BB Seguridade Participacoes SA

BOVESPA:BBSE3

Earnings Call Transcript 2022-Q4

[Felipe Peres, executive]

This conference call is being recorded and it has simultaneous translation into English. Those that want to listen to the audio in English, simply click interpretation, which is on the lower portion of the screen.

During the presentation -- during the meeting, we'll have the presentation in Portuguese. To see the document in English, please select in our website of the Investors Relations using the http address you can see on the screen. [Operator Instructions]

We have here with us today Ullisses Assis, CEO of BB Seguridade; and Rafael Sperendio, CFO and IRO. I'll now hand it over to Ullisses, who is going to start the presentation.

[Ullisses Christian Assis, executive]

Thank you, Felipe. Good morning, everyone. I would like to thank you all for being here with us this morning to talk about the earning releases of '22 results, which have really made us very happy. It's a very special day because we are very proud of the figures we built throughout the year. It was based on very solid work. Yes, once again, we have an impact of our net investment income on the total results of the company since the end of '21 because of the interest rates Selic. We thought that 2022 would be very similar to that of 2017. So once again, net investment income becoming and gaining more importance. So there was a BRL 1 billion impact of net investment income in the company this year. But on top of that, we've got an expansion of our operating income based on solid pillars, as you can see with the total numbers for 2022, BRL 6 billion of payout of the company with dividends. So net income, we had, had the highest one at BRL 4.3 billion in 2019, and we got to BRL 6 billion of our record net income and operating BRL 1.1 billion.

So when we saw the different business lines, we can see, first of all, the operating going over the guidance that we had initial plan and significant growth of premium bonds. Also in this item of -- that we had an improvement, there was a 31% improved year-over-year. There was a reduction in our loss ratio, which was extremely good in terms of results to Brasilseg and the company as a whole. There was also a significant increase in pension plan, and income from it, BRL 52.8 billion. So positive liquid net inflow of -- net inflow of BRL 1.7 billion. We used to have a net inflow, which was negative in 2021.

Now as to premium bonds, there was 38% increase in volume of sales over '21,once again, defining our market leadership with reserves. So we are once again #1 in reserves. And there's very strong movement -- movement on sales had an impact on brokerage. So totaling BRL 4.7 billion in revenues, so 18% year-over-year growth.

In addition to that, when we emphasize the BRL 6 billion, in the beginning of last year, there was a strong impact of the loss ratio of the rural insurance. And that has impacted somewhat. But at that time, we paid BRL 3.2 billion of different claims of crop and rural insurance. So as a consequence, we can have BRL 5.7 billion dividends, which means 95% payout ratio.

The next slide, I'm going to tell you a little bit about the results of our earnings because sometimes ballpark numbers do not necessarily indicate what we've done, and we really want to make you informed about all the specific numbers. I have been emphasizing our 3 main pillars of our management, which is digital transformation, customer experience and diversification of channels. Speaking of digital transformation, every quarter, we've been observing the increase in the in the percentage of products in cloud within our new IT architecture. And the challenge that we shared with all of you was that we would complete the process and go into new architecture by the end of this year, but have anticipated that in 1 year, we had planned to deliver by the end of '23, but we have already completed that.

We had approved a budget. We invested BRL 565 million to at digital transformation, 70% above what we had invested in 2021. And we concluded our first mission, just delivering 95% of our main products, products that produce the better results all within the new IT architecture. It's a living process. We'll have to keep on investing in technology because this is what supports all our strategies and what makes us really be able to take an important step, which is the future of this market, which is hyper customization of products.

The investments we've made in digital transformation and analytics has produced already strong results. When we analyze the percentage of sales in digital channels, it has grown year-over-year, 10% precisely nearly 900,000 sales just done through digital channels.

Now looking in our investments in analytics, we can also see a gain. We've got nearly BRL 4 billion premiums issued to digital marketing campaigns using analytics. So these are clients that once they are impacted by our offer, they decided to hire a product either digitally or physically. So we can see a volume in 2022, 97% above what we had achieved in 2021, significant improvement. Technology has also allowed us to take another step. Be there with the client wherever they are, so omnichannel concept.

Investments in technology have really provided an efficient footprint, involving BB branches, also be more assertive in mobile, WhatsApp, web and also partner channels. This is something extremely important. If I may give you an example. In the past, if we had agreed on partners to sell products, maybe it would take 4 or 5 months to have a product ready. Today, we can customize products in 1 week's time.

And this is only possible, thanks to the investments that we've made. Now speaking of it, which is diversification of distribution. This is another point that I have been investing and emphasizing since I joined the company. We have to come up with new channels, of course, reinforcing channels who also sales through the bank. Yes, we have the main campaign of sales ever in the history of the company in the second half last year, and the numbers show that. So once again, we are the leaders in premium bonds, in reserves. We've also got a leadership in credit life. We've had an expansion in many products. So it means we have investing significantly.

