Caixa Seguridade Participacoes SA

BOVESPA:CXSE3

Earnings Call Analysis

Caixa Seguridade Reports Strong Performance with Notable Resilience

In Q2 2024, Caixa Seguridade reported a normalized net income of BRL 928.2 million, up 12.8% from Q2 2023. This excludes extraordinary events like the BRL 461 million impact from Rio Grande do Sul floods and BRL 342 million from unreported credit life insurance claims. Despite these, operating revenue grew 13.7% year-over-year. Premium written increased by 8.6%, driven by housing insurance (+10%) and credit life insurance (+11%). Pension reserves rose 12.8% to BRL 163 billion. Additionally, the Board approved a dividend of BRL 702 million, scheduled for November 18th.

Strategic Execution and Digital Transformation

In the recent quarter, the company focused on process improvements and expansion of marketing channels. Self-purchase options for home insurance and personal accident insurance for micro-entrepreneurs were introduced. Two new products aligned with environmental, social, and corporate governance (ESG) criteria were also launched: Prev Juntos, a pension product, and Life Plus Future, a life insurance product. These efforts align with the company's digital transformation and customer-focused strategy.

Impact of Rio Grande do Sul Catastrophe

The second quarter saw a significant impact from nonrecurring events, especially the catastrophe in Rio Grande do Sul. The company responded with immediate measures to support the affected residents, including claims assistance, credit analysis, and extended payment deadlines. Despite the challenges, the company maintained its focus on customers and displayed resilience in managing the crisis without substantially affecting its operating margin.

Financial Performance and Future Outlook

Caixa Seguridade reported a potential BRL 928 million in results, which were affected by the Rio Grande do Sul catastrophe and Credit Life issues. The company's strategy in sales and risk reinsurance allowed it to adapt quickly to these adverse conditions. Despite the increased redemptions and reduced sales due to the Rio Grande do Sul crisis, the company anticipates overcoming these challenges and exceeding expectations in the second half of the year.

Environmental and Social Commitment

Caixa Seguridade continues to emphasize its role in promoting social and environmental sustainability. It won the gold seal of the Brazilian GHG Protocol program for the second consecutive year for its efforts in reducing greenhouse gas emissions. Moreover, part of the profitability from its new products is allocated to social and environmental projects, reinforcing the company's commitment to social inclusion and environmental impact management.

Customer-Centric Innovations

The launches of Prev Juntos and Life Plus Future enhance the company's portfolio with products that not only meet financial needs but also offer added social and environmental benefits. This includes ecological disposal, telemedicine, and financial guidance assistance, demonstrating Caixa Seguridade's dedication to providing comprehensive and socially responsible solutions to its customers.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to Caixa Seguridade's video conference to discuss the Results for the Second Quarter of 2024. This video conference is being recorded and the replay can be accessed on the company's website, ri.caixaseguridade.com.br. The presentation is also available for download. [Operator Instructions] Before proceeding, I would like to take this opportunity to emphasize that the forward-looking statements are based on the beliefs and assumptions of Caixa Seguridade's management and the current information available to the company.

Those statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should take into account the events related to the macroeconomic environment, industry, and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this video conference, we have Mr. Felipe Montenegro Mattos, Chief Executive Officer of Caixa Seguridade; and Mr. Eduardo Costa Oliveira, Chief Financial and Investor Relations Officer of the company.

I would now like to give the floor to Mr. Felipe Mattos who will begin the presentation. Please, Mr. Mattos, you may proceed.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Hello, good morning, everyone. Thank you for taking part of our Caixa Seguridade presentation results. I'm Felipe Mattos, the company's Chief Executive Officer; and Eduardo Costa Oliveira, Chief Financial and Investor Relations Officer with me. Today, we will present the company's results for the second quarter of 2024, whose data have been launched yesterday and we'll be going deeper with you today. We start with slide 3 with the main highlights of Caixa Seguridade's strategic execution in the period.

First of all, I highlight process improvements and expansion of marketing channels. In the second quarter, we implemented the self-purchase of home insurance and people consortium or rather credit letter to do purchasing [indiscernible] either through institutional website Caixa's internet method. In addition, we started offering MEI Personal Accident Insurance in the CAIXA Tem application. In this way, we align the project with features aimed at individual micro entrepreneurs with the appropriate channel to serve its target audience.

These improvements are in line with the Caixa Conglomerate digital transformation and customer focused strategy. We also launched two new products. These two launches are part of the +FUTURO family of products reinforcing Caixa Seguridade's commitment to incorporating environmental, social and corporate governance criteria into the portfolio. Thus, marking a step into the journey towards a more sustainable, transformative and inclusive future.

The Prev Juntos [indiscernible] pension product aimed at clients with moderate risk profile who consider ESG issues when making financial investments adopting a methodology for integrating these practices in the selection and allocation of assets. The product also offers innovative assistance such as ecological disposal for furniture and equipment in accordance with sustainability practices and current standards, environmental consulting which provides guidance for the efficient use of electricity and natural lighting, including cost reduction estimates, consulting for more efficient use of water and tips for reusing items and domestic recycling.

