 – – – – 1997 – – – 71,745 1998 – – – 13,973 1999 – 852 – 8,498 2000 – 1,599 – 1,599 2001 – 11,305 9,607 20,276 2002 – – 50,380 102,281 2003 – 2,617 15,884 3,976 2004 – – 91,629 106,203 2005 – – 105,500 192,877 2006 – – 60,279 60,953 2007 25,020 26,767 54,721 34,120 2008 – 965 525 1,492 2009 1,119 1,119 7,900 8,497 26,139 52,706 400,431 637,277 Tax loss carryforwards balances as of December 31, 2009 (7.2) DEFERRED TAXES Parent Company Consolidated 2009 2008 2009 2008 Interest and monetary variation on judicial deposits (a) – – 247,822 218,163 Adjustments of marketable securities 28,360 28,360 38,903 43,128 – – 5,403 4,624 28,360 28,360 292,128 265,915 25% 25% 25% 25% 7,090 7,090 73,032 66,479 – – 247,822 218,163 28,360 28,360 38,903 43,128 – – 779 – 28,360 28,360 287,504 261,291 9% 9% 15% and 9% 15% and 9% Other Tax basis Rate (1) Deferred taxes income tax Interest and monetary variation on judicial deposits (a) Adjustments of marketable securities Other Tax basis Rate 122 2009 ANnual REPORT 2009 RESULTS Parent Company (2) Deferred taxes social contribution (3) = (1) + (2) Total Deferred taxes Current Non-current Consolidated 2009 2008 2009 2008 2,552 2,552 41,424 37,416 9,642 9,642 114,456 103,895 – – 255 – 9,642 9,642 114,201 103,895 (a) The payment of IRPJ and CSLL on monetary variation of judicial deposits may only be made in case the direct and indirect subsidiaries obtain favorable decisions in the respective lawsuits. (8) PERMANENT ASSETS (8.1) EQUITY IN SUBSIDIARIES AND ASSOCIATED COMPANIES Parent Company Sul América Companhia Nacional de Seguros Saepar Serviços e Participações S.A. Sul América Companhia de Seguro Saúde 24.45% 100.00% 33.95% Number of common shares held 100 3,540 20,417,758 Number of preferred shares held – – 5,090,210 Description Ownership interest Capital Total 878,134 857,772 825,934 1,762,306 1,544,815 1,673,161 241,904 249,183 332,707 Base date of equity in subsidiaries 12/31/2009 12/31/2009 12/31/2009 Equity in subsidiaries 60,272 249,186 114,600 424,058 Book value of investment 431,509 1,544,815 569,710 2,546,034 Investment balance as of December 31, 2009 431,509 1,544,815 569,710 2,546,034 382,799 1,349,906 484,550 2,217,255 Shareholders’ equity Net income for the year Investment balance as of December 31, 2008 123 2009 AnNual REPORT 2009 RESULTS (8.2) PROPERTY AND EQUIPMENT Consolidated Land Property and equipment cost Balance as of December 31, 2008 (+) Additions Buildings IT equipment Telecom equipment Furniture, machinery and other equipment Vehicles Leasehold improvements Others Total 103,666 36,859 3,941 31,437 5,770 24,742 575 219,591 – 12,601 – – 2,163 3,165 4,828 10,507 18,864 – 39,527 (11,304) (100,847) – 37 (37) – – – (112,151) (76) (80) (2,624) (1,120) (7,813) (1,980) (45) – (13,738) (+/-) Capital loss – – 2 (3) (43) – – – (44) (+/-) Exchange variation – – (2) – – – – – (2) Balance as of December 31, 2009 1,221 2,739 36,398 6,020 28,372 14,297 43,561 575 133,183 – 4% 20% 10% 10% 20% 10% – Balance as of December 31, 2008 – (45,566) (20,403) (2,047) (11,533) (2,258) (5,600) (393) (87,800) (+) Depreciation – (2,892) (6,401) (696) (6,100) (2,293) (4,131) (27) (22,540) (-) Transfers (a) – 46,510 5 (5) – – – – 46,510 (-) Write-offs – 74 1,817 694 2,312 1,108 3 – 6,008 (+/-) Capital loss – – – 3 41 – – – 44 Balance as of December 31, 2009 – (1,874) (24,982) (2,051) (15,280) (3,443) (9,728) (420) (57,778) – (96) (8) – (490) – – – (594) (+/-) Impairment (14) (79) 8 – 490 – – – 405 Balance as of December 31, 2009 (14) (175) – – – – – – (189) 1,207 690 11,416 3,969 13,092 10,854 33,833 155 75,216 12,601 58,004 16,448 1,894 19,414 3,512 19,142 182 131,197 (-) Transfers (a) (-) Write-offs Depreciation rate Accumulated depreciation Provision for losses Balance as of December 31, 2008 Net value of property and equipment assets Balance as of December 31, 2009 Balance as of December 31, 2008 (a) The management of certain subsidiaries transferred some of their property and equipment items to asset held for sale. The total book value of R$65,641, net of depreciation was transferred to the heading Other Assets in current assets. 124 2009 ANnual REPORT 2009 RESULTS (8.3) INTANGIBLE ASSETS Parent Company Goodwill Software Total 5,138 317 5,455 – 2,925 2,925 5,138 3,242 8,380 10% 10 and 20% (3,168) – (3,168) – (17) (17) Balance as of December 31, 2009 (3,168) (17) (3,185) Balance as of December 31, 2009 1,970 3,225 5,195 1,970 317 2,287 Intangible assets cost Balance as of December 31, 2008 (+) Additions Balance as of December 31, 2009 Amortization rate Accumulated amortization Balance as of December 31, 2008 (+) Amortization charges Net value of intangible assets Balance as of December 31, 2008 Consolidated Goodwill (a) Software Total 20,573 102,326 122,899 (+) Additions – 48,201 48,201 (-) Write-offs – (455) (455) (+/-) Exchange variation – (2,002) (2,002) 20,573 148,070 168,643 10% 10 and 20% (4,095) (46,362) (50,457) (+) Amortization charges – (14,053) (14,053) (-) Write-offs – 453 453 (4,095) (59,962) (64,057) 16,478 88,108 104,586 Intangible assets cost Balance as of December 31, 2008 Balance as of December 31, 2009 Amortization rate Accumulated amortization Balance as of December 31, 2008 Balance as of December 31, 2009 Net value of intangible assets Balance as of December 31, 2009 125 2009 ANnual REPORT 2009 RESULTS Consolidated Balance as of December 31, 2008 Goodwill Software Total 16,478 55,964 72,442 (9) OPERATING CHARGES OF INSURANCE AND REINSURANCE (9.1) REINSURANCE COMPANIES Consolidated 2009 2008 Engineering risks 48,750 6,952 Named perils and operating risks 33,787 25,866 Business comprehensive 19,511 16,337 Condominium comprehensive 7,355 3,601 Aeronautic 5,414 43,092 Miscellaneous P&C 4,265 5,350 Cargo 4,718 6,965 Hull 3,148 7,331 Third-party liability 1,692 625 D&O 1,347 1,327 Payment bond 1,087 1,497 14,656 20,424 Total 145,730 139,367 Current 145,730 139,367 Others (10) THIRD-PARTY DEPOSITS Consolidated Description 2009 2008 Advanced collection of premiums - insurance 26,030 31,371 Premiums and fees received - insurance and coinsurance 33,225 10,580 Total 59,255 41,951 Current 59,255 41,951 126 2009 ANnual REPORT 2009 RESULTS (11) TECHNICAL RESERVES AND DEFERRED ACQUISITION COSTS – INSURANCE AND REINSURANCE Consolidated 2009 Unearned premium reserve, premium deficiency reserve and other reserves Reserve for benefits granted and to be granted, financial surplus reserve and reserve for future policy benefits and unexpired risk reserve Reserve for claims and claim adjustment expenses IBNR reserve Deferred acquisition costs 1,567,523 – 498,157 67,224 280,060 Engineering risks 64,176 – 21,509 360 1,859 Individual life 14,759 28,209 – 6,986 – Named perils and operating risks 62,031 – 251,373 6,184 – Group life 34,811 – 123,452 68,285 15,504 Credit life 34,750 – 136 743 18,176 Business comprehensive 29,592 – 32,325 2,501 4,466 Group health 20,685 11,756 151,474 328,146 85,148 Third-party liability 17,638 – 59,641 7,858 2,811 Hull 15,163 – 24,926 12,461 2,464 Individual health 63,781 1,994 87,163 158,995 76,048 Condominium comprehensive 13,206 – 4,717 138 3,012 Cargo 9,673 – 14,082 5,407 978 Homeowners comprehensive 8,461 – 2,652 452 3,232 Personal accidents 4,708 – 25,935 18,035 3,477 Cargo liability 4,473 – 13,105 4,739 392 Aeronautic 4,231 – 77,264 208 187 VGBL - Life that Generates Free Benefits 1,441 385,380 – – 5,460 DPVAT (mandatory third-party liability for vehicle owners) 993 – 40,449 2,348 – Traditional fire insurance 977 – 29,348 1,022 1,181 63,396 10 34,523 3,674 2,051 2,036,468 427,349 1,492,231 695,766 506,506 1,913,980 111,423 1,176,844 695,766 367,874 122,488 315,926 315,387 – 138,632 Automobile Other Total Current Non-current 127 2009 ANnual REPORT 2009 RESULTS 2008 Automobile Unearned premium reserve, premium deficiency reserve and other reserves Reserve for benefits granted and to be granted, financial surplus reserve and reserve for future policy benefits and unexpired risk reserve Reserve for claims and claim adjustment expenses IBNR reserve Deferred acquisition costs 1,215,651 – 439,748 49,585 217,621 Engineering risks 33,954 – 18,460 106 3,497 Individual life 15,801 25,075 13 5,432 – Named perils and operating risks 61,656 – 88,354 2,153 – Group life 48,224 – 154,417 56,867 19,403 Credit life 11,378 – 68 360 3,400 Business comprehensive 32,011 – 45,119 4,377 4,918 Group health 13,822 10,313 122,248 271,468 76,016 Third-party liability 19,699 – 55,326 1,705 2,922 Hull 20,084 – 21,434 8,895 1,977 Individual health 62,913 2,289 88,416 147,552 86,708 Condominium comprehensive 4,938 – 3,024 180 1,416 Cargo 5,026 – 23,539 4,613 63 Homeowners comprehensive 6,375 – 2,628 157 2,453 Personal accidents 5,120 – 29,202 10,884 3,570 Cargo liability 2,230 – 16,419 3,696 6 42,259 – 153,750 154 6,060 VGBL - Life that Generates Free Benefits 1,074 239,755 – – 4,983 DPVAT (mandatory third-party liability for vehicle owners) 1,421 – 27,785 2,812 – 702 – 38,013 382 1,032 49,878 – 73,061 5,441 930 1,654,216 277,432 1,401,024 576,819 436,975 75,230 198,767 381,039 – Aeronautic Traditional fire insurance Other Total Current Non-current 1,578,986 78,665 1,019,985 576,819 295,603 141,372 As of December 31, 2009 and 2008, the Reserve for Claims and Claim Adjustment Expenses includes claims that are being disputed in court, related mainly to denial of coverage for nonfulfillment of contract conditions, related mainly to automobile and life lines. 128 2009 ANnual REPORT 2009 RESULTS (11.1) ROLL FORWARD OF CLAIMS BEING DISPUTED IN COURT Balance as of December 31, 2008 Addition Write-offs Balance as of December 31, 2009 (11.2) REINSURANCE COMPANIES As set forth in SUSEP Circular No. 379, from January 1, 2009 reinsurance operations, that include insurance and private pension operations, started to be recorded under the heading Deferred Reinsurance and Retrocession Expenses and Receivables from Insurance and Reinsurance Operations in current and non-current assets and are shown below: 443,873 99,801 (142,944) 400,730 Consolidated 2009 Reinsurance Unearned premium reserve and other reserves Reserve for claim and claims adjustment expenses IBNR reserve Engineering risks 55,864 18,713 189 Named perils and operating risks 40,098 228,612 4,031 28,731 4,336 9 10,300 14,406 1,519 Aeronautic 3,785 74,159 104 Condominium comprehensive 3,421 1,069 32 Third-party liability 3,228 21,994 1,197 Hull 2,919 3,272 8,367 Miscellaneous P&C 1,376 1,000 576 469 1,720 826 Group life – 1,695 3,193 Individual life – 1,590 372 Traditional fire insurance – 24,363 642 Homeowners comprehensive – 58 32 Credit life – – 41 Personal accidents – 1,298 334 5,798 7,752 – Total 155,989 406,037 21,464 Current 108,753 347,804 21,464 47,236 58,233 – Oil risks Business comprehensive Cargo Other Non-current 129 2009 ANnual REPORT 2009 RESULTS Consolidated 2008 Reinsurance Unearned premium reserve and other reserves Reserve for claim and claims adjustment expenses IBNR reserve Engineering risks 26,790 18,092 – Named perils and operating risks 47,299 87,878 1,092 Business comprehensive 16,937 17,770 2,247 Aeronautic 33,319 151,289 67 87 27 – Third-party liability 5,755 20,303 45 Hull 7,804 6,390 6,835 Miscellaneous P&C 4,514 5,070 237 Cargo 1,226 8,529 995 302 3,491 4,684 – – 462 1,887 304 26 Cargo liability 26 – 784 Traditional fire insurance 26 26,668 104 Other 34,698 20,128 1,078 Total 180,670 365,939 18,656 Current 151,023 311,579 18,656 Non-current 29,647 54,360 – Homeowners comprehensive Group life Individual life Condominium comprehensive The technical reserves for claims and premiums of risks ceded to reinsurance, as shown in the chart above, are recorded in Reinsurance Companies and Deferred Reinsurance and Retrocession Expenses, respectively, in current and noncurrent assets. The heading Reinsurance Companies also includes the receivables from claims and commissions recoverable from reinsurers, in the amount of R$84,524 (R$32,119 in 2008) in current assets, and R$2,658 in 2009 in non-current assets. 