BB Seguridade Participações S.A.

This event is being recorded and has simultaneous translation into English. Those who wish to listen to the audio in English just click on the interpretation button at the bottom on the screen If you want, during this presentation, we will show the slides in Portuguese. If you want to send the questions, please click on the Q&A. To see the document in English, go to our investor relations website at the address that is here on the screen. Today with us, we have Mr. Ulisses Assis, CEO, and Rafael Esperengio, CFO and IRO. Now I would like to give the floor to Mr. Assis, who's going to start the presentation. Thank you, Filipe. Good morning, everyone. It's a great pleasure to be here with you again to talk about the results of the second quarter and the first half of 2023. I'm going to start the discussion talking about our main numbers and our strategies, and then Rafael is going to come in with a few more details. Filipe, please. So we closed the first quarter of 2023 with 3.7 billion in net income, which is 37% above the same period last year. And this number makes us very happy more than anything because it was really built on very solid basis, demonstrating the resilience of our company, our business, a growth that is strong in terms of operational result. Also, the net income has grown, but the operational result is even above what we've been growing historically. So this is something that we really believe in and that is building solid basis for our company. In terms of insurance premiums, the first half was 16%, the same period last year. We lost ratio of 29%. 7.3 percentage points below 2022 in pension, a quite solid growth in contributions, 27 billion in contributions, 10% growth. with a net inflow of 2.2 billion and in recent years we have been reporting negative net inflows and sometimes not really increasing and this you can see a growth in terms of premium bonds since last year we have had a strong recovery we reassumed market leadership So we have collected 3.1 billion collection, 18% growth. And in terms of reserves, we get to almost 11 billion BRL with 28% growth. Obviously, this commercial performance leads to higher revenues and a brokerage firm with 2.4 billion brokerage revenues, 15% above last year. All of this is making possible for us to pay out 3.2 billion dividends which represents 86% of the net income of the first half of the year. Now on the strategies and those who have been accompanying our company for the last two years, we have a commitment in terms of lines and strategies and one of them is a digital transformation and the new distribution channels and also customer experience and in transformation line so we have invested 250 million in technology between the products channels analytics intelligence And this is more than last year. Last year, we had challenged ourselves to put all our products in the cloud, service-oriented, when we completed it. And this provides us more leverage in terms of sales and lots of traction, whether it's physical or digital. This has been fundamental to reinforce the partners and their distribution of products, and also we have the embedded strategy. All of this has provided to us to consolidate our leadership in these segments, as you can see. on the bottom right-hand corner in terms of life credit, life, rural, pension, both in terms of contribution and reserves and premium bond reserves. And this has also helped us to develop new projects as an example of corporate insurances, recently launched product using a lot of technology that has driven and growth. And we've been growing because of the market. And our ambition is to have a fair share ideal and corresponding to our size in the market. This is a little bit about products. Now I'd like to focus on channels. So our digital channel has grown 13%. in terms of sales as compared to the same period last year. As we look at the products that do not depend directly to credit, they are not related to credit, we grew 38% in terms of digital sales, 96% growth in digital transactions in terms of sales and after sales, 121%. growth in monthly premium bonds and 218% in BB protection. As you can see on the right-hand side of the corner, we have embedded it into the PIX journey of the bank, and this has made it possible for us to attract many more customers. So depending on the journey, on what customers need then, and on the services that they use, it's in the bank app. and we embed the product that is related to that customer profile. In this manner, we have been able to expand our sales volume, and we are likely to grow more and more. Today, of almost 9 million customers, 71% of them are active in the digital channels. So this provides opportunities for offers, especially talking about cross-sell and up-sell, which we have been doing. And we have also invested in WhatsApp with remarketing with very interesting NPS. So we are doing the remarketing of term life insurance, home insurance, pension plans. So we want to embed as many solutions as possible for all products in the WhatsApp. And this has been very good. And lastly, talking about analytical intelligence, nothing would be possible if we didn't effectively use data. So we must know what to do with the data in terms of analytical science. in