Porto Seguro SA

BOVESPA:PSSA3

Earnings Call Analysis

Porto Seguro Reports Strong Growth and Navigates Challenges

In Q2 2024, Porto Seguro experienced a 13.6% revenue increase to BRL 9 billion and added 144,000 new health insurance lives. Despite facing significant flooding in Rio Grande do Sul, which negatively impacted claims, the company posted a net income of BRL 584 million, adjusted to BRL 691 million excluding extraordinary events. Key segments such as Porto Bank and Porto Saúde saw notable income growth of 23.5% and 50%, respectively. The auto insurance division reported a modest 1% growth with a 4.7 percentage-point increase in the claims ratio. The company maintains a guidance of over BRL 1 billion in nominal terms for financial investments.

Solid Revenue Growth Amidst Challenges

In the second quarter of 2024, Porto Seguro reported impressive revenue growth of 13.6% year-on-year, reaching BRL 9 billion. This marks a successful recovery from prior challenges, including significant claims associated with the flooding in Rio Grande do Sul, which amounted to BRL 274 million. Despite these challenges, Porto’s revenue growth indicates resilience, with the company also increasing its client base to approximately 17.7 million, the highest in its history.

Diversification Strategy Pays Off

Porto Seguro's diversification strategy is becoming increasingly evident. In the past year, the proportion of net income from its core insurance business decreased from 66% to 57%, while Health and Services saw notable increases. Health insurance, for instance, now contributes 11% to consolidated income, up from 7.8%. This reflects an effective strategy to reduce dependence on the auto insurance sector, which, although a key revenue generator, only experienced a 1% growth.

Strong Profitability and Return on Equity

The company's profitability metrics reflect positive performance across its business verticals. The return on equity (ROE) was reported at approximately 18%, and this rate would rise to 21.8% if one-off events were excluded. Porto Bank's profitability stood out with an ROE of 28%, while the services segment recorded an impressive 22%. The consolidated ROAE is 18%, potentially improving further with a reduction in excess capital.

Banking Sector Performance and Growth

In the banking segment, Porto Bank achieved a notable 23.5% growth in income. Enhanced portfolio quality has played a significant role, with default rates decreasing by 1.1 percentage points. The introduction of products like 'Car Equity' is aimed at improving margins and client service, aligning with the bank's strategy to target higher-income clients. Net income from the banking operations grew by 58%.

Future Outlook and Guidance

Looking forward, Porto Seguro has articulated a strong outlook for the remainder of 2024, maintaining its guidance for financial investments exceeding BRL 1 billion in nominal terms. Despite the challenges faced, management expressed confidence in reaching upper-end financial results in line with targets for ROE and net income growth, supported by diversified income streams and a commitment to sustainable growth.

Investment Income and Market Adaptation

The financial investment performance saw a significant influence from the rollover of securities, with projections indicating improvements in the upcoming periods. The management aims to maintain its strategy of investing primarily in inflation-linked bonds, bolstered by historical returns surpassing 100% over extended periods. There are expectations of improved investment income in the second half of 2024 as the restructuring of the asset portfolio takes effect.

Dividend Policy and Shareholder Returns

Porto Seguro's dividend policy remains robust, with historical payouts ranging between 40% and 50% of net income. Management has assured shareholders of its commitment to this rate, suggesting that with projected growth and profitability, shareholders can expect consistent returns even as investments are made in growth areas.

Conclusion: A Resilient and Growing Company

Overall, Porto Seguro demonstrates a resilient business model capable of navigating market challenges while pursuing diversified growth strategies. The company's commitment to maintaining high profitability, combined with strategic expansions into health and other insurance product areas, positions it well for sustainable growth. Investors should view Porto as a company that exemplifies careful management and adaptability in challenging economic climates.

Earnings Call Transcript 2024-Q2

[Operator]

[Interpreted] Good morning, everyone, and welcome to Porto Seguro S.A.'s Second Quarter 2024 Earnings Results Conference Call. Please be advised that this presentation is being simultaneously translated and recorded. The slides are available for download. [Operator Instructions]

Forward-looking statements made during this conference call about the company's business prospects are based on beliefs and assumptions of the management and on information currently available. These forward-looking statements are no guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events that depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, the industry conditions and other operational factors could impact future results for Porto and make them differ materially from the forward-looking statements.

I would now like to ask our executives to begin the presentation. Go ahead.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Hello. Good morning. My name is Paulo Kakinoff, and it's a pleasure to present the results for the second quarter of 2024. We have Celso Damadi, our CFO; and Domingos Falavina, our Investor Relations Officer, who also handles M&A and strategical planning. And we also have the CEOs for each vertical and the Head of Porto Asset.

