Porto Seguro SA
BOVESPA:PSSA3
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Porto Seguro SA
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[Audio Gap]
[Operator Instructions]
Any forward-looking statements made in this conference about the business outlook are based on the beliefs and assumptions of the company's management and on currently available information. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions related to future events and, therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors could also affect the future results of Porto Seguro and cause results to differ materially from those expressed today in this call.
Now I would like to invite Roberto Santos to start the presentation about the main highlights of Porto Seguro in this quarter.
Good morning. We thank you all for attending the earnings conference call of the second quarter 2021 of Porto Seguro. Going to Slide #4, we highlight the main points. our revenues had a double-digit increase in the quarter and in the first 6 months in all verticals. The insurance vertical grew 17% in the quarter, mainly driven by the growth of 18.7% in auto premiums, which also increased the number of vehicles in the period by more than 380,000, exceeding 5.6 million cars insured. In addition to the double-digit growth in Life Insurance and Property & Casualty. The health vertical had an improvement of 9.7% in premiums and revenues with a 42% growth in the number of companies insured in corporate health and a 16.5% increase in the number of lives insured in the vertical. The revenue from financial businesses vertical advanced 21% in the second quarter due to the strong growth in the operations of credit card, loans, consortium and financial risks.
And the services vertical had an increase of 24.7% in revenue, and we point out the 50% growth in Carro Facil sales, which has more than 8,000 active contracts in addition to the 47% growth in para product. Our operating performance was also favorable in insurance operations. The combined ratio reached 9.5% in the quarter, which is the second best out for this period of the year in more than 10 years and is mainly explained by auto insurance with a loss ratio of 44% in the quarter, reflecting improvements in the underwriting and risk pricing as well as the impact of social isolation due to the pandemic. And by the 0.9 percentage point reduction in the consolidated ratio of administrative and operating expenses, due to our efforts to increase efficiency, mainly by investing in technology and process improvement.
The delinquency rate in credit operations represented by the 90 days NPL was 3.9% in the quarter, which is our best result in the last 5 years, reflecting an effective management of our credit portfolio and the positive impact of actions taken to mitigate the risk throughout 2020. The financial result reached BRL 174 million in the second quarter of 2021 due to the good performance of our allocations and inflation-linked bonds, equities and position in corporate bonds, attaining a return on investment of 2.2% in the quarter, equivalent to 283% of CDI in the period.
This -- like this financial and operating results -- change resulted in a high profitability [ vertical ], we maintained a comfortable level of cash with BRL 2.4 billion. We continue to advance in the strategy to increase our autonomy and focus in each of our verticals with initiatives such as allocating IT professionals in the business units, driving the development of solutions that boost growth in each vertical.
In the corporate area, we are doing the spinoff of the assistance operation, which is part of 1 of the insurance companies of the group to another company in order to leverage the growth of services vertical by optimizing management and offering these services to third parties as well.
We also announced the acquisition recently of 50% interest in ConectCar, one of the main companies of the market in the segment of automatic, electronic payments in tolls, parking lots, drive-thrus and other services with the purpose of driving the connection between mobility and the various financial services of Porto Seguro, enabling us to broaden and modernize existing benefits as well as to strengthen the strategy to attract and retain customers.
We also try to increase the visibility of our products and services beyond auto insurance. With the initiatives of marketing campaign, who has Porto that started to be broadcast in social media and traditional media last month. And two weeks ago -- a few weeks ago, Porto Seguro was elected the fifth strongest brand in Brazil by Brand Finance. The results we have attained strengthen our vision that the projects are on the right track to leverage the growth of our customer base and improve customer experience, and thus we remain focused on the purpose of always being a safe harbor for our customers.
Now I'll ask Celso Damadi to comment on detail of the development of revenues and profitability in the second quarter of 2021.
