BB Seguridade Participacoes SA

BOVESPA:BBSE3

Earnings Call Analysis

Remarkable Growth Despite Challenges

During the first six months of 2024, the company's net income rose by 11.8% to BRL 4.2 billion, showing robust growth even amid market volatility. The insurance segment saw an 8 billion BRL in premiums, driven by a 21% rise in credit life insurance. Pension reserves increased by 12% to BRL 410 billion, with a net inflow of BRL 5.3 billion. Moreover, BB Corretora Brokerage revenues climbed 12% to BRL 2.7 billion. Guidance-wise, the company stayed within range but faced a slight shortfall in premiums written. Significant investments in IT and digital solutions also highlighted the company's forward-looking strategy.

Resilient Performance Amid Volatility

The company's net income showed impressive growth despite a volatile economic environment. For the first six months of the year, accounting net income rose to BRL 4.2 billion, marking an 11.8% increase compared to the same period last year. Excluding extraordinary events, the adjusted managerial profit grew by 3.1%, totaling BRL 3.7 billion. This performance underscores the resilience of the company's business model and its ability to navigate through challenging times.

Insurance Operations and Loss Ratio

Insurance operations displayed robust growth with premiums written reaching BRL 8 billion, propelled largely by a 21% increase in credit life insurance. The loss ratio declined by one percentage point, down to 27%, demonstrating improved efficiency in risk management. Rural and credit life insurance sectors contributed significantly, although there was a slight drop in commercial insurance due to the cessation of certain marketing operations.

Pension Business Highlights

The pension business saw its reserve balance surpass BRL 410 billion, a 12% increase over the past 12 months, along with a net inflow of BRL 5.3 billion. Despite a redemption of BRL 300 million, the net inflow more than doubled compared to the first half of last year. Revenue from management fees rose by nearly 10% year-to-date, attributed to the higher volume of assets under management.

Brokerage and New Investments

BB Corretora's brokerage revenues increased by 12%, reaching BRL 2.7 billion. As part of its strategy to enhance customer experience and operational efficiency, the company invested BRL 258 million in IT infrastructure, cybersecurity, and digital solutions. These investments have led to improvements in product offerings and customer service, contributing to overall growth.

Guidance and Future Prospects

Looking ahead, the company provided guidance suggesting a strong second half of the year. Although the first half fell slightly below the premium written target of 8% to 13%, adjustments in crop insurance expected later in the year are anticipated to bring the company back in line with its projections. Pension reserves are projected to grow by 13%, slightly above the original guidance range.

Impact of Regulatory Changes

The introduction of SUSEP Circular Letters 6, 7, 8 had a significant but manageable impact on the company's financials. This new regulation mandated the booking of certain deficits, leading to a one-off economic adjustment. The company adapted by reclassifying portfolios and aligning its assets and liabilities, mitigating the long-term impact on its financial health.

Community Support and Social Responsibility

In response to the recent catastrophe in Rio Grande do Sul and Santa Catarina, the company took substantial measures to support affected customers. These included extending policy deadlines, proactive customer outreach, and setting up an emergency call center. Despite the challenges, the company's reinsurance strategy effectively minimized the financial impact.

Customer Satisfaction and Market Position

Customer satisfaction continues to improve, with a notable reduction in complaints and an increase in customer retention. The number of 'super protected' customers, those with multiple products, grew by 6%. The company's focus on enhancing customer experience through innovation and modernization remains a key driver of its market position.

Earnings Call Transcript 2024-Q2

[Felipe Peres, executive]

[Operator Instructions]

Slides in Portuguese and English are available in our Investor Relations website www.bbsiguridaderi.com.br.

After the presentation, we are going to have a Q&A session when analysts and investors may ask questions. I'm going to come back at the end of the presentation to give you additional orientations.

Now I would like to give the floor to Andre to start his presentation.

[Andre Gustavo Assumpcao Haui, executive]

Thank you. Thank you, Philippe. Good afternoon, Felipe and Rafael. Well, first of all, I would like to thank everyone who's watching us.

I'm going to start the presentation by greeting our customers, shareholders and everyone who is watching us. It's a great satisfaction for me to announce the net income in the first quarter of 2024 has kept its growing trajectory year-on-year despite the scenario of volatility, reinforces the resilience of our business model.

Accounting net income has reached BRL 4.2 billion in the first 6 months of the year, an 11.8% growth as compared to the same period in the year before. Now the adjusted managerial profit that does not consider IFRS 17, all extraordinary events of the half year grew 3.1%, totaling BRL 3.7 billion. This performance comes from the growth of the operation. We're still in one high digits performing in the upper part of our guidance as expected. In our insurance operations, we had a high of [indiscernible] premiums written, getting to BRL 8 billion. And the main highlight is credit life, which grew 21%. The loss ratio of 27% remains a positive surprise, with a reduction of 1 point percentage points year-on-year.

In our Pension businesses, the reserve balance has exceeded BRL 410 billion, up by 12% in 12 months. with a net inflow of BRL 5.3 billion. I would like to emphasize that this number was more ,quite higher than the number that we had in the first half of last year. In our savings bonds or Premium Bonds business, we had BRL 3.2 billion half year and total results grew 5%, reaching the balance of BRL 11.2 billion at the end of June 2024.