130 2009 ANnual REPORT 2009 RESULTS (11.3) ROLL FORWARD OF TECHNICAL RESERVES AND DEFERRED ACQUISITION COSTS – PRIVATE PENSION Consolidated 2009 Technical reserves IBNR reserve Deferred acquisiton costs 1,652,504 973 3,917 184,507 1,036 – 87,486 – – Redemptions (77,670) – – Outgoing portability (53,382) – – Benefits (44,333) – – 155,528 – – Commissions – – 6,738 Amortization – – (5,418) 1,904,640 2,009 5,237 429,206 2,009 2,960 1,475,434 – 2,277 Balance as of December 31, 2008 Constitution Income portability Monetary variation Balance as of December 31, 2009 Current Non-current 2008 Technical reserves IBNR reserve Deferred acquisiton costs 1,368,893 868 4,171 149,841 105 – 111,128 – – (56,968) – – Outgoing portability (32,935) – – Benefits (38,351) – – Monetary variation 150,896 – – Commissions – – 4,441 Amortization – – (4,695) 1,652,504 973 3,917 377,964 973 2,526 1,274,540 – 1,391 Balance as of December 31, 2007 Constitution Income portability Redemptions Balance as of December 31, 2008 Current Non-current 131 2009 ANnual REPORT 2009 RESULTS (12) GUARANTEE OF TECHNICAL RESERVES The technical reserves have the following coverage: Consolidated 2009 2008 703,633 726,285 Equity fund quotas 1,522,392 1,100,154 Credit assignments 801,327 591,994 2,102,525 2,008,895 Bank certificates of deposit 853,371 638,265 Properties, net of depreciation 48,200 44,783 Judicial deposits 23,497 42,042 5,754 6,311 90,697 8,326 10,157 - 6,161,553 5,167,055 Investment funds (a) Fixed income securities - government Special deposits at IRB Shares and debentures Promissory Notes Total (a) As of December 31, 2009, the line Investment Fund quotas includes the amount of R$558,622 (R$457,268 in 2008) in consolidated related to Resale Commitments, which for the financial statements disclosure are represented under the heading Securities Purchased under Resale Agreements, according to Note (3.1). (13) RELATED PARTIES (13.1) TRANSATIONS AND BALANCES The main related-party transactions are summarized as follows: Parent Company Income (expenses) Dividends received / receivable (paid/ payable) Interest on shareholders' equity received / receivable (paid/payable) – – (99.826) – Saepar Serviços e Participações S.A. – – 96.784 – ING Insurance International BV – – (64.401) – Sul América Companhia Nacional de Seguros (b) – (160) 25.722 – Sul América Companhia de Seguro Saúde (a) – (80) 29.427 11.158 Other subsidiaries and shareholders and individuals (35) (246) (138.783) (141) Balances as of December 31, 2009 (35) (486) (151.077) 11.017 (5.116) (135) (59.135) 48.239 Accounts receivable (payable) Sulasapar Participações S.A. Balances as of December 31, 2008 132 2009 ANnual REPORT 2009 RESULTS Consolidated Income (expenses) Dividends received / receivable (paid/ payable) Interest on shareholders' equity received / receivable (paid/payable) 136 (151) – – Sulasapar Participações S.A. – – (99.842) – ING Insurance International BV – – (93.939) – BB Banco Investimentos S.A. – – (20.591) – Gouvêa Vieira Advocacia (c) – (639) – – Gouvêa Vieira Advogados Associados (c) – (120) – – Escritório de Advocacia Gouvea Vieira (c) – (3.486) – – J.H. Gouvea Vieira Escritório de Advocacia (c) – (7.134) – – Other subsidiaries and shareholders and individuals (1.964) 196 (140.432) (428) Balances as of December 31, 2009 (1.828) (11.334) (354.804) (428) (2.281) (5.469) (321.581) (486) Accounts receivable (payable) Sul América Capitalização S.A. - SULACAP (a), (b) Balances as of December 31, 2008 The accounts receivable/payable and income/expenses refer mainly to the following: (a) Recovery of expenses for the shared use of operating systems and supporting administrative structure, whose costs are apportioned among the companies, settled on a monthly basis; (b) Income of indirect subsidiary Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. arising from asset management, with a 0.17% management fee on the net equity of the portfolio and a 20% performance fee on the surplus to benchmark, paid monthly and semiannually, respectively; (c) Advisory services provided and follow up of lawsuits of civil, labor and tax nature. These contracts are renewed annually and terminated monthly, or when the process is settled. 133 2009 ANnual REPORT 2009 RESULTS (13.2) COMPENSATION OF KEY MANAGEMENT MEMBERS The key management members include those of the Board of Directors, the president, vice-presidents and statutory directors. The compensation paid or payable is shown below: Parent Company Consolidated Accounts (payable) (Expenses) Accounts (payable) (Expenses) (1,743) (2,405) (34,813) (69,235) Post-employment benefits – – (14,696) (9,242) Stock options (a) – (3,746) – (3,746) Balances as of December 31, 2009 (1,743) (6,151) (49,509) (82,223) Balances as of December 31, 2008 (1,294) (4,326) (42,265) (69,320) Short-term benefits for managers (a) MASTER STOCK OPTION PLAN OF SUL AMÉRICA S.A. At the Extraordinary Shareholders’ Meeting of Sul América S.A. held on March 31, 2008, shareholders approved the Stock Option Plan (“Plan”). The Plan is managed by the Company’s Board of Directors, who may periodically create Unit Option Programs (“Programs”), and delegate duties to the Compensation Committee of the Company related to the Programs management. Within the Plan, the Board of Directors approved the Programs for 2008 and 2009, and delegated to the Company’s Compensation Committee the definition of the Program beneficiaries, among the Board of Executive Officers members of the Company and its subsidiaries, as well as the number of units to which they would be entitled. The Compensation Committee defined the beneficiaries and the amounts. The options granted within the Program for 2008 and 2009 will entitle to 1/3 of the total granted per year, from the end of the first, second and third years counted from the date of signature of the respective Unit Option Agreement (“Option Agreement”), considering that the maximum exercise period of options is 5 years, counted from the date of signature of the Option Agreement. The changes in the balance of options are summarized as follows: Stock Options Units (quantity) Weighted Average Exercise Price (in Reais) Balance of Options outstanding in 2008 680,789 26.52 Granted Options 1,331,639 20.18 Exercised Options 183,387 26.53 Cancelled Options 161,027 23.74 1,668,014 21.72 21,529 26.39 Balance of Options outstanding in 2009 Balance of Exercisible Options in 2009 The minimum and maximum exercise prices of outstanding options as of December 31, 2009 are R$20.12 (twenty Reais and twelve centavos) and R$30.45 (thirty Reais and forthy five centavos), respectively. The remaining weighted average contractual term is 3.87 years. The weighted average fair value of stock options issued net of cancellation is R$5.34 (five Reais and thirty four centavos), and was measured using the Black-Scholes option pricing model, considering the following assumptions: • Expected average volatility of 43.0% • Option exercise term of 3 years, the option exercise being 1/3 in 1 year, 1/3 in 2 years and 1/3 in 3 years • Expected average dividend of 4.7% • Average risk-free interest rate of 11.2% The compensation expense from Stock Option Plan, for the year ended December 31, 2009, taking the fair value of option at the date of signature of each contract, is R$3,746, recorded under Administrative Expenses as contra-entry to Capital Reserve – Recognized Granted Options. Once the Stock Option Plan provisions are complied with, the Board of Directors may launch other option programs up to the limit of 4.0% of total shares issued by the Company existing at the date of the respective Program, plus the units that would have been issued if all options granted under the Stock Option Plan had been exercised. 134 2009 ANnual REPORT 2009 RESULTS (14) LOANS AND FINANCING Parent Company and Consolidated 2009 Institution Senior Notes Holders (1), (5), (6) Unibanco (2), (5) Swap Senior Notes Holders (-) Swap 2008 Principal Interest Maturity Current Non–current Current Non–current US$ 130,000,000 8.625% p.a. 02/15/2012 7,321 212,858 9,952 249,721 Exchange variation of US$ + interest (2), (3), (4) 02/14/2012 – 19,374 – (38,403) 7,321 232,232 9,952 211,318 Senior Notes - Borrowing Costs Commission 02/14/2012 (1,558) (1,750) – – Unibanco (3) 100% of CDI p.a. 02/14/2012 – 47,768 – 43,466 5,763 278,250 9,952 254,784 Total In February 2007, the parent company issued Senior Notes, guaranteed by its direct subsidiary Saepar Serviços e Participações S.A., in the amount of US$200,000,000, at the rate of 8.625% p.a., in accordance with the terms and conditions contained in the respective “Offering Circular”. These bonds mature within five years from the date of their issuance. (1) On November 26, 2007, as provided for in the agreement, the amount of US$71,727,395.83 (R$128,758) was settled in advance, corresponding to 35% of the total Senior Notes. In addition, the same percentage was reverted from the derivative contract of swap established for hedging the Senior Notes. (2) On May 30, 2007, the parent company entered into swap transactions, in which the index of the respective contract was replaced with that mentioned in the above table. (3) On March 3, 2008, as provided for in the agreement, the first renegotiation of the swap transactions was made, resulting in a change in charges from 44.75% to 50.95% p.a. of the CDI. The interim adjustment value resulted in accounts payable amounting to R$45,067, not settled at the renegotiation time, that will be adjusted at 100% of the CDI until the maturity date of the transaction or upon early settlement. (4) On April 2, 2008, as provided for in the agreement, the swaps were renegotiated, resulting in a change in charges from 50.95% p.a. of the CDI to the CDI rate reduced by 3.967% p.a.. The interim adjustment value resulted in a gain amounting to R$5,753, which was offset against the interim adjustment value arising from the renegotiation mentioned in item (3). This renegotiation will be effective until February 14, 2012, when the Senior Notes falls due. (5) As mentioned in Notes (3.3.1) and (4), Senior Notes, which are hedged, and swap, financial instrument to hedge cash flow, were adjusted to fair value resulting in a gain amounting to R$20,799 (R$13,727, net of tax effects) in 2009 and R$28,360 (R$18,758, net of tax effects) in 2008 recorded under Valuation Adjustments to Shareholders’ Equity in Shareholders’ Equity. (6) Up to December 31, 2009, the payment of semiannual interest amounted to R$23,192. (15) COMMITMENTS AND ENCUMBRANCES (15.1) ENCUMBERED PROPERTIES Certain indirect subsidiaries, which operate in the insurance business, record as property and equipment certain properties that were pledged as collateral due to court decisions in connection with civil lawsuits related to claims. The book value of these properties, net of depreciation, was R$2,204 in 2009 (R$2,698 in 2008). (15.2) BLOCKED BALANCES IN BANK ACCOUNTS As of December 31, 2009, the parent company and certain direct and indirect subsidiaries have blocked balances in their bank accounts related to lawsuits. The parent company’s balance amounts to R$95 (R$43 in 2008) and the consolidated balance 135 2009 ANnual REPORT 2009 RESULTS amounts to R$112,263 (R$111,456 in 2008) recorded under Other – Accounts Receivable in current assets. (15.3) GUARANTEE OF TECHNICAL RESERVES Certain indirect subsidiaries have assets linked to SUSEP and ANS pledged as collateral for guarantee of technical reserves, which are listed in Note (12). 