But speaking on diversification of channels, it is a new possibility and we are absolutely sure that this is going to be an even more momentum in the coming years. But in this first year, once we have it completed and used our strategy, we totaled BRL 1 billion premiums just issued through partners outside Banco do Brasil, 7% of the total sales made by the company.

The main highlight in the product that we knew would drive sales was the rural insurance or crop insurance. So we had BRL 933 million of crop insurance. If we were an independent insurance company, we would be the second largest in the market. So the largest insurance company is Brasilseg within BB. And Brasilseg with partners would be the second largest in the market, so the company, so to speak, that we could set up and selling in 1 year. So we understand that in upcoming years, upcoming months, these channels will gain even more importance. We've made very important partnerships, 36 Europe operatives, 573 agro banking correspondents and 21 partners of different segments.

Our main focus for 2023 is really to have partnerships that can really run smoothly. Some partnerships are huge here, have huge market potential, huge business potentials, but they still need adaptations and cultural integration, sales incentive, training of staff. And this is our main focus. We want to keep on expanding, but we really want to get more pace for a faster pace in our partnerships. This is why we have our well-structured areas for partners in each of our investments and also at the holding level.

Now speaking of customer experience because I always say that technology and product can be provided by anyone, but we have to be focused on customers' experience. This year, some numbers have really confirmed that our strategy has been the right one. We have expanded our customer base at 5%, so 20% for premium bonds and 13% for home insurance customers. Even expanding that, we have reduced significantly the number of complaints. There was a 31% decrease. And we've also had a new challenge. Start measuring NPS differently rather than measuring all the different phases of clients, including the final contract where there is no friction, usually, NPS tends to be high. But our challenge was that start measuring just NPS at critical process.

So claims, when calling support those processes in which customers really may go through points of friction. So -- even so, we have obtained significant increase in our NPS in our main lines, 12 percentage points for rural insurance, 13% for premium bonds, 11% for life and 20% for pension plan. So it shows that our willingness to deal with problems and come up with solutions has been successful.

We can see a reduction of churn in many products, increased satisfaction, so customers are more loyal, and this is what we expect to see in upcoming years. We can sell a lot the more customers we can retain in our bases, the better will be our results. We have also invested in creating and revitalizing products, so relationship, customer segmentation. We've created protection levels in the company. And with our relationship program, which is a pilot level yet, but it's going to be expanded to all of our customer bases, we will encourage cross-sell because we want what we call engaged customers over protected or super protected customers. We believe that we can meet the needs of our customers using our portfolio of products and through this program we've shown already some initial success because to be the right process for these customers, reducing churn, increasing satisfaction and retention rate, just delivering a value proposition, which is really going to mean that our company would be a long-lasting partner.

Now let's share some of our figures with Rafael and then we can go into the Q&A session later.

[Rafael Sperendio, executive]

Thank you. Let's talk about our results. I'm going to start by making a comparison year-over-year, and then we go into details for the fourth quarter. So here, we have our net income, BRL 6.45 -- BRL 6.45 billion, 54% growth over '21. The best record net income ever. 10 years after our IPO, we have this net -- record net income. So we have tripled our profit, whereas allocated capital has grown just 35% in the 10-year period. So really showing all the efforts in all our initiatives to improve the capital structure, efficiency. In other words, our return on investment has more than doubled for the past 10 years since our IPO, very solid, robust performance. So we've delivered in dividend to our shareholders more than the market cap at which the company was priced in April 2013.

Here on the right, we can see the consolidated net investment income, which got on BRL 1.088 billion, giving a good contribution to the company's final results. So 18% of the total income -- net income and profit. Here, we can see a breakdown of net income according to the main components.

Those that we normally share with you -- so the performance of the company in terms of operating result and how -- to what extent that came from net investment income. So BRL 2.1 billion in 2022. BRL 1.1 billion came from the operation from an operating result. If we break down, we can have the 3 main components, which are the improvement in our commercial operation, which responded for most -- accounted for most of that. So we sum up of the 3 first components because of we've sold more insurance especially our credit life and also rural insurance some reserves of the pension plan and that increase has impacted the results. So commercial performance has contributed with [ BRL 1.4 ] billion. In terms of loss ratio, there was also a significant improvement over '21. So the severe effects of COVID were partially offset by worsening of the rural loss ratio, especially in the first quarter of '22 because of La Niña climate change. But bringing together the reduction of loss ratio in products with life and debt coverage and the worse in crop insurance, we have here a final positive result.