Lastly, as a result of the good performance in the half year, BB Corretora Brokerage revenues totaled BRL 2.7 billion, up 12% as opposed to last year. And here, I would like to highlight the strength of the team of employees of the Grupo BB Seguros. And I would like to thank everyone in this group.

My dear friends, our strategy based on the company's purpose of providing confidence for people today and ever is still being executed as expected. In the first 6 months of the year, we had significant deliveries. We have invested BRL 258 million in IT infrastructure, cybersecurity and developing digital solutions journeys. This investment, combined with our strategy execution has made it possible for us to reach interesting marks in our portfolio. I'm going to mention a few.

Now we have the insurance and the rural pledge for livestock and fruit and vegetable crops. So together, these products have generated more than BRL 257 million premiums written in the first half of the year. In Life Insurance, we have improved our collection process aligned to our digital positioning. In May, we made available a solution that makes it possible to pay overdue installments through [ pics ] sent by WhatsApp. In very few days, more than 1,000 policies that were overdue were updated with a solution with helping the reduction of 11.6% of the churn of this product in 2 months.

In Pension, we made available the utilization of pension as a collateral for credit operations. In the first half of the year, more than BRL 300 million were [ reigned ] initially made available for structured credit facilities.

Now complementing the work in our main distribution channel, Banco do Brasil, we're still seek opportunities to expand our business model in addition to managing our current partnerships. Here, are some important numbers to highlight. In the first half of the year, we have reached the amount of BRL 75 million in premiums written of insurance for major risks and transportation, in partnership with our partner brokerage house, a growth of 71% as compared to the first half of 2023.

We have added 24 now new partners, considering major machinery dealers, and then we have insurance through partners, and we have reached BRL 797 million. And despite the 10% drop that was very much impacted by a lower volume of crop insurance, has presented a contribution that is 23% greater to the net income of BB Seguridade, which demonstrates our commitment with strategy at the same time as preserving profitability.

Everything that I have presented so far has a final objective offering the best customer experience to our customers so that people can assure and then everything that [indiscernible] demonstrates that we are on the right track in our corporate structure. The NPS of our customer base is consolidated in a quality zone of 6.4 points in the last 2 years. The number of complaints is falling continuously. The number of complaints in 12 months until June 2024 was 12.3% smaller than the one that we had between July 2022 and June 2023. And the level of protection of our customer base continues to evolve. The number of super protected customers, which are the customers that have more -- 4 more products in our portfolio has grown 6% between December 2023 and June 2024. And customer service and EPS, according to the assessment of these customers, improved by 1.6 point. As everybody knows, in the first half of the year, unfortunately, we had the catastrophe in the south of the country, especially in the states of Rio Grande do Sul and Santa Catarina. At that time of major difficulty, we try to reinforce our proximity with our customers. So let's see what we did.

We have delayed the cancellation of policies due to overdue installments that matured in May. We saw a proactive contact with customers in affected regions with 89% reach of our attempts. We have made available, an exclusive call center to receive calls from our customers who had an emergency, in addition to expanding the care that we provided to them. We received more than 5,000 calls. And this number, even though robust, presents through our reinsurance strategy, our net impacted is smaller as the share of our total results. It's important to remember that the effects of this event are still felt by the population that is now trying to rebuild the cities affected. That's why it's very important for everyone to keep helping in any way you can.

Before ending my presentation, I would like to highlight that the results that we have reached are the result of our effort and focus in our customers, employees and shareholders, and they are based on the solid pillars of our strategy, of which I would like to highlight: continuing improvement in customer experience; seeking to make our customers our fans; and to win them wherever they are by modernizing our portfolio sustainable and innovative way. This is translated in the pursuit for better results, in a way that is light and efficient. This is making a difference.

So I would like to thank you for the opportunity and now the floor to Rafael, our CFO, who is going to give you details about the numbers of the first half of the year and quarter. And then we move to the Q&A.

[Rafael Sperendio, executive]

Thank you, Andre. Good afternoon. So here, we have the details of the numbers. So this is an evidence of how SUSEP Circular Letters, 6, 7, 8 impacted us. It's been in effect since January. And in the second quarter, we had a few impacts that were slightly more relevant that had an impact in our bottom line. And part of these effects were booked as extraordinary events. So just repeating on SUSEP 6, 7, 8 and the changes they have imposed. It addresses many different points, but I'm going to be more specific in terms of the impact to Brazil prep.

So this document has defined and now has included the possibility of benefits to grant in terms of writing them down. So when we are -- sometimes, we are in the accumulation phase or in receiving. And now based on the circular letter, it's possible to write-off provisions for customers to survive in addition to the time, which has made it possible for us to close some benefit plans that were overdue or were past the maturity date. And the decision was postponed, increasing the liability balance a long time. So if we are to summarize, this has had the two-fold impact.