In this quarter, we had a weather event in the state of Rio Grande do Sul. This created effects for insurance companies and especially for the affected population. So I would like to highlight some of the impacts of the floods in Rio Grande do Sul starting with our participation. We had over BRL 274 million in claims and in this quarter, we had a 13.6% growth in total revenue, reaching BRL 9 billion. This is 13.6% growth, as I mentioned, in comparison to the second quarter of 2023. We reached 17.7 million clients, a record number for the company and BRL 224.7 million in revenue from investments. BRL 584 million is the company's net income and this considers extraordinary effects that took place during this quarter. There were two highlights. One of them was mentioned. The claims ratio in Rio Grande Do Sul, and also rolling over government bonds, which also had an impact to our net income. It would be BRL 691 million. If we removed these one-off events, which would have been a growth of 22%, that is a ROAE of 18.5% or 21.8%, excluding these one-off events.

So looking at each vertical, these are the highlights. First, income at Porto Bank grew 23.5% with a reduction in the default rate of 1.1 percentage point. In Porto Saúde, the number of beneficiaries grew by 144,000 lives, and the claims ratio went down 3.2 percentage points. At Porto Seguro, we reached a fleet of 6 million vehicles insured and a claims ratio that grew 4.7 percentage points versus the second quarter of 2023. And this was especially affected by Rio Grande Do Sul. And with Porto Serviço, we reached an EBITDA margin of 19.7% with a total EBITDA of BRL 125.2 million.

I will now continue with Celso Damadi, who will give us some more details on these results. Go ahead, Celso.

[Celso Damadi, executive]

[Interpreted] Good morning, everyone. It's a pleasure to be here with you. So I'd like to highlight our revenue growth, which was 13.6% this quarter, double digits. At Porto Seguro, we grew 3.6% reaching nearly BRL 5.2 billion. We'd like to highlight that in auto insurance, we had a growth of 1%, but all the other companies' portfolios grew up in two digits. So RE and Life also grew by double-digit rates. With Porto Saúde, we grew 50%, and this has been boosted by the number of lives insured, which we will highlight soon. With Bank, we had an income growth of 23%, especially with credit cards and consortia, which have been highlighted in the last quarters and years. And we reached BRL 636 million in our services portfolio. So we will go into details about this later. We were impacted especially by the auto portfolio, but our risk premium was lower due to a reduction in the FIC table, which was 5% during this time. So our risk profile still matches our auto portfolio, which I'll show later on.

Next slide, please. So this shows our profitability. Here, we see the profitability of all of our businesses, all of them above 20% profitability rates. With Porto Seguro, it was 25%. If we were to disregard one-off events, it would be above 27%, ROE is about 24%. So for the quarter, it was above 25% for Porto Seguro, with Porto Bank, 28% and in services 22%. So the consolidated ROAE is 18%. And if we deduct excess capital, it would be 24%. And it would be 26% if we were to disregard one-off events. And this is a consolidated figure for Porto S.A. So you can see that we posted consistent results for this quarter. This is a good graph to see the distribution of our results per vertical.

In 2023, insurance had a 66% net income and this quarter, it was 57%. So we are diversifying our distribution. We can see here that Health went from 7.8% to 11% share of our consolidated income, and Services went from 11% to 7% in the second quarter of '24. So it just shows our resilience and the diversification of our results across the different verticals. Health has been growing significantly. Bank is also expanding its share of our net income, so it just shows the power of our diversification strategy.

Here, we see financial profitability. This is our historical ROE as a percentage of CDI. We are at 151%. And our net income grew significantly above the basic interest rates. So we can see that our results are reaching BRL 1.2 billion here and profits are 20% higher than we presented in the first half. So since we are smoothing out the events from the North Coast in the first quarter and in Rio Grande do Sul in the second quarter, we can see that our total growth for the first half of 2024 was 21.3%. If we disregard one-off events, we also had a growth in our net income as we mentioned before.

This slide discusses our financial investment performance. So here, we see revenue, excluding pension plans, which are called ALM. And it was BRL 224 million, which accounts for 69% of the CDI. So this shows the significant impact that we had a rollover of securities. We made use of this increase in interest rates to switch from one IPCA rate to another. So this year, 80% of it will roll back and we will have a higher financial profitability for 2025. So we are getting the company ready for a good financial situation in 2025.

Underscoring the guidance of financial investments is still at this higher thresholds. So we will go above BRL 1 billion in nominal terms, and we're preparing our portfolio so that our nominal profits can contribute to the holdings results. Here, we see that the allocation of our portfolio has changed due to some events with the stock exchange with fixed income which was harmed by interest rates. But the guidance for the year has been conserved and we are even reducing some of our allocation as this will improve in the next half.

Now I would like to invite Dom who will conclude our presentation.

[Domingos de Piza Falavina, executive]

[Interpreted] Good morning. Thank you. Now going into each vertical, starting with Porto Seguro. As we heard before, there was a growth of 3.6%, about 4% in our premium reaching BRL 5.2 billion. This was mostly caused by auto, which grew by 0.7%, P&C, which grew by 12.6% and Life, which grew by 5.9%. Looking at our loss ratio. We have to highlight here that we did not adjust this for the extraordinary events that took place in Rio Grande do Sul. If we were to do it, it would be about 54.6% meaning that all of the increases we see here was due to the weather event. In P&C, we had a reduction of about 4% and in Life, an increase of 5.4 percentage points, but it's still at a super healthy level.