Therefore, considering loss ratio, commercial performance improved, there was BRL 1.7 billion, which was translated into BRL 638 million because of the effect of tax impact, variable costs associated with the operation and the increase of the infrastructure of the company, so that really we could offer better results. So investments in technology and having teams somewhat expanded to offer that. So BRL 638 million is what it means. So BRL 1.7 billion and BRL 638 million, totaling BRL 1.1 billion of increase in our operating results, very good results.

Over the past 3 years, there were some diverse situations during the pandemic. The company was spending still at BRL 4 billion net income per year. And this year, just the operation is making BRL 5 billion net income per year. Now let's speak of the net investment income, BRL 978 million, BRL 660 million came from the variation of average rate as a result of the increase of interest rates Selic and also increasing volumes.

The mismatch -- the temporal mismatch of some pension plan -- some residual impact. So BRL 4 million positive. And the last component here, which is forward yield curve BRL 313 million, which is a less severe real impact of our forward yield curve. I think that the net investment income could even be better if it hadn't been for this [indiscernible]. It was a negative market cap of BRL 122 million after tax, of course, even though negative, it was much better than what we had in 2021, which had net losses of BRL 435 million in 2021.

Now let's go into operation by operation. Let's start with insurance. Payments grew 32% year-over-year. So 31% accrued. As you can see on the right. On the upper right side, we have credit life and rural insurance growing significantly, but all business lines presented solid growth in the second half and last quarter and the whole year. Now considering the quality of our operation on the left, we can see the performance ratios, combined ratios improved year-over-year in the fourth quarter and 10 percentage points here. And the main driver here was loss ratio, which has improved considerably for life and also credit life. Two more products impacted that, which was rural and -- also rural and life insurance.

So the fourth quarter and the whole year presented very similar improvements. So increased premiums plus the improvement in net investment income, which has a direct result because of increased average rate and increasing volume, that was 58% increase in the fourth quarter year-over-year almost doubling in 2022 when we compare to the net income from 2021. Now speaking of pension plans, so contributions 8% year-over-year, 16% complete year. So getting to BRL 53 billion. So redemption went down. So here year-over-year, and in terms of net inflow, the second half of the year was very good, BRL 2 billion and BRL 1 billion in the third and fourth quarter, respectively, so that we could close the year with a net inflow of BRL 2 billion, much more than compensated by the redemption because we had a significant net inflow, much higher.

When we consider the whole year, the first half of the year was somewhat more challenging, but the second half showed significant recovery with an increase in inflows reduction in the number of redemption and the net inflow were concentrated in low-risk products. As you can see here on the right side with a reduction of multi-market funds of assets under our management. It used to be 31.8% total, and it went down to 27.3% total. And it has a direct impact on the performance of our management fee, which went down from 1.03% to 0.97% as average rate year-over-year. So 3 basis points decrease year-end.

And this is what explains the 3% increase in our revenues, whereas reserves had a 10% increase in the 2-month period -- 12-month period. Once again, that investment income showed a normalized behavior with a parity of IGPM, IPCA, interest rate, somewhat -- so IPCA is somewhat higher than IGPM, but showing BRL 330 million of net investment income in 2022, which has impacted to led to the net income of 48% increase.

Now Page 11, Brasilcap. Here, we have a very significant contribution of premium bonds, 38% increase, getting to nearly BRL 6 million. It has meant a lot in terms of average volume, very favorable growth in terms of reserves, which was one of the factors that increased and impacted the net investment income and also the interest rate. So 3.6 percentage points in the fourth quarter. So closing the year with 3.1 points. And I'd say the net investment income was the main driver that provided this improved results, BRL 63 billion (sic) [ million ], BRL 218 million net income. In 2021, there were many factors, of course, that impacted the change in regulation of minimum required capital that really has taken us to shortening some of -- the maturity of some of our products, and this is why net income impacted our businesses. But in 2022, we can see once again a very healthy level of generation of net income from these operations.

Now Brasildental, the dental product. There was an increase in gross operating revenues and EBITDA margin. So contributing 22% of the net income of the operation. And finally, our brokerage, we can see here 18% increase of '22 over '21 year-to-date with -- and I've already mentioned that the main drivers were the insurance products within the crop products, rural products and also credit life. Net inflow was also a very important thing, which contributes significantly because the revenues of brokerage are identified as cash.

So our net margin had a 6.4% year-over-year increase and 3.9 percentage points if we compare '22 over 2021. There was a reduction in expenses and a reduction of brokerage in some pension plan sales, and that has impacted the operating side of BB Brokerage and also the improvement of the net investment income. So the portfolio is mainly invested in both fixed bonds. So it means we have benefit 100% from the increase in interest rate. So this improvement in revenues, we had a 40% increase quarter-over-quarter and then 26% total.

