interim financial statements with independent auditor´s report statements 2017 (1st...terra brasis...

Terra Brasis Resseguros S.A. Interim Financial Statements as of June 30, 2017 and 2016

Interim Financial Statements with Independent

Auditor´s Report

Terra Brasis Resseguros S.A. June 30, 2017


Terra Brasis Resseguros S.A.

Interim Financial Statements June 30, 2017

Contents:

Management Report ......................................................................................................................... 4

Balance sheets ................................................................................................................................... 10

Income statements ............................................................................................................................. 12

Statements of comprehensive income ........................................................................................... 13

Statements of changes in equity ..................................................................................................... 14

Statements of cash flows - indirect method .................................................................................. 15

Notes to interim financial statements ........................................................................................... 16 1. Operations .............................................................................................................................. 16 2. Preparation and presentation of interim financial statements ....................................... 16 3. Significant accounting practices ......................................................................................... 18 4. Cash and cash equivalents .................................................................................................. 22 5. Investments ............................................................................................................................ 23 6. Receivables (debts) from insurance and reinsurance operations ................................. 26 7. Tax and social security credits ............................................................................................ 28 8. Transactions with Related Parties ...................................................................................... 30 9. Third-party deposits .............................................................................................................. 30 10. Deferred taxes ........................................................................................................................ 30 11. Breakdown of adjusted equity (PLA) and capital requirement ....................................... 31 12. Technical reserves and deferred acquisition costs ......................................................... 32 13. Coverage of technical reserves ........................................................................................... 38 14. Line of Business .................................................................................................................... 38 15. Equity ....................................................................................................................................... 39 16. Risk management policy ...................................................................................................... 40 17. Breakdown of P/L accounts ................................................................................................. 44 17. Breakdown of P/L accounts (continuation) ....................................................................... 45 18. Benefícios a empregados e administradores .................................................................... 46 19. Subsequent events ................................................................................................................ 46

Summary of the Audit Committee Report .................................................................................... 48


Management Report

Dear shareholders,

Pursuant to the legal provision we hereby submit for your attention the financial statements of Terra Brasis Resseguros S.A. for the semester ended June 30, 2017.

The Brazilian Reinsurance Market

Based on public information of Insurance Companies (as per June 2017) disclosed by Brazil´s Private Insurance Supervisory Office (Susep), the volume of reinsurance ceded by Brazilian Insurers, gross of commission and including Policies in force but Not Issued (RVNE), reached R$ 5.4 billion in the first half of 2017, a nominal growth rate of 10% relative to the R$ 4.9 billion for the same period of 2016.

Based on the latest data on Local Reinsurers provided by Susep (for May 2017), nearly 75% of the ceded premium was placed with Local Reinsurers. However, after computing for retrocessions placed abroad, the reinsurance premium volume retained in Brazil accounts for some 45% of the total reinsurance ceded by Brazilian Insurers, while 55% is placed abroad.

Premium Distribution, January to May 2017 Allocation of premium generated in Brazil after retrocession (May 2017)

Source: Susep, Terra Brasis, amounts expressed in Reais billions. Source: Susep, Terra Brasis.

The combined post-tax profit recorded by Local Reinsurers up to May 2017 amounted R$ 398 million, compared to a R$ 338 million posted for the same period of 2016.

A number of Local Reinsurers continue on their internationalization processes, accepting risks originated abroad, notably from Latin America, reaching, from January to May 2017, R$ 1.1 billion of Written Premium, nearly 26% higher than what was obtained in the same period of 2016 and corresponding to more than 26% of the total of R$ 4.3 billion written by them.

Susep’s Circular No. 545/2017, which further clarified certain points of the Resolution No. 325/2015 of Brazil’s National Council for Private Insurance (CNSP), effective as of January 2017, confirmed the gradual return, up to the year 2020, of the main itens of the reinsurance regulation, implemented at the time of the market demonopolization, under the Supplementary Law No. 126/2007 and CNSP Resolution No. 168/2008, notably the Preferential Offer of 40%. Assuming that the practices adopted by the market in 2009 and 2010, which were the causes of the regulatory changes in 2010, will not


be used again, Resolution No. 325/15 will have positive effects on the market, as a stable regulatory environment allows the Brazilian reinsurance industry to focus on its improvement and development.

Corporate and Management Structure

Terra Brasis, with paid-in capital amounting to R$ 113.2 million, is part of Group Brasil Plural and has a qualified investment of the International Finance Corporation (IFC), the financial arm of the World Bank for the private sector.

In addition to its Officers and the Board of Directors, Terra Brasis has the Audit, Investment, Underwriting and Claims Committees, with statutory management support status, also approved by Susep.

The Company has its main place of business in the city of São Paulo and a commercial representation office in Bogota, Colombia.

Business Strategies and Institutional Initiatives

Since the beginning of its operations in November 2012, Terra Brasis continues with its strategy of prudent underwriting with coherent degree of risk and expected returns, thus seeking to progressively increase business volume and return on invested capital.

The Company continues to invest in the development of its professionals with a view to better serve its customers and business partners. The Company also seeks to contribute to the market improvement, by gradually introducing contemporary reinsurance techniques.

In 2017, Terra Brasis continued to offer reinsurance courses to contributors of Insurance Companies, developing studies on the impacts of natural catastrophes in Brazil, enhancing the XTerra, first non-proportional reinsurance pricing tool developed in Brazil and on January 2017 launched the 1st edition of its Terra Report LA, a periodic publication on the latin-american reinsurance market, available to all our clients, partners and colleagues.

In February 2017 Terra Brasis announced, in a partnership with AlphaCat Managers Ltd., a fully-owned subsidiary of Validus Holdings Ltd., the issuance in the international market of the first Insurance Linked Security - ILS - sponsored by a Brazilian company. This innovative deal awakes the discussion over solutions based on capital markets for the region´s exposure.


Terra Brasis remains a member of the Inter-American Federation of Insurance Companies (FIDES), an entity formed by representatives from the insurance markets of the United States, Spain and other sixteen Latin America countries, whose objectives are to support market development, to defend the private enterprise, as well as the ethical and technical standards in all activities related to the industry. Since 2015, Terra Brasis has had representatives in the Reinsurance, Solvency, Regulation, and Financial Education Commissions of FIDES.

Terra Brasis adopts the policy of sustainability in insurance, coherent with the structure procedures of its shareholder, the International Finance Corporation (IFC) and observes on its decision making process awareness of environmental, social and governance issues. In this regard, Terra Brasis was the first Local Reinsurer to sign the Principles for Sustainable Insurance (UNEP FI), a United Nations initiative in partnership with the global insurance industry.

Performance of Operations

With the recognition and support from Insurers and Brokers in the Brazilian market, Terra Brasis’ written premium and earned premium amounted to R$ 57.2 million (41% growth in relation to the same period of 2016) and R$ 51.3 million (13% growth), respectively, in 2017 first semester. Written premium originated from abroad reached R$ 9.6 million, 17% of the company´s total written premium.

Written Premium Earned Premium

Amounts expressed in millions of reais Amounts expressed in millions of reais

After-Taxes Income Equity

Amounts expressed in millions of reais Amounts expressed in millions of reais

8,5

31,3

44,1 40,5

57,2

0

10

20

30

40

50

60

1H13 1H14 1H15 1H16 1H17

2,1

13,1

32,3

45,351,3

0

10

20

30

40

50

60

1H13 1H14 1H15 1H16 1H17

-1,2

0,9 0,9

3,7

1,9

-5,0

-2,5

0,0

2,5

5,0

7,5

10,0

1H13 1H14 1H15 1H16 1H17

97,4 97,599,7

101,1

113,2

95

100

105

110

115

1H13 1H14 1H15 1H16 1H17


Despite the reduction on the loss ratio, the volatility of its values and their distribution, while still reasonable given the portfolio´s size, had influence on the net retained loss ratio for the semester. In conjuction with a smaller financial result, this effect lead to a liquid result for the semester of R$ 1.9 million, inferior to the R$ 3.7 million obtained on the same period of the previous year.

The Sharehoder’s Equity of R$ 113.2 million and the Comprehensive Income Result of R$ 11.3 million were both positively influenced by adjusment of R$ 9.4 million to the value of equity shares on a privately-held entity held as investment by the Company.

Interests on Capital (“Juros sobre Capital Próprio”), amounting R$ 3.9 million, provisioned in December 2016, were paid to the shareholders on February 2017.

A.M. Best, a specialist rating agency for the insurance industry, maintained the B++ global financial strength rating and the bbb global issuer credit rating, with stable outlook. Standard & Poor’s changed the Brazilian scale rating from brA to brA+ and maintained the “stable" outlook.

Acknowledgements

We would like to thank the authorities of the sector, Insurers, Brokers, Retrocessionaires and all our business partners for their trust in the work of management. We would also like to thank our shareholders and employees for their efforts in the ongoing development of Terra Brasis.

São Paulo, August 17, 2017.

Management

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.

KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

KPMG Auditores Independentes

Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A

04711-904 - São Paulo/SP - Brasil

Caixa Postal 79518 - CEP 04707-970 - São Paulo/SP - Brasil

Telefone +55 (11) 3940-1500, Fax +55 (11) 3940-1501

www.kpmg.com.br

Independent auditors' report on the interim financial statements (A free translation of the original report in Portuguese)

To the Board Members and Shareholders of Terra Brasis Resseguros S.A. São Paulo - SP

Opinion We have audited the interim financial statements of Terra Brasis Resseguros S.A. (“the Company”), which comprise the statement of financial position as at June 30, 2017 the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the period then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Terra Brasis Resseguros S.A. as at June 30, 2017, and of its financial performance and its cash flows for the period then ended in accordance with Accounting Practices Adopted in Brazil, applicable to entities regulated by SUSEP (Superintendência de Seguros Privados).

Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Interim Financial Statements section of our report. We are independent of the Company in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics (“Código de Ética Profissional do Contador”) and in the professional standards issued by the Brazilian Federal Accounting Council (“Conselho Federal de Contabilidade”), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other matters - Corresponding amounts of the previous year The Company’s financial statements for the six-month period ended June 30, 2016 and for the year ended December 31, 2016, presented as corresponding amounts in the interim financial statements for the six-month period ended June 30, 2017, were audited by other independent auditors who expressed an unqualified opinion on these financial statements on August 29, 2016 and February 22, 2017, respectively.



Other information accompanying the interim financial statements and the auditor's report Management is responsible for the other information comprising the management report. Our opinion on the interim financial statements does not cover the other information and we do not express any form of assurance conclusion there on.

In connection with our audit of the interim financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the interim financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact.

Responsibility of Management and Those Charged with Governance for the Interim Financial Statements Management is responsible for the preparation and fair presentation of the interim financial statements in accordance with Brazilian accounting practices, applicable to entities regulated by SUSEP and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the interim financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s interim financial reporting process.

Auditors’ Responsibilities for the Audit of the Interim Financial Statements Our objectives are to obtain reasonable assurance about whether the interim financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these interim financial statements.

As part of an audit in accordance with Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the interim financial statements,whether due to fraud or error, design and perform audit procedures responsive to thoserisks, and obtain audit evidence that is sufficient and appropriate to provide a basis for ouropinion. The risk of not detecting a material misstatement resulting from fraud is higherthan for one resulting from error, as fraud may involve collusion, forgery, intentionalomissions, misrepresentations, or the override of internal control.



Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company’sability to continue as a going concern. If we conclude that a material uncertainty exists, weare required to draw attention in our auditors’ report to the related disclosures in theinterim financial statements or, if such disclosures are inadequate, to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditors’report. However, future events or conditions may cause the Company to cease to continueas a going concern.

Evaluate the overall presentation, structure and content of the interim financial statements,including the disclosures, and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding among other matters, theplanned scope and timing of the audit and significant audit findings, including anysignificant deficiencies in internal control that we identify during our audit.

São Paulo, 17 August 2017

KPMG Auditores IndependentesCRC 2SP014428/O-6The original report in Portuguese was signed by Luciene Teixeira MagalhãesAccountant CRC RJ-079849/O-3


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Balance sheets June 30, 2017 and December 31, 2016 (In thousands of reais)

Assets Notes 06/30/2017 12/31/2016

Current assets 241.404 213.238 Cash and Cash equivalents 4 875 5.973 Cash and banks 875 5.973 Investments 5 87.867 70.188 Receivables from insurance and reinsurance operations

6 66.063 49.648

Insurance operations 62.228 44.765 Reinsurance operations 3.835 4.883 Reinsurance and retrocession receivables 12.2 78.681 81.914 Notes and credits receivables 6.125 4.172 Notes and credits receivable 159 344 Tax and social security credits 7.1 5.864 3.807 Other receivables 102 21 Prepaid expenses 129 79 Deferred acquisition costs 12.4 1.664 1.264 Reinsurance 1.664 1.264

Non-current assets 82.540 83.700 Long-term receivables 82.092 83.198 Investments 5 67.636 68.854 Reinsurance and retrocession receivables 12.2 7.662 7.764 Notes and credits receivables 6.597 6.357 Tax and social security credits 7.1 5.868 5.707 Other receivables 729 650 Deferred acquisition costs 12.4 197 223 Reinsurance 197 223 Fixed assets 225 231 Chattels 209 220 Others 16 11 Intangible assets 223 271 Others 223 271 Total assets 323.944 296.938


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Liabilities and Equity Note 06/30/2017 12/31/2016

Current liabilities 197.401 180.049 Accounts payable 9.100 5.215 Liabilities 529 4.358 Taxes and social charges 248 517 Labor charges 483 263 Taxes and contributions 7.840 77 Debts from insurance and reinsurance operations 6 28.987 21.559 Reinsurance operations 27.085 20.244 Insurance and reinsurance brokers 1.902 1.315 Third-party deposits 9 1.291 1.027 Reserves - reinsurance 12.1 158.023 152.248

Noncurrent liabilities 13.392 15.008 Accounts payable 882 1.808 Deferred taxes 10 882 1.808 Reserves - reinsurance 12.1 12.510 13.200

Equity 15 113.151 101.881 Capital 100.766 100.766 Income Reserve 1.110 1.110 Securities mark-to-market 9.410 5 Retained earnings 1.865 - Total liabilities and equity 323.944 296.938

See accompanying notes.


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Income statements Semester ended June 30, 2017 and 2016 (in thousands of reais, except for earnings (loss) per share)

Notes 06/30/2017 06/30/2016

Written premium 14.1/17a 57.178 40.476

(+/-) Changes in reserves (5.914) 4.798

(=) Earned premium 14.2/17a 51.264 45.274

(-) Claims incurred 17b (21.225) (37.197)

(-) Acquisition costs 17c (1.345) (1.430)

(+/-) Other operating income (expenses) 17d (639) (15)

(-) Retrocession income (expenses) 17e (26.827) (2.209)

(-) Administrative expenses 17f (8.226) (6.389)

(-) Tax expenses 17g (1.088) (1.885)

(+) Financial income (expenses) 17h 9.016 9.553

(+) Financial income 15.030 23.360

(-) Financial expenses (6.014) (13.807)

(+) Equity pickup 17i 146 140

(=) operating income (expenses) 1.076 5.842

(-) Income tax 7.2 487 (1.159)

(-) Social contribution tax 7.2 381 (881)

(-) Profit sharing (79) (123)

(=) Net income for the semester 1.865 3.679

(/) Number of shares (thousands) 100.650 100.650

(=) Net income - per 1.000 shares 18,53 36,55



13

Statements of comprehensive income Semester ended June 30, 2017 and 2016 (In thousand of reais)

06/30/2017 06/30/2016

Net income for the semester 1.865 3.679

Other comprehensive income

Mark-to-market adjustment 17.100 (36)

Taxes on mark-to-market adjustment (deferred taxes) (7.695) 15

(=) Other comprehensive income, net of taxes 9.405 (21)

(=) Total comprehensive income for the semester 11.270 3.658



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Statements of changes in equity Semester ended June 30, 2017 and 2016 (in thousands of reais)

Reserves

Capital Capital Income Treasury shares

Securities mark-to-market

Retained earnings/

losses Total

Balance at January 1, 2016 100.494 - - (356) 3 (2.943) 97.198

Change in mark-to-market - - - - (21) - (21)

Capital increase 272 - - - - - 272

Net income for the semester - - - - - 3.679 3.679

Balance at June 30, 2016 100.766 - - (356) (18) 736 101.128

Balance at January 1, 2017 100.766 530 580 - 5 - 101.881

Change in mark-to-market - - - - 9.405 - 9.405

Net income for the semester - - - - - 1.865 1.865

Balance at June 30, 2017 100.766 530 580 - 9.410 1.865 113.151



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Statements of cash flows - indirect method Semester ended June 30, 2017 and 2016 (in thousand of reais)

Reclassified

06/30/2017 06/30/2016

Operating activities

Net income for the semester 1.865 3.679

Adjustments for: Depreciation and amortization 86 73

Impairment of assets 301 -

Deferred cost of acquisition (361) 160

Reinsurance and retrocession assets - technical provisions (5.138) (21.947)

Changes in reserves 27.223 32.399

Amortization of intagible assets - (21)

Changes in balance sheet accounts: Financial assets 4.346 (6.426)

Receivables from insurance and reinsurance operations (16.716) 5.602

Reinsurance assets 8.473 13.071

Tax and social security credits (2.057) 659

Deferred tax assets (240) (111)

Prepaid expenses (50) (24)

Deferred acquisition costs (12) 106

Other assets 106 -

Taxes and contributions (714) 943

Other payables (3.830) 331

Debts from insurance and reinsurance operation 7.428 (3.585)

Third-party deposits 264 158

Reserves - insurance and reinsurance operations (22.139) (24.195)

Net cash generated from operating activities (1.165)

872

Investing activities Payment for acquisition: Fixed assets (32) -

Net cash used in investing activities (32) -

Financing activities Capital increase (share subscription) - 272

Interest on equity (3.901) -

Net cash generated from/used in financing activities (3.901) 272

Net increase (decrease) in cash and cash equivalents (5.098) 1.144

Cash and cash equivalents at beginning of period 5.973 991 Cash and cash equivalents at end of period 875 2.135



16

Notes to interim financial statements (Amounts expressed in thousands of reais, unless otherwise stated)

1. Operations

Terra Brasis Resseguros S.A. (hereinafter referred to as “Terra Brasis” or “Company” or “Reinsurer”) is a privately-held corporation, with headquarters at Rua Minas da Prata, 30, suite 122 part, Itaim Bibi, São Paulo, Capital, enrolled under Brazilian IRS Registry of Legal Entities (CNPJ) No. 12.909.684/0001-28.

Terra Brasis was incorporated as of September 20, 2010 as a service provider, for the purpose of becoming a Local Reinsurer. In 2011, still in its preo-perating stage, the Company developed systems and processes to structure its reinsurance operations.

On October 4, 2012, Terra Brasis was authorized by SUSEP Administrative Ruling No. 4.881 to operate as a Local Reinsurer under the terms of article 2, item V of Brazil’s National Council for Private Insurance (CNSP) Resolution No. 168, of December 17, 2007.

The Reinsurer is a company colligated to Brasil Plural S.A Banco Múltiplo.

On November 5, 2015, by means of Administrative Ruling No. 6.381, Terra Brasis Resseguros was authorized by Brazil's Private Insurance Supervisory Office (SUSEP) to open its representative office in Colombia. On March 18, 2016, Terra Brasis Resseguros Oficina de Representacion Colombia obtained its registration with Bogota Commercial Registry Office and started operating as a representative office.