Eco-efficient projects with indication of professionals trained for the development of rainwater capture, green roofs, reuse of natural resources among others. The life plus future is a life insurance that is accessible for individuals between 16 and 70 years and with insured capital ranging from BRL 10,000 to BRL 20,000 regarding the property. The insurance covers coverage for death in total or partial permanent disability due to accident and offers assistance such as telemedicine assistance with access to medical consultations by video conferences, family funeral assistance, which guarantees the provision of funeral assistance services in the event of a death of the main insurer's spouse and children up to 24 years of age, psychological support assistance with reception to identify emotional impairment through telephone contact and financial guidance assistance, which offers financial education service with access to a personalized platform with content that is specific on the subject.

Both products allocate part of profitability and the premium to social environmental projects promoting social inclusion and income with no additional cost to customers, yet another commitment of Caixa Seguridade, Social and Environment. To close this slide in the context of climate impact management Caixa Seguridade won for the second consecutive year, the gold seal of the Brazilian GHG Protocol program. The recognition from the Getulio Vargas Foundation granted to organizations that present in a complete and audited manner, the balance of their greenhouse gas emissions duly verified proving their efforts to reduce environmental impacts.

On slide 4, we render accounts of what the company has done regarding the victims of the catastrophe in Rio Grande do Sul. And this slide, we showed the great humanitarian action of Caixa Seguridade and here in the rescue of lives and reconstruction of many lives and families considering such chaotic and completely unimaginable event in our world that took place to our friends in Rio Grande do Sul. As mentioned in the first quarter conference call, among the measures to support residents of the municipalities affected by the heavy rains is the reinforcement of their teams of claims and assistance centers and the implementation of an agile conveyor [ bale ] for the qualification of housing of students with simplified documentation.

In the quarter, there were a total of almost 11,000 calls, an average much above of the usual one. And these calls did not happen easily. They happened in a single wave, in a single wave with the care that we, Caixa Seguridade have with our customers. And our agents, since they were very concerned with the situation, they also had psychological support for them with their families, because after all the environment was very difficult that our agents found, let alone those that suffered that needed insurance that had support of Caixa Seguridade over the period.

We exempted the [indiscernible] for use of consortium letters that were contemplated in the affected region until the May the 3rd for the credit letters. And we had credit analysis approved until the 2nd of August. An extension of the deadline for payment of home insurance installments due between April 24th and May 13th was granted for all customers with properties in the affected municipalities. We have increased the limit of use of Caixa Residencial home and housing insurance assistance services, regardless of whether the plan's limit had already been exceeded.

We took care of those that needed at a difficult times. This concession was valid until May 31st. And we made total donations over BRL 430,000 in donations via group companies to communities and to NGOs linked to the affected regions in Rio Grande do Sul. Caixa Seguridade extends in solidarity with victims and people who lost their loved ones and homes in this terrible tragedy, and will continue to support the reestablishment of insured homes. The company understands its role that is socially promoting and disseminating the insurance culture in Brazil in order to ensure greater comfort and tranquility for Brazilians and their families.

We are here to support and care for society and protect it. On slide 5, we have the highlight. We have two more important highlights to present financially. First refers to our results. We've achieved a managerial net income of BRL 770 million, which was impacted by extraordinary events in the period, which we will talk about later, which led to a reduction of, small one, regarding the first, the same quarter, 2023, the semester, even with these events, we still presented a growth of 2% on a normalized basis, which disregards the effects of extraordinary events and the profit would be BRL 928 million, an increase of almost 13% compared to the second quarter last year.

In other words, within what Caixa Seguridade could do, what was predicted with, the company acted with a growth of almost 13% regarding the previous year. Finally, as we announced yesterday, the Board of Directors approved the distribution of dividends in the amount of BRL 702 million, equivalent or higher to 21% of adjusted net income for the second quarter 2024, with the payments scheduled for November 18. Frequency of payment greater than historically seen within the company as addressed in previous events and meeting the demands of many of those that are our investors who believe in the company.

Thus, in line with what has already been provided for in our policy, if there are favorable financial conditions, the company will continue to submit a proposal for interim distribution of dividends each quarter based on interim balance sheets, always in percentages as high as possible so that the company can distribute value and return value to those that believe in the company, just as you do who are listening to this teleconference. The next slide to conclude this first part, we will comment on the highlights of the quarter in commercial performance.

I'll start with the commercial performance in home insurance, which presented more than BRL 880 million in premiums subscribed, a growth of more than 10% compared to the same quarter 2023. This result maintains our absolute market leadership and is a reflection of the consistent growth of Caixa's housing loan portfolio. However, in the same line and complementing it, the residential home insurance reached almost BRL 230 million in premiums written in the second quarter to growth of more than 18% compared to the same period 2023 [indiscernible] home mortgage growth, the home growth 18.2%.