One more in accounting aspect and more economic. So in economic aspects, just as I said, we brought off the provisions of the plans that matured, and this led to a reduction in capital of about BRL 234 million, and this is quite positive. But the accounting aspect, the 6,7,8 letter has brought the change in the way we bought the deficit for these plans. As according to the previous standard, we used to -- once it was calculated, and there was a deficit in the provision, we had a prerogative of using more guarantee assets to offset if they were sufficient to offset, we did not need to book the liability, which we call provision for complementary coverage. And this is what we used to do until December.

According to the 6, 7, 8 letter or standard, when we started to have to book and to write this deficit in our financials. So at the time of transition, there was a deficit of BRL 650 million in January, and it was immediately booked so that we are compliant with the new standard. And all this impact had some impact in our bottom line. It got the attention. But after that, we equalized assets and liabilities in reclassifying the portfolio, so until maturity. And then we brought this plus value to the balance. We booked BRL 650 million in something like to BRL 1 billion that is part of the net property of Brazil [indiscernible] or better say, net equity. And now between January and March, we had the defined benefit plan and then we started asking customers what is the option, what they would like to have to redeem or to convert in income.

So when we went towards the second half that has a positive economic and there was benefit, and then we have BRL 1.3 billion. Something like BRL 300 million were converted in income and more on BRL 1 billion was either redeemed or converted into a PGBL kind of plan but now, with a defined contribution. It had a surplus because, there was a surplus and the flow that was projected a long time, ETTG was above the liability thereby, generating a surplus.

And then, when [indiscernible] and this flow comes to present time, it no longer exists because then we need to make the decision, we can no longer postpone the decision. So this surplus no longer exists. And then there is a provision for complementary coverage. And this is the share that we understand that is one-off and extraordinary. So we closed the period for comparison purposes and because this is a one-off event due to something external, which is the implementation of the new standard by SUSEP. And because it addresses all the inventory of mature plans, from now on, we are not expecting any other extraordinary events. The inventory has all been dealt with and addressed. And the adjustment, either due to survival or conversion in income or whatever, we are not expecting any impact as big as this one in the future. So this BRL 277 million, as you can see in the MD&A, there are details of the new standard and with the presentation attached to it. We have there's a table with everything that we did, all the movements and we can answer any questions you may have. But BRL 217 million has led to an adjustment in Brazil for BRL 129 million. And if we bring to BB Seguridade has had an impact of BRL 127 million. So we go from [ 1.8% to 1.9%] in the recurring base, growing 1.6% as compared to last year.

Now on the next page, you can see the investment income and the managerial, BRL 9 billion. And in the first half of the year, we delivered BRL 3.7 billion, a growth of 3.1% as compared to the first half last year. As Andre said, so this income came from operations. So next page, you can see all the components of this growth. The only reason why it wasn't bigger is because of the financial impact but you can see on the right-hand side that suffered because of marking to market in interest rates, especially between April and May and June. And this has impacted Brazilprev investment income. So this also increased the cost of the liability and investment income, which accounted for almost 20% last year, now accounts for only 15% in the first half of this year.

Now on the next page. You can see the details of the main component in the variation. So the main driver for growth, especially because in credit, life, insurance and what we've been seeing along the year, especially in rural insurance and also in the rural pledge that we have, especially considering the first installment for Brazil cap. There's a higher compensation for pension plans so brokerage revenues is quite significant. Management fees at Brazilprev with an increase in the assets under management. Loss ratio is also important for the operational results, despite all the impacts that we had because of the south of Brazil, as Andre mentioned.

If we see the overall numbers, loss ratio was better than the first half of last year, especially in Life and also in a rural pledge in Life. And then part of this growth is taken up by revenue by the broker house, an insurance company, and in addition to the growth of admin fees. But overall, the operational result has grown to BRL 260 million, 8.8% up as compared to last year. So part of this growth is taken up by the investment income as I said in the previous page.

So the first component is a BRL 23 million reduction, which is basically the variation in the Selic rate year-on-year. We offset part of this by volume, almost in full. This time, mismatch had a positive impact. Last year, the IGPM curve was downwards in there was a heavy -- time mismatch in the first half of this year, the time mismatch was almost neutral. So in the first half of last year in this, we have added BRL 150 million. But the main problem here for the final numbers was the marking to market. So we had -- it was down by BRL 150 million as compared to a gain of BRL 129 million last year, and this has heavily affected the investment income this year. And that's why you're seeing this impact. So it took BRL 147 million less than it would have grown.

Now on the next page, Page 9, you can see our insurance operations. So here, we have some specific impacts in terms of premiums written. First, so we have insurance that are part of the car loan, and this was a product that had a profitability that was below our attractiveness rate. And then we decided to stop selling this product to review it. And then once we relaunch it, we are going to remodel this product with appropriate profitability. Another impact was the write-off in some coinsurance operations in Life and also for Credit Life.

And then we had the impact of the contracts and everything took place 100% accurately. And accounting was not appropriate and the settlement of the operations, so we wrote it off, it's slightly more than BRL 90 million. And if we add the two effects in the quarter, if we compare year-on-year, there is a growth of more or less 5% in written premiums. And in the half year has grown 5% from 7.7% to 8%, the main highlight in the first half of the year was credit life, that has been good since last year with a very good performance this year to growing 21%. And we didn't even segregated the co-insurance impact and it would be even more very, very good performance.