Here, we are breaking down our subscription results per product. So this is similar to the slide that was presented before, the company's results are becoming more diversified. So right now, Auto represents 63%. If we were to look at this graph a year ago, it would be about 72%. On the right here, we have net income and profitability for the entire insurance operation reported as BRL 373 million, but if we were to adjust with the effects of Rio Grande do Sul, it would be BRL 461 million.

Continuing with Porto Saúde here, we also saw expressive results at least according to our metrics and what we have been planning, a growth of 144,000 lives year-on-year or 31%. With price adjustments, our net income had a growth of 50% in total premiums and revenues and net income itself grew 35% year-on-year. Here, we see quarter-to-quarter growth of about 8% and 11% in premiums and revenues for health insurance exclusively without accounting for dental. We also have to highlight here that despite seeing net income growing 35% as we saw before, we actually had a healthier makeup for this net income. Onco Clinicas contributed with BRL 23 million this quarter and it was 35% during the second quarter of 2023. So we had about 170% in recurring net income from this entire operation.

Here, we are seeing the loss ratio for health insurance and health plus dental. It's similar to the pre-COVID level, where the first and second quarter tend to be lower. We did see a higher loss ratio which was about 80.7%. This is, of course, within our forecast. So it was not unexpected. Continuing with Porto Bank, our revenue as we mentioned, had a growth of 23%. Business also grew and the most important part was net income, which grew by 58%.

Here, we are highlighting our operational focus, which is portfolio quality, considering that there is a reduction in the cost of credit. And on this side, we see the efficiency ratio. We are readapting our efficiency ratio calculation to make it similar to other major banks. If we look at the same metrics, our efficiency ratio is 33%, which is placing us to similar levels as digital banks considering how efficient our operation is. And we also have the opportunity to grow across other products, which should dilute this. So we will continue to be healthy.

The next slide shows the portfolio growth, which was 4%. We are focusing on quality, establishing a relationship with clients, and this was led especially by credit card. If we look at the default rate, there was also an improvement of 10 basis points year-on-year and we are at higher rates than the rest of the market. With Porto Serviço, as you know, this is a new vertical, so it did not change significantly, but we do have great information to share. 23% of our revenue is provided by our strategic partnerships. This is what we call B2B2C, and they grew 34% year-on-year.

So this is being executed very well. We had 674,000 car services and 565,000 services for homes and businesses. EBITDA margins of BRL 125 million or about 20%, ending net income of nearly BRL 60 million for the second quarter of 2024. We heard before that we are maintaining all of the lines in our guidance. During the Q&A, we might go deeper into this. But with the guidance we have, we don't currently see any reason to change our forecasts or guidances.

Finally, we always like to include this slide because it gives us a lot of information. We see the operations in which we are market leaders and the operations that have a little bit of an order history showing that some of these segments are very important, such as credit cards, which has more than BRL 1 trillion in volume, consortium and so on. These are some of the segments that we see opportunities in for the future.

So that concludes our presentation, and we will now continue with the questions-and-answer session.

[Operator]

[Interpreted] [Operator Instructions] The first question will be asked by Kaio Prato from UBS.

[Kaio Penso Da Prato, analyst]

My question is related to Auto. First, I would like to understand a bit more about the effects from Rio Grande do Sul. What was your recovery rate for the cars affected by this weather event, and how comparable is it to the rest of the industry? Do you believe that your recovery rates are higher than the rest? And if not, what can be done?

Finally, excluding Rio Grande do Sul, we see that growth levels are flattening out to about 1% a year, and there's a reduction in the average ticket. Is this something that we should expect for the next quarters? And has the disaster in Rio Grande do Sul affected your dynamic?

And finally, your loss ratio seems to be under control. So we would just like to understand if this is what we should expect for the next quarters.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] We have Rivaldo Leite here. He is the CEO for the Porto Seguro vertical and he'll answer your questions.

[José Rivaldo Leite Silva, executive]

Kaio, so salvage has been very good, about 41%. And which, again, is very good. We believe that this is better than the market because we have worked from the beginning, I was there for 3 or 4 days. So we're very confident about this number. There was a reduction in the car table of about 25%. And this is calculated into the price. So we've been keeping track of this movement according to the most recent figures, the market overall has gone down 7%. Our premium is flat so we haven't accompanied it, and we're starting to see a slow reaction to the price starting in July. So this is the current scenario.

