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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, one and all, and welcome to the Earnings Results Conference for the Second Quarter 2023 for Porto Seguro S.A. We would like to inform you that the presentation is being recorded and simultaneously translated into English. The slides are available for download at the IR [indiscernible] [Operator Instructions] Forward-looking statements made during this conference call regarding the portal business outlooks are based on the beliefs and assumptions of the company management and on information currently available. Such forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions relating to future events and, therefore, depend on circumstances that may or may not occur. Overall economic conditions of the business sector in which Porto Seguro [ acts ] and other operating factors could impact the company's future performance. I would like to invite Mr. Roberto Santos to begin his presentation.
Good morning to one and all. Thank you for your participation in our second quarter results conference call for the second quarter ‘23. This quarter, we achieved record results in the second quarter. And in the first half of the year, orderly recurring profit was BRL 670 million. And for the first time, we delivered a half year recurring profit of BRL 1 billion. Our recurring ROAE for the quarter was 24.5% and 18.4% for the half year. After a highly challenging period, we have been delivering high profitability levels in recent quarters as a result of the advances that we made in the period, revenues grew above 2 [ dips ] for the quarter. And this happens in all of the business verticals, which were able to increase their revenues and expand the customer and business base.
In the insurance vertical, premiums continue to grow in double digits. -- auto stood out, besides an increase in the prices, they increased 90,000 vehicles in the insured fleet in just 3 months, thanks to the strategy of accelerating sales in certain markets. Also in auto, we had a significant improvement in claims, mainly due to adjustments in pricing, improvement in risk underwriting and, of course, initiatives to reduce claim costs in the Porto Saude vertical quarterly premiums and revenues maintained a strong growth rate observed in recent quarters with an increase of the portfolio where we reached 461,000 lives, an expressive increase in the last 24 months.
In Porto Bank revenues increased by 9% with an emphasis on the consortium. Now NPL remained stable vis-a-vis the first quarter with 0.6 percentage points better than the market average. This is because of our strict concession policies where we favor granting credit to customers who have a relationship with the company in the services vertical, revenues increased 20.2%.
Now regarding the return on our financial applications, we had a profitability equivalent to 100% of CDI with a favorable impact on variable income in inflation-linked options. We have given back to society in terms of indemnization and capitalization, BRL 8 billion this quarter. Simply to conclude, I would like to make some important recognitions. We won the best in ESG 2023 in Guia Exame. Our brand was the second strongest brand in the country with a growth of 3% when compared to the last publication.
I would like to thank all of you for your participation in this conference call. And without further ado, I will give the floor to Celso to continue speaking about our revenues and profitability in greater detail. Celso?
Well, thank you, Roberto. A good day to all of you. I would like to highlight that our growth in the quarter was quite robust, 17.6%, very aligned with our projections for the second quarter. Our 4 business verticals are also in line with what we wanted. Porto Seguro growth, 14%; Porto Seguro, 32.2%. Porto Seguro Bank, 9.1%. We're growing somewhat less because of the stringent policies in our portfolio. Now this quarter, we also enhanced our growth with an improvement of processes, which gives us better profitability because of our expenses that are dropping because of the process improvement, a reduction of headcount and gains in productivity of the last few years. our profitability on recurrent results was the highest in history for the second quarter. We reached a return on average equity of 24.5% in the quarter, a very high recurrent rate. We have been seeing this in the last quarters that we're seeking profitability in the different portfolios, not only in auto, but in other verticals as well. And we reached almost 200% of CDI of profitability in the second quarter and 18.4% in the first half of the year, which seasonally is not our best half year. Normally, the second half of the year is better, but we got a profitability of 18.4% of return. Now in the first quarter, we also had heavy rainfall hampering the first quarter. But despite this, we recovered profitability with 24.5%. Therefore, this was a half year with a great deal that we are harvesting due to what we have done in the last 12 months.
I give the floor to Rivaldo to speak about the insurance vertical.
Good morning, everybody. This is Rivaldo Leite. As expected, this was a very good quarter, perhaps somewhat better than we had expected with a growth above 2 digits in the main segments and a drop of loss ratio in all of the verticals. So this is a composition that was not only for the auto part. The other segments also did very well in terms of growth and loss ratio, especially in life and property and casualty.
In a comparison of the second quarter '22 with the second quarter ‘23, we had a significant increase going from 10.5% to 42.5%, Truly a very robust result, reaching BRL 511 million in the second quarter, ‘23 in the vertical. Now the combined ratio also had an expressive gain from 99.6% to 85.1% with a highlight to an equalization in DA and DC. So we had a reduction in commercial expenses as well.
We have been following up the deep payable month after month. It has an average of 0.5% drop per month. For the entire year, the drop is of 3.2%. 3.2% in our volume with the size of our portfolio also represents significant gains. And this aided and embedded our results besides our pricing and are underwriting. And we also had process improvements, of course. If we go back to the PP table for the last 12 months, there is a reduction of 3.8%. In truth, this is a very important factor.
The loss ratio for the group in auto is 67.1% to 56 -- or 51.7% a considerable improvement. Here, we see a summary. And after all of the other colleagues make their presentations, we will clear your doubts. I now would like to give the floor to Sami.