Here, our guidance for 2022, noninterest operating results, we just delivered 27.9% growth. The main surprises, so to speak, was loss ratio below what we had anticipated in our forward-looking statements and our performance better than what we had initially planned for the products of credit life and also in our collection for pension plans. Premiums written, we delivered 30.7% and I've just explained why in our variation of net investment income and our reserves of pension plan, and we're emphasizing that quarter-over-quarter that it would convert to the interval as we go to the end of the year. And actually, it was confirmed, 10% growth within our planned interval. And here, we have the guidance for '23. We hope that our noninterest operating result growth between 12% and 17%, premium written between 10% and 15%. And our expectations for reserves of pension plans would be growth between 10% and 14%.

With that, I close my presentation, and now we can go into the Q&A session.

[Felipe Peres, executive]

[Operator Instructions]

So let me, if I may, I forgot to made the point, and this is in the written material, but it's always good to emphasize that during the conference call, concerning the guidance of 2023. All the indicators are based on the accounting standard that we had been using by 2022. It does not consider IRFS 17. We are going to give some management monitoring based on the same accounting standard that we've been publishing and presenting our results to really avoid any kind of ruptures until the adoptions of IFRS 17 by the market is really become material and effective. So then we will just start following all the index according to IFRS 17. Till then, we will maintain our previous accounting standards so that the market can really track our performance.

So let's go back to the Q&A, shall we?

First question by Antonio Ruette of Bank of America.

[Antonio Gregorin Ruette, analyst]

Great results. I have 2 questions related to the guidance. First, noninterest operating results, what are the assumptions for the rural insurance or the crop insurance, what we will consider for GDP increase, for the crops and for increased premiums. The second concerns the results of 23%. But in terms of net investment income. What do you expect to have of net investment income? And would you share with us some -- your own perceptions on that?

[Unknown Executive]

Well, Antonio, within the limitations that we have of sharing our assumptions so that we don't give you any further guidance than what we have already agreed on providing to you in that interval of 10% to 15% of premium regions, we are somewhat more optimistic about the performance of rural insurance, and it has been vacated. It's difficult to deliver 50% growth as was the case in 2022. But we expect it to be one more line to be highlighted in terms of growth during 2023.

Now concerning the net investment income, when you look at our proprietary portfolio, excluding resources of our customers, we have BRL 30 billion approximately. Out of BRL 30 billion -- BRL 31 billion approximately, in what impact our net investment income, there would be 3/4 of the position in post fixed bonds, which are going to be directly impacted by an average interest rate, which is potentially higher. That's what the market is indicated [indiscernible] focus as well, and this is what we are anticipating.

Differently from what happened last year. We also expect a lower impact of markup in the market. It was BRL 122 million, if I'm not mistaken. And after market impact, we don't expect this effect to be repeated during 2023. And this is what we have considered so central bank, the market, all based on what we've seen so much. Once again, a parity of inflation rate and IPCA above IGM, which has been quite beneficial to Brasilprev and will probably favor our net investment income.

So we expect a significant improvement in net investment income over that of '22. We still have got 11 months of the year to observe, but it's generally and our projections have confirmed. I don't know if the trends would be maintained or not. There was a previous GPM launched today, but still we expect to have a positive result for net investment at Brasilprev. I don't know if I made myself clear within the limitations of what we can disclose, but that would be my considerations.

[Felipe Peres, executive]

The next question comes from Guilherme Grespan with JPMorgan.

[Guilherme Grespan, analyst]

I'd like to go still over net investment income for Brasilprev. When you moved the net investment income in terms of percentage of the technical reverse of benefit, it still run below even though there was some recovery, it means 1.5% net investment income over technical response. If you go back to '18, '19, it was about 2.5% and reached at 3% in 2019. So is there any structural difference? The net investment income of prev in 2019 was BRL 406 million, this month was BRL 200 million. So is there any structural reason and just assuming that IGPM and IPCA would be the same, do you expect that spread of the net investment income to be lower this year than what it used to be in 2019?

[Unknown Executive]

Let me sum up 2 reasons here. Reinvestment rates of this flow in recent years were made in a lower actual interest rate. And the second reason, which might hit an impact, which was the maturity of some NPCs. There were 2 maturities '21 and 2031. And part of those securities had to mature in 2021. And it had a very high rate. So as they expired, we could not replicate because we're speaking about a 2 digits rate, which we had loaded in our portfolio, and we could not reinvest at the same rates. And this is why this behavior that you mentioned is confirmed.

[Felipe Peres, executive]

The next question comes from William with Itau BBA.

[William Holmes, analyst]

My question follows also the guidance of 2023, and I have 2 questions. First, concerning insurance, I want to understand more about the loss ratio. What is the level that you are considering in this guidance? Are you considering a more conservative loss ratio considering a greater impact of La Niña or is it a normalized loss ratio ex the effect of La Niña? And in the guidance, thinking about Brasilprev, we can see that in the mid-range, you hold about 12% growth in your reserves. Does it mean that you anticipate a net outflow for 2023 or maybe breakeven in the base case scenario for Brasilprev?