terms of customer satisfaction, customizing the relationship with each one of them. And we know that the future of the insurance market is customization, and we have invested in that. We have been using analytical intelligence to develop new products or to add value to existing products, and this is very important. We have also tested the value propositions for different customers in terms of businesses, not to mention the strategy. we have an accelerated strategy by democratizing information. So we have been investing a lot in this and we believe this is going to help our company to continue in the market with a customized proposition at the right time for each customer and this is very important. Now, very briefly, talking about the new channels and the strategy for new channels. This is something that in the last two years we've been talking about it. If you remember in 2021, we had no distribution outside Banco do Brasil. When I took office, I decided to build a new sales channel without ever leaving aside Banco do Brasil. But this is a new business, a company as big as ours. And we don't have to choose between one strategy or the other. We need to be capable of using different strategies at the same time. And this strategy has been very successful. We closed the first half of 2023 with 858 premiums issued, which is 64% bigger than in the first half of 2022 when our strategy started. And in the bottom line, it's 66 million in the first half of the year. And when I talked to the press, if we look at 66 million, considering 3.7 billion, you think it's not too much. But then, as this is a new strategy, as this has been growing, we think that this is quite an interesting number because not too many companies in Brazil generate 66 million. And we're talking about... half year where the strategy has only just started. And we know that in retail, we need to have small strategies. And there's a strategy that we started from scratch. And because of the growth, it's going to get bigger and bigger. And we are going to have an increasingly larger share in the bottom line of our company. I wanted to mention the strategy to you as we've been talking about this for quite some time. It was fair to talk to you about our net investment income. And we know that you know that we expect to grow because we have acceptance and new partners have been coming to us. We signed 24 new partnerships and a quarter diversifying the segments. So we are embedding new products for existing partners and signing partnerships to sell different products. And if you remember two years ago, we didn't sell anything. through Banco do Brasil agents, and we have many invented products and many other partnerships with a great potential for growth, and we hope to increase it even further in the second half of the year. And lastly, I would like to talk about customer experience. We had a 3% expansion in our membership, And the highlight is 13% in our premium bond membership, 4.3% in credit life insurance, and 6.3% in terms of pension plans. We are very happy that our membership has grown. Our customer base has been growing. And we are happy also and very satisfied with engagement. Our NPS, according to the latest surveys, had been growing robustly, if you remember, in addition to that growth. We have attained 4% growth in rural and 10% in premium bonds, 18% in life. So our value proposition has been increasingly better received by customers. As a consequence, the number of complaints last year had dropped 31%. And we are having a drop quarter on quarter of 13% accumulated over a strong comparison basis and for churn. dropped 15% year-on-year, because this is a very interesting product if we break down our numbers. So we have higher and higher NPS, fewer complaints, and a smaller churn. And lastly, very briefly, I would like to give you an overview of our relationship program. We have launched, we piloted the relationship program last year. It's embedded in the bank app where they get a classification. and the level of protection at that given point in time. We started with 15,000 customers. In the customer in June, we added another 230,000. In June, another 1 million. And now in the third quarter, we are going to migrate our entire customer base into the bank app. We learned a lot with the tests that we had, with our pilot experience to date, Total NPS is 4.2 percentage points above protected customers. I'm talking about super protected customers. And we want to migrate more and more customers to the super protected using cross-sell and up-sell because our super protected customers provide the profitability that is 10 times higher than other customers to our company. Not to mention that 68% of them have more than one product, and we want to work on a very strong strategy using data, technology, using appropriate channels so that we can take more and more solutions that will add value to customers and help us give traction to our sales. Now I finalize. I'm going to give it over to Rafael to talk about our numbers, and then I come back for the Q&A. Thank you, Ulysses. Thank you all very much. We are going to go to slide number 10 to talk about our IFRS 17, and then we do what we are used to doing, and then we'll talk about our numbers according to the previous standard.

So...