17, 2010. This rental agreement contains restrictive covenants on the unilateral termination of the agreement by the indirect subsidiary and the landlord. The voluntary unilateral termination will give rise to the payment of indemnification to the other party, according to the condition established in the agreement. (15.5) BUSINESS PARTNERSHIP AGREEMENT (15.4) NEW HEADQUARTERS On December 17, 2007, the indirect subsidiary Sul América Companhia Nacional de Seguros entered into an agreement to rent the real estate of the new headquarters of the Sul América Seguros e Previdência Group in Rio de Janeiro. The move was completed in July 2009. The rental period is 10 years from April 18, 2009, which can be extended to an additional 60-month period. For this period, the indirect subsidiary agreed to pay 10 annual installments of R$13,712, annually adjusted or after the shortest period provided for by Law, by the accumulated IGP-M variation, released by Fundação Getúlio Vargas from April On May 27, 2008, the indirect subsidiary Sul América Companhia Nacional de Seguros signed a business partnership agreement for five years with BV Financeira S.A. Crédito, Financiamento e Investimento, BV Leasing Arrendamento Mercantil S.A. and VCS - Votorantim Corretora de Seguros Ltda. in order to promote with exclusivity the SulAmérica Auto insurance in its entire network; this agreement also contains a clause related to the performance of future sales. (16) JUDICIAL DEPOSITS, ACCRUED LIABILITIES FOR CONTINGENCIES AND TAXES AND CONTRIBUTIONS LIABILITIES Parent Company 2009 Judicial deposits Accrued liabilities for contingencies Taxes and contributions liabilities 773 – 747 Other 52 – 5 Total 825 – 752 Non-Current 825 – 752 Tax: Income tax 2008 Judicial deposits Accrued liabilities for contingencies Taxes and contributions liabilities 638 – 500 10 – 5 Total 648 – 505 Non-Current 648 – 505 Tax: Income tax Other Consolidated 2009 Judicial deposits Accrued liabilities for contingencies Taxes and contributions liabilities COFINS 466,218 – 479,888 PIS 229,371 – 174,436 INSS 522,036 130,609 1,004 Tax: 136 2009 ANnual REPORT 2009 RESULTS Consolidated 2009 Judicial deposits Accrued liabilities for contingencies Taxes and contributions liabilities Social Contribution 101,765 2,350 99,853 Income tax 88,687 140 84,692 Other 59,220 24,574 62,477 Labor lawsuits 39,368 40,470 – Civil lawsuits 147,498 305,196 – DPVAT 1,019 1,020 – Other – 666 – 1,655,182 505,025 902,350 – 60,000 – 1,655,182 445,025 902,350 Labor and civil: Total Current Non-Current 2008 Judicial deposits Accrued liabilities for contingencies Taxes and contributions liabilities 516,606 – 398,462 PIS 227,342 – 172,385 INSS 476,161 112,712 1,454 Social Contribution 80,442 – 75,034 Income tax 73,687 2,540 69,695 Other 55,041 27,848 58,970 Labor lawsuits 43,504 40,442 – Civil lawsuits 143,980 322,253 – DPVAT 961 961 – Other – 3,893 – 1,617,724 510,649 776,000 – 59,240 – 1,617,724 451,409 776,000 Tax: COFINS Labor and civil: Total Current Non-Current 137 2009 ANnual REPORT 2009 RESULTS (16.1) CIVIL, LABOR, TAX AND DPVAT LAWSUITS Following are the parent company and its direct and indirect subsidiaries’ lawsuits by nature, likelihood of loss, and estimated and accrued amounts: Parent Company 2009 Quantity Estimate Accrued liabilities for contingencies and taxes and contribution liabilities Probable 1 720 720 Possible 2 43 32 Remote 5 433 – Total 8 1,196 752 Tax 2008 Quantity Estimate Accrued liabilities for contingencies and taxes and contribution liabilities Probable 1 473 473 Possible 1 35 32 Remote 3 427 – Total 5 935 505 Tax Consolidated 2009 Quantity Estimate Accrued liabilities for contingencies 8,175 256,404 179,306 Possible 12,069 599,811 114,342 Remote 1,484 130,814 12,568 21,728 987,029 306,216 II - Labor Quantity Estimate Accrued liabilities for contingencies Probable 497 54,412 26,614 Possible 315 70,662 13,673 Remote 104 142,533 183 Total 916 267,607 40,470 Quantity Estimate Accrued liabilities for contingencies and taxes and contribution liabilities Probable 142 572,933 572,933 Possible 242 476,008 371,028 Remote 243 816,332 116,062 Total 627 1,865,273 1,060,023 I - Civil and DPVAT Probable Total III - Tax 138 2009 ANnual REPORT 2009 RESULTS Consolidated 2008 Quantity Estimate Accrued liabilities for contingencies Probable 7,149 217,671 157,286 Possible 11,754 514,024 152,187 Remote 1,632 117,005 13,741 20,535 848,700 323,214 II - Labor Quantity Estimate Accrued liabilities for contingencies Probable 403 34,877 13,647 Possible 581 102,432 26,261 Remote 141 149,217 534 1,125 286,526 40,442 Quantity Estimate Accrued liabilities for contingencies and taxes and contribution liabilities Probable 295 335,374 335,374 Possible 132 589,285 496,390 Remote 127 743,187 87,336 Total 554 1,667,846 919,100 I - Civil and DPVAT Total Total III - Tax (16.2) ROLL FORWARD OF PROVISIONS FOR RELEVANT CONTINGENCIES Consolidated Balances as of December 31, 2008 Additions Monetary variation and interest Write-offs Balances as of December 31, 2009 322,253 77,121 (16,902) (77,276) 305,196 172,385 3,691 4,039 (5,679) 174,436 398,462 52,716 30,684 (1,974) 479,888 Income Tax 72,235 11,711 4,901 (4,015) 84,832 Social Contribution 81,813 29,824 2,294 (11,728) 102,203 80,039 21,656 1,869 (16,513) 87,051 114,166 17,358 4,142 (4,053) 131,613 Civil: Tax: PIS COFINS Other Social securities INSS 139 2009 ANnual REPORT 2009 RESULTS (16.3) TAX LAWSUITS COFINS – Since 1999, the COFINS is due by Brazilian insurance companies, private pension companies and other financial institutions at the rate of 3%. Since then, the indirect subsidiaries Sul América Companhia Nacional de Seguros, Sul América Seguros de Pessoas e Previdência S.A., Sul América Companhia de Seguros Gerais, Sul América Santa Cruz Participações S.A., which operated as insurance company until February 2003, Sul América Seguro Saúde S.A. and Brasilveículos Companhia de Seguros started to challenge in court the constitutionality of the Law that established the payment of this contribution. In December 2006, a partially favorable decision, except for Sul América Seguro Saúde S.A. and Brasilveículos Companhia de Seguros, which decision is pending, was published, rendered by the Federal Supreme Court (STF), accepting the extraordinary appeal filed by the plaintiffs to disregard the expansion of the tax basis on other revenues, although deciding for the constitutionality of the contribution’s collection. These indirect subsidiaries (except for Brasilveículos Companhia de Seguros) have, since then, been paying COFINS on revenues from their insurance and private pension activities, and based on the STF decision, considered final and unappealable on February 12, 2007, made the reversal of the related accrued amounts. On July 27, 2007, the judicial deposits for the portion of the COFINS on revenues from insurance and private pension activities of the aforementioned indirect subsidiaries (except for Sul América Seguro Saúde S.A. and Brasilveículos Companhia de Seguros), in the total amount of R$276,225, were converted into Federal Government income, and the corresponding accruals were written-off. On February 14, 2009, these subsidiaries obtained judicial authorization to survey on the portions of judicial deposits made for other revenues, and in March 2009 they identified the amount of R$129,060. The indirect subsidiary Sul América Seguro Saúde S.A. has been paying COFINS on revenue from its operations, accruing the amount levied on other revenues. The lawyers handling this lawsuit believe that loss is probable in relation to the revenue from insurance activities and remote in relation to other revenues. In October 2005, Brasilveículos Companhia de Seguros obtained a decision by the Federal Regional Court (TRF) of the 2nd Region determining the full payment of the contribution based on gross revenue, so it started to fully deposit and accrue the contribution value, and the lawyers handling this lawsuit believe that loss is probable in relation to revenue of insurance operations and remote in relation to other revenues. With the revocation of the expansion of the tax basis on other revenues, provided for by Law No. 11,941 of May 27, 2009, the indirect subsidiary Sul América Seguro Saúde S.A. no longer accrues the amount related to other revenues. The indirect subsidiary Brasilveículos Companhia de Seguros continues to deposit and accrue the contribution. With the enactment of Law No. 10,684, of May 30, 2003, the insurance and private pension indirect subsidiaries started to challenge in court the constitutionality of the increase in the COFINS rate to 4%, accruing and making a judicial deposit for the difference of 1% on gross revenue. With the STF’s decision to disregard the expansion of the tax basis to other revenues, these subsidiaries stopped to deposit and accrue COFINS on other revenues, making the reversal of R$12,982 provision set up in relation to the expansion of the contribution basis. Sul América Companhia de Seguro Saúde continued to deposit and accrue COFINS on its gross revenue until the revocation of the expansion of the tax basis on other revenues, and from June 2009 it started to deposit and accrue the contribution on the revenue from its insurance operations, no longer depositing and accruing the amount related to other revenues. The lawyers handling these cases believe that loss is probable in relation to the increase of 1% in the rate levied on insurance and private pension revenues. The lawsuits related to COFINS have been accrued according to the Management’s expectation of loss. PIS – The indirect insurance and private pension subsidiaries have been questioning and have made judicial deposits for the PIS contribution, established by Constitutional Amendments Nos. 1/1994, 10/1996 and 17/1997, levied at the rate of 0.75% on gross revenue. The lawyers handling these cases believe that loss is possible. In addition, beginning February 1999, with the enactment of Laws Nos. 9,701/1998 and 9,718/1998, the PIS tax basis was expanded due to the new concept of expanded gross revenue, and its rate was lowered from 0.75% to 0.65%. The indirect insurance and private pension subsidiaries had been accruing and questioning the constitutionality of the expansion of the PIS tax basis and obtained an injunction without requirement of judicial deposits, except for indirect subsidiary Sul América Seguro Saúde S.A. that had been making judicial deposits, and had been paying PIS pursuant to Supplementary Law No. 7/1970. On March 1, 2007, a partially favorable court decision by the Federal Regional Court of the 2nd Region was published, determining the subsidiaries Sul América Companhia Nacional de Seguros, Sul América Santa Cruz Participações S.A., which operated as insurance company until February 2003, Sul América Seguros de Pessoas e Previdência S.A. and Sul América Companhia de Seguros Gerais to pay PIS based on revenues from the sale of goods and/or services, disregarding the expansion of the tax basis to other revenues. As a result, these companies paid R$52,231 in March 2007 of PIS on revenues from insurance and private pension activities for the period from 1999 to 2006. From January 2007, these subsidiaries started to pay PIS on revenues from insurance and private pension activities, while they continue to fully accrue the amounts questioned on other revenues. On June 27, 2007, the decision rendered on March 1, 2007 was considered final and unappealable, and, accordingly, the subsidiaries reversed the liability recognized on other revenues amounting to R$22,978. Sul América Seguro Saúde S.A. started to pay from January 2007 the PIS on its revenue, depositing and accruing amounts on other revenues, and with the enactment of Law No. 11,941/2009, which revoked the expansion of the tax basis on other revenues, from June 2009 it started to deposit and accrue the PIS only on the revenue from its insurance operations. Sul América Companhia de Seguro Saúde obtained a partially favorable decision rendered by a lower court to disregard the expansion of the tax basis on other revenue, although it decided for the taxation of the revenue from its operations. In view of this decision, the company paid on September 30, 2008 the amount of R$59,350 related to 140 2009 ANnual REPORT 2009 RESULTS PIS based on its revenue from insurance operations, accruing the contribution calculated on total revenues, and with the enactment of Law No. 11,941/09, which revoked the expansion of the tax basis on other revenue, from June 2009 it stopped to accrue the contribution on other revenues. The lawyers handling this case believe that loss is probable for the case related to the PIS on revenues from insurance and private pension activities, and remote for the expansion of the tax basis to other revenues. In relation to the indirect subsidiary Brasilveículos Companhia de Seguros, the Federal Regional Court dismissed in October 2005 the lawsuit filed by the subsidiary for obtaining authorization to suspend the payment of PIS based on Law No. 9,718/1998. On July 3, 2006, this subsidiary filed an appeal against this decision, but it was denied, so it is awaiting the decision on the motion for clarification of judgment. The subsidiary has paid PIS on gross revenue. The lawyers handling this case believe that loss is possible. The lawsuits related to PIS have been accrued according to the Management’s expectation of loss. INSS – The indirect insurance and private pension subsidiaries have been questioning and making judicial deposits for the social security contributions on fees paid to medical service providers and insurance brokers established by Supplementary Law No. 84/1996, changed by Law No. 9,876/1999, at the rate of 20%, plus 2.5% based on the understanding that medical and insurance brokerage services are not provided to insurance companies but to policyholders. Therefore, the Companies are not subject to the contribution provided for in item III, article 22 of Law No. 8,212/1991. In April 2008, the Superior