[Celso Damadi, executive]

[Interpreted] Kaio, just adding to that. In terms of car salvage, if we were to compare our figures, we had about 30% of the FIP table. So we might have a positive result from the first half of the year of about BRL 20 million, which would be about BRL 11 million or BRL 12 million net for our results. Because we provisioned 30% of the FIP table in car salvage, so this is positive news. Our historical provision is about 40%. Our provision was 30% because we've never had this experience of having vehicles under water for so long, but we are performing similarly to other events that we had. We didn't reach 46%, but we're close to 41%. So our performance is better about the average premium.

As I mentioned, the severity for automobiles has also gone down. And we don't believe that the table will remain at this same level. So we should see an improvement to our average premium in the third quarter. Also, if we had seen this reduction being passed on in premiums. This trend is now being reversed. We sustained that change in average premiums. And what we've seen in the market is that the industry is converging probably as they are perceiving that the new FIP table is flattening out and as companies desire to make up better margins.

[Kaio Penso Da Prato, analyst]

[Interpreted] Great. And just to continue on the last question, considering the loss ratio for the second half of the year. Since this quarter, there was a better results than expected, excluding the tragedy in the south, if we should expect the same loss ratio in the second half of the year.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Well, our guidance is published, and it has been confirmed. So we prefer to stay in the safety margin of these projections because, of course, it's very difficult to foresee any one-off events. So the market does seem to be at a lower loss ratio, but we don't want to change our guidance right now.

[Operator]

[Interpreted] The next question will be asked by Daniel Vaz from Safra.

[Daniel Vaz, analyst]

[Interpreted] I have a couple of points that I'd like to explore. I noticed that P&C premiums have grown significantly this quarter. Has there been any change in the perception?

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Sorry, Daniel, we couldn't hear the end of your question, but I think I can imagine what it was. I think you were asking about changes in demand due to the recent weather events. I don't know if that was your question. If you could send us again what it was because we couldn't hear you. But I'm going to ask Rivaldo to answer that if there was any change in demand in residential insurance.

[Daniel Vaz, analyst]

[Interpreted] Sorry. So yes, that was my first question. And the second one is about origination with CDC. We can see with Porta Banks that you have been able to improve your origination by about BRL 380 million. So is this a recurring level? Are you looking at new origins for this product? I'd just like to hear a bit more about that.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Okay. So just to confirm, you're asking if there was a change to residential insurance demands due to the event?

[Daniel Vaz, analyst]

[Interpreted] Yes.

[José Rivaldo Leite Silva, executive]

[Interpreted] So we don't really see anything connected directly to the effects from Rio Grande do Sul. The first month, we recognized that there was a certain impact, but with time, it was not sustained. But we've been seeing specific action on other portfolios to try to pursue other segments, residential is one of them. We also launched a product called Combined Protection, where in the same auto policy, you can also include residential. In about two months, we were able to include it in our renewals. And that gave us a lot of impact because when you are renewing your insurance you receive an offer of a residential insurance in the same policy. So that's a great event, and there was also some effect in our Itau channels. So there's a combination of factors that is not necessarily connected to the disaster in Rio Grande do Sul.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] I'm going to answer a part of your question. The product that Rivaldo just mentioned is an additional product in a series of implementations that are taking place to increase the lifespan of our portfolio. This is one of the strengths of our company. We have over 100 products and services available, and all verticals are making efforts to structure them, of course, with these products we have -- with these 100 products, we have numerous combinations. But now we know what are the most attractive combos that we can offer to our clients. So this is the first one to be tested, and it has very promising results.

[Lene De Lima, executive]

[Interpreted] Thank you for your question. So yes, we are about BRL 380 million in CDC. In our strategy, we are focusing on low-risk products and also diversifying our client portfolio. We started a product called Car Equity and this will be one of our priorities for Porto Bank in the second half of the year. It has good margins, so it allows for a higher price. And it will add quality to our high-income clients, and it helps with this default level, which is also a part of our strategy.

[Operator]

[Interpreted] The next question will be asked by Eduardo Nishio from Genial.

[Eduardo Nishio, analyst]

[Interpreted] I would like to ask about health insurance. You have been posting great growth levels in revenues. So what's your take on the competitive scenario? You have been growing in share for some time. So how do you believe that these revenues will grow? Are there other growth avenues outside of São Paulo? And can you replicate this business model that has been so successful in other areas to sustain this high level of growth?

My second question is about Auto. If you could tell us about the competitive scenario there as well, the market has consolidated to some extent, which has helped with prices, but we also saw that revenue hasn't gone up as much. So if you could tell us about the competitive market, do you see any changes there?

[Paulo Sérgio Kakinoff, executive]

[Interpreted] We can start with Sami Foguel, CEO of Porto Saúde.