There's an issue with Susepi. They haven't accepted it yet. We are still working on that. And everything that we receive is based on the previous accounting standard. Now, very briefly, showing the main differences between the two accounting standards. So with BrazilSeg, recapping, well, the changes here in terms of the previous standard are concentrated In credit life and mortgage insurance, all other products in the portfolio will follow the simplified approach, similar to the previous. So BBA, both for credit life and mortgage insurance. Now we report them based on our historical experience in terms of risk recurrence for these two lines. More specifically, for credit life, we are recording numbers in a faster way. This expects the transition table here. We are reporting 400, 328. 4,000, sorry, 328. And as opposed to 2,384 and the numbers that are being booked, they had already been appropriated in IFRS 17. And that's why there's an impact of 126 million in the bottom line. As the lines mature and we've been seeing an acceleration of this movement, especially a very strong growth in credit life, the situation will reverse. And this is very clear when you see the bottom line of the second half of 2023. And there is a difference in the equity equivalence. According to IFRS 4, it was just 9 million as opposed to 42 million according to the previous number. So in terms of operations, we are booking or recording results and acquisition cost is deferred for a longer time, not just for three years, which is deferred in IFRS 4. And on the other hand, we are also... Booking or recording the numbers according to the onerous contract and more than 15 million in December 2020 and IFRS 17. It was realized immediately. So here, if on one hand, we have smaller numbers being booked for Brazil SEC, for Brazil PREF, the numbers are bigger because of a longer deferral and reversal of the onerous feature and assumptions were worse than we saw in actual numbers. And that's why we are reversing. And now going to page 11, going back to our usual accounting standard. So our net income in the second half was 1.8 billion with a 31% growth year on year. It was not better just because of the time mismatch. in the update of traditional liabilities, this has taken out $128 million of our net income, and it was an absolute quarterly record. Other than that, we would have booked almost $2 billion in terms of net income in the quarter. We know that these numbers, this is just something time-specific, it's a one-off, and the In the future, as IGPM curve stabilizes, we're going to be able to record everything in our numbers, probably in the second half of the year. And then we have 3.6 billion in terms here on the right-hand side. So a 39% increase, very good result here. And you're going to see more details on the next page. Add to net investment income. Consolidate the numbers for all companies of the group. We saw that in the second quarter it had the benefit with a higher SILIC rate and deflation of IGPM has reduced the cost of our liabilities and the increase on the average balance with a very good sales performance that we've been seeing, especially since last year. So when we look at the net investment income, it doubles in the second quarter as compared to the second quarter last year, getting to 20.4% of the net income and 19.8% in total income with 714 million BRL. On the next page, you can see the net income broken down. So of this 1 billion growth in year-on-year growth in terms of net income, 70% comes from growth in sales and operations, growth in the sales of credit life insurance and pension contributions, especially in the first quarter. This has driven not just the growth of revenue in terms of premiums earned in the insurance company, but the growth of reserves in terms of pension. that will have an impact in revenues from management fees, but it also increases the revenues at BB brokerage firm. These are the main drivers that were impacting the numbers of the quarter. Another important piece of information that we've been seeing in terms of quality of our results is the drop in the loss ratio, especially in crop insurance that had a strong impact last year because La Nina and this year, even though La Nina persisted, the frequencies were much smaller. So you can see an additional 393 million with this milder, so to speak, effect. in the year of 2023 the other 30 percent 70 percent of the operation came from net investment income as i said in the quarter or for the half year same thing so the volume and rate changed 224 million 131 due to brazil temporal mismatch as while we see that when we mark to market differently from last year the entire A structure both face and actual. So there's a stipend in the four yield curve. And this year there is a closing. So most of the view come from the actual structure because of exposure. of brazil prev and so this added 316 million brl to the net income of the year if we see the overall number for the net investment income and now about brazil seg in the second quarter the two percent growth year and year as you can see this is driven especially by the growth of Credit life, 27.7% growth. And this year we have been noticing that there is a 7.1% shrinkage in rural insurance. So fewer contracts hired or contracted. for this period than we had in 2022. In Q3, we are going to see a slightly stronger performance of rural as compared to last year in terms of life. We had a drop of 2.2% year on year in