Court of Justice judged and rendered a decision in favor of the levy of the social security contribution on fees paid to insurance brokers, established by Supplementary Law No. 84/1996 for the subsidiaries Sul América Companhia Nacional de Seguros and Sul América Companhia de Seguros Gerais. An extraordinary appeal was filed against the decision, which follow up was denied. In this sense, the lawyers informed that an interlocutory appeal will be filed. In relation to the case in connection with Law No. 9,876/99, it is in the appeal court awaiting judgment of the appeal against the decision that disallowed the injunction. In relation to the contribution in connection to the compensation on fees paid to medical service providers, the case is in supreme court, awaiting the decision on the special appeal filed by the National Treasury Attorney General. The amounts are accrued according to the Management’s expectation of loss. The consolidated contingent liability related to brokers was added in 2009 by R$16,291. The lawyers handling these cases believe that loss is remote for the case related to the social security on fees paid to medical service providers and possible for that on fees paid to insurance brokers. In 2005, the dissolved indirect subsidiary Sul América Serviços Médicos S.A. was assessed (tax notice of debt assessment) by the National Institute of Social Security (INSS) in the amount of R$49,680 based on the alleged failure to collect social security contribution on amounts paid to medical service providers related to the period from May 1996 to December 1998. Sul América Serviços Médicos S.A. challenged said tax deficiency notice and presented its defense. In August 2008, the 14th Panel of the Federal Revenue Office for Judgment dismissed the assessment, because of the STF’s understanding that considered unconstitutional the term of 10 years for loss to the entitlement to recoverable taxes. This decision is under appeal at the Second Taxpayers’ Council of the Ministry of Finance, because the total amount of recoverable taxes relief exceeds R$1,000 (one thousand million Reais), and is awaiting decision. The lawyers handling this case believe that loss is remote. Accordingly, the indirect subsidiary’s Management has not recognized accrued liabilities for contingencies related to said challenge. In view of the total split and subsequent merger of indirect subsidiary Sul América Serviços Médicos S.A., the successor of this charge is the indirect subsidiary Sul América Seguro Saúde S.A. In May 2006, Sul América Serviços Médicos S.A. (dissolved by total split) obtained a favorable final and unappealable decision rendered by the Superior Court of Justice on the lawsuit for offsetting credits from social security contribution payments, required by item I, article 22 of Law No. 8,212/1991, on fees paid or credited to executives and independent contractors in the amount of R$14,692. In October of that same year, the subsidiary obtained another favorable decision to offset credits from social security contribution payments, required by item I, article 3 of Law No. 7,787/1989, on the fees of executives and independent contractors, as provided for by Supplementary Law No. 84/1996 in the amount of R$33,574. As a result of the favorable decisions mentioned above, the total monetarily adjusted credits for offset amounting to R$48,266 were recorded under Recoverable Taxes and Contributions. As of December 31, 2009, the balance of said credits, net of offsets, amounting to R$11,123 is recorded in current assets. In 2008, this balance amounts to R$33,351, of which R$18,000 is recorded in current assets and R$15,341 in noncurrent assets. As of June 30, 2008, as previously mentioned, Sul América Serviços Médicos S. A. was totally split and subsequently merged, and this credit was transferred to Sul América Seguro Saúde S.A. The lawsuits related to INSS have been accrued according to the Management’s expectation of loss. IRPJ – From January 1, 1997, social contribution charges are no longer deductible from the income tax basis. In view of this change, the parent company and its indirect subsidiaries applied for and obtained an injunction with judicial deposit, guaranteeing the deductibility of the contribution from income tax basis. The lawyers handling this case believe that loss is probable and those handling the case of the indirect subsidiary Brasilveículos Companhia de Seguros believe that loss is possible. The lawsuits related to IRPJ have been accrued according to the Management’s expectation of loss. CSLL – From January 1997 to December 1998, insurance companies were required to pay social contribution at 18% on taxable income, which was the rate applicable to financial institutions, violating the principle of isonomy. Its indirect subsidiaries that operate insurance obtained an injunction to pay social contribution at 8%, making judicial deposits for the rate difference from the 18% required, and fully recognizing the related accrued liabilities. The lawyers handling this case believe that loss is probable. In addition, with the publication of the Provisional Measure No. 141 2009 ANnual REPORT 2009 RESULTS 413/2008, converted into the Law No. 11,727/2008, the indirect finance, insurance and private pension subsidiaries started to make a provision for the social contribution rate increased by 6% from May 2008, so the rate payable by these subsidiaries changed from 9% to 15%. In relation to this matter, the indirect insurance and private pension subsidiaries and the indirect subsidiary Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. started to challenge the constitutionality of this increase in the rate by applying for an injunction, and accruing and making judicial deposit regarding the challenged amounts. The lawyers handling this case believe that loss is possible. (17) ACCOUNTS PAYABLE Parent Company 2009 2008 – 5,000 Taxes and contribution liabilities - Note (16) 752 505 PAES - Special Plan for Tax Payment in Installments (a) 685 744 199,083 103,954 1,743 1,294 293 5,030 Total 202,556 116,527 Current 201,120 110,272 1,436 6,255 Accrued liabilities with related parties - Brasilveículos Companhia de Seguros Dividends payable - Note (13) Management's Fees - Note (13) Other Non-Current Consolidated Taxes and contribution liabilities - Note (16) PAES - Special Plan for Tax Payment in Installments (a) Dividends and Interest on shareholder's equity payable - Note (13) Profit sharing Other Total Current Non-Current (a) PAES – SPECIAL PLAN FOR TAX PAYMENT IN INSTALLMENTS Law No. 10,684, of May 31, 2003, established the Special Plan for Tax Payment in Installments (PAES) whose purpose was the regularization of credits of the Federal Government arising from legal entities’ debts related to taxes and contributions administered by the Federal Revenue Service, the National Treasury Attorney General and the National Social Security Institute (INSS). On July 31, 2003, the parent company and its subsidiaries Sul América Companhia Nacional de Seguros, Sul América Seguro Saúde S.A., Sul América Companhia de Seguro Saúde, Sul América Investimentos e Participações S.A., Sul América Santa Cruz Participações S.A., Sul América Serviços Médicos S.A., and Sul América Companhia de Seguros Gerais e Executivos S.A. - Administração e Promoção de Seguros joined 2009 2008 902,350 776,000 106,577 136,491 208,430 116,444 32,916 51,358 107,622 88,071 1,357,895 1,168,364 348,983 254,873 1,008,912 913,491 PAES in order to pay amounts related to COFINS, income tax, social contribution on net income, Finsocial (contribution on revenue), CPMF (temporary contribution on banking transactions) and INSS (social security contribution) in installments, which were at the administrative and/or judicial levels. In view of the merger of the indirect subsidiary Sul América Investimentos e Participações S.A., the PAES balance of this company related to CPMF, income tax and social contribution on net income was transferred to its successor, the subsidiary Sul América Santa Cruz Participações S.A. The total amount of the obligations included in PAES was R$253,353 (net of the 50% fine reduction). The program requires payments of said taxes and contributions in up to 180 equal 142 2009 ANnual REPORT 2009 RESULTS and monthly installments, according to the amount and periods provided for in the prevailing legislation, with the final payment due by June 30, 2018, according to the number of months selected, monetarily adjusted according to the LongTerm Interest Rate (TJLP). As of December 31, 2009, the parent company’s and consolidated current liabilities are recorded under Taxes and Contributions Payable in the amounts of R$90 (R$87 in 2008) and R$36,724 (R$35,244 in 2008), respectively; whereas the parent company’s and consolidated noncurrent liabilities are recorded under Accounts Payable in the amounts of R$685 (R$744 in 2008) and R$106,577 (R$136,491 in 2008), respectively. Up to December 31, 2009, the amount of R$502 was paid by the parent company and R$202,954 by its indirect subsidiaries, corresponding to 77 and 78 installments, respectively. (18) SHAREHOLDERS’ EQUITY (18.1) CAPITAL – PARENT COMPANY From the beginning of the program for the repurchase of shares, the Company purchased 729,632 units (729,632 common and 1,459,264 preferred shares) at a weighted average cost without brokerage of R$40.52 (forty Reais and fifty two centavos), the minimum cost amounting to R$14.21 (fourteen Reais and twenty one centavos), and the maximum cost amounting to R$50.44 (fifty Reais and forty four centavos), totaling R$21,622 as of December 31, 2009, recorded under Treasury stocks. The market value of treasury stock types and classes, calculated based on the latest trading price at stock exchange, was R$37,934 on December 31, 2009 (R$2,040 in 2008). (18.3) AUTHORIZED CAPITAL – PARENT COMPANY The Company’s capital can reach up to 150,000,000 of new common and/or preferred shares upon resolution of its Board of Directors that will define the type and class of shares to be issued, the issue price and placement conditions. As of December 31, 2009, fully paid-up capital is represented by 155,371,196 (546,245 in treasury stocks) registered common shares and 125,924,735 (1,092,040 in treasury stocks) registered preferred shares, without par value. In accordance with the parent company’s bylaws, shareholders are entitled to mandatory minimum dividends equivalent to 25% of annual net income, adjusted pursuant to current legislation. (18.4) UNREALIZED EARNINGS RESERVE (18.2) REPURCHASE SHARES (18.5) VALUATION ADJUSTMENTS TO SHAREHOLDER’S EQUITY On October 7, 2008, the Company’s Board of Directors disclosed a material fact informing that it approved the program for the repurchase of up to 1,052,636 certificates of stock - units, representing 1,052,636 common and 2,105,272 preferred shares, corresponding to 3% of the units in free float and approximately 1.1% of total shares issued by the Company on September 29, 2008. On October 7, 2009, the Company’s Board of Directors disclosed another material fact informing that it approved the program for the repurchase of up to 1,046,872 certificates of stock - units, representing 1,046,872 common and 2,093,744 preferred shares, corresponding to 3% of the units in free float and approximately 1.1% of total shares issued by the Company on September 30, 2009. The purchase of units, in both programs, is for holding them in treasury and further using them in the Master Stock Option Plan. In compliance with Law no. 6,404/76, amended by Law No. 10,303/01, the unrealized earnings reserve is set up at the amount of mandatory minimum dividends, pursuant to Article 202 of such Law, which exceed the net income earned for the year. The heading Valuation adjustments to Shareholder’s Equity considers, pursuant to the prevailing legislation, the effects arising from the criteria for recording and valuating marketable securities classified into available-for-sale securities. As of December 31, 2009, the effects related to own securities amounted to a credit of R$11 (credit of R$2,123 in 2008) and a credit of R$1,914 (credit of R$1,901 in 2008) of securities of its indirect subsidiaries, net of the corresponding tax effects. In addition, as mentioned in Note (4.1.2), it also considers the valuation, net of tax effects, arising from the accounting at fair value of derivative financial instruments – swap aimed at hedging the principal of Senior Notes, according to the method for accounting cash flow hedge transactions, amounting to a credit of R$13,727 (credit of R$18,718 in 2008) as described in note (4.1.2). 