As part of rural insurance, it has also added significant growth of 4.2% as well as the rural pledge and the only observation here is that the rural insurance, we have the crop insurance. So considering the plan and if we think last year, the performance is more modest in crop insurance this year as compared to last year. Even though we saw that Banco do Brazil increased its share in the amount of funds.

And then we are expecting to have -- to see a positive second half of the year in this segment. So here, commercial insurance has dropped in the quarter, and this is totally related because we are no longer marketing our operations and our insurance for credit letters. So Life here is flat because of coinsurance. Other than that, it would have grown year-on-year. In terms of quality, so to speak, and in this portfolio, you can see that in the quarter year-on-year, there is a slight worsening of the combined ratio. This is especially because of commissions. So crop insurance has the lowest commission in all modalities in our portfolio. And Credit Life has the highest commission.

So as Insurance is underperforming as a whole, and it has lower commissions because of mix and the loading in Credit Life, so it affects average commission fees. And that's why there is an increase in commission fees and was combined rate year-on-year. If we look at the cumulative numbers, so the positive highlight is the loss ratio that is lower than last year that more than offset the increase in commissioning because of the product mix, as I mentioned before.

In terms of expenses, it went up a little bit. If we see it year-on-year and year-to-date, but this is because of a change in classification of some intangibles from CapEx to OpEx. So this has increased the basis for admin expenses, and that's why it has gone up 30 basis points in accrued numbers. And now, investment income has dropped year-on-year in the half year, too. And this is because of the drop in the Selic rate, we offset a significant portion of that with volume but not everything. And lastly, considering the overall context of the operation, net income has grown 3% year-on-year, 7% growth in year-to-date because of higher written premiums or earned premiums, better [indiscernible] but also delivering a high growth if we look at year-on-year numbers.

And now on Page 10, pension. So here, we have collection growing 2% year-on-year, 8% year-to-date. So we're going against the downward trend, but we no longer had we had a redemption of BRL 300 million, but we had net inflow of BRL 5 billion in a year, with more than doubling as compared to the first half of last year. And in terms of active results, 410 in management fees growing 13% year-on-year, almost 10% in year-to-date numbers because of higher volume of assets under management. Average rate, we had 4 basis points. So there is a reduction in the share because of multi-market in a total of assets under management, and that's why we have the average rate here.

As to the adjusted net income, it has dropped 21% year-on-year, 26% down in the year-to-date numbers. This was impacted by the provision for complementation of coverage. So this generated this impact. And the investment income, marking to market and IGPM ended up having an impact in our investment income taking up some of the bottom line of Brasilprev the first half of the year. Now in our remembrance, so year-to-date number up by 3%. And reserves going up 5% year-on-year in terms of drafts paid, going down 20% in the year-to-date numbers and 15% year-on-year.

And in terms of the investment income in the second quarter, up by 5% as compared to the second quarter last year despite the contraction of financial margin of 5 basis points, but the volume and the growth in reserves, as I mentioned before, ended up more than offsetting this reduction in margin. Now year-to-date numbers, we have a financial facility line coming from the cost of liabilities as every result of the lower tier and we had this 18% share of the investment income, which [indiscernible] drive 12% growth in the net income and 11% year-on-year.

Now going to the BB Brokerage growing 12% year-on-year and also year-to-date numbers, very good performance because of pension and premium bonds and the net margin, it's better by 30 basis points also because of sales and net income growing at the same debt revenue 12% on both comparison basis.

And now to wrap up you can see our guidance for the year. So here, we have the adjusted noninterest operating result in the middle of the range, premiums written. We are below the range. According to the first half of the year, 5% and our guidance was 8% to 13%. And then it was here impacted by the write-off of our coinsurance operations and it had 2.5% growth. And other than these events, so the 0.5 point is related to this change in crop insurance that this year is going to be concentrated more in the second half of the year. And when you're keeping the range, we don't see any indication that we would review this range of growth.

And lastly, pension reserves growing 13% above our guidance range, which is from a 12%. So overall, our results are positive. There were some events along the first half of the year and that kind of affected the comparison basis. But as I said, everything involving especially the provisions for complementary coverage was related to accounting practices, but it had an economic impact, which is not so clear when we look at the bottom line. But it's very clear if we -- and as you're going to see in the table that we show the solvency of the company. So a significant reduction in capital for subscription, very positive.

And in terms of accounting aspects. So it compensates this deficit that we had in what we had, and this has not changed. It still offsets, but now we need to show evidence of that. And this is something for you to observe from now on and how this is translated in our financials, devaluations in the interest rate curve and the variation according to current assumptions. So we will always need to deal with this with the equity and to understand what we used to do. And so as I said, no major impact in the cash flow. Much to the opposite, this is likely to increase the flow this year.

So now I end my part, and we can move to the questions and answer session.

[Operator]

Thank you so much, Rafael. Now we are going to start our questions-and-answer session. [Operator Instructions]. We have the first question in audio by Guilherme Grespan from JPMorgan.