We are moving forward in the home portfolio and actually having more penetration in Brazilian households. It's historical in terms of the product because of the effort of Caixa reflected in the expansion of our sales channels. Lender insured whose performance linked to the origination of commercial credit, Caixa reached more than BRL 580 million in premiums written, an increase of 11% compared to the same quarter last year. This result comes mainly from the increase in the volume of banks' payroll loan operations in assistance with more than BRL 46 million in revenues.

We have a good growth of over 36% compared to the same quarter last year, maintaining the upward curve in revenue since the creation of Caixa Assistencia. Highlight was to the performance of [indiscernible] product which grew 42% compared to the second quarter of 2023. This is a great bet of Caixa Seguridade in having an assistant pure product that may provide citizens a bit more services at low cost, but there are services that are very much used adhering to the reality of Brazilian citizens.

Moving on to the accumulation business, we have the mark of almost BRL 163 billion in pension reserves, a volume 12.8% higher than June 2023 contributed to the generation of BRL 141 million in revenues from management fees in the quarter, which grew by 13% compared to the same period in 2023. In credit letters, the funds collected reached more than BRL 940 millions, a growth of almost 90% compared to the second quarter 2023. This performance is due to the sale of almost 4 billion in letters of credit driven by the diversification of the channels for the commercialization of the product, especially [ consortia da gente ] we already mentioned in the highlights of this quarter.

I now invite Eduardo Oliveira to continue the presentation, bringing and giving more details on the financial and commercial performance of the second quarter 2024. Eduardo, welcome.

[Eduardo Costa Oliveira, executive]

Thank you, Felipe, and good morning to all. I will now present in more detail financial and commercial performance of the company. On slide 8, we briefly present the financial performance of the second quarter 2024. It's important to note that the numbers presented here are managerial view in accordance with the IFRS, or standard because SUSEP has not yet adopted the new standard, which is IFRS 17, in addition to maintain comparability with previous periods although, Caixa Seguridade financial statements are presented in accordance with the official standard, IFRS 17.

And the first chart, the operating revenue totaled an amount of almost BRL 1.1 billion reduction, 0.9% compared to the same quarter 2023 and a decrease of 13.9% compared to the first quarter 2024. This reduction is due to the impact on claims of extraordinary events that took place during the second quarter with an impact on the result and equity interest from our insurers. On the next screen, I will talk a bit more about these events. But excluding those extraordinary effects, operating revenues would grow 13.7% compared to the same quarter '23 and 14.3% year-to-date.

In relation to distribution revenues, which grew 13.4% in the second quarter 2024 compared to the same period 2023, brokerage revenues from the housing 65%, residential 20.5% and lender or credit life 11.2%. Insurance lines stood out, companies net income reached BRL 770.3 million in the second quarter, reduction of 6.4% compared to the second quarter '23. In the first half of the year, profit grew 1.9% compared to '23. However, if we disregard the extraordinary events that I will detail on the next slide, our normalized net income would be BRL 928.2 million for the quarter, a growth of 12.8% compared to the same quarter 2023.

In the rightmost chart, ROE reached 59.7% more than 1 percent point above the first quarter indicated and almost 4 percent points above ROE of a year ago, even with a negative impact of extraordinary events in the quarter. Speaking of extraordinary events, we're in screen 9, we have normalized net income where we highlight the effects of the two events that affected companies as a result throughout the second quarter. The first of them, which was a subject of material effect disclosed on July 8th, concerns lender insurance or credit life.

In case our insurers received from Caixa Economica Federal, the database contained a list of deceased business who were holders of credit agreements without any communication of the claims until then. Considering the expectation of disbursement from this base, a provision was made in the amount of BRL 342 million whose effect on our participation income and our net income was BRL 123 million. The second event refers to the floods that occurred in Rio Grande do Sul, which affected the result of participations from Caixa Residencial, CNP Seguros Holding and Too Seguros whose negative impact totaled BRL 34.7 million.

It is important to note that this amount represents the impact of the catastrophe on Caixa Seguridade's net income after the effect of insurance, tax effect and considering our participation in those companies or our stake. If our insurers did not have the reinsurance contracts that I mentioned, the effect on net income would be much greater considering the total of claims reported object to provision in the second quarter was around or plus BRL 461 million. Excluding those extraordinary claims events, the company's normalized net income would be BRL 928.2 million, 12.8% higher than the second quarter '23 and 11.4% higher in the cumulative view of the year between the first half of 2024 or same period of '23.

Screen 7, we have the commercial performance of risky business for premiums written. We observe growth for all lines compared to the second quarter '24, same period '23, generating an increase of 8.6% between periods. The highlight was to the growth of housing segment, 10% residential, 18%, both with best historical in additional to credit life that had this accelerated growth of 11% between the periods in terms of relative terms I draw attention to assistance as Felipe mentioned with growth 36% compared to the second quarter '23. In the cumulative view of the year, the segment's growth was 7.5% in relation to the cumulative index of the first six months of last year.

