Porto Seguro SA

BOVESPA:PSSA3

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. And at this time, we would like to welcome everyone to Porto Seguro's Fourth Quarter 2020 Results Conference Call. Today, we have with us Mr. Roberto Santos, CEO; Celso Damadi, Executive Vice President of Finance, Controlling, Investments and IRO; Marcelo Picanco, Executive Vice President of Insurance; Marcos Loução, Executive President of Financial Businesses and Services; Izak Benaderet, Managing Director, Portal Investment; Lucas Arruda, Head of Strategy and Investor Relations; and Emerson Faria, Head of Investor Relations.

We would like to inform you that this event is being recorded and simultaneously translated. [Operator Instructions] We have a simultaneous webcast that may be accessed at www.portoseguro.com.br/ir. At this address, you will find the banner, conference call, that will lead you to the slide presentation. [Operator Instructions]

Before proceeding, we would like to clarify that forward-looking statements made during this conference refer to projections, operational and financial outlook and they are based on the beliefs and assumptions of Porto Seguro management as well as on information currently available to the company. There are no guarantee of performance as they involve risks, uncertainties and assumptions as they relate to future events and depend on circumstances that may or may not occur in the future. General economic conditions, industry conditions and other operating factors could affect the future results of Porto Seguro and lead to results that differ materially from those expressed in such forward-looking statements.

We would now like to give the floor to the company. You may proceed.

[Roberto de Souza Santos, executive]

Good morning. We would like to thank all of you for your participation in the Porto Seguro's results conference call for the fourth quarter 2020. We go to Slide #4 to highlight the following. Net income had a double-digit increase for the quarter and the year. We increased the profitability on equity for the fourth consecutive year, explained by the growth of operational results under the financial results. The evolution of total revenues grew in 2020 because of the sale of auto insurance and a double-digit growth of CNP consumption and the CDC operations after the resiliency that we showed. After July, Porto Seguro began to speed up sales and maintain this trajectory until the end of the year. This shows us that we're on the right path to accelerate growth business, diversification without putting aside the quality of assets and an attractive profitability.

The loss ratio was better than in the fourth quarter '19, explained by the Auto that had a reduction of 8.08 points, thanks to the better enhancement of risk, pricing and the impact of social isolation caused by the pandemic.

Regarding operational efficiency, the G&A and O&E had an improvement of 4.5% for the year. And 2020 is the fifth consecutive year of improvement in this indicator, thanks to the efforts we are deploying to enhance efficiency through investments in technology and process revision. We reached a combined ratio of 89.5% in 2020, a reduction of 5 percentage points vis-à-vis 2019. This was our best result in 10 years.

The NPL of credit operations remains favorable with a drop vis-à-vis the third quarter and the same period in 2019, with net provision losses above 90 days, ending the year at 4.4%, 3 percentage points below the market average. This shows the efficient management of the portfolio and the measures we adopted to mitigate with throughout the year 2020.

Our financial results for the fourth quarter had an increase of 11.4%, through the strong performance of our shares, the inflation-linked bonds and multi market. In 2020, the return attained was 10.7% on financial investments, equivalent of 387% of CDI. This performance resulted in net earnings of BRL 409 million in the fourth quarter, 10.3% greater than in the third quarter of 2019, with an annual profitability on equity of 20%.

During the year, net revenue was BRL 1.7 billion, 22% greater than in 2019, representing profitability of 21.6% on equity. We ended 2020 with BRL 2.7 billion of cash availability, which has remained at comfortable levels during the pandemic.

Regarding the ESG initiatives, we ended the year with more than 8,000 temporary vacancies from the Meu Porto Seguro program. We also entered the WE Ventures Fund, investing in technology startups led by women. These are a few of the sustainable initiatives among several others that we have carried out as part of our ESG agenda.

We obtained highly positive results in the fourth quarter and in 2020, accelerating the growth of business portfolios and revenues, while we maintain a stringent control of expenses resulting in 1 more year of increase in net revenue. We dream and challenge ourselves to ever more becoming a state for our clients. And for this, we offer relevant experiences for them. This enables us to expand the brand. We leverage the cross-selling of products and services.