Thank you. Good morning. Good morning, everyone. I would like to comment on the consolidated revenues. We had a growth of 17% in the total half year due to a robust expansion of all verticals. In the chart of Page 5, I would like to highlight that we show here a larger growth in the second half -- of second quarter, if we see the chart on the right, we compare -- the growth the second quarter in all verticals was much higher than the quarter -- the growth in the first quarter. So with 11% against the growth in second quarter of 17% in the financial vertical, a growth in 14% and 21% in the second quarter. And in health verticals, 7% in the services in the half and almost in the second quarter.
In services 17% in the 6-month period and 24% in the second quarter, which shows that in the second quarter, we grew a lot in all verticals, both in the economic area as well as the amount of business as Marcelo will comment later on. Porto Seguro, it's a strategy to diversify business is reflected on the verticals with positive effects.
In addition to social isolation, we were favored by the growth of business and the low -- loss low delinquency ratio, as Roberto mentioned. This page shows our growth since 2006, of course, social isolation helped, but there were other components as well as default ratio that is in shape since in these recent years as followed by financial results, which were quite significant in this second quarter.
So the consolidated result in the second quarter 2021 reaches BRL 659 million compared to BRL 657 million in the second quarter 2020. That was the best second quarter in the history of Porto Seguro, 2Q '20 as we commented before. So this second quarter of 2021 also gave us significant results.
On Page #8, we show that the profitability shows a consistent result. So despite the low interest rate, our profitability is quite significant. And the consolidated result, we reached BRL 955 million in the first half of '21. And we show this good performance compared to the CDI since 2010 because we always say that our pricing has a component of CDI that's pretty strong, especially in the insurance line.
Now I'll hand it over to Marcelo. He can talk about the insurance vertical.
Thank you, Celso. Good morning, everyone. Thank you for your time and attention. We would like to highlight the significant and strong growth in the insurance vertical, especially in our main portfolio of business, which is Automobile Insurance. We were able in this -- when compared to this first -- to the second quarter 2020, we're able to grow almost by 20%. And we had a market share gain of 1.3 percentage points in auto insurance with an increase of almost 390,000 vehicles. In comparison, that is almost equivalent to 1 of the top 10 insurance companies in the market according to the Brazilian ranking. We believe there has been a very robust growth for a portfolio that is considered mature, as I will say later on. Because the penetration of Auto Insurance in the Brazilian market is up only 30%.
So in this period, we have grown P&C by 7.6% in terms of number of items, adding another 180,000 items. In Life Insurance, there was a reduction mainly due to temporary events, but we kept stability were 4 million covered lives. And the pension, there was a decrease. This movement according to our point of view, included the entrance of new consumers.
Many people who had never had insurance entered Azul which is our inclusion machine is includes an engine because 2/3 of the vehicles in Brazil circulate without insurance. This market is developed, and there are many challenges to mobility that we cannot -- since the Auto Insurance is not mandatory, there is room for growth provided that there is innovation and the correct products.
And I would also like to highlight, now moving on to the results page that also in the earnings, we had, of course, decreased mobility during this period, as it happened last year, of course, Brazil almost stopped due to COVID. But it's important to compare the delta, the difference. The loss ratio difference when compared to the other companies in the market was 14 percentage points in terms of loss ratio, which shows that we have an important merit of pricing and underwriting so that due to our intelligence, we're able to have a very healthy loss ratio. That leads us to a very good combined ratio, less -- lower than 57%, reaching a return on equity of 34.6%, which is a very good performance for a net earnings of BRL 266 million in the quarter.
I would like to comment on the development of the health care vertical. It is -- has gone through a major transformation. But even before the transformation has ended. We're having an accelerated growth in sales with greater focus, especially in small and medium-sized enterprises.
Even in a period where companies were firing employees, of course, we are focused is to sell insurance to companies that accounts to -- for a large percent. We had 220,000 new lives added to our portfolio. In dental care, we had a growth of 92,000 lives of members. And in occupational health, which is the differentiation, we -- product we have another 100,000 members were added. So growth is accelerating as we had said to the market in previous calls.