the second quarter. And here the explanation is IGPM inflation benefits it. The costs of liabilities in Brazil Prev and it has an impact in life and the portfolio in terms of inventory and it is adjusted by IGPM. And in the end, even though we noted a quite extraordinary rate, And we had a reduction of churn in life and deflation of IGPM. In fact, it has in the update of the inventory of life insurance led to a shrinkage of 2.2% in the portfolio. We have an intense migration process of our portfolios. It makes no sense in terms of the index that we are using. We are changing it so as in the future we'll see fewer problems in life, term life insurance line. And now for the quarter, the premiums have grown 16% above the guidance of the year, also driven by an even stronger growth in the quarter. So when we look at accrued numbers, almost 50% growth in credit life and rural year-on-year growth of 11% in the half year, especially in terms of rural collaterals. Below on the left hand side, you can see the performance ratios in terms of the quality of subscription. So here you can see a 50 basis points improvement in a combined race in the second quarter as compared to the second quarter last year. And here the main drivers are the reduction of commissions, which is a result of the negotiation that we had last year for some products. that we did December last year, commissions have gone down. So expenses has gone up a little bit from 10 to 10.7, 30 basis, because of all investments we have made in distribution, technology, and also staffing. and to adapt to the more efficient structure. And these are the explanations for these numbers. And also higher allocation of funds for marketing to promote sales of insurance products. The loss ratio has gone up year on year, and this is explained by a concentrated event but because of a higher frequency in credit life, more severity of life, claims, which is a trend, which is not a trend, it's just one-off. In accumulated, the rate has increased. improved 8.4%. And here you can see a longer window with the strong reduction in loss ratio that we saw, especially in crop insurance commissions has dropped 20 basis points. And the explanations are the same as we had for year on year explanation for the second year, for the year, for the first half of the year. Now, in terms of net investment income, if we compare the six months of the year, we compare year to year, 23 to 22, we had an increase of 41%. And this growth in premiums earned had an influence in the net investment income and growth. uh we had a high of 73 percent growth in the year getting to 1.9 and b and now uh going to um brazil prev pension so collections have grown ten percent year on year in terms of the first half of the year so a good flow a significant uh better performance And you can see here we had in terms of accrued lumbers, we had 11.3. And in the second quarter, 10.8%, a good net inflow driving the inflow to 2 billion. In accumulated last year, we had net redemptions of 1 billion. And then this improvement in the net inflow. And in the improvement of return of the assets, you can see that the total reserves grew 12%. And if we separate from traditional reserves that dropped 3.8% in 12 months, P&D reserves has grown 13.3%. affecting our guidance. On the other hand, we can see a strong movement of risk aversion in the market, explaining that the multi-market fund share and under the total assets under management going from 31% of the total to 24.5%. Now, with a slowdown in the margins, and investors have started to be more likely to risks with a reduction in a select rate, we think that this behavior will become stronger. But so far, the risk with a reduction in the overall share of multi-market explains why our management fee revenues have grown with a 33% growth year-on-year and 4% in the accumulated numbers. In terms of net investment income, we see a significant drop year-on-year and in accumulated numbers. And so there is a deflation of IGPM, especially in the last three months. This has reduced the cost of all our abilities significantly. And then on the other hand, the closing of the structure at actual rates has contributed greatly In terms of revenues. So we go from a financial loss of 8.2 in the second quarter, 89 in the second quarter last year to a profit of 223 in the second quarter this year and 470 in the first half of this year. So better flow growth in revenues from management fees and better net investment income. We had 91% growth year on year of the net income and a 39% increase in the first half of the year, year on year again. And in terms of here, Brazil cap year on year, 35% growth, 15% quarter on quarter. And then that investment has grown 10% year on year, driven by higher volumes, with a shrinkage in the financial margins as compared to last year. And so, as a reminder, to Q2022 was positively affected by the opening of the curve. There was a hedge in pre-exposure and it was classified as available for sales. This led to gains in the second quarter. which did not happen again in the second quarter of 2023. That's why the margin has gone down if we look at the two years. So, net investment income, first half of the year, year-on-year has grown 16%. And then the growth of the net income has contributed to a 7% growth in accumulated numbers for 2023. If we look year on year, there is a drop of 1%, especially considering admin and operational expenses. investments made in partnership and technology