We now go on to Slide #5 to show you the total revenue evolution for the fourth quarter and the year 2020. We see an expansion of 8% in quarterly revenues with a growth of more than 20% in the verticals of Financial Business and in the Service vertical, and 6% for the Insurance vertical and the Health vertical.

If we consider our total revenues, we had a growth of 4% in the year 2020, overcoming the social and economic challenges imposed by the new coronavirus pandemic.

Before giving the floor to Marcelo Picanco, I would like to thank all of you for your partnership and wish you a great deal of health. Marcelo, you may continue to remark in detail the results of the fourth quarter and the year 2020 for your vertical, Insurance and Health.

[Marcelo Picanço, executive]

Thank you, Roberto, for the introduction. Thank you all, and I will first speak about the insurance vertical that includes Auto, P&C and Entrepreneurial Life as well as other Insurance. I will then speak about the Healthcare vertical. In the fourth quarter, we were able to return to the acceleration of the Insurance vertical in an extremely difficult year. Without Health, we were able to accelerate to a growth of 6.2%, a good result if we consider the difficult contents in the growth of sale of vehicles. And basically here, a very important indicator was the growth of more than 105,000 vehicles in only 3 months in the fourth quarter of '20 vis-à-vis the third quarter '20, and the double-digit P&C expansion that grew 11.3% also with a growth of 5.8%. P&C growth of 11%; Other Insurance, 6.6%. Life had 2 important impacts: one, the traveling insurance severely impacted by the pandemic, with a drop of 90% in the business; and another which is less obvious, the event insurance, a diverse series personal insurance for the short-term that were also canceled, and we are no longer offering this type of insurance as events do not exist and life insurance for these events is no longer there. So the drop was substantial, very close to the 90% that we have in travel insurance. This had a significant impact without speaking about the reduction of Life in smaller companies that had difficulties in maintaining the insurance. And this also happened in larger companies. We believe that the growth aspect shows that this was a significant quarter to recover growth.

To speak about the Healthcare vertical in terms of growth, in the next slide, Slide #7, for the first time, we attained revenues of BRL 2 billion, with an increase of 60,000 members in the portfolio of growth of 11% for this vertical. And we had the growth of entrepreneurial health, dental, also with a growth for those who use the network. Perhaps it will be more difficult to proceed the growth here, and we believe that this increase of 60,000 lives at the moment where the company is facing difficulties and employee affinity has increased the number of clients and companies contracting insurance, a growth perhaps more than we expected. And we had a reduction in some companies that, of course, have to reduce their personnel, which is easy to understand at this moment of the pandemic.

When we speak about margins in the coming slides, the combined ratio had an improvement of 2.4 percentage points vis-à-vis the fourth quarter 2019 and 5 percentage points for the entire year, vis-à-vis 2019. We attained a record of BRL 89.5 million.

At the same time, we also had the lowest historical CBI. And this is important because for some years, there was a thesis in the market that it would be difficult to obtain sustainable operational results to face the financial results with a very low GDI. The CDI was very low, and we have the historical series, is to have a higher CDI going forward. This is a market projection. We had a record in the historical series of results that was reduced during the year. And in 2020, we had a return on capital in these insurance lines and health lines of 21.3% for the year 2020, an increase of 6 percentage points vis-à-vis 2019, where we have reached 18%, a good level. Now this is greatly due to the reduction of loss ratios and some increases that I will remark later on in Slide #9.

In Slide #9. When we look at the results for the year, the annual rate had an improvement of 0.5 percentage points in a series that had already been improving during the year. Since 2016, we had a nominal decrease of 9% vis-à-vis an IPCA and accrued IPCA of almost at 17%, a significant reduction in G&A and O&E, and this increase of 0.5 percentage points is not recurrent. The 2 gains are BRL 13 million in health, in other expenses because of the readjustments that were postponed by the National Health Agency. We were conservative. We did not do this. And depending on whether we are able to implement these readjustments this year, this could be repeated. This will depend on the negotiations with the companies as extreme measures were adopted during the pandemic. We also had an incentive one-off campaign to accelerate sales of autos with Itaú Bank. We believe it was a worthwhile effort, and we have a drop in O&E and will help us to accelerate in the similar year. Once again, this is not going to be recurrent. This is not a trend for reversion. And we continue to work towards reducing G&A and O&E.

And to summarize, for 2020, we had 3.4% of G&A and O&E.