143 2009 ANnual REPORT 2009 RESULTS (18.6) PROFIT SHARING Parent Company 2009 2008 Net income 419,093 415,641 Recognition of legal reserve (5%) (20,955) (20,782) Net income adjustment (article 202 - Laws 6,404/76 and 10,303/01) 398,138 394,859 99,535 98,715 199,069 103,910 199,069 290,949 Mandatory dividends Proposal dividends Destination: Reserve for business expansion The distribution of earnings shown in the table above was reflected in the financial statements, presupposing its approval at the Annual Shareholders’ Meeting. (19) BREAKDOWN OF CERTAIN STATEMENT OF OPERATION ACCOUNTS (19.1) MAIN BUSINESS LINES As of December 31, earned premiums, claims rate and commissions ratio for the main insurance lines, related to insurance activities of indirect subsidiaries, are as follows: 2009 2008 Earned premiums Claims ratio Commissions ratio Earned premiums Claims ratio Commissions Group health 3,105,376 77.9% 8.1% 2,684,130 72.6% 7.8% Automobile 2,567,401 61.5% 18.3% 2,177,372 64.1% 18.9% Individual health 1,401,054 87.1% 0.9% 1,413,023 83.3% 1.0% 66.1% 17.2% 234,337 62.7% 17.7% Group life 233,671 ratio (19.2) ACQUISITION COSTS – INSURANCE Consolidated Commisions: 2009 2008 (1,104,040) (949,264) 131,066 108,482 31,022 23,238 Change in deffered acquisition costs 63,046 43,140 Other (1,820) (1,995) (880,726) (776,399) On direct premiums and coinsurance accept On direct premiums and coinsurance cancelled and refunded On premiums ceded Total 144 2009 ANnual REPORT 2009 RESULTS (19.3) ADMINISTRATIVE EXPENSES Parent Company 2009 2008 Personnel expenses (a) (6,157) (5,780) Third-party services (4,275) (3,321) (519) (765) (1,085) 4,109 (12,036) (5,757) Location and operation Other Total Consolidated 2009 2008 Personnel expenses (a), (b) (474,578) (469,523) Third-party services (184,060) (173,172) Location and operation (197,277) (184,502) Advertising and publicity (72,559) (67,633) DPVAT's administrative expenses (6,873) (4,326) Other (9,174) (37,755) (944,521) (936,911) Total (a) As of December 31, the parent company’s and consolidated personnel expenses include Management fees, charges and benefits in the amount of R$6,151 (R$4,326 in 2008) and R$82,223 (R$69,320 in 2008), respectively. (b) As of December 31, benefits to employees are represented by the following: Consolidated 2009 2008 Food Voucher and Transportation Voucher (52,324) (50,433) Health and Dental insurance (12,885) (13,348) Training session (5,061) (4,973) Private Pension (6,098) (3,474) Baby Sitter / Daycare Benefit (2,919) (2,842) Other (1,087) (1,168) (80,374) (76,238) Total 145 2009 ANnual REPORT 2009 RESULTS (19.4) OTHER OPERATING INCOME – INSURANCE Consolidated Insurance policy cost recovery Income from housing finance system administration (SFH) Other income from insurance operations Total 2009 2008 136,712 113,145 8,872 10,067 21,032 7,906 166,616 131,118 (19.5) OTHER OPERATING EXPENSES – INSURANCE Consolidated 2009 2008 Insurance operation expenses (92,888) (73,047) Pro-labore (63,284) (57,869) Recognition of civil contingencies and other insurance operation (88,505) (59,818) Technical services (40,872) (37,505) (7,702) (16,492) Reversal of allowance for doubtful accounts (a) 17,734 30,346 Collection expenses (1,777) (3,719) (277,294) (218,104) Insurance management fee Total (a) In 2009, the variation in the line Reversal of Allowance for Doubtful Accounts refers to the cancellation of premiums of the individual and group health insurance by approximately R$14,000. In 2008, the change refers to the reversal of allowance recorded for 2007 to cover expected default and other expenses arising from the collection of retroactive premiums of individual health insurance amounting to R$26,157. (19.6) FINANCIAL INCOME Parent Company 2009 2008 89,761 144,431 11,158 56,834 Income from exclusive investments funds 39,943 12,797 Fixed income securities - government (b) 10,349 6,969 2,378 727 153,589 221,758 Monetary and exchange variation and expenses on loans, financing and swaps (a) Interest on shareholders' equity Other Total Consolidated 2009 2008 Fixed income securities - government (b) 281,754 260,447 Income from exclusive investments funds 343,671 279,838 Monetary and exchange variation and expenses on loans, financing and swaps (a) 90,033 144,519 146 2009 ANnual REPORT 2009 RESULTS Consolidated 2009 2008 Insurance operations 91,353 119,271 Fixed income securities - private 81,550 72,861 Interest and monetary variation on judicial deposits 68,159 74,549 Other 86,545 91,370 1,043,065 1,042,855 Total (a) The line Monetary and exchange variation and expenses on Loans, Financing and Swaps of parent company and consolidated comprise the effects of swap transactions described in Note (14). (b) In 2009, the change in the parent company’s Fixed Income Securities – Government mainly refers to the income from the sale of National Treasury Notes, the parent company’s balance amounting to R$6,608 and the consolidated balance amounting to R$33,338. (19.7) FINANCIAL EXPENSES Parent Company Monetary and exchange variation and expenses on commitments receivable, loans, financing and swaps (a) Other Total 2009 2008 (133,073) (191,968) (3,959) (2,155) (137,032) (194,123) Consolidated 2009 2008 Monetary variation on technical reserve - private pension operations (155,526) (150,896) Monetary and exchange variation and expenses on commitments receivable, loans, financing and swaps (a) (133,630) (193,674) (87,915) (97,718) Insurance operations (59,909) (72,578) Devaluation of investment fund quotas and fixed income securities government and private (23,985) (11,567) Arreas interest (7,887) (8,376) Other (9,721) (11,080) (478,573) (545,889) Monetary variation and interest reserve for claims and claim adjustment expenses, taxes and contributions liabilities and accrued liabilities for contingencies Total (a) The line Monetary and Exchange Variations on Loans, Financing and Swaps of parent company and consolidated comprise the effects of swap transactions described in Note (14). (19.8) INCOME FROM SALE OF INVESTMENTS – PERMANENT ASSETS In 2008, the consolidated Income from Sale of Investments– Permanent Assets amounting to R$180,332 is basically composed of R$177,862, mainly related to the income from the sale by indirect subsidiary Alutrens Participações S.A., on April 25, 2008, of the total investment it held in Telemar Participações S.A. comprising 343,290,112 registered common shares, which represented 10% of voting and total capital. The effect of this transaction on consolidated net income, net of taxes and minority interests, amounts to approximately R$34,000. 147 2009 ANnual REPORT 2009 RESULTS (20) RECONCILIATION OF INCOME TAX AND SOCIAL CONTRIBUTION Income tax and social contribution, calculated based on statutory rates, are reconciled to the amounts recorded in the statements of income, as follows: Parent Company Consolidated 2009 2009 2009 2009 Income tax Social contribution Income tax Social contribution 438,167 438,167 620,402 620,402 (109,542) (39,435) (155,101) (83,378) (1) – (6,831) – – – (35) (446) (2) (1) (276) – (4,037) (1,453) (7,674) (3,460) Loss on investment abroad – – (461) (275) Exchange variation - abroad invest (expenses) – – (468) (275) Other – – – (1,256) 106,014 38,165 – – – – 8,760 5,100 1,468 528 1,467 528 – – – 769 1,124 395 7,403 1,341 (4,976) (1,801) (153,216) (81,352) A - Recognition of tax credits and debts (896) (243) 56,066 48,738 Income tax and social contribution expenses recorded in the statements of income (5,872) (2,044) (97,150) (32,614) Income before provision for income tax/ social contribution and profit sharing Income tax and social contribution expenses at statutory rates - 25%, 9% and 15% Additions: Accrued liabilities for contingencies and taxes and contributions liabilities Allowance for doubtful account Non-deductible provisions Non-deductible expenses Dedutions: Equity in subsidiaries and associated companies Profit sharing charges Capital gains Interest on shareholders' equity Other Current income tax and social contribution expenses Parent Company Consolidated 2008 2008 2008 2008 Income tax Social contribution Income tax Social contribution Income before provision for income tax/ social contribution and profit sharing 469,555 469,555 805,429 805,429 Income tax and social contribution expenses at statutory rates - 25%, 9% and 15% (117,389) (42,260) (201,357) (93,398) 148 2009 ANnual REPORT 2009 RESULTS Parent Company Consolidated 2008 2008 2008 2008 Income tax Social contribution Income tax Social contribution Accrued liabilities for contingencies and taxes and contributions liabilities 1 – (5,984) – Allowance for doubtful account – – (45) (1,150) Alowance for investment losses – – (822) (38) Non-deductible provisions – – (512) (386) Non-deductible expenses – – (1,450) (331) (129) – (6,109) – – – (987) (1,365) (948) (350) – (1,342) 114,715 41,297 2,132 770 – – – 871 Reversal of non-deductible expenses 3,592 1,399 – – Judicial deposits monetary variation – – 259 156 Exchange variation - abroad invest income – – 531 307 Profit sharing charges – – 11,747 6,615 Interest on shareholders' equity – – 5,459 680 Current income tax and social contribution expenses (158) 86 (197,138) (88,611) A - Recognition of tax credits and debts 2,331 661 35,815 38,008 Income tax and social contribution expenses recorded in the statements of income 2,173 747 (161,323) (50,603) Additions: Goodwill amortization Loss on investment abroad Other Dedutions: Equity in subsidiaries Reversal of accrued liabilities for contingencies and taxes and contributions liabilities (21) POST-EMPLOYMENT BENEFITS The Management of certain direct and indirect subsidiaries identified the following post-employment benefits: (a) Private Pension Benefits The private pension benefits that used to be granted to employees, up to 60% of average compensation for the last 36 months, adjusted, in proportion to the number of years worked for the companies, limited to 35 years, net of the government pension benefit. The former plan was terminated and replaced in the second half of 2004 by a defined contribution private pension, through the Plan that Generates Free Benefits (PGBL), purchased from Sul América Seguros de Pessoas e Previdência S.A. Due to the aforementioned change, actuarial liabilities were totally reversed against actuarial assets, and only the actuarial credit remains, in the amount of R$28,620, related to past contributions from employees who are no longer employed in the companies, and will be used to cover future contributions; (b) Single-Life Annuity A benefit granted to a selected group of employees upon retirement, under which income benefits are paid for the life of the participant with no benefit payable to his/her dependants after the participant’s death; (c) Indemnity to Executives Program A benefit offered to a selected group of employees upon retirement, which in 2003 underwent the following changes: • The number of participants decreased, and this event was reflected in income as established by NPC No. 26, of the IBRACON, approved by CVM Resolution No. 371; • The calculation and eligibility for indemnity were changed. Certain indirect subsidiaries granted to their executives a defined contribution private pension plan through PGBL, 149 2009 ANnual REPORT 2009 RESULTS purchased from Sul América Seguros de Pessoas e Previdência S.A. Said benefit guarantees an individually calculated amount, in which past service provided to certain direct and indirect subsidiaries was recognized until the date the new plan was implemented. The amount of the past benefit, calculated on the plan’s implementation date, will be adjusted through the retirement date according to the return on the investments of the PGBL. five-year period beginning January 1, 2002, and actuarial gains/ losses are being amortized over the average remaining years of work estimated for employees participating in the plan. The recognized amount of actuarial gains or losses will correspond to the portion of gain or loss that exceeds the highest of 10% of the present value of the actuarial obligations and 10% of the fair value of the plan’s assets, in accordance with item 53 of said standard. (21.1) ACCOUNTING POLICY ADOPTED FOR RECOGNITION OF ACTUARIAL SURPLUS/DEFICIT (21.2) RESULTS OF ACTUARIAL VALUATION According to IBRACON Accounting Standard and Procedure (NPC) No. 26, certain indirect subsidiaries elected to record the plan actuarial liabilities as of December 31, 2001 in income over a We describe below the assets/ (liabilities) and the total expenses recognized in the indirect subsidiaries’ financial statements, by benefit granted: Consolidated Reconciliation of assets/(liabilities) to be recognized Single-life annuity Indemnity to executives program Total 2009 2008 2009 2008 Present value of actuarial obligations, totally uncovered (11,415) (10,785) (14,631) (9,588) Net value of (gains) losses not recognized in the balance sheet 6,622 6,458 3,735 (649) 10,357 5,809 Cost of past service not yet recognized in the balance sheet – – 997 1,649 997 1,649 (4,793) (4,327) (9,899) (8,588) (14,692) (12,915) Assets/(liabilities) to be recognized in the balance sheet 2009 (26,046) 2008 (20,373) Consolidated Single-life annuity Indemnity to executives program Total 2010 2009 2010 2009 2010 2009 (4,793) (4,327) (9,899) (8,588) (14,692) (12,915) (1,228) (1,102) (1,188) (659) (2,416) (1,761) (711) (641) (439) – (1,150) (641) Amortization of cost of past service – – (652) (652) (652) (652) Contributions made in the year – 1,277 – – – 1,277 (6,732) (4,793) (12,178) (9,899) (18,910) (14,692) Actuarial liabilities to be recorded/ recorded at beginning of year – Accounts payable Expenses to be recognized/recognized in the year: (a) Cost of interest Amortization of actuarial (gains) losses Actuarial liabilities to be recorded/ recorded at end of year – Accounts payable (a) For the year ended December 31, 2009, the amounts related to actuarial valuation expenses were recorded under Administrative Expenses. 