and risks and on the structure that we have reinforced in all these areas had an impact in the company's results and it affected the financial performance and the expenses in the second half. But if we look at the numbers, the performance for the six months of the year offsets these higher expenses. Now, in the brokerage company, our brokerage revenue has grown 12% year-on-year, a strong growth, especially in terms of credit life, not just in life, but because of past sales that took place in the second half last year, this has increased driving up brokerage revenues and a strong performance that we've been seeing with the growth in a segment of premium bonds. For accumulated numbers for the year, 15% higher brokerage revenues And in the second quarter, we also had a quite positive contribution of the increase in collected volumes in pension, especially in the first half of the year, that helped a lot the increase of revenues in total numbers for the year. In terms of net margin, we had a slow drop of 20 basis points year on year because of review that we did in the scope of our civil litigations. So there was a slight increase In this liability and another periodical review that we did in the allocation model of costs between brokerage insurance, BB Insurance and BB Seguridade, that's why there is a slight drop in the net margin for the accumulated number of the years. It's almost one percentage point up. And then lastly, the net income grew with a better net investment income margin. And then the net income has grown 17%, slightly above the growth of the revenues. And in the second quarter, year-on-year, the growth was in line with their revenue, 12% growth going to $707 million in the second quarter. And to wrap up... the our presentation talking about our guidance as we had anticipated in our last conference call we were expecting the convergence of the indicators for the guidance ranges and this is going on and in terms of operating results from 12 to 17 We are closer to 25.7 in terms of premiums written, 15. So there is a marginal 15.7 growth. So everything that we had said, very strong in the first half of the year because of the comparison basis. As months go by, we can see this convergence to for within the range and this will be true in the second half in terms of reserves of brazil prev the indicator was within the range in the first quarter 13.3 in actual numbers closer to the top of the guidance in our scenarios We are optimistic and this we've been able to execute it and show a good performance. So these were the main highlights that I wanted to share with you. And now we're open for questions and answers. Thank you, Rafael. Let's start our questions and answers session. If you want to ask a question, please click on the raise hand button and release the microphone. or send your question in writing by clicking on the Q&A icon. Our first question comes from Antonio Ruay from the Bank of America. Antonio, please, you may ask your question. Good morning, everyone. Thank you for the opportunity of asking a question and congratulations on your performance. I have two questions to ask. The first one is related to the guidance. So what's new since you gave us the guidance in terms of rural loss ratio and the crop and looking into the second half of the year, what would be a potential trigger? So you have said that the idea is to converge, go into the middle of the guidance. What could change it? Just a very quick follow-up in terms of buyback. Is it just complementary to the payout by dividend or could it change your dividend policy? Thank you very much for your question. Let me first answer your second question. Well, buyback will be funded by cash flow and BB Seguridade. So we don't leave any money on the holding just there. And in summary, the way we assess the dividend or payout, the final payout for the year is going to be distributed or paid out dividend minus bought back shares. So the buyback is the same. So if we were having a payout on average of 80, 90%, as we have had in recent years, it's not going to be 80 or 90 plus buyback. No, buyback is going to take out some of that. Can I answer the question? No, this is very clear. You may answer the second question. As to the guidance. So, there were some positive surprises. Loss ratio was better than expected. But these positive surprises are enough to to drive the company's growth more into the optimistic zone on the upper half of guidances. And today we review our projections for the end of 2023. There is no indication that there will be any material extrapolations of the ranges that we published that will lead us to review them. This is August vision. So that's why we decided to keep, we work for the convergence of both to go within the range, even though we are more certain that we will be on the more optimistic, and range on the upper half of our guidance. Super clear answers. Thank you very much, Esperendio. Our next question comes from Tiago Binsfeld from Goldman Sachs. Tiago, please, you may ask your question. Hello, good morning, Ulysses, Rafael, and Felipe. I have two questions to ask. related to interest rates that have started to drop first operationally how do you see the company's capacity to keep um collections at a high level as interest rates go down and then in terms of net investment income how is it going to affect your consolidated net investment income. If you don't want to share your expectations, could you say something about that?