Having said this, I would like to give the floor to Marcos Loução to speak about the financial business vertical. I -- thanking you for your attention, thanking our brokers and employees for the excellent results in 2020.

[Marcos Loução, executive]

Thank you, Marcelo. Good day to all of you. To continue, I will speak about Financial Businesses and Services. Here, we see the growth of revenues that reach more than 20% vis-à-vis the previous quarter, mainly due to the consolidation of a strategy that we now have of focusing on the financing of vehicle cost, CDC. The CDC is the one that is responsible for this growth.

Now to speak about distribution of businesses, we have everything concentrated in the Financial business, in Consortium and financial risk. What we see is a more consistent growth, and we're going to diversify more in the Financial business vertical and the asset management.

The Credit Card and financing portfolio had a 3% growth, thanks to the Credit Card portfolio that reached BRL 7.9 billion in the third quarter, a growth of 21% vis-à-vis the last year. And the growth of vehicles with 36% growth, obtaining 100,000 contracts in the fourth quarter only.

Now financial risk with a growth of 73%. And -- well, this depends on how we distribute the contracts. We now have the full lease contract because of the new regulation, and the growth stands at 15%, an express of growth. Consortium was a growth of 34% based on a strategy to lever the Auto Consortium as well. A Consortium of Auto as well as real estate, which will give us another 10% for this quarter.

In the next slide, specifically speaking about the Financial business vertical, Porto Seguro, you see the total amount of revenues with a 3% growth for the quarter and 9.7% vis-à-vis 2019. Our Credit Card standing at BRL 6.8 billion. Loan and the rotational credit of 1.100 billion active credit cards, which is a figure that is important. These are credit cards that are used month after month, that is to say 30 days for the growth of 12%, and the total Credit Cards growth of 9.7%, solidifying the strategy that we have to grow in Credit Card and also financing.

To speak about the default rate. Compared to the market, we have a drop in this rate, ending at 4.7% and Porto at 4.4%. We had a peak in the quarter with a drop in the first and fourth quarters, thanks to the evolution of policies that we have adopted for recovery. And we do believe that this figure will be quite consistent despite the moment of pandemic that we are going through. We see that the figures are not truly decreasing in terms of coverage rate and risk costs. It is a coverage of 146% and 36%.

To speak about the Service Businesses vertical. We had a growth of 22% in revenues, a distribution of revenues. 42% for service, which is -- well, the main client is Porto Seguro itself, but we have other companies. And the idea is to cast a different vision on Health for Pet, with a growth of 19% Porto Faz and Reppara. Porto Faz refers to all of the services that we have as a benefit in insurance. We market this through Internet, through our service vendors that will service as a secondary service. And we have a subscription plan for services with a growth 9.3%.

If we look at Carro Fácil, the growth was 21% in the fourth quarter 2020. And Porto Faz and Reppara with 23%. And Carro Fácil we're consolidating this for the month of February. We're going to open another market to sell this product, which is [indiscernible].

I now give the floor to Izak Benaderet to speak about our financial investments.

[Izak Benaderet, executive]

Thank you, and thank you participants. We're going to speak about our financial investment. We had a strong quarter thanks to the share market that was with a very good performance, and this is relevant in our portfolio. And inflation-linked bonds, we were benefited by the strong increase of the IPCA and G&A in the last quarter, and gains from our allocations in the market.

The quarter ended with a nominal return of 3.5%, 742% of CDI. And I draw your attention to the change that was made in our allocation. We have a more relevant allocation and the inflation-linked bonds and in terms of variable income. I highlight the change in our profile. We maintained our allocation and shares, but the profile of our portfolio tends to be more aggressive. This is all.

Thank you for the opportunity. I give the floor to Celso Damadi.

[Celso Damadi, executive]

I'm going to speak about our consolidated results.

Porto Seguro has been putting in place a business diversification strategy. The result of Auto in 2020 was relevant and reflects the enhancements in underwriting and risk pricing, and the positive effects of social isolation on the loss ratio, something that was already mentioned by Marcelo.