[Unknown Executive]

Thank you for the question. I'm going to start speaking of Brasilprev. Yes, the guidance, the lower level consider market volatility and a somewhat more stressed market, generating some exit of resources or some of the financial resources living. It's an interval, right? So we considered some scenarios, considering all the reasonable expected performance. On the other side of the guidance, we expect a return rate over the interest rate, we always have to discount the administrative fee if we consider reserves.

So that would be a return rate over the interest rate, Selic, but considering a more marginal net inflow. Of course, we are going to keep on analyzing conditions throughout the whole year to assess whether we can review and change the interval.

The year has just started with somewhat more favorable conditions than what we initially anticipated, but it's still too early, as we move along, we will just adjust to what the interval according to the improvement in the context. Generally, it was good for a net inflow, but it will -- there was high volatility in terms of rates, yields, and also in the private credit market. So we prefer to be somewhat more conservative in the beginning of the year so that we can just fine tune the estimate throughout the year.

Now operating results, I would say we just have the similar situation. Our base scenario is to improve loss ratio over 2021. We don't expect, however, the same impact of climate changes as we had in the previous year. So we worked on the budgeting on really forecasting to get to the intervals even though in the base context, we just have improved the loss ratio, but we included a range that would be able to accommodate an adverse event if it happens. It's with what we've observed so far, not in January. Loss ratio has been maintained in line with what we observed in the fourth quarter. So no negative surprise so far. But similarly, through pension plan, it has to be monitored closely during the whole year. And we can always make a fine-tuning to this interval.

[Felipe Peres, executive]

The next question comes from Daniel Vaz of Credit Suisse.

[Daniel Vaz, analyst]

Rafael, Ullisses, kudos to you, great results. My question is about the credit life product. Very significant growth year-over-year, especially quarter-over-quarter when we see a 9% growth. It is a very interesting product. So I would like to understand your perspective for this product in 2023. Considering that Banco do Brasil could get more market share in this employees signed -- employee-related really credit and President Lula has said that. So do you think that it would be possible to capture that being a better credit life client? So having and not having that kind of support. So I would like to hear from you.

[Unknown Executive]

Thank you for your question, Daniel. Credit life insurance, as you noticed at the end of last year, especially the second half and the fourth quarter presented robust growth. As I told you, we've recovered market leadership. It's always related to credit but we observed a higher number of operations with the credit life product, and we are very optimistic about this product for the year. Banco do Brasil next week will present its results and show the perspectives of the credit portfolio. But I believe we can use that opportunities, I think it was good because we launched a new product, a new portfolio for credit life insurance, a remodeled product.

And we said we would suffer the impact because the product was cheaper, but it seemed to be more attractive in terms of sales, and it turned out to be true. There was kind of, let's say, a cleanup of that portfolio. And we now can see that we made the right decision, and this has been reflected in the numbers last year, and we anticipate a very good perspective this year. In addition, the end of last year, specifically in the second half, there was a strong impact, not only of credit life, but all our portfolio of products of the campaigns, the largest campaign ever in our bank, so really support to the sales force of Banco do Brasil, and this is going to be repeated in 2023. And this is going to also encourage more sales of credit life. So very similar scenario.

We are optimistic, and we also are still waiting for the position of the bank in terms of credit. And we can really deal with that as the appetite for credit of the bank can really expand.

[Daniel Vaz, analyst]

Great. Are you already speaking about payout? Anything that you can start sharing with us for 2023?

[Unknown Executive]

Well, in terms of payout, this is usually defined at the end of the year, but since the IPO, we've been paying between 80% and 90% of the net investment income, and all the investments that we are going to make, so far, there is nothing that would indicate that it would have to increase our retention. We are closer to the top side of the interval than to the low portion of it. But the definition will just be made in upcoming months.

[Felipe Peres, executive]

The next question comes from Gabriel Gusan of Citi.

[Gabriel Gusan, analyst]

My question is about pension plan. We've seen 2 quarters of positive net inflow but the management rate going down. Is this an effect of the high interest rate that really defends you from the investment platforms but, at the same time, leads to realizing a less sophisticated product? So does it make sense to consider that? And what are you doing to avoid the increase for being lost once there is more competition?

[Ullisses Christian Assis, executive]

Gabriel, I'll go first, and then Rafael can jump in and add. The administrative fee -- and this was not only Brasilprev but the whole market, so risk aversion and because of the interest rate, clients just wanted less sophisticated products, and it does have an impact. So I would say that and you probably recall, we used to have 12% of our portfolio in multi-market funds, and some players had 60% or 70%. The large players had about 30%, getting as much as 40%. And we used to have 12%.