As for the result of vertical health care vertical, that was expected and it was impacted because of the pandemic. The second quarter 2021 affected the number of hospitalizations, which were longer. The second wave of COVID-19 led to longer hospitalization periods and average cost per patient was more -- was higher as it was before because they stayed longer in the hospital. And therefore, the loss ratio for this quarter was above 82% reached the combined ratio and it is below what we expect. We believe this is temporary. It's not going to affect our appetite for growth.
Likewise, it has affected the Life Insurance portfolio but that doesn't affect our growth because we have grown 18% in individual life insurance. So and that did not decrease our appetite for growth because we know this is a temporary situation. And in a nutshell, the insurance market has an immense potential still. We're talking about the main portfolios, the more developed ones, but there are very specialized insurance products that have a lot of room for growth. For example, civil liability, liability insurance, we've had this product for less than 2 years with a growth of 65% in a market that grows 16% on average. This is to talk about specialized insurance.
So Porto Seguro has partners distribution network, and it's a strong brand. And due to its quality of services, it can grow even in the verticals, which -- in which it is already a traditional provider.
Now Marcos Loucao will talk about the financial businesses vertical.
Okay. In the financial vertical, we have reached 3 million customers, and it's a significant growth in sales as well a value proposition because we increased loyalty and the use of recurring requiring products such as Credit Card. Our financial results, we reached BRL 127 million of recurring earnings with growth of 22%.
Talking about Credit Card, we remain with a strong growth in the portfolio and transactions. The transactions growth of 32%. We had BRL 3 billion per month in credit card, which is a growth way above the market average. And we made important investments in technology. We were the first credit card operation to implement PIC, the electronic payment, which provides a different dynamic in the use of Credit Card. And with the PICSs online authorization, credit cards were used more often as well.
In this quarter, we'll implement PICs in the new app, where is the super app and whether will be a larger integration of auto and residential and home insurance All we do is to expand the offer of products, supply of products. We had 56% with a strong focus on what we do well, with the IT DNA in a release or in the authorization of loans, we grew a lot in our loan portfolio grew.
In CDC, we have growth potential, and we can expand new credit options. Talking about financial risk and capitalization we had growth of 12.3% in the second quarter when compared to the 6 months period, it was 24% and reached 260,000. An important highlight for the product that protects rentals, rental insurance is that we created an essential product, which is a online quotes and totally digital quoting process online, and that accounts for 30% of our monthly sales. So there is a growth sales when compared to the first quarter -- the first period of -- we sold 49,000, today, we sell 87,000, and it maintains the same characteristics that we used to sell, but the essential is the new product and capitalization that completes the offer -- the supply of financial products.
In Consortium, we had a strong restructuring process in sales and regional products as well as in products. There was a revenue growth of 41% in Consortium revenue. This -- we had BRL 83 million in the second Q '21, and it did increase much from 2019. Now this growth in -- it now amounts to 117% in the second quarter shows the consistency of strong growth in Consortium.
We are the second portfolio of real estate consortium plans. We have 11% against 13% market share of the leading company. In automobile consortium, it releases have increased by 88%, while the market rose by 25%. Now talking about asset management. We had a rearrangement of products in terms of performance rates, and this is why the revenues dropped from BRL 27 million to BRL 19 million in net earnings amounts to BRL 103 million in the second quarter of last year.
There were facts there were known one-off events due to pandemic, low rate of transactions and Credit Cards as well as provisions. This is why it was Net earnings amounted to BRL 7.8 million in 2Q '20. And now we're back to our regular levels. Now talking about credit operations. We have BRL 11.5 billion credit portfolio, basically, credit cards, most of it, outstanding credit card, BRL 7.5 billion, revolving credit, BRL 1.4 billion, financing and refinancing, BRL 2.5 billion. Credit Card, we reached 2.7 million card owners and 110,000 customers in Vehicle Financing.
Without -- we have 184% coverage with the 3.9 default rate, which is below market average.
Now talking about services vertical, we continue to highlight the total revenue that grew by 25%, an important role played Carro Fácil which is the signature car, which grew by 49%. We had a record number of subscriptions and it continues to accelerate and meet the needs of our customers and the trend is for us to continue to grow.