In the graph, where you see the BRL 1.7 billion of net earnings in 2016, you see that we have had a constant average growth of almost 16%, a CAGR of almost 17% between 2016 and 2020, a constant growth throughout the last year. And this shows you the diversity of the earnings distribution, although the Auto had an extraordinary earnings in 2020, with our underwriting, with pricing and social isolation. It doesn't represent more than 50% of our consolidated earnings. In 2017 to 2019, it represents 31%, 32% of our earnings.

Now this strategy for diversification has given us positive results in terms of revenue, our dependency has decreased, and in our earnings strategy. Of course, the year 2020, we had extraordinary earnings for the Auto segment, representing 45% of our consolidated earnings. In the graph to the right, we see that quarter-on-quarter, we can see that the earnings for the first quarter was smaller. We had a diversification of earnings. And in the fourth quarter, Auto, once again, represents 36% of the earnings of the consolidated figures and has the average represent activity that we expect. We show, therefore, that the diversification of our portfolio has worked very well as well as our strategy.

The increase of net earnings of the fourth quarter 2020 vis-à-vis the fourth quarter '19 is due to the growth of the premium issue and the reduction of the loss ratio and financial results. In the fourth quarter 2020, we had a very significant set of actions, results, growth and financial results. It was a very significant first quarter for us in terms of growth and financial profitability. And we show you the first quarter where the results were complicated, we had a drop in the stock market from 115 points to 89 points. We lost almost BRL 100 in the stock market. We doubled our base on variable income, and we were able to invert our profitability position in variable income during the year.

In the second quarter, we had more social isolation. And at this moment, we have assigned a price to social isolation. The second quarter for Auto was much lower than what we had imagined because we hadn't allocated a price to this, and the results were benefited at this point in time. And in other quarters, the isolation began to have a price. The loss ratio tended to return to the market level with our profitability being preserved. So we do see that the results have a return to normalcy. We're still far from normalcy. We're below what we have, but we will be back to normalcy. We see that in the other quarters, the results are above what we had expected, but lower than the second quarter.

Our annual profitability, we see once again, the profitability is 19% and reaching in the year 2020, 21%, and a constant profitability between the 19%, very close to 20% for the last few years. This is a quest that we have for profitability, and we have been able to retain this in the last few years. We show you our return on average equity at 100% of CDI. And it is important to show you that even if we normalize ROE at 100% of CDI, in the fourth quarter, we reached 16% of profitability. And for the year, normalizing this at 100% of CDI, we reached 24% of profitability, once again at 100% of CDI.

Operational results for this year that are above all of the other fiscal exercises. In the following graph, our pricing model, as showed by Marcelo Picanco, and shows our ability to price the drop of the CDI. And again, this was a very good year and extraordinary year, and profitability over the CDI is above that of other years. But year after year, we have a profitability that is very high, which means that our pricing model captures the future drop of CDI. Our pricing model already uses this price methodology and financial profitability.

As part of our business, as part of our pricing model, we show that in the last few years our broadened combined ratio has been very stable regardless of the interest rate, we have been through CDIs of 11%, 12%, 13%, and our broadened combined ratio has remained stable as well as our return on equity, which has been quite profitable.

On Slide #14, we spoke about some of our initiatives and what we have done regarding ESG and what we're doing in terms of corporate governance. And we show you that these initiatives are aligned with the business strategy of Porto Seguro. We have positive impacts on the environment and all of the company's stakeholders. We highlight only some that have contributed towards the professional enhancement and entrepreneur -- the program that Porto Seguro launched in December had more than 8,000 temporary jobs. Participants received BRL 1,500 for a 3-month period. They are trained and qualified to return to the labor market with no independence and qualification. The program is in its final stages and has reached the temporary jobs for 10,000 people foreseen for January of this year.

Another highlight is the investment of BRL 5 million in the WE Venture Fund. We invest in technology start-ups led by female entrepreneurs. Besides contributing to gender equality and entrepreneurship, we can learn from this experience and strengthen the integration of our business through a focus of clients at the center. We selected 10 programs that will receive BRL 6.4 million in investment, benefiting more than 34,000 people.

Finally, the Porto Seguro Institute ended the year with 86% of student retentions. And this obtains to an innovation and digital transformation agenda geared to sustainability and to offer distance education and other actions to retain students with a close follow-up of each of them.

These are the main operating, financial and ESG aspects that we wanted to highlight in the presentation. We can now go on to our question-and-answer session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Mariana Taddeo from UBS.