[Sami Foguel, executive]

[Interpreted] Yes, premiums are growing by 50%, as you mentioned, and lives also are growing significantly. In our perspective, Eduardo, this is still an important market that we would like to pursue. In the city of São Paulo, our market share is only in corporate plans, we don't do individual. So with Porto we are a bit more ambitious with our brand so that's what we do in the city of São Paulo. In the state of São Paulo, it's far below that. In Rio de Janeiro, we started a number of years ago, and we have about more than 1% of market share, but it's still very small. And in the Federal District, we've also started an effort recently. So consistent execution and growth still allow us to aim at a higher market share here where we have an effort already where we can have more distribution with Porto and of course, in the future, we can approach other markets and have specific strategies.

With health, each market is its own region. The good thing is that there are new products. We have been widely accepted. We've recently launched a new product here in São Paulo, which is very innovative. The Pro line is about one year old. We just launched Pro in Rio de Janeiro. So we're very excited about the possibilities of continuing to do great work in execution in São Paulo, Rio de Janeiro and the Federal District before we continue with new markets.

I'll hand it over to Rivaldo here.

[José Rivaldo Leite Silva, executive]

[Interpreted] Nishio, yes, we were expecting this competitive scenario. It was a bit more competitive this quarter. But in our strategy, and we had mentioned this before, we are reviewing our mix and the combination of segments that we have to try to pursue a better result. And this is not necessarily something that will raise our premium. So we're really looking at results. We're starting to see a better scenario in July. And we don't see a strong competition for the entire market. There were just a few that were a bit higher, but we're starting to see a certain balance in the market right now.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Like Eduardo mentioned, we have to look at the concentration effect that might have contributed to the more rational market considering sustaining the offer. In this industry, we have been competitive in pricing. We've been offering products that have a growing demand, this variation in revenue quarter-by-quarter is also considering the FIP table. And of course, this has an impact on our total income. But the best thing we could do right now is to be rational about the market.

Companies are working at sustainable margins so that we can continue to offer good products and services to the industry. And the most important thing is to protect clients efficiently when a loss takes place. The event in Rio Grande do Sul was a symbolic of that. So we have been very quick to support clients when they need it in a major event like this for the entire industry. This is when we see how important it is to be structured and have a competitive environment with high reaction capacity. This has been influenced by the consolidation movement that we saw recently.

[Operator]

[Interpreted] The next question will be asked by Antonio Ruette from Bank of America.

[Antonio Gregorin Ruette, analyst]

[Interpreted] Congratulations for these results. I have a couple of questions. The first one is about health. We saw that our revenue growth was strong. You explained where this is coming from in your release. And we also saw that the loss ratio has been under control, as you mentioned. You mentioned fraud control, verticalization, my question is do you see a base effect for this growth to sustain your loss ratio? And what is your target loss ratio once this growth slows down?

I also have a question about your strategy. Since your Investor Day, we -- some time has passed. You made it very clear that you had a diversification strategy. And since then, we saw the services P&L go up quarter-by-quarter. But my question is what was expected and what was unexpected here in this diversification plan, of course, Rio Grande do Sul was a surprise. But in general terms, what came as expected and what was unexpected in this plan?

[Sami Foguel, executive]

[Interpreted] Thank you for that question It's important to discuss our methodology and how we compose our P&R and provisions. This is done when we're growing. So whenever we grow, whenever we add lives, we include an IBNR related to that life. So as we grow more, as our reserves grow, we actually have an inverse event. So our results will be different according to our growth. So as we stop growing, our results stop being included in the IBNR. And we believe that this is a healthy way of creating reserves and so on. So we're very comfortable with it.

The second effect is the fact that over 99% of the lives we are covering don't have a grace period because they are coming in from other companies. So that could also lead to a snowball effect. And also over the last three years, our incremental growth rates in lives would be enough to take us to a higher loss ratio if we had any lack of reserves and so on. As you look at the different growth seasons, if there was any problem, this wave would have already collapsed. But quite contrary, as we mentioned recently, we are expecting to go back gradually to pre-COVID levels considering the several different drivers that you mentioned in your question. So we don't believe that there's any cause for concern about our growth levels. And this is not a part of what we want to do. We want to have sustainable growth over some time.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] So I'll start answering your next question. Thank you again. We mentioned the strategical plans for our company, and we emphasized Porto Serviço. This is a vertical that has significant growth potential. You might remember the slide that Dom mentioned or discussed at the end of his presentation, this is a segment to go into. We have a very strong brand name, and it allows us to access people's lives, their homes. So we are getting prepared through new contracts, which are being signed and also through prospecting with an M&A movement to expand our portfolio and to have a wider reach.

You asked what surprised us positively and negatively. The first frustration is that the group is very positive. So a part of our income comes from services provided to the insured as the loss ratio goes down, there's a lower demand for residential services, which is a very positive aspect but it makes this result even more interesting for us because we're reaching a growing result with a relative importance in sales going down for the group in comparison to revenues from the market.

[Marcos Loução, executive]

[Interpreted] Yes. Thank you for that question. Let me start answering the first part of the question. You mentioned what surprised us negatively. In the first half of the year, despite the tragedy in Rio Grande do Sul, we had fewer services because it was drier. We had less rainfall. So this makes it exciting because revenue are going up and we have a very strong channel. So the broker channel is becoming more accepted.