Total premiums earned for the second quarter of '24 grew by 2.8% compared to the second quarter '23 in comparison between semesters had an increase of 3.7%. On screen 11, we talk about risk business bringing some more colors regarding operating performance in terms of loss ratio, an indicator of 59.4% second quarter '24. When we measure the loss ratio by adjusting the extraordinary events for the second quarter, excluding claims related to the floods in Rio Grande do Sul and redistributing land claims according to the period of occurrence, the indicator for the second quarter '24 would have been 24.2%.

In terms of commissioning representing the proportion between the cost of acquisition and the premiums gained in the second quarter '24 registered 21.2%. It remained stable in terms of behavior within expectations. The operating margin was evidently directly impacted by lender and flooding in Rio Grande do Sul as a result operating margin for the second quarter '24 in the insurance segment registered decrease of 38.2% compared to the same period in 2023. As a result in the quarter, the Risk Business Group represent the reduction of 8 percent points in its representativeness in relation to the total operating margin compared to the same period in 2023.

Moving forward to screen 12, we have the performance of the Accumulation business and the total of the vertical of accumulation. We had a drop of funds collected 0.8% compared to the same quarter last year in line basically. But on the other hand, we had a growth of 4.5% in the half year view compared to the same period in '23. Revenues from pension plans, which consider contributions received from pension plans and premiums written at risk continue to be the largest contribution of funds collected in second quarter '24 with the amount of BRL 6 billion in the segment.

Highlight was to the launch of [ pension ] scheme that customers with moderate investor profile as Felipe had mentioned, the funds collected from the consortium or credit letter segment grew 86.6% compared to second quarter '23 maintaining increasing performance curve. In the half year [indiscernible] collections practically doubled between '23 and '24. Fund raising from capitalization segments grew by 6.7% in 2024 regarding same period last year, the volume collected was BRL 332.1 million.

Moving to screen 13, we show more detailed breakdown of the performance of the accrued rates by segment. First block referring to social security, we have the chart with the opening of contributions where we observe the performance of the segment still affected by greater competition with other funding projects in the Caixa distribution network. Thus the contributions received in the second quarter of '24 show the reduction compared to previous quarters whilst in the half year view, the cumulative index was 2.8% lower than recorded in '23.

Regarding results, the amount of BRL 162.8 billion at the end of June of 2024 represented the growth 12.8% compared to the end of first half of 2023 whilst the average management fee for the quarter was 1.09% in the first quarter of 2024. And this center of the screen, we have premium bonds. The funds raised reached BRL 332 million an increase of 6.7% if compared to second quarter 2023 with emphasis on monthly payment products whose growth was 43.3% between the periods for the year-to-date [indiscernible] collections increased 18.4%.

Capitalization or premium bonds reserves increased by 10.8% compared to the last quarter and 97.4% compared to the same period last year. In the credit letter block, BRL 3.77 billion in new letters of credit were sold in the second quarter of '24, an increase of 2.2% compared to Q2 '23, which effectively contributed to the volume of the inventory recording an amount of BRL 24.7 billion in the quarter an increase of 66.2% compared to the same period last year.

Going back to the group view of the Accumulation business on slide 14, we observed the growth of operating revenue in the second quarter around 22.5% compared to the same period as I said previous year with growth in all segments although pension plans account for 59% of the amount of operating revenue which includes income with management from management fees, risk written premiums and VGBL contribution revenues. I highlight here the credit letter segment which grew 63.3% between the periods in the year to date view operating revenue for the first half of 2024 and the amount of BRL 1.6 billion grew by 20% compared to the first half of 2023.

The operating margin of accumulation for the quarter grew 27.1% compared to the same period in 2023 and grew 5.3% compared to the [indiscernible] thus the representativeness of total operating margin which also considers amounts earned from the risk and distribution business increased by 5 percent points compared to the same period in '23 totaling 28% in the second quarter of 2024. On screen 15, we discussed the distribution business. Brokerage revenues grew 13.4% compared to the second quarter of 2023 and 14% compared to the first half of 2024 with the same period '23 with emphasis to the insurance segment which grew by 16% compared to the second quarter '23.

In this quarter, the total of commissions paid by JV 70% represent the broker's gross margin whilst 18% were allocated to the payment of premium fees and 5% to the cash service fee. Already considering this managerial calculation the values of life, lender and pension which are paid directly by the insurer to Caixa while for the other areas, the gross brokerage is paid to the broker which in turn transfers the fees to Caixa. Regarding operating margin we had an increase of 13.1% compared to the same quarter of 2023 with emphasis to own insurance which showed a growth of 16% compared to the first quarter of last year and 14.2% in the first half of 2024 compared to the first half of '23.

The operating margin for the quarter reached BRL 442 million representing 31% of the company's total operating margin. Moving on to screen 16, the operating indicators are presented in a group manner considering the percentage of Caixa Seguridade economic participation in each of the [indiscernible] for the second quarter 2024 was slightly difference with the IDA with 10.5% remaining historical average which is slightly improvement point percentage point. In the combined index there was an increase of 12.3% points in relation to the same quarter '23 and 12.4% points in the indicator regarding previous quarter due to claims of the part of credit lives and the floods and rivers.

