Business Risks

As described in the Company’s Reference Form, the Company has identified the following risks, which may influence in investment decisions.

To the Issuing:

Great part of Alper’s business is directly related to the deals generation ability of our brokers, who have a close and lasting relationship with their customers. The Company is composed of various broker partners, with distinct historic and formation and, for that reason, there is a natural difficulty in guaranteeing alignment to the execution of defined strategies, such that this low alignment ability may have an adverse effect in its performance. In order to the revenue generation be made effectively it is essential that the broker’s interests are aligned to the strategic objectives of short, medium and long term.

Great part of Alper’s business is directly related to the deals generation ability of our brokers, who have a close and lasting relationship with their customers. The Company is composed of various broker partners, with distinct historic and formation and, for that reason, there is a natural difficulty in guaranteeing alignment to the execution of defined strategies, such that this low alignment ability may have an adverse effect in its performance. In order to the revenue generation be made effectively it is essential that the broker’s interests are aligned to the strategic objectives of short, medium and long term.

In this way, the Company seeks to maintain its brokers and/or main administrators of each company to be acquired in their administrative functions, including through celebration of commitment, non-competition and minimum permanency contracts with significant fines in case of shutdown. In this way, it is worth noticing that the effectiveness and validity of the non-competition clauses and contractual fines, which are stipulated in the contracts for the acquisition of partnership, may be judicially questioned and, eventually, suffer some kind of limitation by force of judicial decision and, such risk, may be applied to new acquisitions that may be made. Besides that, in some cases, the contracts for acquisition of Broker Partnerships predict exceptions for both exclusivity and the non-competition, which may lead, in some situations, to an adverse effect for the Company

The Company may be harmed because of inadequate conduct of its Broker Partners and independent brokers with whom it operates. The Company’s business model values the knowledge acquired by Broker Partners in their segments and operating area, so that they continue to enjoy commercial and operating independency with respect to their Brokerage Partnerships. The Company seeks to maintain constant communication between partners, brokers and directors, whenever possible collaborating with the decision making process referring to the Brokerage Partnerships

Alper does not hold total direct control over the operation of the Brokerage Partnerships and also does not hold direct control over the operation of independent brokers hired by Brokerage Partnerships. Therefore it is possible that some of the Broker Partners or independent brokers, without the Company’s knowledge, present a conduct that contradicts the standards stablished by the Company and SUSEP, such as the providing of inaccurate or incorrect information about the insurance commercialized by the Brokerage Partnerships, which may harm the Company’s image and reputation on the market, as well as generate administrative process by SUSEP and judicial process, leading to Company’s liability for such acts, which may cause an adverse effect for the Company.

Seeking to minimize such risk, the Company is strengthening its Corporate Governance, which relies on some pillars as the intensification in the formulation and execution of policies, norms and internal procedures.

Possible acquisitions by the Company may carry risks related to the integration of the Brokerage Partnerships’ business and other insurance brokerage business that the Company may come to acquire. The Brokerage Partnerships’ operations integration process and that of other insurance brokerage business that may, eventually, be acquired by the Company may result in difficulties of the following nature:

  1. Operational:Difficulty in integrating operations, accounting, personnel and management information systems; difficulty in integrating and standardizing information technology systems, guaranteeing integrity and reliability of the information and additional unexpected costs related to the operation.
  2. Cultural:Difficulty in maintaining good relationship between the Company and the partnerships that will be acquired; difficulty in relationship between distinct entities with different operational historic, operating fields and corporate culture.
  3. Business:Risks related to the entry in markets where the Company has no familiarity; efforts in research and development, marketing, logistics, sales and support, as well as problems in assimilation and unification of technologies, business and operations that will be acquired; low efficiency in new client prospecting and commercial relationship deepening due to low commercial coordination between subsidiaries; potential loss in key-employees of the business to be acquired. Additionally, the effort in the integration of companies, services or products may demand significant portion of administrative, operational and financial resources, which may harm the current activities conducted by the Brokerage Partnerships and the holding.