In 2021, we readjusted our portfolio and got to 32%. In 2022, all the other players, those who had nearly 70% of multi-market then to the second or third, they had a significant drop. Some players went from 60%, 70% of multi-market funds to only 20%. The second and third main players just dropped down to 20%.

So I would say that of the big players, we were the ones that lost the least because our own multi-market fund thesis was to bring a multi-market fund product but not subject to high volatility. So we have products for more conservative or just more risk-avid customers, but it's a product that's easy to sell. Customers can easily understand how it operates. And as such, we have better control of our portfolio.

When we compare against the other players, we've lost less than they did. Yes, it has impacted our management fee, but the impact was much lower than for other players. Once there is a new economic scenario, we can change the portfolio once again, and this is what we expect to do in upcoming months and periods.

Our company has been setting in motion a number of actions to enhance retention rates. I used to be a Commercial Director at Brasilprev. And we were constantly concerned about retaining customers. So we perform qualitative and quantitative service, and during time, there were effective redemption withdrawals, so customers needing to make a withdrawal to pay expenses, to pay daily expenses. And it led to significant volumes. And to some extent, it has reduced in recent quarters, and we expect it to reduce further.

We have been very proactive, not only defending our position but also showing a more proactive position because portability is a very important indicator in the market. I would say that today, we performed much better than in the past. When we analyze the exit of clients, we are performing quite well, especially transfer out operations.

And we've been effective in attracting new customers. So we have different communication lines with customers and also a consulting line. At Brasilprev, we have some centers that provide consulting services. So customers are, let's say, with private Banco do Brasil, but they also have a dedicated pension plan consultant that interacts with them. So the more customers we have that are provided those 2 services, the more efficient we are in terms of retention.

So a lot is being said in the company. And in addition to that, open fund platforms, we operate with different players to have a more complete portfolio to our customers. So say we are well positioned in terms of products, processes. And we retain customers efficiently, and we also want to attract more portability coming from other players into our portfolio.

[Felipe Peres, executive]

The next question from Kaio Prato of UBS.

[Kaio Penso Da Prato, analyst]

I just have one question. You've recently announced some changes related with the performance bonus of the brokerage business. Can you tell us more about what the change was and what impact we can expect for Brasilseg and the brokerage? Because that was in 2022. So what can we anticipate for 2023?

[Unknown Executive]

Thank you for the question. Let me -- very brief here, we had a discussion that has led to the restructuring of our insurance operation in 2018. And since then, we have put in place a number of mechanisms, so performance bonus, the earnout mechanism for the operations of car vehicles, car insurance and satisfaction rates with the services provided. So we've agreed on some SLAs and some triggers. And since then, it's been, what, 5 years, and we've identified a number of improvements. What worked? What didn't work? What is the operating cost of all transactions and monitoring? And then we talk once again to MAPFRE, which has led to what you heard at the end of last year with the changing mechanism.

So the effect tends to be neutral. The effect is much more beneficial in terms of management of the operating flow of this mechanism much more than on results or income. So the brokerage used to be based on performance, but now they are prefixed at the highest level of the interval that we used to have. So it's a fixed brokerage fee at the highest level. Especially if it's a rural, we had an adjusted brokerage of 20% over premium written. And then we don't have to have earnout in the car insurance, and MAPFRE does not have to comply with the SLA for the car operation.

So this is , let's say, all changes in terms of results. However, it tends to be neutral. We don't expect any impact. So really simplification of the operational cycle.

[Felipe Peres, executive]

The next question by Thiago Paura, BTG Pactual.

[Thiago Paura Mascarenhas, analyst]

Ullisses, Rafael, I have 2 quick points. First, a follow-up on the payout. You've said that you expect it to be within the historical rates, but in 2022, you had significant growth and you delivered 95%. Just to try to understand from you whether there is an upside, whether you expect to be beyond the range for 2023.

The second question concern diversification of channels that Ullisses pointed out. You've talked about the summary of 2022, and you're focused on 2023. Just to know whether there is any milestone in your head about premiums written and sales for 2023.

[Unknown Executive]

I'll go first, talking about channel diversification. Thank you for the question. It's a new market to us. When the year started, I think I had never said that, but we used to have a magical number, BRL 1 billion, which turned out to be a reality. It's difficult to anticipate what's going to happen. This number will keep on increasing, I suppose, and other numbers, not only in the rural insurance, we still have got room to grow, but we've grown significantly right from the beginning, but we expect to grow in other products at a smaller amount. Of course, we have to be very realistic there because the crop insurance has a very high average ticket, which would leverage further.

We expect growth, significant. And I don't want to say any specific numbers to you, but I would say we have good perspectives for increase so that results can be more representative in the mid run. So having higher shares, I see we can grow in all different business lines. In crop insurance, we are talking about less than 20% of the total insured planted area. So in some countries like the U.S., it's 80% of planted areas fully insured. So the insurance market as a whole has been robustly growing but still with low penetration.