We also had a call center, which is customer service to our operations that grew the company grows, customers call center activities also grow. And now we are more effective and efficient. We have digital, 40% of service tickets opens for automobile are doing digitally. And most of them using WhatsApp. The comparison basis, the health for Pet, since we had an exchange of shares for Petlove in June is not included here. If we had the base of June, we would have a growth of 30% because we have 5 -- 6 months in 2020 and 5 months in 2021.
With a growth of 40% in revenue, Porto Faz, other sales promotions, we grew by 16%, mainly caused by increase in sales of Automobile Financing.
Net earnings, we were very happy because there were many initiatives of internal start-ups that expanded their activities. We continue to grow while doing the necessary investments in technology.
This is what I had to say. And now I'll hand the floor to Izak to talk about financial results.
Good morning. Thank you for your time -- talking about financial investment results. There was a positive quarter. Our bonds -- inflation-linked bonds were benefited by the IPCA rate, which was significant in the quarter, Also, there was a strong valuation in the stock exchange, which benefited us as well as credit transactions with a positive impact. So the total was 2.2%. We opened our investment portfolio with a few changes when compared to the last quarter. This is what I had to say.
Now I will talk about the ESG initiatives. On Slide 17, we detail some of our ESG initiatives of -- how Porto Seguro has contributed to society and coping with the pandemic through our products and services. Highlighting, first, the facts that we -- compensation was paid to over 3,000 families who suffer losses due to COVID-19 only through life insurance product, exceeding BRL 130 million in payouts.
We also highlight the coverage provided to 8,400 beneficiaries who were hospitalized through our health product, of which, 6,500 in common beds and more than 1,900 in ICU. Nearly 100,000 COVID-19 tests were made since the beginning of the pandemic. We also launched the campaign, giving a special discount to vaccinated members who purchase individual life insurance valid until the end of this year.
We also highlight the results of some projects that are already part of portfolio or Porto Seguro's history, such as program Ação Educa. They are actions related to the health of children, teenagers and assisted families in the Campos Eliseos area, which is the area where the -- our head offices are located. And this year, we provided psychological assistance to more than 120 children and teenagers and distributed more than 117 kits along with hygiene kits.
We also highlight the project of our company, Renova which dismantled 341 vehicles in the second quarter only, 2.5x more than in the second quarter of last year. And we doubled the number of parts, recycled parts sold when compared to the same period of last year, reaching 8,500 items sold, contributing to reduced consumption of natural resources and environmental pollution.
And finally, I highlight Porto Voluntario program whose 143 volunteers actions helped nearly 4,000 people and 17 social organizations only in the second quarter of 2021. These were the main operating financial and ESG highlights highlighted in our presentation.
And now we can start the Q&A session.
[Operator Instructions]
Our first question from Flavio Yoshida.
Good morning, everyone. This is Flavio from Bank of America. My question is about Auto Insurance. I would like to try to understand a bit better how you see the outlook for auto insurance in the second half of this year and even 2022? Because the dynamic is a bit troublesome because there was an increase in price of cars and the inventory of new cars is quite low. And the loss ratio is low due to COVID, but it will probably increase since restrictions are decreasing. And on the other hand, we have higher interest rates in the market, which could encourage more competition. How do you envisage Auto Insurance performance in the second half of the year?
Another question. You mentioned that the penetration of insurance in Brazil is low. There are some structural aspects to it. And with innovation, this percentage could be even higher. So what type of innovation are you working on? And how do you see the business?
This is Marcelo speaking or rather for your questions. They're very good questions. First, there is a relative question about competition. And there is -- the other 1 is structural. In terms of competition, these cyclic changes such as interest rate and so we're used to dealing with them. And they don't change the way we operate. The fact that price is going up and down, that has been going on for a long time.
But our scale, database and intelligence and depth in actions make the difference and allow us to be -- to have an important role. And that has become even stronger because intelligence became more important, making projections rather than piling results looking backwards, looking in the rearview mirror.