These interim financial statements were approved by the Board of Directors of Terra Brasis on August 17, 2017.

2. Preparation and presentation of interim financial statements

a) Basis of preparation: The financial statements were prepared in accordance with accounting practices adopted in Brazil applicable to institutions authorized to operate by SUSEP, which comprise the standards established by SUSEP and the accounting pronouncements issued by the Brazilian Financial Accounting Standards Board (CPC), when approved by SUSEP, and specific rules issued by Brazil’s National Board of Private Insurance (CNSP).

b) Comparability: The financial statements are presented containing comparative information for prior periods, as set forth by CPC 21 - R1- Interim Financial Statements, issued by Brazil’s FASB (CPC) and SUSEP Circular No. 517/2015.

By June 30, 2016, The Company has re-classified deferred acquisition costs, reinsurance and retrocession receivables and reserves changes, previously disclosed as changes in balance sheet accounts, as adjustments to net profit. Such reclassification were made in order to better disclose the company´s financial statements and have not had any impact on the cash flow generated by the semester´s operating activities.

c) Continuity: Management assessed Terra Brasis’ ability to continue as a going concern and is satisfied that the Company has sufficient funds to continue in business. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern.


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d) Functional and reporting currency: The interim financial statements are presented in Brazilians Reais (R$), which is the Company’s functional currency. The amounts are stated in thousands of reais (R$000) and rounded to the nearest thousand, unless otherwise stated. Transactions in foreign currencies are recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency using the rate of exchange prevailing at that date. Foreign currency fluctuations arising from this translation are posted in the income statement.

e) Basis of measurement: The assets and liabilities are measured in accordance with the historical cost, except for significant items in balance sheets:

i. financial assets measured at fair value through profit or loss;

ii. financial assets available for sale measured at fair value; and

iii. reserves measured according to SUSEP guidelines.

f) Use of estimates and judgments: Preparation of financial statements in accordance with the standards published by SUSEP requires management to record certain amounts of assets, liabilities, revenues, and expenses based on estimates, which are established based on judgments and assumptions as to future events. The actual amounts for which operations are settled may differ from these estimates due to the subjectivity inherent in the determination process.

Accounting estimates and assumptions are reviewed from time to time. Reviews with respect to accounting estimates are recognized in the period the estimates are reviewed and in any future periods affected.

Information on areas where the use of assumptions and estimates is significant for the financial statements and in which, therefore, there is a significant risk of material adjustment in the next fiscal year, is included in the following notes

Note 3.2 - Financial Instruments;

Note 3.3 - Written Premium;

Note 3.9 - Technical provisions and liability adequacy test;

Note 6 - Receivables (debt) from insurance and reinsurance operations;

g) Segregation between current and non-current: Terra Brasis classified its assets as current when the following criteria are met:

When these are expected to be realized in the normal operating cycle (12 months) of the Company; or

When these are held primarily for the purpose of being traded.


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3. Significant accounting practices

The main accounting practices used to prepare these financial statements have been consistently applied to all comparative periods presented, and are detailed below.

3.1. Insurance contracts: The main definitions of the characteristics of an insurance contract are described in CPC 11 - Insurance Contracts. Additionally, SUSEP Circular No. 517/2015 has established criteria for the identification of an insurance contract.

3.2. Financial instruments: The Company classifies its financial assets into the following categories: (i) financial assets measured at fair value through profit or loss, (ii) financial assets held to maturity (iii) financial assets available for sale and (iv) receivables. Classification into these categories is determined by Management upon initial recognition and depends on the strategic purpose for which the asset has been acquired.

3.2.a. Classification into categories:

i. Financial assets measured at fair value through profit or loss

Financial assets are classified at fair value through profit or loss if they are classified as held for trading and designated for such purpose upon initial recognition. The Company manages these investments and makes buying and selling decisions based on fair values according to risk management and investment strategy. These assets are measured at fair value, and changes in fair value of these assets are recognized in profit or loss for the year.

ii. Financial assets held to maturity

These are classified into this category if management intends and is able to hold these financial assets to maturity. Investments held to maturity are recorded at amortized cost less any impairment loss.

iii. Financial assets vailable for sale

These financial assets are not classified into any of the abovementioned definitions. After initial recognition, these are measured at fair value and changes, other than impairment losses, are recognized in other comprehensive income (loss) and presented within equity. When an investment is written off, the accumulated gain (loss) recorded in other comprehensive income (loss) is transferred to P&L.

iv. Loans and Receivables

These consist, substantially, of receivables under reinsurance contracts that are periodically tested for impairment. If objective evidence indicates that an impairment loss has occurred, this loss is recognized in P&L for the year


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3.2.b. Determination of fair value: Fair values are estimated for measurement and/or disclosure purposes. When applicable, additional information on the assumptions used in estimating fair values are disclosed in the accompanying notes.

3.2.c. Fair value hierarchy:

The hierarchy related to fair value measurement is broken down into the following levels:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets;

Level 2: Classified when a discounted cash flow methodology or another asset pricing methodology based on market data is used and when all this data is observable in the open market;

Level 3: Asset not based on observable market data and the Company uses internal assumptions for determination of its methodology and classification.

3.3. Written premium: Terra Brasis issued reinsurance contracts to provide cover to risks ceded by Insurance and Reinsurance companies (Ceding companies).

Facultative reinsurance contracts are those in which the risk specifically assumed is ceded individually by and at the option of the Ceding companies, whereas Automatic or Portfolio reinsurance contracts are those whereby the Ceding company and Terra Brasis define in advance the coverage types and conditions under which the risks will be automatically included within their terms.

Contracts may be under Proportional Reinsurance system, when the claims and the original premiums are divided up proportionally between Terra Brasis and the Ceding company, or as Non-Proportional Reinsurance, also known as Excess of Loss Reinsurance, when Terra Brasis indemnifies the Ceding company only against the amount of loss in excess of a specified retention and receives a reinsurance premium from the Ceding company, calculated specifically for such liability.

Policies in Force but Not Issued (RVNE) were calculated based on percentages established in CNSP standards, regulated by SUSEP.

Under Facultative Reinsurance Contracts, reinsurance premiums are fully recognized as of the writing date of the Contracts.

Under Non-Proportional Automatic Reinsurance Contracts, reinsurance premiums are also fully accounted for as of the date on which the contracts are written, based on the Premium Deposit, and are monitored over the life of the contract and adjusted upon their effective value at their termination.

In the case of Proportional Automatic Reinsurance Contracts, reinsurance premiums are recorded monthly, based on estimates provided by the Ceding Company and underwritten by Terra Brasis, so as to monitor the premiums written by the Ceding Company over time and in terms of value. Initially the estimates are adjusted by a cut-off factor measured based on the Company’s historical experience. The estimates are monitored over the life of the contract and adjusted when updated information is received from the Ceding Company.

Terra Brasis enters into Retrocession Agreements to increase its acceptance capacity, to cap its responsibility to its risk retention limit, and to mitigate the risk of significant losses from catastrophic events.

Premiums ceded under Proportional Retrocession Agreements are recorded in consonance with the recording of acceptance premiums covered thereunder. Premiums under Non-Proportional Retrocession Agreements are fully recorded as of the date the Retrocession Agreement is ceded.


20

Reinsurance premium arising from automatic contracts are measured considering the Estimated Premium Income - EPI - for the contract´s term adjusted by a threshold that seeks to reflect the historical experience observed by the evaluation between estimated premium and those effectively written by the ceding companies. Based on periodic evaluation, the threshold applied on contracts issued by June 2017 was reduced from 20% to 10%.

For automatic contracts signed with cedents based abroad, this threshold is not applied as EPI and effective premium are very close to eachother.

Acquisition costs are recorded under the same criteria used for premiums.

3.4. Impairment: In conformity with article 167 of SUSEP Circular No. 517/2015, Terra Brasis completed a specific technical study of its loss history and default risk. The study considers the particular nature of the operation and the rendering of accounts in the reinsurance market, in addition to the quality of debtors and the fact that the default level is nil. Late payments are reviewed on an individual basis by the Executive Board. Based on that study, an asset may be classified as non-recoverable at any time after a justified case of default, or within a maximum three hundred and sixty (360) days, counting from the right of receipt.

3.5. Fixed assets: Fixed assets for own use consist of furniture and fixtures and equipment used in the ordinary course of business and are stated at historical cost. The cost of fixed assets is stated less accumulated depreciation.

3.6. Intangible assets: Costs associated with acquisition of software are recorded as assets and amortized over their useful life, not to exceed five years. In-house software is recognized as expenses for the period.

3.7. Earned premium: Under Facultative Contracts, premiums and the corresponding acquisition costs are allocated to P&L on a daily pro rata basis, while the policies are in force.

Under Proportional and Non-Proportional Automatic Risk Attaching Contracts (in which the risks underwritten over the life of contract remain covered during their full term), premiums and the corresponding acquisition costs are allocated to P&L on a daily pro rata basis while the policies remain in force, according to information and estimates regarding average effective terms provided by the Ceding companies.

Under Non-Proportional Automatic Loss Occurring Contracts (in which losses occurring over the life of the contract are covered), premiums and the corresponding acquisition costs are allocated to P&L on a daily pro rata basis while the contracts remain in force.

For Retrocession Agreements, the same allocation principles apply to the retrocession ceded.

3.8. Claims incurred: Correspond to the sum of claims paid and variation in the claims reserve (PSL), for claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER).

3.9. Technical provisions and liability adequacy tests: Reserves are recorded in accordance with the provisions and criteria established by the CNSP and SUSEP

The Unearned Premium Reserve (PPNG) consists of the proportional part of reinsurance premiums in force, calculated on a daily pro rata basis, corresponding to the risk coverage not yet expired, which is determined for each type of contract based on information or estimates, adopting the same criteria used to allocate premiums to P&L.