I was talking to the media, and the journalist asked about the home insurance. If all Brazilians new how much home insurance cost, everyone would end up buying because it's cheap considering the coverage. So you see, there is still a lot. We have to be more efficient, deliver appropriate products for the profile of customers. And this is a challenge on our side because if it's a customer of our partner, we don't know enough differently from our own customers, of course. And this is going to determine how we are going to grow.

This is why I don't want to share with you any magic number. But we've been considering all the different partners and partnerships to bring the right product to each customer profile. Each company has a different strategy, a different brand. Some of them have their own call center, center unit. Others just have a physical store. So these are specificities that we'll have to keep on understanding and then be able to measure our growth rate.

There were BRL 933 million in crop insurance. And some years ago, it's impossible. And we did it last year. So there are very good perspectives. And I believe this market share and this business will keep on growing in our portfolio.

Concerning the payout and emphasizing what I've just said, historically, we used to pay between 80% and 90%. Between 80% and 90% in 2023, considering the estimates that we have in capital structure, receivings, our expectation is to be on the upper portion of this interval. But there is no indication that we would go back to the 80% payout that we used to have immediately after the payout -- the IPO, I mean.

If you look closely in the material, you will see there still maintain excess capital concerning minimum required capital. It's a considerable amount for Brasilprev and Brasilcap, almost double of what the required capital is. It is maybe excessive. There is a possibility but always being very careful, and it all depends on the economic scenario and perspective for upcoming years to finally decide if we can use this surplus or not.

In 2022, we did that for the insurance because of a regulatory change, so we end up paying out 95%, just retaining the legal reserves. So this is why we went over our average interval between 80% and 90%. We are going to observe the business throughout the year to really analyze whether we can go into any higher rates or not.

[Thiago Paura Mascarenhas, analyst]

Congrats on the excellent results.

[Felipe Peres, executive]

The next question is from Tiago Binsfeld, Goldman Sachs.

[Tiago Binsfeld, analyst]

This is a quick follow-up about the rural insurance. Do you think there is reinsurance in terms of premium amounts? Do you think it can -- it would be a bottleneck to rural insurance in Brazil? And if you could please tell us, how do you perform today compared to the past?

[Unknown Executive]

Thank you for the question, Tiago. The discussion normally takes place during the first quarter with all the reinsurance companies. At first, there is no indication of limitation of capacity. In terms of quality of the crop, '22, '23, it has proved to have much higher yield and profitability than '21, '22, which has been beneficial to us and also to the reinsurance panel that was with our insurance company, which already has a competitive advantage because it is all over Brazil. It's great because we have a dispersion of the risk being less subject to variation and to impacts than those that operate just regionally.

So I think that our profitability, which is much higher than what it used to be, will probably change the appetite of a reinsurer. Reinsurance panel has been improving, and it has been since, I believe, 2018, having an increase of players and a dispersion of risk among reinsurer. The current reinsurance panel had 5 reinsurers. Exposure is concentrated in the 3 largest player, [ Unib ], MAPFRE and Munich. But in the discussions that we've been having to prepare that reinsurance panel to the next cycle, we are expanding the participation of these players.

Now in terms of capacity, this is something that we haven't got that far but -- yet. We are the largest insurance company in the market. We have over BRL 2 billion allocated in this operation. It generates cash significantly. If we detect there is an additional demand, we could also increase our risk appetite depending on the investment income expected for the upcoming crop or the upcoming year yield. So 20% risk retention is the range that we work with.

[Felipe Peres, executive]

There is a question by Eduardo Nishio from Genial.

[Eduardo Nishio, analyst]

Congrats on your results. I have one question concerning the hedge for prev. What is the hedge? And what is the percentage that is being subject to hedge? And do you expect to increase what the number is?

And then a follow-up concerning channel diversification. You succeeded quite well with the crop insurance with your partners. So I would like to hear more about your sales. How much of that comes from your own channels? I've seen you expanded digital. Digital used to be a main challenge. So we send a number of e-mail. Nobody reads them. But we can see here a relevant increase in digital. Of course, it involves Banco do Brazil and you. Could you please elaborate further on that and your outlook for the future?

[Rafael Sperendio, executive]

Thank you for the question. I'm going to address the hedge and the perspective, and then I'll hand it over to Ullisses to talk about digital transformation.

Concerning the hedge, it's about 3/4 of our exposure to IGPM. It is hedged on the assets. In terms of hedge ambition, it's something very dynamic. Our main concern is less with the indexation or the index used, so to speak, because it impacts short term. But in the long term, the indexes cannot be discrepant. Sometimes there is not maybe a perfect convergence, but they end up converging in the long run.