150 2009 ANnual REPORT 2009 RESULTS (21.3) ACTUARIAL ASSUMPTIONS Assumptions used for valuations prepared by the internal actuaries were as follows: Economic valuation method: Actuarial liabilities were determined under the Projected unit Credit Method. Economic hypothesis 2009/2008 Nominal discount rate 10.98% p.a. / 10.98% p.a. Expected nominal rate of return on plan assets Not applicable / Not applicable Nominal future salary increase rate Not applicable / Not applicable Growth in social insurance and limits 4.7% p.a. / 4.7% p.a. Inflation 4.7% p.a. / 4.7% p.a. Capacity factors: - salaries Not applicable / Not applicable - benefits 1/1 Demographic hypothesis 2009/2008 Mortality table AT2000/ AT2000 Mortality table of individuals with disability RRB 1944/ RRB 1944 Table of disability benefit vesting RRB 1944/ RRB 1944 Turnover Table SulAmérica Experience Percentage of active participants married upon retirement Not applicable / Not applicable Age difference between participants and spouses Not applicable / Not applicable The discount rate used by the Companies is that usually adopted in the market. (22) OTHER INFORMATION (22.1) INSURANCE It is the direct and indirect subsidiaries’ policy to maintain insurance coverage for property and equipment items subject to risks and at amounts considered sufficient to cover possible losses, considering the nature of their activities. Items Properties Vehicles Insurance coverage Coverage amount 2009 2008 Material damages to properties, machinery and equipment 173,865 102,417 Fire, robbery and collision 684 484 174,549 102,901 Total The coverage risk of the aforementioned assets was ceded to IRB Brasil Resseguros S.A. 151 2009 ANnual REPORT 2009 RESULTS (22.2) OPERATIONS RELATED TO THE MANAGEMENT OF THIRD-PARTY FUNDS AND INVESTMENT FUNDS As of December 31, net equities of investment funds and portfolios managed by the indirect subsidiary Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. totaled R$17,514,873 (R$14,889,831 in 2008), of which R$12,786,250 (R$10,698,770 in 2008) is from institutional clients (pension funds and companies), external distributors and private clients. (22.3) ESTABLISHMENT OF THE FISCAL COUNCIL On March 31, 2009, at the Extraordinary Shareholders’ Meeting, shareholders approved the establishment of the parent company’s Fiscal Council for 2009 and the election of its members. (22.4) MATERIAL FACT On October 6, 2009, the Company disclosed a Material Fact in compliance with the provisions of Article 157, paragraph 4, of Law No. 6,404/76, and the CVM Instruction No. 358/02, informing its shareholders and the market that on that same date it received a letter from Banco do Brasil S.A., expressing its interest in purchasing the total interest in subsidiary Brasilveículos Companhia de Seguros (“Brasilveículos”), in which SulAmérica holds 60% of voting capital and 30% of total capital. Since then they have been negotiating with the intention of selling such interest and control held by the Company. By the publication date of the financial statements it was not possible to complete the sale and terminate activities. In February 2010 the Company submitted to Banco do Brasil a proposal for the purchase of total shares of Brasilsaúde Companhia de Seguros (“Brasilsaúde”), in which the Company holds 50.05% interest in total and voting capital. By the publication date of financial statements it was not possible to conclude the negotiations. (22.5) RETROACTIVE COLLECTION OF PREMIUMS OF THE INDIVIDUAL HEALTH INSURANCE On December 20, 2004, the indirect subsidiary Sul América Companhia de Seguro Saúde entered into Commitment Letter No. 002/2004 with the National Supplementary Health Plan Agency (ANS), with the participation of the Secretariat of Economic Rights of the Ministry of Justice, which established, among others, the premium adjustment methodology for and commitment to calculate and adjust the premiums of the portfolio of individual health insurance contracts issued by January 1, 1999 and not adapted to Law No. 9,656/1998 with the purpose of restoring their respective economic and financial balance. In compliance with said Commitment Letter, the ANS authorized, on June 16, 2005, a 26.10% adjustment to the premium of said contracts beginning July 1, 2005. However, this adjustment was questioned in court by third parties. In July 2005, the Department for Consumer Protection and Defense (Procon) of Feira de Santana filed a Public Civil Action against the indirect subsidiary with the First Lower Court of Consumer Defense of Salvador, State of Bahia, so that the defendant refrain from charging customers with whom it entered into a contract before the Law No. 9,656/1998 became effective, relating to any value above 11.69%, regarding the adjustment of 2005. On July 21, 2005, an injunction limited the adjustment for this period to 11.69%. In October 2009, the State Courts of Salvador ruled that it was outside its jurisdiction and sent the records to the 12nd Federal Court of Rio de Janeiro. On November 30, 2009, the 12nd Federal Lower Court of Rio de Janeiro revoked the injunction that impeded the application of an increase above 11.69% set forth in the Law, applicable to contracts before the Law No. 9,656/1998. From January 2010, insureds, who were still participating, were informed about and received the charge of the retroactive portion, which amounts to approximately R$82,000 having four payment options, without monetary adjustments, as follows: (i) cash payment with 40% of discount, (ii) payment in two installments with 30% of discount, (iii) payment in six installments with 10% of discount, and (iv) payment in twelve installments, without discount and mandatory to all insureds that did not opt for any of the above options. This decision may have an impact on other preliminary injunction in the State Courts of Rio de Janeiro so that it may also be amended, resulting in the acknowledgement of the regulatory power of the ANS and in the confirmation that said adjustment of 26.10% is legal. (22.6) MINIMUM AND ADDITIONAL CAPITAL/SOLVENCY MARGIN The indirect subsidiaries that have insurance and private pension operations shall follow the specific rules on minimum and additional capital for companies which are under SUSEP’s regulation, and solvency margin for those under ANS’s regulation. As of December 31, 2009, the indirect subsidiaries that have insurance operations are in compliance with the provisions of SUSEP and ANS. (23) SUBSEQUENTS EVENTS (23.1) UPDATE OF MEDICAL PROCEDURES RELEASED BY ANS On January 12, 2010, ANS issued the Regulatory Resolution No. 211, which updates the List of Covered Healthcare Procedures and Events, introducing new services for policies sold from January 1, 1999. This Resolution will only enter into effect on June 7, 2010. The Management of indirect subsidiaries that operate the health insurance is still evaluation the effects that such change could produce. (23.2) CHANGE IN THE BRAZILIAN ACCOUNTING PRACTICES With the introduction of Law No. 11,638/07, which updated the Brazilian corporate legislation in order to enable the convergence of the accounting practices adopted in Brazil and those of the International Financial Reporting Standards (IFRS), new accounting standards and technical pronouncements have been issued in accordance with the international accounting standards by the Committee of Accounting Pronouncements (CPC), applicable to the periods subsequent to these financial statements. The main changes that may affect the financial statements of the Company and its subsidiaries are as follows: 152 2009 ANnual REPORT 2009 RESULTS a) CPC 11 – Insurance contracts, approved by CVM Resolution No. 563/2008. The main changes are as follows: • Requirement of classification of contracts issued into insurance, service and investment contracts; • Requirement of separation of derivatives included in and deposit items existing in a main contract (of insurance), and its valuation at their fair values; • Prohibition of recognizing reserves for future claims, if these claims are originated from insurance contracts not in force (such as reserves for catastrophes or equalization of risk); • Requirement of annual test of liability related to insurance contract or discretionary participation (LAT – Liability Adequacy Test); • Valuation at fair value of liabilities and assets of insurance contracts taken up in a business combination or portfolio transfer (subject to additional regulation); • Permission to recognize the characteristic of the discretionary participation as liability or separate item of Shareholders’ Equity; and • New requirements of disclosures related to insurance contracts. As these changes have been recently introduced and some of them still depend on regulation by certain authorities, the Management of indirect subsidiaries has not concluded yet the effects that such changes could have on its quarterly information and income for the following years. b) CPC 23 – Accounting policies, changes to estimates and ratification of errors, approved by CVM Resolution No. 592/2009. As these changes have been recently introduced and some of them still depend on analysis and decision making by indirect subsidiaries that operate insurance lines to be made, the Management has not concluded yet the effects that such changes could have on its financial statements and income for the following years. c) CPC 32 – Taxes on income, approved by CVM Resolution No.599/2009. The main modification is related to the determination of the realizable value of recoverable taxes and contributions that, according to the CVM rules, used to be estimated based on future results determined in budgets prepared for the next 10 years, discounted to present value at the estimated future SELIC rate. As established by such CPC rule, deferred tax assets and liabilities shall not be discounted to present value. As mentioned in Note (7.1.2) – Other recoverable taxes and contributions, the estimate resulting from the application of this pronouncement, in case the recoverable tax would be accounted for its face value, would be an addition of R$23,674 to the consolidated balance at December 31, 2009. (23.3) SOLVENCY MARGIN AND MINIMUM ADJUSTED SHAREHOLDERS’ EQUITY / TECHNICAL RESERVES AND PREMIUMS ANS issued on December 2, 2009 the Resolution No. 209, and on December 28, 2009 the Regulatory Instruction No. 38, which provide for the new rule of solvency margin and minimum adjusted shareholders’ equity that will enter into effect on January 1, 2010. These rules revoke the Regulatory Resolution No. 14, of October 24, 2002, the Collegiate Board Resolution (RDC) No. 65 of April 6, 2001, the Regulatory Resolution (RN) No. 57 of December 17, 2003, the Regulatory Instruction (IN)/Office of Rules and Qualification of Health Insurance Operators (DIOPE) No. 17 of August 25, 2008 and IN/DIOPE No. 35 of October 6, 2009. In relation to the change to the calculation of the solvency margin and the minimum adjusted shareholders’ equity, the health insurance companies shall add and deduct new adjustments due to economic effects. The adoption of such change, in case it was applied as of December 31, 2009, by indirect subsidiaries that operate health insurance, is not expected to give rise to an additional need of contribution to capital for fulfilling the solvency margin. (23.4) CONCLUSION OF FINANCIAL STATEMENTS At the Board of Directors’ Meeting held on February 22, 2010, the Board approved these financial statements, which includes in the Note of Subsequent Events all the events occurred after the closing of the year ended December 31, 2009. 