[Mariana Taddeo, analyst]

If you could please speak about the Auto dynamic for the year 2021. How are you leveraging the sale of automobiles, the price? And now that you have a lower lot ratio and with the outlook of the increase in Selic in 2021, will there be a drop in prices?

[Marcelo Picanço, executive]

Mariana, this is Marcelo Picanco. Thank you for the question. In truth, there are several phenomenon here. We're studying not only the short-term aspects, what we use in our modeling. It's not only the short-term such as the Selic rate and the frequency dynamic, but also medium-term aspects, the issue of urban mobility, of behavior, not only because of the pandemic, but also in the post-pandemic era. The pattern will not be the same. And all of this is transferred to price. This doesn't mean the average price will plummet. We have made optimizations in our model. It is important to state that we don't work with the classical modeling of filing up cost and transferring them. We work with elasticity and a very old-fashioned view of looking at insurance that's piling up cost, and transferring this to consumers is absolute.

We also include the value perceived by the consumer and different insurance options, and how much the consumer is willing to pay, with a focus on growth. And we sell products. We launch products that are stronger to include people in insurance. Growth is not only based on customers that are already part of the Insurance segment, but we're working with those consumers that are on the margin of insurance. We call this insurance inclusion, and we're launching some products that should reach the market very soon.

And with this, we intend to maintain a significant growth pace in the Auto sector, which was your question, without relevant impacts on the average price. But there is a part that will be transferred to price, but this is not a linear transfer or it's not based exclusively on Selic rate or the frequency of loss to be uncertain collision. Our model also separates the part of mobility that has been different based on region, income and age. We have critical mass to work with a good separation. Not all consumers behave in the same way during the pandemic.

[Operator]

Our next question is from Eduardo Nishio from. [indiscernible]

[Eduardo Nishio, analyst]

Can you hear me? I have 2 questions. In terms of your technical provision, if you could expand on the amount that you have for the year, especially for the health sector as the pandemic tended to be somewhat atypical in the period of 2020. If you could speak more about what was done in terms of technical provisions, not only for the fourth quarter, but for the entire year? And if you could also speak about the insurance inclusion. If you're speaking about a lower cost product, what will the product be like? And when are you going to be launching this new product in the market? Which are the markets that you tend to focus on, São Paulo or others?

[Celso Damadi, executive]

Nishio, this is Celso. Thank you for the question. I'm going to refer about the technical provisions, and we will then speak about the insurance inclusion. Regarding the technical provisions, we did work with technical provisions in the Healthcare vertical, provisions that are somewhat different from the ones we make normally. DI, DMR is actuarial calculation, a classical calculation. There is a hospital bill. The person goes to the hospital, and it takes some time for the bill to arrive. This is calculated by an actuary based on actuarial data, more pragmatic data.

This year, we have had events that occurred where the person still has not gone to the hospital because several of the elective procedures were banned. What we did was to work with calculation for elective procedures. There was an average being carried out during the year, but this was below the average. So we may provision based on that average. We reinforced the provision of IBNR for the Healthcare vertical. And we imagine that some of the elective procedures that were not carried out in the year 2020 will probably take place in the year 2021.

Regarding Life Insurance, we have some provision, much lower than that because in Life, when there is a case of COVID or a case of death, this is informed to us and the cost tends to be shorter term. So the provision for Life is carried out in a different way. We don't have additional provisions that we have in the Healthcare segment because the cause is short term. Technical provisions apply more to Healthcare than Life.

Now Marcelo will speak about the insurance inclusion.

[Marcelo Picanço, executive]

We have a leadership in the Auto business with a 30% market share, more or less due to natural oscillation. But it is important to have this product. The product will be launched in the first semester. We're going to be sure that this product will include new consumers. The idea is not to have lower cost insurance merely, but to attract those who have no insurance.

There has to be a bit of boldness in this, and we want to include some things that perhaps have not been accepted in the market. We're willing to launch and make mistakes, to make adjustments. We know that not everything will be marvelous in the first month. We have to carefully pilot this project to have the natural learning, but we do have to work with this inclusion process as an alternative for people who are on the margin of this market. But this is not the only issue. Of course, there are other necessary leverages for the entire chain. For example, the experience in the digital chain for a product like this one, we must ensure that we have maximum efficiency and the minimum cost, not only to offer a good customer experience, but also to obtain efficiency because any inefficiency will be paid for by the consumer.