As we are speaking of 10- to 15-year maturity, in the long-term perspective, the index is not much of a concern. We are more concerned about the hedge of the real rate that we are providing to the participants. And we can see it as being very favorable for this specific operation, of course, with long-term rates over 6%, which means favorable conditions to create additional protection for the portfolio. It's very dynamic, as you can see. It really depends on the economic scenario. What really matters is the long-term actual rate, and we are very okay with that. Ullisses?

[Ullisses Christian Assis, executive]

Let me tell you about diversification. The participation of sales of digital and our partner channels, that the percentage, the share that they represent does not really concern me most -- much, I mean. If it's a high percentage, it doesn't mean that the pie is growing. And what we want is that all lines can grow, bank, digital and partners, because then we would have a larger pie. So we are much more concerned about absolute numbers more than the percentage. But our partners has experienced significant growth. It went from 0% to 7% over the total issued BRL 1.1 billion.

So future growth, we have to understand better the business. How fast does it grow? Is it directly related with expansion of partners and maybe a better adjustment of the channels and how they are used? So it's an investment that we needed. It is a decision that was most required. And without digital transformation, it would have been impossible.

As I told you, we visited a partner 1 year ago. If the product wanted -- if they wanted a product, it would take 4 or 5 months to have it delivered. So it meant it was very hard to make partnerships. Sometimes it's a digital partner, and they want everything in API, which is really commonplace nowadays. So these are things that we can deliver now. Therefore, we have good perspectives of growth.

Now digital got 14% sales in amount. Of course, there is a difference on the average ticket. And this is not only here. So an insurance market as a whole, it is based on low-ticket product. And really updated portfolio low-ticket products, the last product, very successful in sales that Bruno's team developed, so premium bonds at appropriate prices and products that really makes sense to each segment, of course, that we can have a better offer to clients because we do have products that can be offered and going into analytics, which represent BRL 4 billion of our total sales, not only insurance, we are talking about pension plan as well. But in these offers, we try to offer to the client the most appropriate product. In some specific segments, average ticket is different from that of lower income. So we can do that. And we are evolving significantly in that.

We still have got the integration of CRM with BB Brokerage. Our product really -- but we have seen, for example, in pension plan sometimes selling a second plan -- and especially because Brasilprev is more advanced, so we've been very successful.

Diversification of portfolio, and we can do that 100% digitally at a significant amount. The market has been changing, and we've been learning a lot from it to be more assertive really. Selling pension plan 100% digitally, it's not easy to be sold, and there is no successful case anywhere in the world to be 100% digital. But if the customer is already with us, we can make adjustments. We can adjust for new collections. That's -- it's feasible. So we are focused on improving the process, products and the experience. Product that we used to spend 3, 10 screens to be hired, now that can be contracted at really much -- in a much faster way, just using 2 screens, for example.

Another very successful case is the 3-offer model. So if the product is -- if the client is interested in 1 product, we offer 3 options, so a more sophisticated product, an entry-level product, et cetera. So I believe that this is moving quite well, and it has resulted from our learnings. And as such, we are much more assertive in offering the right product depending on the moment that the client is. So we have to offer the right product to the right client at the right time. And this is our main ambition.

[Eduardo Nishio, analyst]

I have a follow-up concerning CRM. Do you have any idea when you are going to integrate the CRM with your affiliate? Because this is going to be relevant to you, I suppose.

[Unknown Executive]

We have an integrated -- an implemented CRM at Brasilcap, seg and cap and BB Corretora, and we are part of that in this process. We've been discussing with the bank, and we made a decision. We have really huge difficulties to make integration, and we are probably going to take the next steps in upcoming months, and we expect to have it done in the first half of the year. And in our customer area, we are fully aligned with the companies on how to approach clients. So we have specific customer relations, we have scripts, predefined profiles on how to serve them even before the 100% integration of the CRM. But we expect to move further with the integration of Banco do Brasil as well.

[Felipe Peres, executive]

Said that, we close our meeting of the fourth quarter. Ullisses, Rafael, would you like to share any closing remarks?

[Rafael Sperendio, executive]

Well, thank you. I'll be free to provide any additional comments should you like them to send us any of your comments. So thank you very much. Our team is here to support you and to provide any further information. Thank you very much for your participation. Have a great day.

[Ullisses Christian Assis, executive]

I'd also like to thank all of you for being here with us. Thank you for the attention. The results have really satisfied us based on solid, robust pillars. It makes us, of course, very happy but not comfortable. And we are going to keep on working -- but we want the company to provide even better, more sustainable earnings for our shareholders. Thank you all very much.

[Felipe Peres, executive]

Let me remind you that we will have a very brief questionnaire. So we'd like to hear your feedback. Thank you all very much. Have a great day.

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