153 2009 ANnual REPORT Opinion of fiscal council SUL AMÉRICA S.A. Authorized Capital Corporation OPINION OF FISCAL COUNCIL The Fiscal Council of Sul América S.A., exercising its vested legal and statutory duties, examined the Management Report and Financial Statements and other statements prepared by the Company for the year ended December 31, 2009. Based on the examination of these documents, on the report of the independent accountants Deloitte Touche Tohmatsu, which issued an unqualified opinion, and the clarifications provided by the Company’s management, the undersigned Fiscal Council members have the opinion that the aforementioned documents fairly present the ownership structure and financial position of the Company, and concluded, as provided for in Article 163 of Law No. 6,404/76 (as amended), to submit such documents for approval of the Company’s shareholders at the Annual Shareholders’ Meeting that will be held on March 31, 2010. Rio de Janeiro, February 22, 2010. Domingos Carelli Netto Jorge Augusto Hirs Saab Nelson Braune Sergio Alfredo Diuana Walter Iorio 154 2009 ANnual REPORT Auditors’ Report INDEPENDENT AUDITORS’ REPORT To the Shareholders and Management of Sul América S.A. Rio de Janeiro – RJ 1. We have audited the accompanying individual (Company) and consolidated balance sheets of Sul América S.A. (the “Company”) and subsidiaries as of December 31, 2009 and 2008, and the related statements of income, changes in shareholders’ equity (Company), cash flows, and value added for the year then ended, all expressed in Brazilian reais and prepared under the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements. We have not audited the financial statements of the indirect subsidiaries Brasilveículos Companhia de Seguros and Brasilsaúde Companhia de Seguros for the year ended December 31, 2009 and 2008, whose assets represented 15.01% (14.79% in 2008) of the total consolidated assets, insurance premiums represented 18.50% (17.36% in 2008) of the consolidated insurance premiums, and equity gains in subsidiaries totaled R$14,224 thousand (R$54,965 thousand in 2008). These financial statements were audited by other independent auditors, and our report thereon, insofar as it relates to the amounts of assets, liabilities and income of these subsidiaries, is based solely on the report of those auditors. 2. Our audit was conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Company and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed; and (c) evaluating the significant accounting practices and estimates adopted by Management, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, based on our audits and the report of other independent auditors, the financial statements referred to in paragraph 1 present fairly, in all material respects, the individual and consolidated financial positions of Sul América S.A and subsidiaries as of December 31, 2009 and 2008, and the results of their operations, the changes in their shareholders’ equity (Company), their cash flows and the values added in operations for the year then ended, in conformity with Brazilian accounting practices. 4. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil. Rio de Janeiro, February 23, 2010 DELOITTE TOUCHE TOHMATSU Auditores Independentes José Barbosa da Silva Júnior Engagement Partner 155 2009 ANnual REPORT Corporate information BOARD OF DIRECTORS Patrick Antonio Claude de Larragoiti Lucas (Chairman) Robert William Crispin (Vice-Chairman) Carlos Jaime Muriel Gaxiola Isabelle Rose Marie de Segur Lamoignon Joaquim de Mello Magalhães Júnior Jorge Hilário Gouvêa Vieira Rony Castro de Oliveira Lyrio Pierre Claude Perrenoud (Independent Member) Roberto Teixeira da Costa (Independent Member) ADVISORY COMMITTEES Audit Committee Rony Castro de Oliveira Lyrio (President) Jorge Augusto Hirs Saab Jorge Hilário Gouvêa Vieira Roberto Teixeira da Costa Timothy Scott Mackenzie Walter Iorio Compensation Committee Patrick Antonio Claude de Larragoiti Lucas (President) Carlos Jaime Muriel Gaxiola Roberto Teixeira da Costa Rony Castro de Oliveira Lyrio Investment Committee Patrick Antonio Claude de Larragoiti Lucas (President) Carlos Infante Santos de Castro Domingos Carelli Netto Eric H. Anderson Kevin Martins da Silva Governance and Disclosure Committee Patrick Antonio Claude de Larragoiti Lucas (President) Arthur Farme d’Amoed Neto Kevin Martins da Silva Roberto Teixeira da Costa Sergio Antonio Borriello FISCAL COUNCIL Domingos Carelli Neto Jorge Augusto Hirs Saab Nelson Braune Sérgio Alfredo Diuana Walter Iorio BOARD OF EXECUTIVE OFFICERS Patrick Antonio Claude de Larragoiti Lucas (Chief Executive Officer) Arthur Farme d’Amoed Neto (Vice-President) Carlos Alberto de Figueiredo Trindade Filho (Vice-President) Gabriel Portella Fagundes Filho (Vice-President) Luís Otávio Saliba Furtado (Vice-President) Marcelo Pimentel Mello (Vice-President) Marcus Vinicius Lopes Martins (Vice-President) Maria Helena Cardoso Monteiro (Vice-President) Oswaldo Mário Pêgo de Amorim Azevedo (Vice-President) Renato Russo (Vice-President) Sérgio Antônio Borriello (Vice-President) Alexandre Petrone Vilardi (Executive Officer) Anderson Lima de Mello (Executive Officer) Bruno Peixoto de Alencar Sardinha (Executive Officer) Carlos Alexandre Baldaque Guimarães (Executive Officer) Carlos Gabriel Prezensky (Executive Officer) Carolina de Molla (Executive Officer) Edison Yoshiharu Kinoshita (Executive Officer) Emil Andery (Executive Officer) Enio Tetsuo Fukai (Executive Officer) Jorge Manuel Euclides Noronha (Executive Officer) José Carlos dos Santos Vieira (Executive Officer) José Henrique Pimentel de Melo (Executive Officer) Laênio Pereira dos Santos (Executive Officer) Luciano Macedo de Lima (Executive Officer) Luiz Fernando Ract Camps (Executive Officer) Manoel Roberto Gottsfritz Cardoso (Executive Officer) Marcelo Benevides Xavier (Executive Officer) Marcelo Saddi Castro (Executive Officer) Marco Antonio Antunes da Silva (Executive Officer) Roberto André Galfi (Executive Officer) Roberto Carlos Marucco Junior (Executive Officer) MAIN COMPANIES AND ACTIVITIES Companies Sul América S.A. Main activity Holding Sul América Companhia Nacional de Seguros Insurance Sul América Seguros de Pessoas e Previdência S.A. Insurance Sul América Companhia de Seguro Saúde Insurance Sul América Companhia de Seguros Gerais Insurance Sul América Seguro Saúde S.A. Insurance Sul América Investimentos Distribuidora de Títulos e Valores Mobiliários S.A. Sul América Serviços de Saúde S.A. Asset Management ASO 156 2009 ANnual REPORT CORPORATE INFORMATION C.A.S.A.s & Branch addresses Auto Super-Service Center - C.A.S.A. Branch ADDRESSES [GRI 2.4] HEADQUARTERS – SULAMÉRICA Rua Beatriz Larragoiti, 121 Cidade Nova – Rio de Janeiro – RJ Phone: +55 (21) 2506-8585 BRANCH OFFICES BELÉM Rua Santo Antônio, 316 – 11th and 12th floors, Centro – Belém – PA Phone: +55 (91) 3216-2500 BELO HORIZONTE Rua Ouro Preto, 1112, 5th floor, Sector 1 Santo Agostinho – Belo Horizonte – MG Phone: +55 (31) 3348-9000 BLUMENAU Rua Nereu Ramos, 463, Centro – Blumenau – SC Phone: +55 (47) 2102-7500 BRASÍLIA Setor Comercial Norte - Quadra 3 - Bloco B, 120 Asa Norte – Brasília – DF Phone: +55 (61) 4009-6700 CAMPINAS Avenida Barão de Itapura, 1128, 2th floor Guanabara – Campinas – SP Phone: +55 (19) 3734-6800 CUIABÁ Av. Rubens de Mendonça, 2000 Bosque da Saúde – Cuiabá – MT Phone: +55 (65) 4009-2000 CURITIBA Travessa Alfredo Bufren, 155 – stores 1 to 10 Centro – Curitiba – PR (41) 2108-2255 FORTALEZA Av. Santos Dumont, 1058, Aldeota – Fortaleza – CE Phone: +55 (85) 3455-3200 PORTO ALEGRE Rua Sete de Setembro, 760 térreo, 1th e 4th ao 8th floor Centro – Porto Alegre – RS Phone: +55 (51) 2108-8200 157 2009 ANnual REPORT CORPORATE INFORMATION SALVADOR Av. Antonio Carlos Magalhães, 3359, Condomínio Torre do Iguatemi, store 1 Parque Bela Vista – Salvador – BA Phone: +55 (71) 3503-6650 RECIFE Av. Eng. Domingos Ferreira, 467 Pina – Recife – PE Phone: +55 (81) 3447-6600 RIBEIRÃO PRETO Avenida Portugal, 545, 2th floor, Vila Seixas – Ribeirão Preto – SP Phone: +55 (16) 3605-8585 SÃO PAULO Rua Pedro Avancine, 73, 6th, 7th and 8th floor Jardim Panorama – São Paulo – SP Phone: +55 (11) 3779-5000 / +55 (11) 3779-7000 RIO DE JANEIRO Rua Beatriz Larragoiti, 121 Cidade Nova – Rio de Janeiro – RJ Phone: +55 (21) 2506-8585 Auto Super-Service Center - C.A.S.A. 1 ABC Av. Dom Pedro ll, 759 – Jd. Santo André, CEP: 09090-230 2 Barra-RJ Av. das Américas, 500, bloco 11, Subsolo, Barra da Tijuca/RJ 3 Belo Horizonte Av. Nossa Senhora do Carmo, 261 e 277, Sion, Belo Horizonte/MG 4 Blumenau Rua Sebastião Cruz, 103, Jardim Blumenau/SC 5 Campinas Rua Nuporanga, 454, Chácara da Barra, Campinas/SP, CEP: 13090-713 6 Caxias do Sul Rua Ernesto Alves, 1118, Centro, Caxias do Sul/RS, CEP: 95020-360 7 Curitiba Rua Pasteur, 529 e 547, Batel, Curitiba/PR 8 Fortaleza Av. Santos Dumont, 1450, Aldeota, Fortaleza/CE 9 Manaus Av. Getúlio Vargas, 1065, Centro, Manaus/AM, CEP: 69020-011 10 Porto Alegre Rua Edu Chaves, 500, São João, Porto Alegre/RJ, CEP: 90240-620 11 Ribeirão Preto Rua Joaquim Antonio Nascimento, 2693, Jardim Canadá, Ribeirão Preto/SP 12 Rio de Janeiro Rua Beatriz Larragoiti Lucas, 121, Cidade Nova, Rio de Janeiro/RJ 13 Salvador Av. Otavio Mangabeira, 3279, Jardim de Alá, Salvador/Ba, Cep:41.830-050 14 São Paulo Av. dos Bandeirantes, 4860, Planalto Paulista, São Paulo/SP 15 SP-Santana Av. Luiz Dumont Villares, 580, Jardim São Paulo, São Paulo/SP, CEP: 02085-100 16 Uberlândia Av. Governador Rondon Pacheco, 1750, Copacabana, Uberlândia/MG, CEP: 38408-343 17 Rua Gelu Vervloet dos Santos, 928, Jardim Camburi, Vitória/ES Vitória 18 Zona Leste-Aricanduva Av. Aricanduva, 5555, salas 22, 23, 24, 25 e 26, Jardim Santa Terezinha , São Paulo/SP, CEP: 03527-908 158 2009 ANNUAL REPORT About the report Guidelines and criteria for the production of Annual Report 2009 Since it was founded in 1895, SulAmérica has been regularly rendering accounts of its activities to its shareholders, releasing its first Annual Report as soon as 1896. In addition to the traditional publication, with a description of its operational, economic, and financial performance, the company has been publishing its Social Audit since 2002, with an overview of all initiatives in the social and environmental area. In 2009, for the second year running, the SulAmérica Annual Report follows the third generation guidelines (G3) of the Global Reporting Initiative (GRI), an international reference for sustainability reports. [GRI 3.9] The SulAmérica Annual Report aims at meeting readers’ expectations regarding the company’s performance in economic, social and environmental areas. The selection of the information presented in this report was based on the materiality of the topics for the strategic directions adopted by SulAmérica. It endeavors to portray the performance of the company in accurate and clear fashion, having as a reference the recommendations made by capital market institutions, both in adapting the structure of the report and in the organization of its contents. Starting in 2008, the Report has been released exclusively online in the form of a website. The online version allows not only adopting more adroit language, supported by multimedia resources, but also contributes for SulAmérica to reach its goal of reducing environmental impacts in all processes. Its publication is supported by a small printed booklet, which features a brief profile of the company and its main results, inviting the reader to visit and experience the full report version. In addition, the online solution encourages the participation of the reader, with videos, interactive graphics, search engines and other solutions that facilitate browsing and promote interactivity. [GRI 3.2] The