[Guilherme Grespan, analyst]

Felipe, Sperendio, I have two questions to ask. The first is for Andre. It's been a while that you are on the seat of CEO, and I didn't ask this last quarter, but now you're seeing the BB Seguridade and where you want to go in the next 1.5 years in terms of time. And my question is more related to the [ tax rate ]. So could you list to us which are your priorities for the other 1.5 years? And more specifically, I would like you to talk about the contract. This is something that the market plays close attention at. And when we look at previous administrations, there is a very clear message that the main focus of this is to diversify and contracts were second in priority. So I would like to hear from you, what do you see for the next 1.5 years as a priority in your management? And how do you fit into this list?

And my second question is more related to that, and I can wait and Sperendio can help. So this quarter, we had 27 million shares in [indiscernible] 64 million and I think that you wanted 59 million. And I have two questions regarding that. So can you confirm to us Sperendio, is it easy for you to cancel the shares in treasury and to have another buyback plan before the end of the current plan? And the second question is about executive officers' compensation plan. If I'm not mistaken, you have 40% in long-term shares, 10% in shares at site? Is there a lockup and the 40% in the long-term, how are you managing it?

[Andre Gustavo Assumpcao Haui, executive]

Guilherme, I'm going to ask Rafael to start. And I would like to talk about the strategy.

[Rafael Sperendio, executive]

So we are going to do it backwards. And you ask 3 questions, not 2, right? Well, thank you for your question. As to the buyback plan well, in fact, we are very close to the completion of our plan. As to the cancellation, so everything can be very simple. It's just a decision by the Board of Directors. But it's never so simple because our controller is a bank. So if we cancel those shares, this would increase BB's share in BB Seguridade and before that happens, we need to have an authorization by the Central Bank of Brazil. So this is a point for observation before we decide to cancel the shares.

As to executive officers' compensation, it is more or less, as you said, half is cash, half in shares and the first share is at site with no lockup. And then the remaining shares, they are in the LNA that is more in the beginning. It used to be linear until last year. Now this year, it's changed. So it's slightly heavier on the first year and then it goes down a long time over a period of 5 years, as you said.

[Andre Gustavo Assumpcao Haui, executive]

I would like to first say talk about the contract. So since I arrived at BB Seguridade, I think it will be 6 months. This has been addressed by our investors, shareholders whenever I travel and whenever I talk. Number one, yes, there is an intention on both ends to look at the contract. We understand that BB Seguros and Banco do Brazil to continue existing, the bank has all the intention to improve the relationship so that we can be more present in all cities through Brazil.

And of course, continue the strategy of having new customers, new partners. And then when we come from Banco do Brasil, and we are here working, of course, the company will keep doing its job. The way we are going to work, once contracts mature and in terms of investments, this is something different. I think that the easiest thing here is to sit down with a bank, look at our future to work on our perennial feature and continuity, both [ Taciano and Giovanno ], the CFO of the bank. And it, this is within this call. This is a priority. We all are investors and shareholders, we want to provide all predictability and confidence and this is the basis and the foundation of this term in office.

In answering your first question, we do not know what exactly is the management's time. But of course, we expect to build something and live a legacy. So the legacy here is to keep our strategy and execution, the active pillars in terms of modernization of our portfolio, always looking at what is the best and the most modern, both in the physical stores. And also, digitally always seeking innovation. Always seeking to invest in data analysis. But I would say that customers in this current management there is a major focus on new businesses. New business lines, new partnerships, new business areas or segments where we do not yet operate in this manner getting to new numbers. And I hope that in looking at customers, and improving everything that we do and after sales.

Looking at our shareholders and contracts and results and efficiency, and looking in home with our employees and teams, so that everyone is fiercely going after result and performance. I think that we are going to get to the results expected. So this is it. This is overall seeking new businesses, modernize the current portfolio, new products, new ecosystems. I think that this issue of ecosystem is very important. I'm going to mention one ecosystem that we are going to go into, which is Banco do Brasil's credit letter ecosystem. Also in terms of credit life insurance, and when we look at other's ecosystems, government, ecosystem, vehicles, ecosystem, we still have a lot to grow. And these are the paths that we can go towards, but always paying attention and being very careful so that we can provide good deliveries.

[Operator]

Our next question comes from Antonio Ruette from the Bank of America.

[Antonio Gregorin Ruette, analyst]

I have two questions. The first is about the guidance. Could you give us more details? And we look at the numbers delivered in the first half of the year, what is the idea? How are you going to convert into the guidance range? How are those numbers going to go into the guidance range in the second half of the year? What are you going to do to get that? And what about credit letters? Could you give us some indication, give us more details? How big is the opportunity that you're seeing with Banco do Brazil today?

[Andre Gustavo Assumpcao Haui, executive]

Well, Antonio, thank you for your question. As to the guidance, you're talking about premiums is the only one that we are below. Well as I said then, there are 2 unexpected factors that had -- if it weren't for those two factors, we would have gone into the lower range on the lower part of the range. We didn't expect the Safra plan to be released so much later than it was last year. So it kind of displaced the contracting of insurance. And I said BRL 2.5 million because of a product that we are no longer marketing, an impact of coinsurance. So this would be another 0.5 point.