The fact that inefficiency is paid for by the shareholders is not true. This is transferred to the consumer. And to have significant efficiency, we have to properly leverage the digital part, and this is a search that is endless. And so far as technology above, there will be additional aspects, and we will attempt to do this ever more in the chain. To open up a loss ratio, accompaniment or aid on the streets, whatever is strategically feasible, we will do, so the consumer will access protection something they have -- do not have at present. Once again, this is something we will done, and we're piloting this, and it will be launched very briefly.

[Eduardo Nishio, analyst]

That was very clear. Something about the technical provision. If you could give us an idea of the amount? We know that you worked with a reversion in the first quarter for Healthcare. And if you could give us a notion and idea which was the addition that you allocated to the technical provision, simply to pay subsidy impacts that you might have in the year 2021?

[Unknown Executive]

Nishio, it is very difficult to know exactly because the technical provision works with bands or ranges, and variations and provisions. What we have in mind in terms of the IBNR provision for these events is between BRL 35 million and BRL 45 million. So this type of provision, this is the approximate amount that we think we will have in terms of the IBNR technical provision for the events that did not occur. For the events did occur, they were held back. And this would be the level, BRL 35 million to BRL 45 million.

[Operator]

Our next question is from Bank of America, Giovanna Rosa.

[Giovanna Rosa, analyst]

I have 2 questions as well. The first referring to profitability. How do you imagine the evolution of profitability in 2021? Which will be the main drivers?

And the second question refers to the Healthcare segment. In the first semester, you have a strong growth. In the second semester, you did well. If you could explain the reason for the differences? And which will be your focus for this segment in 2021?

[Unknown Executive]

Giovanna, unfortunately, regarding your first question, we don't tend to give guidance in terms of results, and we don't do this for results. What we can say is that our practice is to seek an average profitability, and this is what we will do this year to have growth with profitability. Now once again, we don't diverge this type of guidance.

Regarding your other questions. Giovanna, regarding this fluctuation, this is not something recurrent. Quite the contrary, we have a strong acceleration in Healthcare. Perhaps this is due to the design or some of the interest that we have on this ends up impacting the result. But our focus is on SMEs, where we will have greater profitability, greater sustainability and growth. This is a model that we're quite happy with. There are natural fluctuations during the year, and we're increasing the pace of Healthcare that will be more streamlined, more executive, more digital. And we're creating a partnership with Red Ventures, which is an American company, and a partner in this very new health model, perhaps a more evolutionary model that we're adopting for Healthcare. Obviously, this will become ever more visible for the market. The construction of this began at the end of 2020, and it is still very recent. The reflex that the Healthcare market still cannot be detected, but we believe that the growth during this year will be more clear, more concrete and this visibility will become evident. I do not think there will be a deacceleration of the Healthcare. This is what I can say.

[Operator]

Our next question is from BTG Pactual.

[Unknown Analyst]

Congratulations for your results. I would like to pose 2 questions. First, about the Healthcare product that you just remarked on. If you could give us more color, which is the strategy that you will implement and which are the strategic differentials that you will obtain from this product? And if you could speak about Porto [ Cueva ], which has been the performance? These are projects that increased insurance inclusion in the Healthcare segment.

Secondly, regarding your financial and other expenses, they seem to have grown this quarter. I would like to know if you had a one-off event that could justify this besides the impact of the commissions in the Porto Consortium?

[Lucas Arruda, executive]

Thank you for the question. This is Lucas. In terms of Healthcare, I'm going to speak about the new business model instead of speaking about a product. It's a set of things. In truth, we're creating a model and the main differentials are that we are more customer-centric, but customer will be closer to Porto. This is a model with greater experience that will enable us to gain intelligence of what the customer needs in an anticipated way and a better use of the network. This is not a vertical strategy. It is a strategy to have greater intelligence in the network more than exist in the market. And we want to have a more complete vision of the journey. This includes having a marketplace, integrated preventive healthcare, having ever more information and changing the intelligence that we use, to speak more about health and not the disease transactions.

We have models inspired on foreign companies that use this and that follow-up on the patients in a more systematic way.