The PPNG-RVNE is recorded to determine the portion of unearned premium related to reinsurance contracts not issued in accordance with the criteria established in the Technical Actuarial Note, SUSEP Circular No. 517/2015, and subsequent amendments thereto.

The Surplus Reserve (PET) is set up according to the criteria established in specific reinsurance contract clauses determining that Ceding Companies have their share in the contract revenue.

The Outstanding Claims Reserve (PSL) is set up to cover estimated probable payments determined based on events reported up to the balance sheet date.


21

The Reserve for Claims Incurred But Not Reported (IBNR) is set up in accordance with actuarial calculations that consider the estimated final loss less claims already reported up to the balance sheet date.

Provision for related expenses (PDR-IBNR) is set up at the amounts of expected expenses related to claims occurred but not yet reported.

Retrocession liabilities consist of premiums payable, consistently measured with the amount of reinsurance assets to the extent these are retroceded.

According to CPC 11, issued by the Brazilian FASB (CPC), at each balance sheet date, the Liability Adequacy Test (LAT) shall be prepared for all contracts in force on the date the test is conducted. The test is prepared considering as book value all insurance contract liabilities less DACs and intangible assets directly related thereto.

The Liability Adequacy Test (LAT) was prepared in accordance with SUSEP Circular No. 517/2015 and included the effective reinsurance contracts at June 30, 2017. The result of this test is the difference between the book value of the technical provisions and the amount of future cash flow estimates of liabilities related to risks, both at base date. The negative result obtained indicated the insufficiency of the technical provisions, which should be set up as supplementary coverage provision (PCC) for claims to be incurred, or supplement the balance of the insufficient provision, in case of claims incurred.

Cash flows were discounted to present value based on the Term Structure of Interest Rate (ETTJ) free of risks, as defined by SUSEP for each contractual index.

The LAT result showed that current reserves are sufficient to cover all liabilities related to contracts in force as of June 30, 2017. Therefore, there is no need to set up a Supplementary Reserve Coverage (PCC), referring to insufficient PPNG, if any, or to supplement balance in other reserves.

3.10. Deferred acquisition costs: Acquisition costs are recognized upon contract acceptance and allocated to P&L over the coverage period. These commissions are deferred using the same deferral approach adopted for premiums.

3.11. Income and social contribution taxes: Income tax is calculated at a rate of 15%, plus a 10% surtax on taxable profit exceeding R$ 240 thousand over 12 months. Law No. 13.169/2015, then Executive Order (MP) No. 675 of 2015, increased the tax rate of Social Contribution Tax on Net Profit (CSLL) to 20% from September 1, 2015 to December 31, 2018. The Company applied the 5% CSLL rate increase to its tax credits on temporary differences, deferred taxes and CSLL tax losses.

Income and social contribution tax expenses comprise current and deferred taxes. Current and deferred taxes are recognized in the income statement unless they are related to items recognized directly in equity or in other comprehensive income.

Tax credits and income tax liabilities and social contribution arising from fiscal losses, social contribution negative basis, and temporary differences between the accounting recognition bases and tax bases are accounting recongnized. A provision for active tax credits is constituted in case tax losses are computed in, at least, 3 from the last 5 social years or whenever there is no expectation for future taxable profits generation sufficient for using the tax credit.


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Assets from income tax and deferred social contribution are monthly reviewed and will be de-recognized as its realization is no longer probable.

3.12. Contribution Taxes on Gross Revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS): The Contribution Taxes on Gross Revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS) are accrued at the rates of 0.65% and 4%, respectively, pursuant to current legislation.

The Reinsurer recognizes on balance, since 2016 2nd half, PIS and COFINS tax credits arising from losses reserves, deducted reserves for losses recoveries. For computing the calculation basis of such contributions, these values are deducted only when paid or received.

4. Cash and cash equivalents

06/30/2017 12/31/2016

Cash 6 9

Banks 869 5.964

Checking account 284 111

Checking account in foreign currency (CCME) 585 5.853

Total 875 5.973


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5. Investments

5.1. Breakdown of investments: All investment funds that Terra Brasis invests its resources are non-exclusive and their data are made available, open to other investors (including SUSEP´s non supervised entitities) and are non-maturity date.

Contract interest rates / 06/30/2017 12/31/2016

Rating (*) ANBIMA Classification Valor % Valor % Financial securities Available for sale 125.341 80 110.417 79

Government Securities - National Treasury Bills - LFT

19.397 12 19.511 14

AAA 100,1% Selic 19.397 12 19.511 14 Non-government securities - Financial Notes

26.126 17 28.968 20

AAA 100,4% to 112,4% CDI 20.968 14 18.624 13

AA- a AA+ 112,0% to 113,3% CDI 5.158 3 - -

BBB+ 120,0% CDI - 10.344 7 Non-government securities -

Debentures 53.769 34 52.558 38

AAA 105,2% to 111,5% CDI / CDI+1,85% 7.472 5 13.665 10

A a A+ CDI+1,07% / 118% CDI 4.876 3 4.915 4

AA- a AA+

CDI+1,0% to +2,5%/108,5% to 118% CDI

40.857 26 31.654 22

AA- a AA+ IPCA+7,57% to 9,0% 564 - 2.324 2

Equity Shares - privately-held entity

A-

26.049 17

9.380 7

Securities measured at fair value through profit or loss

30.162 20 28.625 21

Open-end investment fund shares

30.162 20 28.625 21

Equity Ibovespa Ativo - 7.734 6

Fixed income 6.634 4 845 1

Multi-markets Multi-strategy 11.854 8 11.273 8

Foreign Exchange 11.674 8 8.773 6

Total 155.503 100 139.042 100

(*) Standard & Poor’s, Moody’s, Fitch and A.M.Best ratings are considered. If different credit ratings have been assigned to the same asset, the higher rating is used.


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5.2. Breakdown by maturity

06/30/2017 12/31/2016

No maturity No maturity

or before 1

year From 1 to

5 years Total %

or before 1 year

From 1 to 5 years

Total %

Open-end investment

fund shares 30.162 - 30.162 19 28.625 - 28.625 21

Equity Shares 26.049 - 26.049 17 9.380 - 9.380 7

Government Securities - 19.397 19.397 12 5.276 14.235 19.511 14 LFT - 19.397 19.397 12 5.276 14.235 19.511 14

Non-Government Securities 31.656 48.239 79.895 52 26.907 54.619 81.526 58 Debentures 12.551 41.218 53.769 35 5.060 47.498 52.558 37 Financial Notes 19.105 7.021 26.126 17 21.847 7.121 28.968 21

Total 87.867 67.636 155.503 100 70.188 68.854 139.042 100

5.3. Financial assets marked to market

06/30/2017 12/31/2016

Restated

cost

Fair value

adjustment

Fair / book value

Restated cost

Fair value

adjustment

Fair / book value

Financial securities available for sale 108.232 17.109 125.341 110.408 9 110.417 Government Securities - National Treasury Bills (LFT)

19.397 - 19.397

19.511 - 19.511

Non-Government Securities - Financial notes 26.106 20 26.126 28.910 58 28.968

Non-Government Securities - Debentures 53.349 420 53.769 52.607 (49) 52.558

Equity Shares - Privately-held entity 9.380 16.669 26.049 9.380 - 9.380 Securities measured at fair value through profit or loss

30.162 - 30.162

28.625 - 28.625

Open-end investment fund shares 30.162 - 30.162 28.625 - 28.625

Total 138.394 17.109 155.503 139.033 9 139.042

5.4. Hierarchy of fair value of short-term investments

06/30/2017 12/31/2016

Level1 Level2 Level3 Level1 Level2 Level3

Government Securities - National Treasury Bills (LFT)

19.397 - -

19.511 - -

Non-Government Securities - Financial notes

- 26.126 -

- 28.968 -

Non-Government Securities - Debentures - 53.769 - - 52.558 -

Open-end investment fund shares - 30.162 - - 28.625 -

Equity Shares - Privately-held entity - - 26.049 - - 9.380

Total 19.397 110.057 26.049 19.511 110.151 9.380


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The fair value of financial investment funds was estimated as the equity value disclosed by the managers of the investment funds, in which Terra Brasis invests. The financial instruments are booked in the investment fund’s portfolio. The investment funds are classified as Level 2 and may use derivatives in their investment strategy (see note 3.2.c). Closed capital companies shares fair value was determined based on technical studies made by the Board (see note 19).

5.5. Derivatives

The company operates directly with derivative instruments, specifically [B3] dealt contracts, aiming at covering itself from negative impacts from its US dollar liabilities that may arise due to F/X fluctuation. Terra Brasis´s exposure in US dollars are mentioned at Note 16.5.

Here follows Terra Brasis position in future contracts:

Derivatives Maturing date Amount Fair value(*) Receivable / (payable)

Future USD 1st August 2017 15 2.495 -

2.495 -

(*) Fair value is based in information from [B3] daily dealt contracts.

By December 31, 2016 the Company had any derivatives by it managed.

5.6. Changes in investments

01/01/2017 01/01/2016

to 06/30/2017 to 06/30/2016

Opening balance 139.042 131.439

Investments 138.047 83.969

Redemptions (146.521) (83.202)

Interest 7.864 5.623

Mark-to-market adjustment 17.071 36

Closing balance 155.503 137.865

5.7 Performance: Management measures investment profitability based on Interbank Deposit Certificate (CDI) yield rate variation. Management also measures investment profitability by excluding investments in foreign exchange funds, used to hedge financial liabilities in foreign currency.

Profitability (%) CDI (%) Profitability - CDI (%)

Year Full

portfolio

Excluding foreign

exchange funds CDI Full

portfolio

Excluding foreign

exchange funds Full

portfolio

Excluding foreign

exchange funds

2017* 6,26 6,44 5,61 110 113 0,65 0,83

2016 11,08 14,17 14,06 79 101 (2,98) 0,11

2015 15,77 14,23 13,23 119 108 2,54 1,00

2014 11,78 11,46 10,81 109 106 0,97 0,65

2013 8,44 8,46 8,06 105 105 0,38 0,40

* Corresponds to the period of January to June 2017.