Because of any of the above-mentioned factors, the Company may not be able to successfully implement the strategy for integration of the Brokerage Partnerships already acquired or future acquisitions. Therefore, there may be deviation between the expected profit and the ones effectively earned

Some Brokerage Firms do not have its systems integrated with the Company’s; therefore, the consolidation of the management information, in those cases, occurs by an interface process, which may present difficulties and negatively affect the processes and results of the Company. Despite of that, Alper continues working to integrate the systems of 100% of its operations.

The absence of integrated operational historic, systems and management controls of 100% of the Brokerage Firms may still cause an adverse effect to the Company, being subject to risks, expenses and uncertainties associated to the implementation of its business plans in a bigger scale than those presented in partnerships with longer performance historic.

Alper has, as an objective, the participation in entrepreneur societies operating, directly or indirectly, in insurance and/or reinsurance industry and already holds effective participation in 46 Brokerage Firms, contributing actively in their administration.

The acquisition of the Brokerage Partnerships and other future acquisition involve and may come to involve risks related to the discovery of eventual contingencies unidentified on the moment of the acquisition. Throughout the years, contracts for "Quota Assignment" and "Incorporation" were celebrated for the transfer of Broker Partners’ participation in the Brokerage Partnerships that became or will become controlled by the Company. In the context of this transfer, the Broker Partners, as vendors of the referred quotas, are obligated to indemnify the respective Brokerage Partnership against contingency related to periods before referred transfer, presenting, as guarantee, part of the ordinary shares issued by the Company that they received in exchange as payment for the transfer of the above-mentioned quotas.

The guarantee contracts assure the Broker Partners, the defense right in every claim relative to the contingency covered by the guarantee, as long as they assume the advocative hours and any other costs related to their defense. In this case, the Company must wait for unfavorable decision, total or partial, and final, after all available resources are exhausted, to execute the guarantee. Besides that, the guarantee will be released in proportion of 20% each year if demands against the Brokerage Partnerships of responsibility of the respective Broker Partners are not verified, so that, after five years from the initial guarantee date, the Brokerage Partnerships may be subject to exposure to previously unidentified contingency in their legal and accounting diligence. However, the guarantee may be reinforced every six months, when an evaluation of the contingency guaranteed by the respective shares guarantee may be done, so that, once confirmed by reasoned report that the guaranteed shares of each Brokerage Partnership individually are valued below 100% of the guaranteed contingency relative to that Brokerage Partnership, the respective Broker Partner will be obligated to give, in guarantee, an additional amount of shares issued by the Company to the respective Brokerage Partnership.

The largest part of the Brokerage Partnerships’ revenue comes from commission payed by Insurance Companies and Health Plans Operators. The commission taxes are fixed by the Insurance Companies and Health Plans Operators, calculated based on the Issued Premium, taking into account, commission taxes, bonus and any other forms of remuneration established by them. The reduction or unfavorable change in other conditions of any of these forms of remuneration may result in decrease in the Company’s revenues and lower profitability of its operations.

Besides that, Alper’s revenue has a significant share of the Health sector, presenting susceptibility to unfavorable conditions of the sector. Until the first quarter of 2016, the Health sector represented 67,3% of the Company’s total premium. Although traditionally being "stable", any change in this framework may cause a more expressive adverse effect over business.

The Company also receives bonuses payed by Insurance Companies and Health Plans Operators based on the profitability of the customer portfolio and their accident rates, which values cannot be predicted. The commission taxes and bonuses are modified from time to time, based on economic factor and the market in which we operate. Those factors, which are out of our control, include the insurance products demand, the ability of the Insurance Companies and Health Plans Operators to get new business and their profit with the issuing of policies. The insurance market may be impacted by the availability of similar products offered by other Companies, who are not Insurance Companies and offer more attractive conditions, besides the existence of alternative products, such as benefits from public plans and programs, as well as auto insurance plans.