topics highlighted in the menus were selected based on their materiality, as measured internally. In line with this, the issues that the company believes to be the most relevant to its stakeholders – customers, brokers, employees, suppliers and community – are presented in convenient menus on every page of the website. For audiences with specific interests, more detailed information is available on the full report menu. The information in this report covers all operations of the company for the period January 1 to December 31 159 2009 ANNUAL REPORT qualidade no atendimento and presents no significant restatements of information disclosed in previous reports. The company’s financial statements have been audited by Deloitte Touche Tohmatsu Independent Auditors. [GRI 3.5, 3.7] The information contained in this report refers to the consolidated operations of Sul América S.A., with headquarters at Rua Beatriz Larragoiti Lucas, 121, Cidade Nova, Rio de Janeiro (RJ), and its direct and indirect affiliated companies. [GRI 3.1, 3.13] For questions, concerns or suggestions, please contact the area of Investor Relations at SulAmérica by email ri@sulamerica. com.br or by telephone +55 (21) 2506-9111. Additional corporate information is available at www.sulamerica.com.br/ri. [GRI 3.4] CONTACT POINT FOR QUESTIONS REGARDING THE REPORT OR ITS CONTENTS INVESTOR RELATIONS Arthur Farme d’Amoed Neto (Executive vice-President of Corporate and Investor Relations) Phone: +55 (21) 2506-8442 Fax: +55 (21) 2506-9111 Rua Beatriz Larragoiti Lucas, 121- 6th floor - Cidade Nova 20211-903, Rio de Janeiro Talk to IR: [email protected] www.sulamerica.com.br STOCK EXCHANGE BM&FBovespa: SULA11 EXTERNAL AUDIT Deloitte Touche Tohmatsu Av. Presidente Wilson, 231 - 22 floor 20030-021, Rio de Janeiro Phone: +55 (21) 3981-0500 Fax: +55 (21) 3981-0600 www.deloitte.com.br FINANCIAL STATEMENTS PUBLISHED IN NEWSPAPERS Valor Econômico – Caderno Nacional [Economic Value - National Edition] Diário Oficial do Estado do Rio de Janeiro [Official Gazette of Rio de Janeiro State] CUSTODIAN FINANCIAL INSTITUTION Banco Itaú S.A. Praça Alfredo de Souza Aranha, 100 Jabaquara 04344-902, São Paulo Phone: +55 (11) 5029-1919 Fax: +55 (11) 5029-1917 160 2009 ANNUAL REPORT GRI Index PROFILE INDICATOR page / Chapter 1.Strategy and analysis 1.1. Statement from the most senior decision maker. 21 - Message from the President 1.2. Description of key impacts, risks, and opportunities. 21 - Message from the President 2.Organizational profile 25 - Sustainability vision 2.1. Name of the organization. 4 - About SulAmérica 2.2. Primary brands, products, and/or services. 4 - About SulAmérica 2.3. Operational structure. 5 - About SulAmérica 2.4. Location of organization’s headquarters. 157 – Corporate information 2.5. Countries where the organization operates. 4 - About SulAmérica 2.6. Nature of ownership and legal form. 4 - About SulAmérica 2.7. Markets served. 42 - Business market 2.8. Scale of the reporting organization 4 - About SulAmérica 2.9. Significant changes during the reporting period. 2.10. Awards received in the reporting period. 61 - Human capital 14 - Awards and recognitions 3.Report parameters Report profile 3.1. Reporting period for information provided. 159 - About the report 3.2. Date of most recent previous report. 9 160 - About the report 3.3. Reporting cycle. 9 159 - About the report 3.4. Contact point for questions. 159 - About the report Report scope and boundary 3.5. Process for defining report content 159 - About the report 3.6. Boundary of the report. 160 - About the report 3.7. Specific limitations on the scope. 159 - About the report 3.8. Basis for reporting. 159 - About the report 161 2009 ANNUAL REPORT GRI Index PROFILE INDICATOR page / Chapter 3.9. Data measurement techniques and the bases of calculations. 160 - About the report 3.10. Explanation of the effect of any re-statements. 159 - About the report 3.11. Significant changes from previous reporting periods. 159 - About the report GRI content index 3.12. Location of standard disclosures. 161 to 166 - About the report Assurance 3.13. External assurance. 160 - About the report 4. Governança, compromissos e engajamento 4. Governance 30 e 31 - Corporate governance 4.1. Governance structure. 31 - Corporate governance 4.2 Indication whether the Chair of the highest governance body is also an executive officer. 31 - Corporate governance 4.3. Statement of the number of members of the highest governance body that are independent and/or non-executive members 35 a 37 - Corporate governance 4.4. Mechanisms for recommendations to the highest governance body. 34 - Corporate governance 4.5. Linkage between compensation / economic and environmental performance. 29 - Corporate governance 4.6. Processes to ensure conflicts of interest are avoided. 4.7. Qualifications and expertise of the members. 29 to 31 - Corporate governance 6 - Mission, Vision and Values 4.8. Internally developed statements of values, codes, and principles 36 - Corporate governance 4.9. Procedures of the highest governance body. 29 - Corporate governance 39 - Risk Management 29 a 31 - Corporate governance Commitments to external initiatives 4.11. Precautionary approach. 2 25 39 - Risk Management 4.12. Social charters, principles, or other initiatives. 1 23 and 24 26 - Sustainability vision 4.13. Memberships in associations. 26 - Sustainability vision 162 2009 ANNUAL REPORT GRI Index PROFILE INDICATOR page / Chapter Stakeholder engagement 4.14. List of stakeholder groups. 26 - Sustainability vision 4.15. Basis for identification and selection of stakeholders. 26 - Sustainability vision 4.16. Stakeholder engagement. 26 - Sustainability vision 4.17. Key topics and concerns raised through stakeholder engagement. 26 - Sustainability vision PERFORMANCE INDICATORS page / Chapter EC.Economic performance Economic management approach (goals and performance, policy, additional contextual information). EC1. Economic value generated and distributed. EC2. Risks and opportunities due to climate change EC3. Defined benefit plan. 71 - Capital Market 80 - Distribution of added value 40 - Risk Management 59 - Human capital Market presence EC5. Standard entry level wage compared to local minimum wage. 58 - Human capital EC7. Local hiring. 59 - Human capital Indirect economic impacts EC8. Development and impact of infrastructure investments. 66 to 67- Social investment EN.Environmental performance Environmental aspects management approach (goals and performance, policy, 26 e 27 - Sustainability vision 69 - Social investment Energy EN7 Energy use reduction initiatives 69 - Social investment Emissions, effluents, and waste EN18. Initiatives to reduce greenhouse gas emissions 69 - Social investment EN22. Total weight of waste by type and disposal method. 69 – Social Investment 163 2009 ANNUAL REPORT GRI Index PERFORMANCE INDICATORS page / Chapter LA.Social performance – Labor practices and decent work Labor aspects management approach (goals and performance, policy, organizational responsibility, training and awareness, monitoring and follow-up, additional contextual information). 57 - Human capital Employment LA1. Total workforce by employment type and region. 56 to 57 - Human capital LA2. Rate of employee turnover. 58 - Human capital LA3. Benefits provided to employees. 59 - Human capital Labor/Management relations LA4. Collective bargaining agreements. 61 - Human capital LA5. Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements 61 - Human capital Occupational health and safety LA6. Workforce represented in formal health and safety committees. 61 - Human capital LA7. Occupational diseases, lost days, and work related fatalities. 61 - Human capital LA8. Education, counseling and prevention programs regarding serious diseases. 61 - Human capital LA9. Health and safety topics covered in formal agreements with trade unions. 61 - Human capital Training and education LA10. Average hours of training. 59 - Human capital LA11. Programs for skills management and lifelong learning. 60 - Human capital LA12. Performance and career development reviews. 59 - Human capital Diversity and equal opportunity LA13. Composition of governance bodies. 58 - Human capital LA14. Ratio of basic salary of men to women. 58 - Human capital HR.Social performance – Human rights Human rights aspects management approach (goals and performance, policy, organizational responsibility, training and awareness, monitoring and follow-up, additional contextual information). 61 - Human capital Investment and procurement practices HR3. Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained 61 - Human capital 164 2009 ANNUAL REPORT GRI Index PERFORMANCE INDICATORS page / Chapter Freedom of association and collective bargaining HR5. Operations in which the right to exercise freedom of association and collective bargaining may be at risk. 61 - Human capital Child labor HR6. Operations identified as having risk of child labor 61 - Human capital Forced and compulsory labor HR7. Operations identified as having risk of forced or compulsory labor. 61 - Human capital Security practices HR8. Security personnel trained in aspects of human rights. 61 - Human capital SO.Social performance - Society Social aspects management approach (goals and performance, policy, organizational responsibility, training and awareness, monitoring and follow-up, additional contextual information). 66 - Social investment Community SO1. Management of impacts of operations on communities. 66 - Social investment Anti-corruption SO3. Employees trained in anti-corruption policies. 60 - Human capital PR.Social Performance – Product Responsibility Customer health and safety PR1. Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures. The services offered by SulAmérica provide compensation for direct impacts on health and property safety of its customers. The company has developed criteria to monitor the entire lifecycle of products from the creation of policyholder kits and other documentation sent to policyholders to monitoring the safety of the environments to which they are exposed. In 2009, the company reviewed its communication policy and implemented it initially in the segment of auto insurance. The change involved the creation of a policyholder kit containing essential information and directing the customer to the website, where updated information is available. PR2. Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes. (additional) There is no record of an incident concerning the use of promotional materials for products and services. 165 2009 ANNUAL REPORT GRI Index PERFORMANCE INDICATORS page / Chapter Product and service labeling PR3. Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements. PR5. Practices related to customer satisfaction, including results of surveys measuring customer satisfaction. (additional) SulAmérica develops products and services aimed at the safety and satisfaction of its customers and in compliance with the Code of Consumer Rights, and obeying the regulations imposed by regulatory agencies. 64 – Quality Attention Marketing communications PR6. Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship. SulAmérica observes the rules established by the Code of Consumer Rights and the Brazilian Code of Advertising Self-Regulation in the creation of all its pieces and advertising campaigns. To ensure compliance with the law, the SulAmérica marketing team maintains an approval process for all communications presented by its suppliers, together with its legal department. SulAmérica believes that respecting and implementing these guidelines is the most effective and correct way to advertise its products and services. Compliance PR9. Monetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services. In 2009, SulAmérica paid less than 0.05% of its revenues with premiums in fines for noncompliance with laws and regulations concerning the provision and use of products and services. 166 2009 ANNUAL REPORT Credits General coordination and preparation of contents Investor Relations Team: Arthur Farme d’Amoed Neto Executive Vice-President of Corporate and Investor Relations Design, web development, videos and content consultants Report Comunicação Klaus Meirose da Silva Costa Superintendent of Investor Relations and New Businesses Paula Vianna Raffo Investor Relations Manager Flávia Steinberg Investor Relations Consultant Marcelo Fonseca Lopes Investor Relations Consultant Julyana Fonseca Lagoas Investor Relations Trainee 167