In terms of Porto [ Cueva ], it is a service. It is not a healthcare -- it is not an insurance product, but it does have to bring in people for access to consultations, to treatment. It is not a wealth plan. It is an access plan and it brings the person closer to the health and services marketplace. It's still very much incipient.

We're restricted to São Paulo. We're expanding this to Brazil. It's not available throughout Brazil. The pilot is exclusively online. And we already have had significant repercussions. But in terms of volume, we will ensure that it will have even greater relevance.

I will now give the floor to the -- to someone to respond to the second question regarding the expenses in the construction.

[Marcos Loução, executive]

This is Marcos Loução. If you could be more specific in your question regarding expenses.

[Unknown Analyst]

I would like to gain an understanding of your evolution in Healthcare expenses that are above the evolution of revenues in insurance. It's very clear that we have nonrecurrent effects. And I would like to know if there was a specific effect besides the change where you're now considering the expenses of commissions for Porto Consortium?

[Marcos Loução, executive]

Well, besides the commission expenses, is this what you would like to know? We have Credit Card expenses specifically with enhancements in technology and the Credit Card processes. These are technology expenses that will greatly leverage our growth process in the future. We have a significant growth outlook in the Credit Card line, in the CDC that had a growth of 34%. So we're preparing and enhancing the system. The entire flow so that it can become more digital. We have invested heavily in the system improvement this year to offer support to the future growth. Everything that was done this year represents an investment in technology and other operational and administrative expenses as well.

[Operator]

The next question comes from [indiscernible] from Santander Bank.

[Unknown Analyst]

I have 2 questions. There has been a recovery in Insurance the last quarter. If you could speak about the makeup of the type of vehicle, which has been the change? And what will the evolution be like going forward in 2021? If there will be a change in the average price?

Another question refers to Healthcare. You had a first quarter impacted by the loss ratio and, of course, the impact of coronavirus. But if we think of the long-term, will the loss ratio be lower than the historical levels, which will be the loss ratio for this year? I think, it will depend on adjustments. If we have the vaccination, how would you compare the loss ratio of 2021 vis-à-vis the year 2019? Will it be at the same level or below that level?

[Unknown Executive]

Referring to the Auto segment. First of all, we have created a new calculation strategy. We are undergoing a moment of stronger quotes in the company during the second semester, but we also use pricing. Although we are a company that has a long-standing tradition in terms of pricing, we're never satisfied, and we want to improve this. This has also helped us to grow more. Analytics has no limit, it's how we fare. And everything is a product of analytics, at least in my vision, price as well as other issues.

When it comes to the makeup, there hasn't been any radical change in the mix. Now the new vehicles have never had a high percentage of -- relevant high percentage even in the period where we had high sales, it never went beyond 10%. We have an average price. We have not observed the relevant drop. There was a relevant drop in the last few years in the technical price because of the drop in robbery and theft, and this was a technical transit to the market. There was a decrease. We saw a market that has less risk, and this was the price that we transferred to the consumer.

Now we wouldn't observe this too much in the pandemic. Part of the risk was transit, but we can't keep looking in the rear-view mile. We have to look forward. And of course, we will have differences.

And we now go on to the second question, how do we consider Healthcare going forward? Yes, there was an increase in the loss ratio because chronic patients can no longer keep waiting. At a certain point in time, they will have to go back to the hospital. Some elective surgery were held back. They have been coming back gradually, and the pandemic has extended for longer compared to our initial projection. And this is happening throughout the world. We have never imagined it would continue on in 2021. Socially, this is negative, but it does offer us a relief in terms of the procedures that are being carried out. Now this extension of the pandemic brings about a more rational use of medicine vis-à-vis before telemedicine is being used more broadly, not only places with high gathering, emergency units are expensive. They oftentimes use simply because of convenience. Patient does not want to set up a consultation. They're not going to do this anymore, not to be contaminated. And this creates a new awareness going forward.

We believe that post pandemic, when all of this has gone through, we will have greater rationality in the network because of telemedicine and the more rational use, why run to emergency care if you can set up a visit or even a face-to-face visit, using an application. So we believe that loss ratio will have a better behavior than what we saw before the pandemic.

[Unknown Analyst]

A follow-up, if you allow me?