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6. Receivables (debts) from insurance and reinsurance operations

6.1. Breakdown

Operation receivables Operation payables

Line 06/30/2017 12/31/2016 06/30/2017 12/31/2016

Property 23.730 21.465 13.085 12.061

Special risks 63 91 1 8

Civil liability 2.384 1.757 505 455

Automobile 1.256 167 3 (33)

Transport 11.214 5.669 5.488 1.839

Financial risks 9.853 8.279 7.058 5.826

Life 585 1.063 200 156

Homeowners 54 52 255 246

Crop 1.009 852 103 50

Other (*) 13.875 7.343 1538 461

Marine 1.265 2.045 479 146

Aviation 775 865 272 344

Total 66.063 49.648 28.987 21.559

(*) These fully refer to risks accepted from abroad, line of business 1279 - Foreign Insurance.

6.1.a. Changes in receivables from insurance and reinsurance operations

01/01/2017 a

06/30/2017 01/01/2016 a

06/30/2016


Written premium 55.729 41.914

RVNE 1.449 (1.438)

Premium collected (38.903) (45.479)

Foreign Exchange variation 330 (872)

Claims recovered (1.889) 273

Impairment (301) -

Saldo Final 66.063 44.933

6.1.b. Changes in debts from insurance and reinsurance operations

01/01/2017 a

06/30/2017

01/01/2016 a

06/30/2016


Written retrocession premium 31.929 25.115

RVNE 28 (1.330)

Brokerage 587 86

Payments (25.184) (27.321)

Foreign Exchange variation 68 (135)

Saldo Final 28.987 23.505


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6.2. Realization flow of receivables and payables

6.2.a. Prazos de recebimento de créditos das operações com resseguro e retrocessão:

06/30/2017 12/31/2016

Falling due Overdue Total Falling due Overdue Total

No maturity(*) 28.869 - 28.869 16.533 - 16.533

1 to 30 days 17.560 2.413 19.973 19.328 3.520 22.848

31 to 60 days 3.514 155 3.669 1.967 767 2.734

61 to 120 days 4.042 1.136 5.178 2.181 352 2.533

121 to 180 days 2.055 936 2.991 1.774 737 2.511

181 to 365 days 4.939 1.357 6.296 2.976 125 3.101

Impairment - (913) (913) (612) - (612)

Total 60.979 5.084 66.063 44.147 5.501 49.648

(*) Amounts recognized based on information provided by the ceding companies, and financially settled at varying maturity dates. The amounts presented under the “Overdue” column are those under discussion or awaiting further clarification or additional documents, and do not refer to events of default.

6.2.b. Payment turnover:

06/30/2017 12/31/2016 Falling due Overdue Total Falling due Overdue Total

No maturity(*) 12.420 - 12.420 6.387 - 6.387

1 to 30 days 9.025 550 9.575 7.446 235 7.681

31 to 60 days 2.090 16 2.106 2.537 54 2.591

61 to 120 days 2.078 399 2.477 756 1.714 2.470

121 to 180 days 1.200 25 1.225 256 29 285

181 to 365 days 1.114 70 1.184 828 1.317 2.145

Total 27.927 1.060 28.987 18.210 3.349 21.559

(*) Amounts recognized based on information provided, and financially settled at varying maturity dates. The amounts presented under the “Overdue” column are those under discussion or awaiting further clarification or additional documents, and do not refer to events of default.


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7. Tax and social security credits

7.1.a. Tax Credits

12/31/2016 Recognition Elimination

Update 06/30/2017

Current assets 3.807 2.240 (339) 156 5.864 Prepaid income tax 1.017 1.004 (339) 62 1.744

Prepaid social contribution tax 657 811 - 67 1.535

PIS and COFINS credits 138 194 - 27 359

Deferred PIS and COFINS 1.995 231 - - 2.226

Non-current assets 5.707 293 (132) - 5.868

Tax credit on income tax losses 2.880 - (60) - 2.820

Tax credit on temporary adjustments 278 163 (1) - 440

Tax credit on social contribution tax losses 2.304 - (48) - 2.256

Social contribution credit on temporary adjustments 223 130 (1) - 352

IR and CS - mark-to-market adjustment (TVM) 22 - (22) - -

Total 9.514 2.533 (471) 156 11.732

7.1.b. Recording and offset of deferred income and social contribution tax credits

Recognition and offset

of tax credits Year of

accrual / offset

Tax base IRPJ

CSLL

Total

Prior to 2015 6.526 1.163 1.939 3.102

2015 4.568 1.018 874 1.892

2016 426 123 67 190

2017 (240) (48) (60) (108)

Total 11.280 2.256 2.820 5.076

The credits were posted to assets based on projections of future taxable income, and the Company estimates that these credits will be realized until 2020.


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7.2. Income and social contribution tax expenses

06/30/2017 06/30/2016

Income tax

Social contribution

tax Income

tax Social

contribution tax

Income / (loss) before taxes, interest on equity and profit sharing 1.076 1.076 5.842 5.842

Profit sharing (79) (79) (123) (123) Adjusted income 997 997 5.719 5.719

Permanent additions/exclusions (i) (1.101) (1.101) 104 104 Temporary additions / exclusions ((ii) 716 716 (1.728) (1.728)

(=) Profit before tax offset 612 612 4.095 4.095

Offsetting of income and social contribution tax losses (184) (184) (1.229) (1.229) (=) Profit after tax offset 428 428 2.866 2.866

Taxes calculated at nominal rates 134 112 705 573 Tax benefits deductions (PAT, “Lei Rouanet” and “Empresa Cidadã”) (5) - (18) -

Deferred IRPJ/CSLL 616 493 472 308 Offsetting of income and social contribution tax losses (60) (48) 307 246 Recognition of tax credits and temporary adjustments 162 129 165 62 Tax liability (iii) 514 412 - -

(=) Total IR and CS (487) (381) 1.159 881

Effective rate -45% -35% 20% 15%

(i) In 2017 it refers to received dividends.

(ii) These refer mainly to foreign exchange gains (exclusions) and foreign exchange losses (additions). Which are taxable or deductable when effectivelly received or paid.

(iii) Reversion of tax credits from PIS and COFINS, considered as exclusion on the second semester of 2016.


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8. Transactions with Related Parties

8.1. Terra Brasis invests in open-end funds managed by Brasil Plural Gestão de Recursos Ltda., an entity related to the controlling shareholders. The investments of Terra Brasis are not material in relation to the funds’ assets.

8.2. Global key management compensation for the semester amounted to R$ 1.428 (R$ 1.225 in 2016) which substantially corresponds management fees.

9. Third-party deposits

06/30/2017 12/31/2016

From 1 to 30 days 906 470 From 31 to 60 days 84 401 From 61 to 120 days 32 89 From 121 to 180 days 143 10 From 181 to 365 days 126 57

Total 1.291 1.027

10. Deferred taxes

This refers to income and social contribution taxes payable on revenue recognized on foreign exchange variation, on-balance accounted, registered, whose fiscal treatment was considered as temporary, raising a deferred tax liability. Its realization takes place at the liabilities settlement moment in future events.

10.1 Deferred taxes adjustments

12/31/2016 Reversion Adjustment(*) 06/30/2017

Deferred income tax 1.004 (16) (499) 489 Deferred social contribution 804 (12) (399) 393

1.808 (28) (898) 882

(*) Refers to time adjustment over the amount of PIS and COFINS deferred over PSL and that were considered at 2016´s exercise as temporary exclusions at the calculation base for income tax and social contribution.


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11. Breakdown of adjusted equity (PLA) and capital requirement

06/30/2017 12/31/2016

Equity 113.151 101.881

Prepaid expenses not related to reinsurance (129) (79)

Tax credits (5.076) (5.184)

Intangible assets (223) (271)

a. Adjusted equity (PLA) 107.723 96.347

b. Base capital 60.000 60.000

c. Risk capital 27.484 25.940

Underwriting risk-based capital 12.714 11.707

Credit risk-based capital 15.664 15.020

Market risk-based capital (*) 5.617 5.331

Diversification benefit (7.210) (6.797)

Operational risk-based capital 699 679

d. Capital requirement (max[b,c]) 60.000 60.000

e. Capital sufficiency (a - d) 47.723 36.347

Capital sufficiency (d/e) 80% 61%

(*) Pursuant to CNSP Resolution No. 321/2015, the Risk Capital amount based on market risk effectively required corresponds to 50% of the amount computed for the period ended June 30, 2017. The total of such amount shall be considered as from December 31, 2017.