We're getting closer to the brokers who are a bit more skilled at selling these products, and we see that they are starting to give positive contributions in the B2B market, which is a market that we can surface directly but also B2B2C with closed deals. So that's important when we look at our entire portfolio. B2B2C partnerships also grew. This was surprising. We saw a 34% growth if we look at it quarter-by-quarter. And that shows the potential to grow outside the ecosystem. We're also implementing the Porto Serviço brand successfully. When we use this brand, there is a higher conversion rate for products and services. So it truly is a win-win partnership. So that's also an important point.

And finally, I'd like to highlight B2C. We've been starting an online sales movement. And at the first half, we are at about 4,000 sales. What we've been noticing in -- what we've been learning in these tests is that this is being accepted and just so I can conclude here, we should, throughout the second half of the year, make a few other experiments on how to sell our services. So that will probably increase our B2C sales. We're very excited about that and we see about 22% sales levels outside the ecosystem.

[Celso Damadi, executive]

[Interpreted] Antonio, referring back to your question on diversification. We have to highlight that our focus on Auto was still there. Of course, our market share is high. It doesn't mean that we shouldn't grow there. But we have been advancing with expressive results in other verticals as well. Our medium- to long-term plan is to continue to diversify. And in the near future, in the next few years, we hope to have 50% of the insurance vertical representing the total profit rates for the holding.

As you know, we have a lot of opportunity in Life and P&C and other results. So that means going beyond being an insurance company. Of course, this is our focus, but we can explore a part of the market share in other parts of the portfolio like consortium, for example.

So as we mentioned in Porto Day, we are continuing our strategy, but we want to extend it even further.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] I just wanted to tell you a little bit more about our strategy. Of course, this is not a guidance. But when we look at the current growing trends for Porto Seguro, which is one digit, while other verticals are growing by double-digit rates, there are good reasons to believe that this trend can continue in the next years. And this is something that can differentiate the Porto Group as we will have a wider portfolio.

[Domingos de Piza Falavina, executive]

[Interpreted] Of course, we can't publish this due to competitive reasons. But just so you know, when we look at the loss ratio for what was sold in each year, we see years that have a loss ratio of below average and they're usually further away. So it's not that the new one is creating an additional loss -- new years are creating an additional loss so we don't find any benefits also looking at it year by year.

[Operator]

The next question will be asked by Jitendra Singh from HSBC.

[Jitendra Singh, analyst]

So my first question is on profitability. So excluding the one-off effect this quarter, your ROE was again above 21%. So how do you see the sustainable level of ROE in the coming quarters and especially for the next year? That's the first.

And second, I just wanted to ask on your investment income. So we saw weak investment income in 2Q, how do you see outlook for your investment income for the second half and especially for 2025, particularly in terms of changing interest rates. What are the adjustments meet to your investment strategy or securities portfolio mix income going forward?

[Domingos de Piza Falavina, executive]

Jitendra, thank you very much for your question. We don't have an official guidance for ROE per se. As you know, we have a pretty comprehensive guidance with four verticals. But generally speaking, if you look at the trends of growth of each individual vertical, you will see, as we aforementioned a little bit, that the verticals that actually carry higher ROEs or even outgrowing the verticals. On top of that, when you look at the difference between the ROEs of the holding company and each individual entity, you will realize that we have basically in excess capital, we also have intangible assets in there within shareholders' equity.

Part of those intangibles are actually amortizable over time. But even the ones that are not, they should get diluted just by nominal inflation and other factors. So there are basically [indiscernible] to ROE. That's kind of the point that I wanted to make. We never know, obviously, the competitive dynamics in the future. But I mean, everything else sort of maintaining the same trends as they are. We see upward trends to ROE driven by dilution of intangibles in equity -- higher ROE units outgrowing other business units.

As far as the investment income, I can't -- so on your question on investment income, basically, and in case I don't answer, feel free to ask -- add follow-ups. But basically, the view of the company is that we want to preserve shareholders' equity. So we tend to be usually mostly allocated on what we refer to in Brazil as an NTMBs, which are inflation-linked bonds like TIPS in the U.S. And throughout 5, 10 years, if you actually do the back test, you'll see we tend to outperform the SELIC or the CDI as referred here in Brazil.

So we've been on average doing over 100%. If you look longer periods of time, it tends to be substantially above 100%. But we look a little bit less to that and we look more about preserving our ability to remain on business and to preserve capital and so on and so forth.

When you look at the guidance, so the first half should be a bit weaker than the second half because we did a reshuffle of assets. So we basically sold and recognized early on some losses in this quarter, and we expect to have the benefits throughout the next 12 months to 18 months. So on the second half, should -- on a comparable basis, everything else kept costs and et cetera, which we obviously know in Brazil, it was never the case. But there is a tailwind of BRL 50 million, BRL 70 million on the returns of those securities just because we basically recognized the loss in the first half and we should have again in the second half.