Additionally, it's worth emphasizing that even though we are below the range because of these effects, these effects in the share, it's either negative or residually positive. Coinsurance took up a little bit more than BRL 90 million or rather premiums from the bottom line, and its share was BRL 7 million, almost nothing. And the product breach of guarantee is a product that also, in terms of return on the allocated capital, it was [indiscernible] value. This is an option that we made to favor profitability at the expense of billing. So if we take out these effects that create some noise, but that were affecting our bottom line and expect for the second half of the year is basically related to very positive expectations.

As I mentioned in the presentation, in Banco do Brasil, and the total controlled funds has increased substantially as compared to last year, and this will contribute to the increase in crop insurance. So this has helped a lot already. And this has been one of the reasons why we decided not to review the guidance. Always reminding you that 5% growth here and another point reinforcing the contribution or the share in the bottom line may look smaller than it would and retained has grown almost 11%. So retained premiums that really contribute to bottom line. And it's important to look at that indicator rather than just premiums written.

[Rafael Sperendio, executive]

I would like to comment. And in talking about the guidance, I think as to the Safra plan, the drivers and incentives and the strength of Banco do Brazil, together and for all products. And we have bigger motivations for a better bottom line, we are going to go after that. As to credit letters, the main lines, we have the Credit Life and car insurance, vehicle insurance. So we have and then we have the segment of credit letters. And this is a good estimation of our strength in Banco do Brasil, and we have our products. And with many of them, we were able to attain the results.

[Operator]

Our next question is from Tiago Binsfeld from Goldman Sachs.

[Tiago Binsfeld, analyst]

I have 2 questions to ask. The first one is about loss ratio. And as to the events in Rio Grande Do Sul, is everything in second quarter? Or is there any residual impact in the third quarter? Could you give us more color, what is the assumption for loss ratio that is in your guidance? And what is the degree of confidence that you have in terms of that expectation? And my second question is a follow-up as to the product that was discontinued. When are you expecting to launch a new product and would be immediate, you said BRL 100 million. Are you going just to launch a new product? Could you rebuild this contribution in your top line?

[Rafael Sperendio, executive]

Tiago, I'm going to start answering. As to loss ratio and Rio Grande do Sul, whenever there is a catastrophe in the case of our insurance company, we are always more concentrated in crop insurance. We are always very conservative with an initial estimation in terms of provisions. And then for PCR and IBNR. And so whenever we calculate the effective losses, we have a higher likelihood of reviewing it down rather than adding something. So in principles today, there is no indication that we might need to increase the provisions for claims to cover the catastrophe, in addition to what we have already booked in our balance sheet, BRL 225 million. Almost 80% of those claims were concentrated. In crop insurance and rural plants. So initially, this BRL 225 million have added to our -- about 3 points to our loss ratio, but after recovery of the protection closets. The final impact is 1 percentage point in loss ratio, which is not really material.

In terms of the outlook for the second half of the year, so there is no reason. So usually, the second half of the year and the profile of our business, usually, it is not too volatile in terms of loss ratio. And the peak of loss ratio usually in the first quarter, sometimes a little bit in the second Q, but most of it is usually in the first quarter. So we don't think there will be any changes in the loss ratio as compared to the standards that we've been seeing in the first half of the year. And this is all that I have.

[Tiago Binsfeld, analyst]

Would you like to say something about the credit letters?

[Rafael Sperendio, executive]

No, that's it. And the expectation in terms of calendar. So the technical area is remodeling the product. It's an old product. It's old-fashioned. It was not appropriately reflecting the evolutions in the credit [indiscernible] market, so we decided to stop marketing it to implement new functionalities to relaunch it. Between the end of the third quarter and beginning of the fourth quarter.

[Operator]

Our next question comes from Gustavo Schroden.

[Gustavo Schroden, analyst]

Good afternoon, everyone. Thank you for the time. Thank you for the webcast. It's nice to talk to you again. I have two questions to ask. Number one, is about brokerage results. It's quite strong results in our understanding. And if you look at the breakdown, the brokerage, even gained some share. And I was reading your release and you mentioned that the booking of deferred revenues for insurance and in pension, there is a mix with a higher percentage of commissions in the first installments as compared to sporadic products. If you consider the mix that you have, and also the insurance growth base, should we expect the same kind of performance in the second half for two changes with 2 points? This is question number one.

Second question, more for Andre. As to the contract -- but you mentioned -- that as almost BRL 800 million in premium being brought. So what is the target? Do you have any plan that has been outlined of how much would come from external partners? Could you share that with us?

[Antonio Gregorin Ruette, analyst]

Pedro, well, I'm going to go first. Thank you very much for the question. As to the brokerage house. In fact, in the first half of the year, we have carried a little bit more incentives for periodical payment products, quarterly, monthly recurring products, as we call them. And these products, whether pension or premium bonds, the brokerage fees associated to them is slightly higher, and this led to an increase of the brokerage in the bottom line of the second half. So we have to carry over more recurrence along the year. So in the second half, we have less incentive to do that. We are going to rebalance the incentives once again. And we are likely to have a higher contribution as it historically happens when more sporadic -- so we are not going to have what happened in the first half of the year again.