32

12. Technical reserves and deferred acquisition costs

12.1 Reinsurance and retrocessions accepted

06/30/2017

Unearned Premium Reserve

Claims reserve Other

reserves

Line Accepted RVNE Commission

IBNR Reported PET

PDR-IBNR Total

Property 20.587 5.366 (3.216) - 62.916 218 - 85.871 Special risks 101 29 (6) 297 635 - 12 1.068 Civil liability 2.177 579 (282) - 9.930 51 - 12.455 Automobile 1.149 254 (325) 270 313 - 2 1.663 Transport 7.900 2.041 (1.288) 3.745 8.047 74 2 20.521 Financial risks 24.026 4.521 (9.377) 4.098 3.651 584 27 27.530 Life 227 70 - - 487 280 - 1.064 Homeowners 15 2 (7) 76 82 6 - 174 Crop 631 149 (148) 125 332 54 1 1.144 Other 9.226 2.078 (2.494) - 4.256 264 - 13.330 Marine 1.776 548 - 949 1.075 45 18 4.411

Aviation 676 202 (23) 4 411 32 - 1.302

Total 68.491 15.839 (17.166) 9.564 92.135 1.608 62 170.533

12/31/2016 Unearned Premium Reserve

Claims reserve

Other

reserves

Line Accepted RVNE Commission IBNR Reported PET

PDR-IBNR Total

Property 21.448 5.662 (3.102) - 61.689 209 - 85.906 Special risks 159 46 (9) 2.391 625 - 16 3.228 Civil liability 1.871 511 (213) 4.021 8.519 64 27 14.800 Automobile 138 31 (39) 319 257 4 2 712 Transport 5.918 1.656 (552) 4.576 6.851 96 30 18.575 Financial risks 21.311 4.006 (8.332) 3.166 2.314 446 21 22.932 Life 653 202 - 131 197 288 1 1.472 Homeowners 5 1 (2) 68 57 63 - 192 Crop 127 34 (18) - 363 60 - 566 Other 5.843 1.312 (1.592) 311 1.900 130 2 7.906 Marine 2.388 736 (5) 3.358 1.303 34 22 7.836

Aviation 681 193 (50) 226 236 36 2 1.323

Total 60.542 14.390 (13.914) 18.567 84.311 1.430 123 165.448

Note: RVNE: Policies in force but not issued; Commission: Commission to ceding company; IBNR: Incurred But Not Reported; IBNER: Incurred But Not Enough Reported; PET: Reserve for Technical Surplus; PDR-IBNR: IBNR Loss Expense Reserve.


33

12.2 Retrocessions ceded


Claims reserve

Other reserves

06/30/2017

Line Ceded RVNE Commission IBNR Reported PET Total

Property 11.075 2.157 (1.776) - 35.578 101 47.135 Special risks - - - 166 542 - 708 Civil liability 398 118 (45) - 6.335 - 6.806 Automobile - - - 70 8 - 78 Transport 4.253 1.061 (1.070) 2.439 4.878 - 11.561 Financial risks 19.762 3.713 (8.715) 2.835 745 179 18.518 Life 67 - - - 9 134 210 Homeowners 1 1 - 22 28 (18) 34 Crop 59 15 (16) 52 76 - 186 Other 524 152 (119) - 6 - 564 Marine 256 78 (52) 18 - - 300 Aviation 187 34 (10) 1 31 - 243

Total 36.582 7.329 (11.803) 5.603 48.236 396 86.343


Claims reserve

12/30/2016 Other

reserves Line Ceded RVNE Comission IBNR Reported PET Total

Property 10.655 2.883 (1.987) - 39.896 96 51.543 Special risks 19 4 (6) 1.304 534 - 1.855 Civil liability 693 184 (48) 1.834 6.097 - 8.760 Automobile - - - 105 8 - 113 Transport 2.905 886 (244) 2.987 4.737 - 11.271 Financial risks 17.340 3.231 (7.586) 2.087 75 110 15.257 Life - - - 88 - 133 221 Homeowners 1 - - 21 12 - 34 Crop 4 2 - - 46 - 52 Other 197 45 (62) 4 - 1 185 Marine - - - 39 - - 39

Aviation 201 66 (23) 76 28 - 348

Total 32.015 7.301 (9.956) 8.545 51.433 340 89.678

Note: RVNE: Policies in force but not issued; Commission: Commission to ceding company; IBNR: Incurred But Not Reported; IBNER: Incurred But Not Enough Reported; PET: Reserve for Technical Surplus; PDR-IBNR: IBNR Loss Expense Reserve.


34

12.3 Changes in reserves

PPNG - Accepted PPNG RVNE

Other reserves PET/PDR

Total Premium Reserves

Balance at January 1, 2017 46.628 14.390 1.553 62.571

Written premium for the period 55.729 1.449 - 57.178

Earned premium for the period (51.264) - - (51.264)

PET - - 117 117

Change in estimate 232 - - 232

Balance at June 30, 2017 51.325 15.839 1.670 68.834

PSL - Accepted IBNR

PDR-IBNR PSL

Total claims reserves

Balance at January 1, 2017 18.567 123 84.311 103.001

Change in estimate (9.003) (61) - (9.064)

FX fluctuation - - 427 427

Change in claims reported - - 30.288 30.288

Claims paid for the period - - (22.891) (22.891)

Balance at June 30, 2017 9.564 62 92.135 101.761

PPNG - Ceded PPNG RVNE

Other reserves

Total premium reserves

Balance at January 1, 2017 22.059 7.301 340 29.700

Written premium for the period 32.462 28 - 32.490

Earned premium for the period (29.141) (28) - (29.169)

PET - - 55 55

Change in estimate (601) 28 1 (572)

Balance at June 30, 2017 24.779 7.329 396 32.504

PSL - Ceded IBNR PSL

Total Claims Reserve

Balance at January 1, 2017 8.545 51.433 59.978

Change in estimate (2.942) - (2.942)

FX fluctuation - 239 239

Change in claims reported - 5.235 5.235

Claims recovered for the period - (8.671) (8.671)

Balance at June 30, 2017 5.603 48.236 53.839


35

12.4 Deferred Acquisition costs

01/01/2017 a 06/30/2017

Brokerage Opening Recognition Deferral F/X Closing

Line Balance Fluctuation Balance Property 684 670 (606) - 748 Special risks 7 - (4) - 3 Civil liability 87 134 (89) - 132 Automobile 4 44 (12) - 36 Transport 144 207 (121) 3 233 Financial risks 61 84 (47) - 98 Group life 35 - (22) - 13 Rural 4 7 (3) - 8 Other 161 415 (238) 7 345 Maritime 247 127 (170) 1 205 Aviation 53 19 (33) 1 40

Total 1.487 1.707 (1.345) 12 1.861

For the current business portfolio, the initial average deferrement term for treaties is 24 months and 12 months for facultative businesses.


36

12.5 Progress of claims

12.5.a. Table of progress of claims to be settled - Gross of retrocession

The claims development table illustrates the development in terms of claims reports received by Terra Brasis for each underwriting year. From the year in which the reinsurance contract was underwritten, the upper portion of the table presents the development in terms of number of claims reported over the years. The number of claims reported varies as more current information is obtained based on the data received from the ceding companies on the contracts underwritten. The lower part of the table shows the reconciliation of the figures to the book balances at the reporting date of these financial statements.

Underwriting year

2012 2013 2014 2015 2016 2017 Total

Claims reported

In underwriting year - 5.648 3.522 15.932 7.167 1.678 1.678

One year thereafter 500 17.874 45.343 35.912 23.455 - 23.455

Two years thereafter 1.706 32.160 77.113 48.753 - - 48.753

Three years thereafter 1.659 34.739 76.672 - - - 76.672

Four years thereafter 1.220 34.708 - - - - 34.708

Five years thereafter 1.244 - - - - - 1.244

As at 06/30/2017 1.244 34.708 76.672 48.753 23.455 1.678 186.510

Claims paid

In underwriting year - (391) (239) (125) (1.805) (243) (1.805)

One year thereafter (4) (6.437) (10.764) (11.748) (8.079) - (11.748)

Two years thereafter (582) (22.116) (30.677) (18.437) - - (30.677)

Three years thereafter (850) (26.187) (39.199) - - - (26.187)

Four years thereafter (1.067) (27.342) - - - - (1.067)

Five years thereafter (1.075) - - - - - (1.075)

As at 06/30/2017 (1.075) (27.342) (39.199) (18.437) (8.079) (243) (94.375)

Outstanding claims reserve (PSL) as at 06/30/2017 169 7.366 37.473 30.316 15.376 1.435 92.135


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12.5.b. Table of progress of outstanding claims - Net of retrocession

Underwriting year

2012 2013 2014 2015 2016 2017 Total

Claims reported

In underwriting year - 4.379 2.451 4.939 3.002 1.445 1.445

One year thereafter 369 10.797 22.612 18.357 17.230 - 17.230

Two years thereafter 1.311 15.999 31.014 27.803 - - 27.803

Three years thereafter 1.281 16.336 31.421 - - - 31.421

Four years thereafter 821 16.001 - - - - 16.001

Five years thereafter 845 - - - - - 845

As at 06/30/2017 845 16.001 31.421 27.803 17.230 1.445 94.745

Claims paid

In underwriting year - (259) (148) (87) (1.090) (192) (192)

One year thereafter (2) (3.955) (6.057) (8.127) (5.808) - (5.808)

Two years thereafter (360) (10.515) (14.181) (13.062) - - (13.062)

Three years thereafter (537) (12.510) (18.065) - - - (18.065)

Four years thereafter (719) (12.997) - - - - (12.997)

Five years thereafter (722) - - - - - (722)

As at 06/30/2017 (722) (12.997) (18.065) (13.062) (5.808) (192) (50.846)

Outstanding claims reserve (PSL) as at 06/30/2017 123 3.004 13.356 14.741 11.422 1.253 43.899


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13. Coverage of technical reserves The Company has technical reserves for investment fund quotas, government bonds and private securities amounting to R$ 89,261 which is an amount higher than the coverage needed, of R$ 71,253 computed accounting to CNSP Resolution No. 321/2015.