Therefore, the Company cannot predict the future behavior of commission taxes nor the bonuses’, as well as it cannot predict how such changes will affect its operations. Any future changes in commission taxes, bonuses and other forms of remuneration, as well as in other conditions, including payment, may imply in reduction of the Company’s revenue as an adverse effect.

Furthermore, unfavorable decision in lawsuits or administrative processes may cause adverse effects to the Company. Alper and some Brokerage Partnerships may be responsible for labor, social security and/or service taxes or hired personnel debts.

The Company or the Brokerage Partnerships are, or may come to be, defendant in lawsuits, be it in civil, tax, social security and labor spheres, be it in administrative processes (towards competition and tax authorities amongst others). Besides that, it may be responsible for debts or contingency, mainly of labor, social security or tax nature of the Brokerage Partnerships. We cannot guarantee that the results of these processes will be favorable or even, that we hold enough provision for every eventual passive due to those processes. Contrary decisions to our interests and that may prevent our business operation, as initially planned, or even that reach substantial values and do not have adequate provision may cause an adverse effect. Besides the lawsuits against the Company, our auditors identified practices of the Brokerage Partnerships that may result in contingency of fiscal, social security and labor nature, such as the risk of some Companies and independent brokers, hired by the Brokerage Partnerships, to be considered their employees.

Additionally, in case outside companies or independent brokers who provide services to the Company and/or the Brokerage Partnerships do not meet the labor legislation demands, the Company may be considered compliant or secondarily responsible for the labor passives of those companies or independent brokers, situation in which the Company and/or the Brokerage Partnerships.

In the date of March 31, 2016, those controlled by the Company were part in lawsuits and administrative processes due to their business. Based on the individual analysis of each one of the processes, along with the analysis elaborated by the lawyers, the causes with considerable probability of losses were provisioned, and in March 31, 2016, such causes summed to R$40.253 thousand. This value refer to judicial demands over subjects that arose in dates previous to the acquisition of the Brokerage Partnerships and because of the business combination records, the Company registered the same amount as indemnifiable asset.

To the Company Controller, direct or indirect, or control group.

The Company does not have a controller shareholder. The partners of the acquired Brokerage Partnerships throughout the years hold, as a hole, not considering the shares in the treasury, approximately 29,7% of the total social capital. The ownership of the shares issued by Alper may leave the Company susceptible to alliances among shareholders, conflicts among shareholders and other events due to the absence of a controller or a group of controllers. The absence of a control group may make certain decision-making processes harder, because we may not reach, the minimum quorum required by law for certain deliberations, or even the installation of the general meetings held by us.

Any sudden or unexpected change in the administrators’ team, in the business policy or strategic direction, attempt of control acquisition or any dispute among shareholders concerning their respective rights may adversely affect our business and operational results.

To the Company’s shareholders

The company may come to need additional capital in the future, through issuing of shares or securities convertible in shares, or even, acquire other partnerships by merging or incorporation, which may result in a dilution of the investor’s participation in the social capital. We might have to raise additional resources in the future through operations of public or private shares issuing or securities convertible in shares of our issuing, which may result in shareholders dilution.

The Company’s administrators and executives’ interests may be attached to the quotation of the shares issued by Alper, once their remuneration is also based on the value of the shares by a plan of shares buying option.

The fact that a significant portion of the remuneration of the administrators and executives is intimately connected to the Company’s result generation and the performance of the shares issued by the Company may lead the administration to drive the Company’s activities focusing short-term results generation, which may not agree with the interests of other shareholders, especially those with a different view over long-term investments.

Our shareholders may not receive dividends or interest over the own capital. According to the Bylaws, the Company must pay its shareholders, a minimum of 25% of the annual net profit, calculated and adjusted in the terms of the Law of the Shares Partnerships, in the form of dividends or interest over the own capital. The net profit can be capitalized, used to compensate for losses or withheld in the terms predicted in the Law of the Shares Partnerships and cannot be made available for payment of dividends or interest over the own capital.