So we are pretty comfortable with the guidance for financial income. In fact, as Damadi, our CFO mentioned, we are confident with the upper end even of the guidance for financial results. with current market conditions, which in Brazil is never obvious.

[Paulo Sérgio Kakinoff, executive]

Returning to the point of the ROE analysis and excluding assets such as goodwills and the excess capital itself. The company is in a sustainable way, performing above 20 or at a level of 20 plus percent ROE. I think that's a kind of demonstration of the company's policies with regards to the business sustainability. I think we are pretty much interested in keeping the balance at the level among all the verticals to perform at such a high level of returns on equities and assets. This is the main reason why it's so important to have the business diversification happening at the same time that you can keep all the businesses running at a very sustainable and some level.

[Jitendra Singh, analyst]

Just one more question, if I can ask. So in terms of your dividend policy, what should we consider maybe dividend payout for this year or maybe coming years, especially considering potential investments you are making in the growth areas?

[Domingos de Piza Falavina, executive]

So we have historically paid between 40% and 50%, Jitendra. I don't think we should deviate from that. So I would work with that range, something between 40% to 50% sort of CAGR. Like in simple terms, the way we look at it is if we grow with the 20, low 20 to 25 hypothetically speaking, ROEs, if our premiums or risk-weighted balanced asset growth in the teens, we should sustainably be able to pay in the 40% to 50%. This year should be no different.

[Operator]

[Interpreted] The next question will be asked by Guilherme Grespan from JPMorgan.

[Guilherme Grespan, analyst]

[Interpreted] I have a similar account with earnings power. So we're also reaching 33%, 34% excluding the one-off events this quarter. I have a couple of questions. And I'm sorry to go back to this topic, but I was struck by the data from IPG in July, and we heard that there was a recovery in the industry in July. It showed an increase of 4% in insurance tickets in July. That drew my attention because it was a sequence of drops because of car prices. And I was surprised by how high it recovered. I'd just like to get some color on that from Rivaldo, what should we expect in July? And does that figure from the IPG makes sense? 4% is a pandemic level repricing increases.

Also, we heard a lot about different profitabilities, but it didn't seem to be a significant focus for your revenue growth. We had seen a reduction quarter-to-quarter when you look at G&A and others in your cost base in the insurance vertical. So I'd just like to confirm how you're including cost in your strategy? Can you have more efficiency in the insurance vertical? Or should we assume that this is more about growing revenue and less about reducing costs?

[José Rivaldo Leite Silva, executive]

[Interpreted] So starting with your second question, we do see some space to improve there. We have been making an effort to seek further efficiencies and SG&A. We have a plan for the future that is analyzing that, and we want to become even more efficient.

Considering the July premium, we had been expecting this and the entire market was affected by the situation in the south. So I think it is related to the market recovering after the situation in the South.

[Celso Damadi, executive]

[Interpreted] In the last 10 years in the company, we have been going through an efficiency gain program. This is not new. Of course, we're discussing product diversification. And with RE, P&C and Life has been growing above 20%. So our efficiency effort has gone along that way. We always talk about efficiency and not cost because conserving quality is very important to our clients are very important. But with this growth and with our diversification, we are absorbing a higher fixed cost.

For the next years, we want to continue having the same productivity. Of course, whenever we have a higher productivity gain, this speed tends to go down. But any gains in productivity in BRL 30 billion or BRL 40 billion will be significant and will be very important for us. So it's efficiency with quality. We still have a lot of room to grow in health. We've been -- we've had GAs below 4.5%. And with -- as fixed costs get diluted across the company, and delinquency rates are also going down. So we expect that this will be even more positive in the future.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] So there are a couple of projects from the second quarter that really demonstrated these possibilities. The first has been mentioned by Rivaldo. And it's about the synergy across Life and Home. So this includes its performance, how the product is designed our approach with brokers, but also, of course, our internal back-office efficiency and also adapting Azul at Porto itself. Azul is a product that came from the acquisition of Access Seguros in the auto industry.

This took place nearly 20 years ago, but it remained as a separate plant in the organization as a second factory for very clear reasons. We wanted to create more portfolio diversity. We wanted to position an additional brand that would not be cannibalized by Porto and address a market in which portray itself was not present. So we succeeded in that mission. It represents a high number of policies in our portfolio.

But from a systemic perspective, it includes several processes. In the next half, we will unify these areas. And of course, this is not easy, but it will give us positive synergy gains. And that includes operational cost but also time. And we'll start to see them in 2025 because this process will be consolidated throughout the second half of 2024. So these are just some examples of the opportunities that Celso and Rivaldo mentioned that we're pursuing in costs.

So there is a natural dilution across the entire group because the four verticals have a lot of synergy, especially in back office investments and production.