And in terms of the breakdown of our bottom line, insurance and pension in terms of subscription, we'll gain increased share. So this was impacted by the interest rate curve. This had an impact in the first quarter, but we are not expecting it to repeat, to open the curve in the second half. the investment income is going to recover some of the losses. Just as an insurance company, we are expecting more premiums coming from the crop insurance. And this is going to increase the share of these two companies in the overall result. And this is the dynamics that we are expecting.

[Rafael Sperendio, executive]

Now as to the mix of sales through the bank and outside the bank. Thank you for your question. I don't have a number to tell you. Tell the story. Well, I got to the company and I saw this major concentration and the main strength of cooperatives, helping us to share to sell insurance to specialty credit life insurance with quite significant results. And then we started looking at other segments. We understood that we needed to define partnerships in terms of what we want from our partners, who are the best partners for BB Seguros to operate in those other segments? We cannot follow ourselves and say that we want 50-50 or 60-40. So Banco do Brazil, for example, more than 5,000 cities is our strength. We have almost 29 million customers, 80 million registered people.

But if I were to give you the number that I expect, I think that if we all have 10% outside, 90% inside and we look at each kind of product, each kind of company, Brasilseg more relevant than Brasilprev. So Brasilprev because of the quality and market leadership should see growth. Brasilseg is already above this line of 10%. Brasilprev is below Brasilcap 2 been growing. So I believe seeking an average of 10% is good for all of them, .but always -- this is also a matter of choice of efficiency, if we decide to be outside with partners. There's another issue of preparation for us to offer our products externally. So this is also related to efficiency. I think that 10% outside, 90% inside. This is a significant number. Absolutely feasible and in the future, 20-80 is where we could get. But we think that Brazil, Banco do Brazil is our main channel.

[Operator]

On next question comes from Kaio Da Prato.

[Kaio Penso Da Prato, analyst]

I just have one question, is about the PCC adjustments in Brasilprev. So you had some customer payments. And also, PLA and minimum capital requirements. If you consider all these effects, would you say that the mismatch of IGPM and IPCA has gone down or not?

[Andre Gustavo Assumpcao Haui, executive]

Well as I said before, there was a reduction in the minimum capital requirement that had already matured. We call these customers, and we ask them to make up their minds and to make a decision to redeem their plans for sale. It was BRL 1.3 billion. So the reduction of the liability of the customers that had to make a decision, ended up relieving the minimum capital requirement for subscription. And at a lower scale, we had a BRL 234 million reduction just because of that. And then there are other factors, but this is the most important in terms of structure, in terms of capital requirement.

Also in terms of capital requirement, which is the share that we allocate. When we shorten the liability, so a shorter gap in duration, the duration of liability's higher than assets. And the second positive impact is an increase in the matching of indexes. Today, the matching is about 88%. So we are overhedged in the short term and a little bit under in the long term. So this new rule has provided this [indiscernible] has shortened the liabilities, increase duration and increase the coverage for the liability.

[Operator]

The next question comes from William from Itau BBA.

[William Holmes, analyst]

Hello, good morning, everyone. I have almost have two questions to ask. First of all, in terms of rural premiums and thinking just in terms of credit life that is quite strong this quarter, but this is an expansion that started strong in July 2023. When you changed your target audience, how should I think about this line as of Q3. Would they see a strong reduction in growth or a slowdown? Or is this a 15% pace year-on-year? Are you expecting it to continue?

And my second question in terms of loss ratio. So you had the significant impact in rural and crop and also, credit life are better in terms of loss ratio. So these are these improvements better? Was there any reverse especially because of residential? Because the number of calls has gone down recently year-on-year whether you have any calls that were not responded to in Rio Grande do Sol?

[Andre Gustavo Assumpcao Haui, executive]

Thank you for the question. So let's go top down. In terms of revenue, life and the rural [indiscernible] insurance had a very good performance in the second quarter. Considering the basic comparisons, lien was very much benefited because we launched a new coverage. And to guarantee livestock with credit operations, so when they gave animals as a guarantee, we didn't have this kind of coverage. So we had to change the scope, and this had an impact in the first quarter, but it was the sale, BRL 250 million in the first quarter. But this is very much focused for inventory operations. Now marginal sales are a lot smaller.

So when we look at the second half of the year in the rural segment, it is -- it changes. So the crop is going to get and the rural lien insurance is going to reduce its share, especially if we consider the levels that we had in the first quarter. So this is going to -- the crop insurance is going to go up and the share of the others is going to go down. And this is more related to what you said. As we launched new products and adjusted coverage age in life and rural and also the lien insurance, so we brought in many operations that are not yet having claims being sent. So there is 1.5 years, 2 years maturity curve until we can see the real impact of billing increase on loss ratio. So right now, it's only diluting the loss ratio.

Despite what we had in Rio Grande do Sul, this wider base is contributing for a lower share in terms of claims, in Home insurance. So it ends up being quite small. If we look at the world, we had more than 5,000 claims and all of them were contemplated within, expanded our array of coverage for the population that was directly affected by the catastrophe. Of course, we have some time to adapt, to provide the service. And there were some structural problems and as weathers went down and the flow went back to normal, we could serve all our customers.