06/30/2017 12/31/2016 Technical Reserves 170.533 165.448 20% coverage of risk capital 5.497 5.188 Reinsurance assets (64.159) (74.703) Credit rights (40.617) (30.919) Amount to be guaranteed 71.253 65.014 Open-end investment fund shares 13.881 4.407 Government Securities 17.017 19.511 Non-Government Securities 58.363 56.876 Pledged of reserves 89.261 80.794

Sufficiency 18.008 15.780

14. Line of Business

14.1 Written Premium

Written premiums by the groups in the segment and their retention indices are as follows :

Written premium Ceded retrocession Retention (%)

06/30/2017 06/30/2016 06/30/2017 06/30/2016 06/30/2017 06/30/2016

Property 23.480 21.472 17.405 14.805 25,9 31,0

Special risks 1 162 (3) 182 420,9 (12,3)

Civil liability 2.961 2.015 1.172 1.095 60,4 45,6

Automobile 1.203 234 - 6 100,0 97,4

Transport 9.325 10.115 5.554 8.099 40,4 19,9

Financial risks 8.402 669 6.345 (454) 24,5 167,9

Life (127) 1.107 126 602 199,2 45,6

Homeowners 117 95 9 242 92,0 (157,7)

Crop 872 (157) 36 (464) 95,9 (195,5)

Other 9.599 2.994 769 13 92,0 99,5

Marine 770 1.521 371 - 51,9 100,0

Aviation 575 249 173 (18) 69,9 107,2

Total 57.178 40.476 31.957 24.108 44,1 40,4


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14.2 Earned Premium

Earned premiums of groups in the segment and their claim and brokerage indices are as follows:

06/30/2017 06/30/2016

Line

Earned Premium

Loss ratio (%)

Brokerage (%)

Earned Premium

Loss ratio (%)

Brokerage (%)

Property 24.763 62,1 2,4 23.976 73,7 3,2 Special risks 74 (2.839,1) 5,0 381 144,1 4,0 Civil liability 2.673 (88,6) 3,3 2.592 65,0 3,3 Automobile 254 3,0 4,5 106 75,0 7,2 Transport 7.722 33,2 1,6 8.800 93,2 1,7 Financial risks 6.218 44,0 0,7 3.037 45,0 1,4 Life 430 93,0 5,2 969 60,0 1,0 Homeowners 110 159,3 - 90 35,0 - Crop 382 57,4 0,9 1.733 102,5 1,0 Other 6.515 99,6 3,7 1.748 163,2 8,2 Marine 1.568 (153,3) 10,8 1.556 124,8 9,2 Aviation 555 22,1 6,0 286 157,1 8,7

Total 51.264 41,4 2,6 45.274 82,1 3,1

15. Equity

15.1. Capital: Fully subscribed and paid-in capital is represented by 100,650,000 (one hundred million, six hundred fifty thousand) common registered no-par-value shares.

On February 4, 2016, Pama Holding Participações e Investimentos Ltda, subscribed in Terra Brasis Resseguros 200,000 common registered no-par-value shares, for R$ 272 (two hundred seventy-two thousand reais), as authorized by the Special Shareholders' Meeting held on that date, and approved by SUSEP on March 2, 2016

15.2. Capital reserve: These refer to cash contributions received by the Company, which do not flow through profit or loss as revenue, made by shareholders to bolster equity.

15.3. Legal reserve: This reserve is set up at the end of the fiscal year in accordance with Brazil’s Corporation Law, at 5% of each year’s net income and may reach up to a limit of 20% of the Company’s capital.

15.4. Dividends and interest on equity: Minimum mandatory dividends on adjusted annual net income are guaranteed to shareholders at the end of each year in accordance with Brazil’s Corporation Law.

The Executive Board's meeting held on November 15, 2016 approved distribution of interest on equity amounting to R$ 3,901, based on the net income for the year.

15.5. Subscription warrant: In 2012, the Company issued non-transferable subscription warrants on behalf of shareholder Pama Holding Participações e Investimentos Ltda., with maturity on December 21, 2017. These warrants entitle the holder to subscribe for 16,279.100 common registered no-par-value shares, for a subscription price of R$1.00, monetarily restated and adjusted in accordance with specified criteria. Pama exercised its subscription rights and subscribed for 450 thousand new shares in 2014 and 200 thousand new shares in 2016. At June 30, 2017, the subscription warrants issued but not yet exercised entitle the holder to additional subscription for 15,629,100 new shares.


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16. Risk management policy

Terra Brasis has an internal risk management system based on the integrated management of each one of the business processes, in conforming risk level to predefined objectives. The risk management process involves all of the Company’s organization levels, from senior management to the various business areas, identifying, treating and monitoring all risks.

16.1. Underwriting risk: This is defined as the likelihood of losses against the expectation associated to technical and actuarial bases for computation of premiums and technical provisions arising from the operations. To standardize and guarantee the quality of the risks assumed, Underwriting Guidelines were created for each business line. Compliance with the requirements contained in these guidelines is checked on an ongoing basis and changes are made when necessary.

Maximum risk retention, depending on business line was defined between 2.5% and 4.5% of Terra Brasis capital. Retrocession agreements were entered into for certain business lines, reducing the expected portfolio volatility.

Significant efforts are made to control possible accumulation. Particularly, Terra Brasis monitors, to the maximum extent possible, its exposure to any in-force coinsurance deals between ceding companies with which Terra Brasis has reinsurance contracts. For Surety Bonds, included as Financial Risks line, a control over accumulation by principal is in place.

16.2. Credit risk: Credit risk is defined as the risk that a counterparty will fail to honor a financial obligation to Terra Brasis. The Company’s internal investment policy provides directives on exposure to credit risk and compliance, which are monitored on a regular basis by the investment committee. Credit risks involving issuers of securities comprising the investment portfolio are controlled by the managers of the portfolio and of the investment funds. To mitigate retrocession receivables default risks, our retrocession pool is comprised of highly rated retrocessionaires. The table below represents the total of claims recoverable distributed by credit risk:


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01/01/2017 to 06/30/2017 Local Admitted Occasional Total

Rating Amount % Amount % Amount % Amount % A+ - - 745 1,5 - - 745 1,5 A - - 44.650 88,8 2.306 4,6 46.956 93,4 A- - - - - 2.592 5,2 2.592 5,2

B++ 0,6 0,0 - - - - 0,6 0,0 0,6 0,0 45.395 90,3 4.898 9,8 50.294 100,0

01/01/2016 to 06/30/2016

Local Admitted Occasional Total Rating Amount % Amount % Amount % Amount %

A+ - - 1.461 5,8 - - 1.461 5,8 A - - 20.360 81,1 2,293 9,2 22.653 90,3 A- - - - - 989 3,9 989 3,9

B++ 12 0,0 - - - - - 0,0 12 0,0 21.821 86,9 3.282 13,1 25.103 100,0

Note: Classified according to A.M. Best ratings or otherwise to Standard & Poor’s, as applicable.

16.3. Liquidity Risk: Liquidity risk is defined as the risk of an entity facing difficulties in meeting its financial obligations within the maturity dates and in the amounts required. The Company manages liquidity risk by continuously monitoring expected cash flows and the combination of maturity profiles of financial assets and liabilities. At June 30, 2017, R$ 155,503, or 92.7% of the investment portfolio, was invested in assets redeemable within three days (D+3) and R$ 26,049, or 7.3% thereof, was invested in assets redeemable within 15 days.

Maturity of financial assets and liabilities is as follows:

Assets and liabilities No maturity Within 1

year

From 1 to 2

years

More than 2 years Total

Cash and banks 875 - - - 875

Financial assets at fair value through profit or loss 30.162 - - - 30.162

Financial assets available for sale 26.049 31.656 12.327 55.309 125.341 Receivables from insurance and reinsurance operations - 66.063 - - 66.063

Retrocession assets - 78.681 7.662 - 86.343

Total assets 57.086 176.400 19.989 55.309 308.784

Accounts payable - 9.100 - - 9.100

Debts from reinsurance operations - 28.986 - - 28.986

Technical Reserves - 158.023 12.510 - 170.533

Total liabilities - 196.109 12.510 - 208.619


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16.4. Operational risk: It is the possibility of losses due to failure, deficiency or inadequacy of internal processes, personnel and systems, or due to fraud or external events, including the legal risk and excluding the risks arising from strategic decisions and the Company’s image. The Company has implemented adjustments to its structure, policies and operational procedures in line with the overall concepts published by CNSP and SUSEP in CNSP Resolution No. 238 and SUSEP Circular No. 517/2015.

16.5. Market risk: Market risk is defined as risk of financial losses resulting from changes in prices and financial market rates.

For investment portfolio assets, this risk is measured using the parametric consolidated VaR methodology, observing the portfolio history for one year and a reliability level of 97.5%. Estimated maximum daily losses and their corresponding percentage in relation to the investment portfolio are set out below.

Estimated maximum

Year daily loss Portfolio (%)

2017(*) 335 0,26 2016 353 0,27 2015 210 0,17 2014 159 0,16 2013 264 0,27

(*) Comprehending the period from January to June 2017.

To manage currency mismatching risk, Terra Brasis regularly reviews the balances of its foreign currency-denominated assets and liabilities and uses forex funds and future dollar contracts dealt at [B3] in order to minimize currency mismatch. At June 30, 2017, the Company was exposed predominantly to the US Dollar. Total assets and liabilities linked to that currency as well as the corresponding net exposure are stated below, in US dollars and their equivalent in reais.

Assets denominated in Liabilities denominated in Net US dollars US dollars exposure in US equivalent in US equivalent in US equivalent

Year dollars in reais dollars in reais dollars in reais

2017/06 15.254 50.465 13.472 44.568 1.782 5.897 2016/12 13.543 44.109 13.928 45.393 (385) (1.284) 2015/12 8.599 33.576 9.977 38.959 (1.378) (5.383) 2014/12 3.326 8.836 3.246 8.623 80 213

16.6. Sensitivity analysis: The objective of sensitivity analyses is to assess the impact on P&L arising from changes in actuarial and market assumptions.