So when we disregard the extraordinary events that occurred in the quarter, well, the [ CIF ] for the second quarter would have been 56.3% as a consequence of loss rate we see an increase in extended combined rate which reached 60.8%. If we exclude extraordinary events, the extended combined ratio for the quarter would have been 50.8%. We've finalized on screen 17 where we bring the share of the financial operating results regarding the company's profit, net of taxes and considering cash and security that is stake in each subsidiary. The financial results for the second quarter 2024 grew by 7.9% compared to the same period in '23 reaching BRL 258 million due to the reduction in operating income due to the events already discussed in this presentation.

The share of financial income and the total increase reaching 33% of the quarter's result. In the right-hand side chart represent the group views, Caixa Seguridade investment portfolio which includes in addition to the company's own portfolio, the portfolio of each invested company also weighted by the percentages of participation. The amount in June 2024 of the group investment grew 9.9% compared to the same period in 2023 and decreased 4.4% when compared to March '24. Of the total BRL 12.8 billion in financial investment, 44% were allocated to post-fixed securities, 37% to pre-fixed securities, 15% in inflation-linked securities, and 4% to other types of funds. Still in the accumulated view, the total accumulated profitability of the portfolio at the end of June was 10.9%, corresponding to 93.3% of CDI.

With this, I close the presentation of results for the second quarter of 2024, and we will start the Q&A session. Thank you all very much.

[Operator]

[Operator Instructions] Our first question is from Mr. Gustavo Schroden from Bradesco BBI.

[Gustavo Schroden, analyst]

It is a pleasure to talk to you. I'd like to ask you two questions, if possible. First, I'd like to understand how we can think from now on this event's one-offs especially of the floods in Rio Grande do Sul and the part of credit life. I'm not going to repeat the numbers you've mentioned. You mentioned what the results would be, excluding those effects. I'd like to think that here, how we should look from now on?

Should we work in the forthcoming quarters with loss ratio that is normalized of these three main operations that have been impacted? My second question would be regarding in terms of growth of premiums. We've seen a recovery in the growth. And I'd like you to tell us if this is sustainable for the forthcoming quarters, if you will keep on working on the acceleration of premiums issued. As you've mentioned in this quarter, if you could make a link as to how if this has some connection with what was mentioned in the opening by Felipe with the sales channels new and innovations you gave to those sales channels.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Thank you, Gustavo. Thank you for your interest in the company and your questions. First point, events are extraordinary by their nature. We are not able to predict them. There is some data that is very important regarding Rio Grande do Sul. The company sells an assertive product for customer that is priced appropriately and the strategy of the company had been in financial and also commercial terms. On risk management, we adopted a robust structure and well-negotiated in terms of reinsurance.

Regarding Rio Grande do Sul, regarding what it could have been and at the end speaking only in financial terms, never regarding the great tragedy that took place but into financial terms at the end, the company proved that its strategy was appropriate, adjusted and [indiscernible]. Considering what could have been only BRL 34 million impact and the result is very reduced compared to the size of our company. This showed that we were on the right track, that we had the right strategies regarding Rio Grande do Sul, regarding events as such.

But this does not -- well, this does not prevent us from asking other questions as to what we should expect to events happening in the world. Before those events happened, we had internal debates in the company, especially the JVs, the company that run insurance. We had broad debates regarding social insurance for climate events and also debates at the National Insurers Confederation. We have following this topic and this is something that we keep bringing to the fore at our board meetings and our senior management meetings.

And even though it had been proven that our strategy was correct, we understand it's not yet enough. We must have even more protection both for our customers and also in terms of our strategy for the company regarding the topic. It's something that is our focus regarding Rio Grande do Sul. And regarding credit life, it was something somewhat adverse not only for Caixa. It was a one-off event, we adopted measures both within Caixa and Caixa Seguridade to have a [indiscernible] checking new mechanisms so that this does not happen again and actually we verified that this was something that should not be repeated.

We are confident to say that all systems that were necessary for us to implement new routines and verify and be confident that events as such would not be repeated have been adopted. This is why, Gustavo, we've tried as much as possible to acknowledge and bring all those news regarding Rio Grande do Sul and also credit life within this quarter. And this is how the company acts. We act in a proactive, nimble, immediate way. It's important for those that invest in us that believe in us and have clarity of news when we have it.

This is why we communicated the market as soon as those events took place, as soon as we accounted for them and before the disclosure by SUSEP. This is the attitude we have in the company, that we maintain our commitment not only for today but proactively regarding the future. Regarding future impact, well, of course, loss ratio increased but later we'll talk about this. Let me remind you, when we have the news of a claim, we make the provision. Not necessarily will they materialize. Eduardo will talk a bit more about this.

But the fact is that we are conservative, very conservative. It's important to be conservative so that we are not caught by surprise even in events that we have no control. We have good prognosis, as you've mentioned, Gustavo, regarding our commercial performance. In various of our fronts, it is beyond what we had as a forecast. But globally, we are very close to what was forecast and we expect that in second half, that is, the message tends to be stronger, that we are able to offset those extraordinary events that we had in the second quarter. Now, we have a third and fourth quarters that are strong, robust, so that we can attain the goals that we outlined for the company late last year. Edu will talk a bit more about some details.