[Operator]

Our next question comes from Daniel Vaz.

[Daniel Vaz, analyst]

Felipe, Andre, Sperendio, so my question is related to La Niña. As of August, there is a 70% likelihood of this phenomenon happening and in crop insurance, you reinsure and the El Niño in the first half was not materially significant, in terms of your loss ratio for rural insurance. So this expectation for La Niña., what are you expecting to see?

And number two is regarding reinsurance. Brazil is in the mapping of catastrophes and it was not so common and more recently with Rio Grande do Sul, and everything that has happened is slightly worse. What is the renewal? And now this revenue, what is the pricing renegotiation in terms of Rio Grande Do Sul, any impact? Is there anything you can share with us?

[Andre Gustavo Assumpcao Haui, executive]

Daniel, thank you for your question. As to the impact of La Niña. The effect that we are seeing is not worse than what we expected. What happened when we were designing the budget for 2024, we were already working with La Niña starting to have an impact in the second quarter, but was a displacement in terms of time. It's very difficult to forecast, but 4 months in advance considering the calendar year, it's 4 months later. It's not yet completely clear. We're not very confident in terms of expected impact. But considering what we expected for the agricultural cycle that is starting now, there was an indication -- there's no indication that leads us to think that to worsen our loss ratio assumptions.

As to reinsurance. In fact, we have the event in Rio Grande do Sul. In principle, everything related to renegotiations -- with negotiations with reinsurance company, there was no significant impact for us now. I think that this impact is more concentrated in major [ rigs ] and commercial lines that we have no exposure in subscription. The lines with higher exposure in subscription are the ones in rural segment. And you can see, if you look at our numbers, even though we had this event, nothing is materially sufficient to impact the profitability of our portfolio. Anything that might lead to a rediscussion of prices with the reinsurance. We haven't started our negotiations yet. I think this is going to take place in the future. But considering our business profile, no significant impact that we are going to carry or take to one with reinsurers.

[Operator]

So we have no other questions to be asked in audio. We have 2 questions here that were asked in the Q&A. The first is a very recurring one. So the first one regarding dividends. So what are we expecting in terms of payout of dividends this year, and next year, in combination with the buyback program?

[Andre Gustavo Assumpcao Haui, executive]

Well, overall -- and so there is the buyback program, which is close to the end of its execution. So in the beginning of the year, we have a composition between return for shareholders coming from dividends and a higher share in the buyback program. In the second half of the year, if we continue when the same trend of execution that had been going on until then, the performance of the second half of the year will have a higher share of dividends in the overall numbers, in terms of return for shareholders. Considering both components for the year, as we've been practicing since the IPO between 80% to 90% payout. So this year, we are closer to the upper part of this range. Always considering [ connection ] between buyback and dividends.

Now when we look at quarters. The second quarter, more cash. So considering our basic scenario, we do not have yet a time range that is sufficient to close the program, to have everything. We're not expecting it to end in 2024. This is not the basic scenario. The second is related to the investment income and Selic rate in terms of what was projected in the beginning of the year, at the end of 2023. This has changed slightly.

[Operator]

How does this change impact 2024 and also our growth expectations in terms of investment income and net income next year.

[Rafael Sperendio, executive]

Well, it's still a little too early to talk about that. But in 2024, we're working with a slightly sharper decrease of the interest rate in the second half of the year, which is not likely to be confirmed. So we are going to have an interest rate charge higher in the second half, slightly higher than we had initially expected. And this has an impact in the companies that comprise our holding.

Now volatility. It's difficult for us to tell. Whether we are going to have any investment income that is going to be higher even if Selic is higher because of this volatility as we've been observing recently. But in principle, we are not working with the same size of opening of curves as the marking to market. And will not repeat in the second half. So we are going to have investment income better in the second half of the year than it was in the first half of the year.

Obviously and we adjusted our assumptions, too. So especially considering the drop in interest rates, whether it comes through or not, sometimes it's carried over into next year. So in principle, in the beginning of the year, last year, next year, we were expecting a slightly more significant impact of investment income. Now, it looks like this is going to be more gradual along time with a lower impact and less volatility and we had initially expected.

[Operator]

Thank you, Rafael. So now we end our webcast to announce the results of the second quarter of 2024. As always, if you can please answer the questionnaire that you are going to see once the call -- the webcast is over. We want to hear you. Your opinion is important to us. Now I would like to give the floor to Andre and Rafael for their closing remarks.

[Andre Gustavo Assumpcao Haui, executive]

Hello. Once again, I would like to thank you for attending our conference call. And I am available along to the Investor Relations team to answer any questions you may still have. And we try to do our best to give all the details in the changes that SUSEP Circular Letter, 6, 7,8 has caused but we can explain anything that is not yet clear to you. .

I would like to thank everybody watching us, especially our customers, shareholders, investors. Everyone we share our day-to-day, our colleagues, all employees. So obviously, we are going to go on strong in executing our strategy, going after a strong and sustainable results. And we are available, if you want to get in touch with us so that we can answer any questions you may have.

Once again, thank you very much, and have a good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]