[Operator]

[Interpreted] The next question will be asked by Thiago Paura from BTG.

[Thiago Paura Mascarenhas, analyst]

[Interpreted] I think most questions have been answered, but I'd like to ask a follow-up question about Health. We always focus on the São Paulo region. But I'd just like to know how other cities are different from São Paulo, if they are. And here, I'm talking about strategy. So can we foresee any different behaviors in these areas in terms of loss ratios and the top line?

[Sami Foguel, executive]

[Interpreted] So each city is specific and unique, there's different agreements with local hospitals that something that Porto has in its DNA. We have partnerships, and we don't really have assets in Health. In São Paulo, 35% of all of our consultations are now being done with Porto's medical team, 22% of all our surgeries. So we have been growing with partnerships, and we're bringing interesting products to our clients.

Our growth levels are very healthy in other cities as well, not only São Paulo. So in Rio de Janeiro in March, we had two product lines launched. It was a significant event in Rio's Jockey Club, we invested in media. This was also significant. We have the Pro line that was launched in Rio, and it's been providing very positive results. So growth levels have been very significant. This is replicated in the coast. And of course, each city has its own moment, its own capacity. Price is an extremely technical thing.

So our loss ratio has a target per product and per period. So that's why we're seeking ways of reducing our risk associated to each policy with anti-fraud initiatives, the use of intelligence, with our commercial agreements, with virtual verticalization, and we want to provide a very good and attractive product which will serve great needs excellently in health.

We have to have a good level of excellence in medicine, and that's how we can begin. And then your risk premium will have an attractive price and grow in this market. So it's almost a micro regional strategy. We've been gaining traction consistently. It's easy to grow in health, but to have responsibility. That's the challenge.

[Operator]

[Interpreted] This concludes the question-and-answer session. We will continue with our closing remarks from Mr. Kakinoff.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] Before closing remarks, I'd like to invite my CEOs to make their closing remarks for each vertical.

[Lene De Lima, executive]

[Interpreted] Thank you. The message I have for Porto Serviço is that besides the figures, we have a consistent strategy. So the plan that we've been designing has been addressed when we look at some significant markets like Paulo mentioned like B2C. There's BRL 42 billion to BRL 72 billion that can be attained. So we have a consultancy company helping us to accelerate this.

So I have a final message, which is just about optimism. We're on the right track. The operations table that we mentioned is also addressing the market very well. Our brokers and partners in selling products and services. So thank you once again. You can count on us, and we're available for whatever you may need.

[José Rivaldo Leite Silva, executive]

[Interpreted] Thank you for your questions. So to underscore everything we mentioned, we have a new product portfolio where we had an event in Rio de Janeiro recently with a number of brokers. Tomorrow, we will have a major event in São Paulo with brokers, and we also had one in the South. It's a new portfolio with a wider range of products, even smaller average tickets. So this is the line that we're pursuing. We're focusing on efficiency, we're trying to improve our GA. We are seeking better operational efficiencies, and that's what I had to share.

[Sami Foguel, executive]

[Interpreted] I'd just like to emphasize that this is my 12th call with Porto Saúde and throughout the last three years, we've been focusing on growing sustainably, and that has been undeniable. Throughout this time, Porto Saúde has reached over 600,000 lives. We are among the top insurance companies in Brazil. We had a close to BRL 180 million in profit in the first half of 2024. So it just shows how we can expand our lives, our premiums, digitalization growth, our processes and our guidance is to continue growing cautiously in order to make it sustainable.

[Marcos Loução, executive]

[Interpreted] So for the bank, we're focused on credit opportunities in our ecosystem to service our high-income clients. And we also want to continue growing with other businesses. And this is a part of the strategy that we declared to you. We've had consolidated results in the last quarters, and we see a lot of potential for growth. The payment ecosystem in Porto is also an opportunity.

So we're developing new indicators such as an account. Our brokers are using this with our employees as a last test, and we believe that this will be a great driver in the Porto ecosystem and other products. Card and Automobile have a lot of synergy, but this is not repeated across other businesses. So this is again an opportunity. We're starting to create corporate accounts as well to address the cash out and cash in that we see in the group. Last but not least, we're also focusing on diversifying our revenue and also F-based opportunities, which allows us to be more resilient in certain crises and to have more flexibility to grow. We intend to continue growing with sustainability.

[Paulo Sérgio Kakinoff, executive]

[Interpreted] On behalf of Dom, Celso and the entire Porto team, I'd like to thank you for your time and your interest. Please send us your suggestions about how this call can be organized. Of course, we are trying to make it interesting for you, but any suggestion you have will be welcome. We made a big effort this quarter to give more visibility to the event in Rio Grande do Sul. But if you have any other topics that you'd like to discuss and if you'd like to go deeper into anything in the next few days, please contact our Investor Relations area. Thank you once again and have a great rest of your week.

[Operator]

This concludes Porto's conference call. Thank you for being here, and have a good day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]