Of course, we have to do that. But looking towards the future, understanding how this new normal will be, how will mobility differ from different income levels, locations, districts in revenues and industries, this is something we have not that other competitors don't. Porto is strong, and we have a very strong brand in all segments, including Azul. Bllu is a new insurance we launched. We already had Master in the past to include old cars, and we want to be the company that's present in insurance life of every Brazilian person.
So in many segments, different products. Bllu is an example. We launched products that are simpler, more affordable and -- that's not only the tip of the iceberg, but the entire chain is prepared for that. It's a specific chain for repairing, supply of parts, services of digital so that people can afford it. We are doing that to get these 2/3 of the fleet that is not protected or underprotected and include them. A part of it is portfolio or product, but we also work with a sales approach, digital models, hybrid models, so we are looking towards the future in that.
And we believe this differentiation points will enable us to continue to grow. Because when you look at Porto brand, you have to look at the initial segments, entrants, levels, Bllu, Azul and other segs we operate in to provide insurance to this country that is so big and underprotected.
You mentioned Bllu and Azul. I would like to understand if there is any cannibalization of Porto customers migrating to other brands that have a lower cost? Could that affect the profitability of the operation?
Excellent question. This was 1 of our main concerns and first concerns in the media campaign we launched, we say it's an insurance for those who do not have insurance, but that's not only a slogan. So the sales tracks are different. The sales channels are different in a way And the proposition is different. So we try to have a product. Customers who can afford or traditional insurance will prefer that. So it's an entry product for people who do not have insurance. Of course, it has some limitations. It doesn't cover 100% of the [ FIPI ] table when in terms of paying the indemnification. There is in the claim and there's a third-party coverage that is limited.
For customers who are used to more flexible product and a broader coverage and will not migrate. Actually, we monitor that. Until now, we haven't seen any migration, zero migrations. So what concerns us is to convince customers. This is the main challenge. These customers have to be convinced and educated in a way that insurance is important. They are covered by associations that they find as an insurance company and in terms of need, people will find out that, unfortunately, they don't have the coverage they think they do.
The next question comes from Leandro
[Audio Gap] This is [indiscernible] from UBS.
Can I ask a question?
I would like to make follow up on last question asked by Flavio. So talking more about Bllu. Could you give us a bit of more color on the operation release this month? And what you expect in terms of [indiscernible] premium? And how was loss ratio in first on the operation of Bllu? Do you expect to go to other regions of Brazil? We are looking at the services verticals, some of your products has shown an important growth such as Carro Facil. What could we expect for the future? Are you doing more partnerships in terms of services? And if you could explain the rationale for the ConectCar deal?
This is Marcelo speaking. Kao. Well, Bllu is a product that we're focusing in Mina Gerais, Rio de Janeiro, Spirit to Santo and Goias. We are learning how to sell and convince. We -- the contracts are digital. So it's a simple, easy process to purchase the insurance and the satisfaction rate has been very high. from customers, and we're always trying to simplify the process to -- and with this idea that buying insurance is complex and difficult. And we had to review word by word because we did some studies with these consumers. They don't understand words such as franchise or rather the payment you have to -- or the amount you have to pay to use the services.
And this is a consumer that was in the market but not included in the market. And we have to mature this process in these regions so that we can escalate. But of course, it will be done. This is a market that could not be ignored. We should not be focus on an elite market in a small portion of the market. And then be caught by surprise by someone who brings a more universal procedure. We want to be present in people's lives. We're not an upper middle class company only. So although these people don't know what deductible is they can learn and we need to be there for them.
Yes. we have tried several products with subscriptions. And [Hibara] was the first signature progeny services and is the same logic applies to auto insurance. And we'll try in coming months, we launch that area. Carro Facil was same, it was the first annual signature product for car with insurance and the assistant services of Porto Seguro. Starting this platform, what we call Easy Car. And now we have Tech Facil which is an umbrella. First, we have a mobile insurance, which we provide to the market now. We're finishing this tests and the reception has been very good as it was for auto insurers.