[Operator]

[Operator Instructions]

[Unknown Analyst]

A follow-up. The loss ratio that is lower, is it -- will it be similar to the end of 2019? Or will it be more similar to what we will see at the end of 2021?

[Unknown Executive]

I think it will be below we had pre-pandemic. Now how long this will take, if it will go into 2022, will depend on the market. It's not only based on the technical use and frequency of patients. It depends on how much we will transfer to price the market. With that transfer all of this to price. If it does this in the short term, if we look in the rear-view mirror, only at the short term, it will give us that illusion that the loss ratio is very low. But it will recoup and there will be an increase in frequency going forward, I believe. Therefore, that -- because of this, this will not happen very quickly in 2021. However, in 2022, we may have a greater compression but we have to wait to see.

[Operator]

The next question is from Luis Azevedo from Safra Bank.

[Luis Azevedo, analyst]

My question refers to the financial segment. How much will your credit portfolio grow? How much will the revenues grow? And if we look at Credit Cards, specifically, you have a credit -- type credit with a significant growth. Is this something structural or will it change? And if this is due to a change in the customers' profile more specifically.

[Marcos Loução, executive]

Thank you for the question. This is Marcos Loução. When it comes to our growth in the revenue portfolio, we should continue to grow at an accelerated level. We continue to have a very strong focus on growth, especially in the Auto segment, and we're going to continue to absorb this growth. Now referring to the revenues of the Credit Card, our product is based on site purchases, and we would like to increase the installment part as this generates interest rate. We're going to work on the customers' profile, working with a different profile to increase that part of payment in installments, and this will generate more financial revenues.

Now the characteristic of the product of the credit card is that the customers are not prone to pay installments. Now if we consider the second quarter vis-à-vis the fourth quarter, the installments grew much less. Is that true?

[Unknown Executive]

What happens is that we began to sell more and this changed the characteristic, but with the installment of payment in the fourth quarter, we had a lower distribution that we expected. So the strategy is to increase payment by installment. What happened is that we had a change in the consumption mix at Porto, and the complementary income that we're seeking as an increase in payment through installments.

[Operator]

Our next question come from Guilherme Grespan from JPMorgan.

[Guilherme Grespan, analyst]

A follow-up from your financial services. In this quarter, we saw provisions lower than in the other 12 months of the year, lower than in 2019. How do you imagine will be the evolution of provisions for 2021? Without a doubt, you're already chasing. The problems of the pandemic have been passed you. You have a higher provision in the second quarter, but we see a drop in our level of provisioning. Looking at 2021, should we expect that the problem will be over? Provisioning will go back to historical levels? Do you still have certain reserves, considering what we did in the second quarter? Or is there a risk that you will have an exacerbation in key for the nonpayment? Is there that risk of deterioration in your Credit Card portfolio?

[Celso Damadi, executive]

This is Celso, and thank you for the question. In the second and third quarter, we have a model of an expected loss, and our model captures the renegotiations that we carried out with Credit Card and CDC. We have an additional provision with these contracts, which means that, yes, we do have an additional provision compared to what we were doing before. We are going to wait to see if there is additional provision materializes or not. And the outlook is that if it does not materialize, we will have a reversion in 2021.

Of course, this expectation should not materialize. Now in the last quarter, what happened was that these costs of those portfolio came back to the pre-pandemic level. There was no reason to work with an additional provision. What happened was that in the fourth quarter, the portfolio went back to very healthy level, over 30 over 60 over 90. The levels were quite in accordance with what we had in the pre-pandemia period. It's a very healthy portfolio, a very good portfolio. That is why we did not set up additional provisions and neither did we reverse the provisions carried out in the second and third quarters. We're being very conservative as we do not know which will be the behaviors in the first and second quarters of 2021. We're being conservative in terms of setting up additional provisions.

[Operator]

The question-and-answer session ends here. Should you have additional questions, please contact the speakers. We will now return the floor to the company for their closing remarks.

[Unknown Executive]

I would like to once again thank all of those that participated in our conference call for the questions, for the contribution and especially for your interest in our company. Should you have additional doubts, please feel free to visit our IR page at ir.portoseguro.com.br or please contact our IR team directly. Thank you very much.

[Operator]

The Porto Seguro conference call ends here. We would like to thank all of you for your participation, and we wish you a good day.

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