[Eduardo Costa Oliveira, executive]

Just to add to what Felipe said that's been quite complete, just to bring some numbers to add regarding Rio Grande do Sul, Gustavo. First of all, well, good morning. Sorry. And thanks for your participation. We had provisions, Gustavo, that added to BRL 461.3 million in claims regarding the tragedies in Rio Grande do Sul. This provision includes the expectation of claims that were not reported, not sufficiently reported. Just these two elements correspond to approximately BRL 225 million of the BRL 461 million in provisions.

Those provisions were made based on the expectation of claims from the experience of our insurers, of course, and they had their effects offset by the creation of assets in the reinsurer. We understand that at the finalization of the regulation or regularization process, the amount should be smaller than the claims reported, which should lead to an adjustment in provision of claims and also in active reinsurance. So therefore, we understand that greater volume of claims reported in the [indiscernible] should not have significant impact from now on.

From now on, the Rio Grande do Sul, from a financial viewpoint, should not have greater impact from now on. And speaking of credit life, especially regarding possible future impacts, our expectation is that the loss ratio of the product should consider this history that was not being contemplated. In an exercise in which we consider the date of death as the date of communication or reporting of the claim, we made it available along as an attachment for this presentation. And previously we had disclosed with the SUSEP report of May, we found that in a normalized way, there would be an increase of loss ratio at Caixa Seguridade between 1 to 2 percent points, Gustavo. This should be replicated in the future. So the loss ratio for the company that was varying for between 21% and 22% in the previous quarters, until then we considered a good reference for the future, will probably tend to be placed between 22% and 24% from now on.

As to premium growth, Felipe put it quite well. The main driver of our growth in bancassurance is credit. We've already grown in the first half 7.5% regarding the first half of '23. And we understand that the credit, Caixa is the main business door for the company. And this strategic alignment is fundamental to tap into the strength of Caixa, the coverage over 150 million customers of Caixa. Thinking about the guidance Caixa disclosed recently regarding the growth of the credit portfolio for 2024, between 7% to 11% of real estate credit between 8% to 12%. We understand the same, even with an uncertain scenario regarding SELIC, we still have the expectation of expanding the credit portfolio of the bank that consequently should positively impact the dynamics of premium issued.

I tried to answer your question in a very comprehensive way, but once again, we thank you for your participation and for your questions.

[Gustavo Schroden, analyst]

Just a point that drew my attention to what you commented, especially Rio Grande do Sul, that would be too early to think about some kind of reversion. Since you commented, so you did some things, plus in a conservative way? Can you think about some reversion for the second half, or is it too early?

[Eduardo Costa Oliveira, executive]

Well, Gustavo, this reversion thing is I tried to give this vision that there is a zero effect of result, just as we can possibly revert a provision, we can also revert the assets made the right with regarding reinsurers, the change in assets. In other words, even if we reverse the claim provision, it will be combined to the reversion of assets. With the reinsurers, the effect and results tends to be very close to zero.

So that's why we've tried to make it as clear as possible that the financial effect of the tragedy in Rio Grande do Sul tend to be contained in the second half. Third quarter onwards to us should go back to normality.

[Operator]

Our next question is from Mr. Antonio Ruette from Bank of America.

[Antonio Gregorin Ruette, analyst]

I have two questions on my side. First is a follow-up on the previous question on premium growth. If you could delve into the bancassurance channel, how do you see the cross-sell capability? I say this because this is one of the main thesis since the IPO. I'd like you to give some color to that, how you see the evolution of that at the very end, both for real estate and home. And how do you see this from now on? Well, do you believe it should be added? Do you believe there are some efforts that could be made to increase penetration, or it should be like this? This is the first question. How to better explore the bancassurance channel?

The second question is whether you could explore a bit loss ratio, excluding events. It's important to note that we see an increase in loss ratio quarter by quarter, year over year, even when we exclude Rio Grande do Sul event and the one-off of the part of Credit Life. But that's my second question.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Hi, Antonio. Pleasure speaking with you. Thanks for the interest. Regarding premium and cross-sell, Caixa Seguridade has some great advantages regarding the other companies, especially in bancassurance, Balcao Caixa. So the Counter has the infinite possibilities. Since we are a young company with little time of exploration, let me tell you that we still have great room to improve or increase our penetration and cross-sell.

Regarding our strategy, it is to maintain what we already do. We understand that we are still at a stage that is very -- of many gains, opportunities on Caixa Counter to grow our products and complementary products in cross-selling. As long as we have in our strategy, we do this, and this is a mantra for the company, those products that are more necessary and dear most for customers. The idea is to have customers that consume an insurance product or accumulation, but are more dear and necessary to them, so that they continue in the long term, both with Caixa and Caixa Seguridade. Our strategy is a complementary strategy to the bank's strategy, so that we have a lot to explore that, and we believe we are on the right track, and with that, we can expand our base and practice more cross-selling.