And within the umbrella of Facil and Tech, we have a pilot product for notebooks. So we continue to explore the Facil platform for products and [Hibara] platform for services. Speaking more about ConectCar. ConectCar comes to complement on the mobility side because we want to grow and make the everyday life of our clients easier. We have 300 automotive centers that provide assistance to customers and ConectCar is a complementary services to this ecosystem.
First, we'll provide the tax for our people who have our Auto Insurance. And we'll try to use it as a way to attract new customers as well as linked to digital account and Credit Card, the financial products. That's the advantage of having ConectCar in the ecosystem of Porto Seguro. But there's also the ConectCar asset. We want to increase the number of tags connect car. I don't know if any part of your question has not been answered?
No, it's very clear.
[Operator Instructions]
Now it's Eduardo.
Let's move on to the next person in the line. Marcelo Telles, because I think Eduardo had a technical issue.
Congratulations on the results. I have 2 questions. First, I would like to go back to the initial question asked by Flavio about the auto insurance segment. Probably, you have made -- taken out the initiatives to increase that the origin, we see loss ratio much better than the system. Looking towards next year in a more regular scenario of loss ratio for Auto Insurance, what could be a reasonable figure? Do you think 2019 would be a proxy? Or given the initiatives you were implemented, we could think about a lower loss ratio once we go back to normal? The other question is about credit. In terms of strategy, what is missing, if any, to that strategy in the financial part? You have credit products. Are you thinking of having a digital bank account? Do you plan on increasing the supply of products towards liabilities also in addition to assets?
Okay. In terms of auto insurance, we are not facing a temporary change. I mean, things will never go back to what they were before the pandemic. I don't think 2019 is a good proxy. I'm not saying that this applies to the entire market. We are able to evolve a lot in that area, and we intend to use this intelligence to -- we won't maintain the current value, of course, competitiveness is increasing. But a good analysis is to look at the delta of loss ratio in the companies that's given by Suzabi in recent months as well. And you can see that when mobility came back, it affected companies in different ways. Companies were not equally affected by that resumption of mobility. So I don't think we'll keep it at the current level. This market is competitive, so it's transferred to prices slowly. I don't think when pandemic is not going to last forever. On the other hand, 2019 was a very tight year for us.
So figures would be better than 2019, but it's not as good as today, something in between. As for the financial part of the business. I would turn the floor over.
Okay. Just adding to that, we have a DNA of credit solutions with products focused on a synergy with auto insurance, which is the main product of the company until some months ago. But we have a chain of products, Credit Card probably are the most well known, but we have 9 million customers with BRL 3 billion by revenues when you add up all the Credit Card users of our customers. We are the 7th in ranking in the market in terms of revenues. And we -- in terms of vehicles, we decided to provide a package of products of credit facility products having a supply not only limited to current clients of Porto Seguro to entire credit market. For example, we have car financing signed personal credit, personal loans in the beginning of this year, 37,000 clients that bought our products compared to 25,000 in the first quarter of last year or half of last year and a portfolio that amounts to BRL 2.5 billion. So the idea is to use our expertise to increase it even further. In the last 6 months, we have implemented a credit analysis platform by using modeling, getting ready for that.
In the products of digital banking, we have investments and Consortium because Consortium is a customer that has a profile of building or saving money. It's not only anticipating the purchase of a car or a home. We want to have these customers in our platform. And for all this to work in an integrated way, we are developing a digital account product that is being tested in a beta version to make the link between credit and financing products.
And we expect to have a value proposition that complements the market instead of having a traditional account in banks, but the technological part of fintechs. So we want to be in between those 2 worlds humanizing the proposition, providing insurance and services as additional benefits and be a player that could operate in this market in the good conditions.
I would like to pass the floor to Roberto for his final remarks.
Thank you very much, everyone, who attended our earnings release conference calls. Thank you for your questions, comments and especially for your interest in Porto Seguro. And I would like to reinforce that if you have additional questions, please feel free to visit our Investor Relations web page at ri.portoseguro.com.br or contact our Investor Relations team directly. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]