Besides that, the Law of the Shares Partnerships allows that an Open Company, like Alper, suspend the mandatory distribution of dividends in a fiscal period, in case the Administrative Council informs the Annual Shareholders’ Meeting that the distribution would be incompatible with its financial situation.

To the Company’s controlled and affiliates

To the Company’s controlled and affiliates

To the Company‘s suppliers

The Company identified risk related to the providing of technology for operation management of its activities. We currently maintain an exclusive provider of software for insurance policies management, which leaves us dependent of their services. Difficulties presented by such provider may therefore adversely affect our processes and business.

To the Company’s customers

As the Company works as an intermediator between the final customer and the services provided by the Insurance companies and Operators, it may be responsible for the ascertainment and transfer of information and consulting services. Therefore, errors in those analyses and the information presented by the Brokerage Firms may present a risk for the Company’s clients.

In our reinsurance operation, we hold responsibility of accessing international markets and offering insurance cover to Insurance Companies and clients for optional risks placing. This operation may eventually generate gaps in insurance covers.

Even so, it is worth mentioning that for such risks, Alper is partially covered by E&O insurances.

Of the economic sectors in which the Company operates

The insurance brokerage market is highly competitive and fragmented, large barriers that restrict the entrance of new competitors in the market are nonexistent. Some insurance companies and financial institutions also compete in the commercialization of the same services through exclusive brokers or their agency network. Besides that, Company’s collaborators, including executives and other qualified professionals, may come to constitute new brokerage companies or work in already existing companies that operate in the insurance brokerage market. Other companies, even foreign ones, may come to actively operate in the Brazilian insurance brokerage activity over the next years, including through other consolidated groups, increasing the competition even more.

The concentration of some Brokerage Partnerships in the auto insurance brokerage segment may make them more susceptible to unfavorable conditions of that market, which may have an adverse effect for the Company.

Still, in what concerns the auto segment, the concentration of some Brokerage Partnerships may make them more susceptible to unfavorable conditions of that market, which can negatively affect us. Therefore, reduction in the growth rhythm of the auto fleet, absence or fall in government incentives and fall in the population’s acquisition power, may affect the operational results of the Brokerage Firms that operate in this segment. Currently, around 5% of our Premium are part of the auto segment.

Of the regulation of the sectors in which the Company operates

The regulation environment under which the Company operates and potential changes in this regulation system may have a significant adverse effect over the Company’s operations. Alper’s insurance business are subject to a wide, strict regulation and supervision and, for that reason, changes in the laws and regulations governing such activities may have a significant adverse effect over our business.

In the past, the Federal Government imposed the price control to various products offered by the insurance industry, seeking to control the impact of price rising for hiring of insurance over Brazilian inflation. There are no guarantees that the Federal Government will not change the laws or regulations aiming to prevent the rising of the prices of the Company’s products or that in any other way negatively affect the business, the financial situation, the operational results and the company’s prospects, besides the market price of the ordinary shares issued by us.

Changes in the interpretation towards the nature of the work relation of the independent brokers who collaborate with the Company’s activities may have an adverse effect to the Company, since the Brokerage Partnerships hire independent brokers, as independent workers without employment connection or by the means of other legal entity constituted for this purpose. There are previous decisions that consider such hiring an employment relation between the Brokerage Partnerships and their independent brokers or the service provider legal entity and, in case this understanding becomes predominant in the future, the Brokerage Partnerships and/or the Company may have a significant increase in the number of lawsuits and, consequentially, an increase in their costs with lawyers and in its payroll.

Some sectors of the economy have the legal obligation of celebrating insurance over certain activities and products, according to regulation nÂș 61.867, December 7th, 1967. In case the legislation is changed in a manner that eliminates or reduces the amount of mandatory insurance over such activities and products and in case the clients of the Brokerage Partnerships do not voluntarily hire such products, the volume of insurance hiring may be reduced, which may have an adverse effect for the Company.