[Eduardo Costa Oliveira, executive]

Good morning, Antonio. How are you doing? To add to Felipe's answer, giving greater focus on your questions regarding loss or recurring loss ratio, there is some important information. If we do not consider the claims in Rio Grande do Sul floods and also if we think about Credit Life regarding loss ratio, the indicator would be 24.2%. Even though it's relatively low, it's an increase of 2 percent points regarding the first quarter '24. This variation was influenced, Antonio, especially because of the increase in loss ratio in housing or mortgage, where we saw an increase in volume and claims where we had higher amount of claims for permanent disability and also death.

In addition, one of the decisions that we took to reduce the effects of the tragedy in Rio Grande do Sul for our customers was to prioritize the processes in the regulation stage. Consequently, the timeline for regulation and the [ reasons was diluted ], and the initial provision made for each reporting impacted loss ratio for a longer period of time.

So even though it is not something that is directly related to Rio Grande do Sul, indirectly the Rio Grande do Sul ended up impacting the normalized loss ratio. Those factors together, they increased the loss ratio that ended up the semester at 30.4% you have on screen. What is behind what I'm saying, for the second half, we expect a return to normality in the regulation process that should be the indicator to converge to a historical level. This normalized loss ratio that actually had a slight increase in the second quarter '24 tends to go back, especially in the mortgage over the second half. Okay, Antonio?

[Operator]

Our next question is from Mr. Daniel Vaz from Safra.

[Daniel Vaz, analyst]

In a more objective way, you commented, well, just to reference, 22% to 24% would be the normalized loss ratio of Credit Life. The second point, you have a collection that is weaker in pension funds regarding Caixa products. I'd like to understand a bit how you see this part of collection. We still hear that there is little savings funding, so it's increasingly less available, especially if you don't resolve this real estate problem, and then it competes with Caixa that is more relevant. How do you see this ahead? This level of BRL 6 billion should be more normalized. Are we going to continue seeing this from now on? Should this be the new level of collection?

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Daniel, thank you. Good morning. When I commented from 22% to 24% loss ratio, I referred to loss ratio of the company as a whole, right? We were running with a loss ratio between 21%, 22%, and with this effect of normalization of Credit Life, the general loss ratio we understand is a good reference from now on from 22% to 24%.

With regards to funding of private pension, the competition of private pension with other instruments, the funding of the bank, the bank will continue. Obviously, we need to have funding to keep growing strongly in housing credit. It continues the change in the SELIC scenario that we started the year with the scenario of expectation of drop of SELIC or interest rates that brought us more optimistic view for private pension. It changed. Well, we no longer have a base scenario of reducing interest rates or SELIC rate. Some analysts understand that we must have an increase in the SELIC rate this year, so this scenario ends up turning more perennial. This is more challenging, the scenario, to sell private pensions through the Caixa channels this [indiscernible] of BRL 6 billion in the semester that we had the second quarter. We see that as floor.

We are discussing with the bank a series of actions to be implemented over the second half that should lead to an increase of relevance of private pension in our Caixa mix. We should have an improvement of private pension over the second half, but being very transparent, it should not be a change that is substantial to the extent that we go back to those levels of gross contribution that we had in 2022. Right, Daniel? So it tends to improve. The second quarter should be the floor of gross contribution to private pension, but we do not understand that this would be significantly higher to the extent that it would resume a gain of share.

[Daniel Vaz, analyst]

Just a brief follow-up. I had understood that it was general loss ratio, but we saw in the headline that was actually Credit Life loss ratio.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

For Credit Life, thinking ahead, it should be the low 20s, because competitors have -- Credit Life competitors is plus 20, but just to actually check on what you have on the charts.

[Operator]

Our next question is from Mr. Kaio Prato from UBS.

[Kaio Penso Da Prato, analyst]

Just an additional point regarding Credit Life. I would like to understand if you somehow have adjusted how this database matching will happen in the future, if it will be recurring every month, every quarter. I would like to understand whether this can bring some volatility. If you have some specific period for the test. In addition to the effect that we had in Credit Life, I would like to understand whether this matching or any kind of possible adjustment may take place somehow in other products in traditional life, mortgage. That seems to be more difficult. Just to have this certainty on your side.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

How are you doing? Thank you for your question. Well, events as such, they are important for us to set a new level of governance to the company. If it happened this time, it was because we had something to be improved, something to be improved we think not only in the Credit Life, we think about all products we have in the company, it depends on information exchange with Caixa and any other player. This event was helpful for us to improve everything in the company, all the fronts of the company. And Kaio, to give you a direct answer, we should do this frequently, and we are thinking about doing it monthly, not every semester.

Well, we imagine that have some great ideas, so we should have done that monthly, those checks with the routines we already have to expanding to getting those databases with certain parameters that point to certain changes or possibilities to claim for any product of Caixa Seguridade. We do that together with Caixa, and we are constantly enhancing our routines.