A sensitivity analysis was conducted with the LAT (liabilities adequacy test) results and included measurement of impacts of changes in loss ratios on the test of technical reserve sufficiency, considering the financial flows of actual and estimated premiums. Such reserve sufficiency was not compromised. We present the variations related only to assessment and reference, since the changes in actuarial assumptions did not compromise the sufficiency of technical provisions. Certain results of the sensitivity analyses carried out in June 2017 and 2016 are as follows:


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06/30/2017 06/30/2016

Effect gross of retrocession Impact

% of net income

% of adjusted

equity Impact % of net income

% of adjusted

equity

Loss ratio 10% higher (3.637) (195,0)% (3,4)% (3.270) (88,9)% (3,4)%

Loss ratio 10% lower 3.629 194,6% 3,4% 3.230 87,8% 3,4%

Effect net of retrocession Impact % of net income

% of adjusted

equity Impact % of net income

% of adjusted

equity

Loss ratio 10% higher (2.098) (112,5)% (1,9)% (1.896) (51,5)% (2,0)%

Loss ratio 10% lower (2.098) (112,5)% (1,9)% 1.857 50,5% 1,9%

A sensitivity analysis was conducted for the investment portfolio using stress calculations for closing positions at the reporting date. The test included changes in exchange rates, interest rates, shares, and inflation. The test assumptions and results are as follows:

Forward structure of IPCA curve: variation of 300 basis points or 3% on an equal basis in all of the forward curve vertices.

Bovespa index: 10% variation.

Foreign exchange: 10% variation.

Scenario A Scenario B

Risk Factors Shock

Impact on pre-tax income Shock

Impact on pre-tax income

Foreign exchange 10% 1.159 -10% (1.162) Shares (Ibovespa) -10% 6 10% (6)

Inflation 300 bps (269) -300 bps 390


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17. Breakdown of P/L accounts

06/30/2017 06/30/2016 a. Premium: 1 Reinsurance accepted 59.155 44.372 2 Retrocession accepted (702) (109) 3 Reinsurance and retrocession accepted abroad 9.885 3.709 4 RVNE 1.449 (1.438) 5 Cedent Commission (12.609) (6.058) Total written premium 57.178 40.476 6 Change in reserves (5.914) 4.798

Total earned premium 51.264 45.274

b. Claims incurred: 1 Claims reported (30.288) (37.793) 2 Change in reserve for claims incurred but not reported (IBNR) 9.063 596

Total (21.225) (37.197)

c. Acquisition costs: 1 Recognition of acquisition costs (1.707) (1.269) 2 Change in acquisition costs 362 (161)

Total (1.345) (1.430)

d. Other operating income and expenses: 1 Other operating income (expenses) (639) (15)

Total (639) (15)

e. Income from retrocession operations 1 Retrocessions ceded (40.551) (27.841) 2 RVNE ceded (28) (1.330) 3 Commission received from retrocessionaires 8.622 2.726 4 Change in premium reserves 2.789 839 Total retrocession expenses (29.168) (25.606) 5 Claims reported recovered from retrocessionaires 5.235 23.124 6 Change in reserve for claims incurred but not reported (IBNR) (2.942) 273 7 Profit sharing - retrocession 48 - Total retrocession income 2.341 23.397

Total (26.827) (2.209)

f. Administrative expenses 1 Personnel expenses (5.174) (3.734) 2 Third-parties services (1.166) (1.139) 3 Occupancy and operation (841) (829) 4 Legal publications, publicity, and class entities (761) (475) 5 Other expenses (284) (212)

Total (8.226) (6.389)


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17. Breakdown of P/L accounts (continuation)

06/30/2017

06/30/2016

g. Tax Expenses 1 Federal taxes (on retrocession and other operations) (597) (601) 2 State and local taxes (50) (43) 3 COFINS (128) (864) 4 PIS (21) (140) 5 SUSEP supervisory fees (250) (202) 6 Union dues (42) (35)

Total (1.088) (1.885)

h. Financial income (expenses) Income Unrestricted financial assets

1 Variable income securities 1.831 2.163 2 Non-Government fixed income securities 2.335 2.113 3 Government fixed income securities 20 67 4 FX investment fund shares - 215 5 Other investment fund shares 1.405 418 Restricted financial assets

6 Non-Government fixed income securities 2.776 3.244 7 Government fixed income securities 1.026 1.917 8 FX investment fund shares 738 466 9 Other investment fund shares 111 426 10 FX fluctuation 4.495 12.258 11 Windfall profits 293 73 Total income 15.030 23.360 Expenses: 12 Variable income securities (582) - 13 FX fluctuation (4.720) (10.389) 14 FX investment fund shares (337) (2.923) 15 Other investment fund shares (210) (320) 16 Windfall expenses (165) (175) Total expenses (6.014) (13.807)

Total 9.016 9.553

i. Equity 1 Equity pickup earnings 146 140

Total 146 140

j. Taxes and profit sharing 1 Income tax 487 (1.159)

2 Social contribution tax (CSLL) 381 (881) 3 Profit sharing (79) (123)

Total 789 (2.163)


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18. Benefícios a empregados e administradores

18.1. Private Pension fund: Under the terms of the agreement, the Company makes monthly contributions to fund the plan as well as deposits (credits) into individual accounts set up for its employees in an amount corresponding to 100% of the base contribution made by each pension plan member. Members may voluntarily make Extraordinary Contributions that are not matched by the Sponsoring Employer. The Plan grants temporary monthly income to its beneficiaries. The contributions made over the year summed R$ 73 (R$ 78 in 2016).

19. Subsequent events

Third-parties shares that compose the company´s investment portfolio were entirely sold and a total profit before taxes effects of R$ 21.4 million was computed.


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Board of Directors Rodolfo Riechert - Chairman

André Schwartz - Vice-chairman Carlos Roberto De Zoppa

Luiz Chrysostomo De Oliveira Filho Paulo Eduardo de Freitas Botti

Pedro Duarte Guimarães

Executive Board Paulo Eduardo de Freitas Botti - CEO Beatriz Cabrera Americano Fernandes

Bernardo Nolasco Rocha Carlos Roberto De Zoppa Paulo Toshio Hayakawa

Rodrigo de Souza Lobo Botti

Accountant Eduardo Póvoa

CRC-1SP223513/O-6

Actuary Laércio dos Santos Vicente

MIBA-2.300


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Summary of the Audit Committee Report Semester ended in June 30, 2017. The Board of Directors Terra Brasis Resseguros S.A. São Paulo - SP

The Audit Committee of Terra Brasis Resseguros S.A.(“Terra Brasis”), established under the regulations set forth by Brazil's National Council for Private Insurance (CNSP) and by Brazil's Private Insurance Supervisory Office (SUSEP), operates in accordance with the bylaws and its internal regulation approved by the Board of Directors. It falls to the Audit Committee to support the Board of Directors in its responsibility for ensuring the quality and integrity of financial statements, compliance with legal and regulatory requirements, the performance, independence and quality of the work of independent auditors and the internal audit, and the quality and effectiveness of internal controls and risk management systems.

In the semester ended June 30, 2017, the Committee developed its activities based on a work plan prepared in accordance with its internal regulations, which included: (i) interviews with senior management and managers; (ii) evaluation of the structure, operation and monitoring of the work of the areas responsible for preparing the financial statements, the internal control system, the risk management activities and the compliance function; (iii) evaluation of the planning and scope of work performed by the internal audit; (iv) evaluation of the scope, performance and independence of independent auditors; and (v) evaluation of the quality of the financial statements.

Terra Brasis Management is responsible for the preparation of the financial statements, in accordance with the accounting practices adopted in Brazil, applied to the entities supervised by SUSEP. It is also of its responsibility establishment of procedures to ensure the quality of the information and processes used in the preparation of financial statements, risk management of operations and the implementation and supervision of internal control and compliance activities.

Independent auditor is responsible for examining the financial statements and issuing a report on their adequacy in accordance with Brazilian auditing standards established by the Federal Accounting Council (CFC). The internal audit is responsible for assessing the effectiveness of internal controls and risk management and the processes that ensure adherence to the rules and procedures established by Management and to the legal and regulatory standards applicable to Terra Brasis activities.

The Committee acts through meetings and conducts analysis based on documents and information submitted to it, as well as other procedures it deems necessary. The Committee's assessments are based on information received from management, independent auditors, internal auditors, risk managers and internal controls and on their own analysis from direct observation.

Over the semester, the Committee held meetings with accounting and controlling areas, internal controls and compliance, risk management, independent auditors and internal auditors, among others.

Over the six-month period ended June 30, 2017 Management decided and conducted a process of substitution of internal audit services providers. The Committee monitored this process and supported the Administration in evaluating the technical capacity of the new providers and discussed the planning of their work, including the scope and procedures to be applied. The Committee also assessed the aspects of independence and level of reporting of internal audit in the structure of the Organization.

The Committee maintains regular channels of communication with the independent auditors. The planning of the independent audit of the financial statements for the six-month period ended June 30, 2017 was previously discussed with KPMG Auditores Independentes and, at the end of the work, the team in charge of the work presented its results and conclusions to the Audit Committee. The Committee also assesses the adherence of independent auditors to policies and standards that address the maintenance and monitoring of the objectivity and independence with which these activities are performed.


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The Committee evaluated the processes for preparing the financial statements and discussed with the Management and the independent auditors the relevant accounting practices used and the information disclosed.

The Committee held regular meetings with the Chief Executive Officer and other members of the Board of Directors of Terra Brasis and at those meetings had the opportunity to identify and present suggestions to Management for the improvement of internal controls and risk management.

The Committee was not aware of the occurrence of an event, complaint, noncompliance with regulations, absence of controls, act or omission on the part of Management or fraud that, due to its relevance, would endanger the continuity of Terra Brasis or the reliability of its financial statements .

Conclusions

The Audit Committee, considering its responsibilities and limitations inherent to the scope and extent of its performance, and taking into account the results of the independent audit of the financial statements, embodied in the unmodified report issued on this date by KPMG Auditores Independentes, recommends approval by the Board of Directors of the financial statements of Terra Brasis Resseguros SA for the six-month period ended June 30, 2017.

São Paulo, August 17, 2017.

Audit Committee Pedro Horowicz José Campos

José Rubens Alonso

interim financial statements with independent auditor´s report statements 2017 (1st...terra brasis...

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