[Eduardo Costa Oliveira, executive]

Good morning, Kaio. Just to add to what Felipe answered, actually Caixa, along with the insurers and Caixa Seguridade, mobilized a taskforce focusing on this question. It has been defined that this routine will be monthly. And the group is working on automation to make this process fluid. And let me say ad hoc situation, more volatile moves of reference regarding those databases should no longer happen. As Felipe said, this tends to be monthly from now on.

So, from our viewpoint, this question is moving forward quite well. This event that we had in second quarter will not happen again. Right, Kaio? Regarding the possibility of happening in other modalities, we may confidently state that it is not the case because this event that happened is related to the features of Credit Life insurance.

We have the claim reported by insured, so it doesn't happen there. So we have, for example, in the housing insurance when the beneficiary actually reports in residential or mortgage or housing insurance. This was very atypical, we identified on a process of identification of efficiency increase, possibility of improving processes within the bank, and it was very specific for Credit Life. So here we don't see the possibility of it happening again, neither in Credit Life again and other insurance modalities.

[Operator]

The next question is from Mr. Pedro Leduc from Itau BBA.

[Pedro Leduc, analyst]

Regarding private pension, we saw the average administration fee stabilizing by 1.09% after a longer period of decline. I'd like to understand a bit if you see a mix of this being stabilized, product mix migrating to lower rates, or if it has stabilized here or if it has greater -- related to greater yield of the securities that allows you to migrate to actually tap into the [ ATM ] or you can migrate to other products. I'd like to understand whether this administration fee is something that should be stable from now on.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Thank you, Pedro. Good morning. So we can see from your questions, there are several elements that impact the private pension administration fee. We understand that stabilization tends to be temporary. Why do I say that? One of the components that impacts this fee, some older funds have an exit fee. You'll notice that in second quarter we were not as efficient as we were in the previous quarters regarding retention. You will see that we had a slight increase of portability and redemption second quarter 2024, which, of course, impacts our reserves. But when we look at this effect in the average administration fee, it is a positive effect because those redemptions and portability, when done in older funds, they bring an exit fee. This was one of the components that helped us. Since to us, because of all the context that is around private pension, the customer retention is very dear to us, and it is something that this slight increase of exit in the quarter tends to be reverted in the second half.

We understand that the positive effect of the admin fee tends to have an effect. The admin fee tends to continue in a move of drop as we think that this structurally, our administration fee is still above the market, is one of the highest. So on average, with the new money coming in at Caixa Seguridade in funds with administration fees that are much more competitive than in the past, this leads to a reduction of the average fee and this should continue from now on. Of course, the drop rate of average fee tends to be stable. We believe it is going to be slightly below the level. It is very hard to say which level this would be.

Another point that I mentioned of increase in redemptions and portability in the second quarter, one of the points that explained this increase in portability and redemption, we saw that quite clearly, was precisely related to the tragedy in Rio Grande do Sul. We saw there was a concentration of those redemptions in Rio Grande do Sul, which obviously is a time when people need to use their reserves that they have accumulated or saved over their lives. This is very clear, explains a bit the situation in the second quarter. It's not something that we see happening in the same magnitude from now on.

[Operator]

The Q&A session is closed. We would like to give the floor to Mr. Felipe Montenegro Mattos to make the company's final remarks.

[Felipe de Vasconcelos Soares Montenegro Mattos, executive]

Well, finalizing another earnings results conference, I would like to thank you very much for your presence and the importance of your presence. You make the debate much more fruitful and much more important. And the interest in the company makes us very happy because it is a project we believe in that is still in its beginning. It is very, very important, and it is growing fast and hard. As we have seen in this quarter, we had a great impact of nonrecurring events in terms of Credit Life and Rio Grande do Sul, but once again, I [ predict ] that our results would be BRL 928 million.

Had it not been for those results or those events, our strategy in sales and risk reinsurance strategy has proven to be ascertained, has proven that we are quickly able to adapt to adverse conditions we took from an event, from a catastrophe. We were able to remind ourselves of our roles, a social company, of reconstructing lives considering a humanitarian disaster without losing good part of our operating margin. We were able to meet our main focus, which is focused on our customers.

Rio Grande do Sul clients were our initial focus, immediate and fast care. Regarding Credit Life, we were able to contain, resolve, and act considering a problem faced. We informed all shareholders immediately, and we resolved. We took mechanisms and measures so that this is not repeated. And let me remind you that Rio Grande do Sul effect was not only regarding claims, as Eduardo said in the last answer to Leduc during our conference call, there was an effect to sales. We had an increase in redemptions in actually private pensions and reduction of sales, [indiscernible] practically 7% of weight to the Brazilian economy.

Rio Grande do Sul in this case has double weight regarding claims and performance sales and redemption in the accumulation process. Even considering all these scenarios, I bring a positive message to all of you, and I invite you all to watch our performance in the second half that for sure is in our plans to overcome as it's been happening within the company once again exceeding everyone's expectation once again.

[Operator]

Good afternoon. Thank you very much. The Caixa Seguridade videoconference is closed. We thank you everyone for their participation and wish you all a good afternoon.