Thank you, Rivaldo, and a good day to all. Health in this quarter achieved an important brand. We reached BRL 1.1 billion in revenues and premiums practically doubled compared to the first quarter of '23, following our growth strategy. Now this growth is leveraged by a growth in the base of health where we reached 461,000 lives at the end of the second quarter. Now along with the joint venture on Oncoclínicas -- this led to a result of BRL 54 million net earnings for the quarter, a record of earnings. To speak about the loss ratio, we see a return to a seasonal curve and a change of level between the first and second quarter, something which is quite normal. And to anticipate some questions, the loss ratio pre-pandemia, 2017 to 2019. The number average loss ratio was 6.9 points. At present, we had 5.5 percentage points. So you see that this increase of loss ratio between quarters as a seasonal curve still high levels after the pandemic, we had 82.5%. We now reached 81%, and this shows that Porto has resumed its work mashed faster than the competition to the pre-pandemic levels, levels that are quite adequate compared to the competitors with a very appropriate curve, thanks to the pricing actions and the fight against fraud benefiting the entire industries. All of this leads us to a result of 54% of return on equity of 30.3%. During this period, we closed an agreement with a JV with Oncoclinicas to bolster our asset-light thesis. This has made it feasible and this is just the beginning. Thank you. I would like to give the floor to Loucao.
Good morning, thank you, everybody. Now this quarter, we observed the impact of the risk management we carried out since 2022, with an impact on the first quarter. And the strategy that we have for 2023 diversifying the products, we reached revenues of BRL 1.15 million in the quarter. And the efficiency ratio, which is another leverage is harvesting all of the benefits and reached 43%. In the next slide I would like to draw your attention to the strategy that we mentioned to the sale of consortium products with a result of 48% increase, thanks to the activities we have adopted the highlight as well our sales of products that have a higher risk credit, they reach levels that are higher than 80%. I highlight the credit card, which is very important in our strategy. Although the sales sort of went sideways in the second quarter. We had 14,000 credits additionally to what we had executing what we had imagined.
Now in the next slide, we see an update of what we do in terms of risk. And you see that for NPL, we have stability, a reflection of all of the actions that we carried out to control. We have proceeded with caution. And of course, we have a faster focus on collection, and we have come up with a strategy where the payment capacity of the customer is ever more important, and this has helped us to obtain good results in our portfolio. That is all. And we are then at your disposal, should you have any more questions.
Well, when we speak about services, we have a growth of 20% in revenues, once again, thanks to our businesses and the sale of Porto Seguro [ Asistencia ], new accounts that we have offered to larger accounts. The result is still under the pressure of the financial results of auto, the subscription auto program that we have. Now we are reassessing the product considering perhaps not carrying this asset anymore because it is no longer asset light, which is our product. Another highlight for Renova, we had 11,000 auto parts placed in the market, 815 dismantle vehicles, 50.6% more than last year, reinforcing our commitment with circular economy.
Good morning, everybody. This is [indiscernible], very generally, this quarter, we had a result of 3.15% in our investment portfolio totaling 100% of CDI. If we exclude the assets that are part of our ALM portfolio, this return dropped to BRL 329 million, 70-some percent of the CDI. The highlight is our location in variable income that more than offset the carryover of securities linked to the IPCA. Now in terms of allocation, it is important to mention that the increase in our credit portfolio was obtained in the second quarter. We see this as an opportunity. And we also had a reduction in our real interest rate portfolio that should resume during the coming quarters. So these are the highlights I wanted to mention. I will now give the floor to Lene.
Good morning, everybody. I represent ESG. Well, Porto for more than 25 years, has been working with initiatives relating to education. But we have never left side what refers to governance and circular economy and much more. Recently, as Roberto mentioned, we won the best in ESG 2023 award in the financial service categories from Guia Exame, more than winning the award when our -- is important are the actions, actions of a sustainable and responsible company in Renova. And to mention this very quickly, we had a series of measures. Renova celebrates a decade since it was created. And in that period, we have dismantled more than 21,000 vehicles and marketed more than 400,000 items. Additionally to the environmental correct disposal of 76,000 tons of steel, 35,000 batteries and 160,000 tires to conclude another important and relevant issue for us is diversity.
At this moment, we have an initiative that is within our agenda called Lidera, which seeks to encourage the personal and professional development of women at Porto. As part of this, we had an in-person meeting and remote meeting at the Porto theater well to bolster the success of women. These are some of the activities that I wanted to highlight. And once again, we will respond to doubt in the question-and-answer session.
[Operator Instructions] Our first question comes from Guilherme Grespan from JPMorgan.
This will be a topic for questions. And the question is about your financial results. There is a significant reduction in the part of securities when it comes to maturity. Are these securities that are linked to investment. Now looking towards 2024, there is a question about the securities that are in health maturity. And the interest rate is quite low. So I would like to explore which are the securities that you're removing from the ATM portfolio? And which is your outlook in terms of financial results for 2024. Now there will be an improvement in terms of CDI compared to 2023. Now are you looking at financial results in nominal terms, increasing or decreasing in 2024. Thank you very much.
Could span very generally, there -- as I mentioned, we had a reduction that will happen in this coming quarter or in the fourth quarter, we will be putting these securities on our curve. Now the idea is not to have anything highly relevant. We continue on with our strategy of having a relevant allocation linked to the IPCA. We had a good result 2021. In 2022, we were impacted. And as [indiscernible] continues to be very high with IPCA numbers around 4%. Looking forward, we do believe that this protection that we have for a stronger inflation event or a scenario with lower interest rates in the long term will be favorable.
For 2024, we understand that the [indiscernible] rate is that it will return to being a single digit. So at the real interest rates we may have a higher IPCA. We'll be very close to the CDI and faced by this, we will have a result that will protect us from a risk of having higher inflation. In nominal terms, if we have a [indiscernible] rate of 1 digit already at the beginning of the year, our revenues could be somewhat below those of this year, but without a doubt, much closer to the CDI and always offering us that protection against a higher interest rate or IPCA, that will be higher.
The next question comes from Kaio Prato from UBS.
Thank you for taking my questions. I would like to speak about auto and to speak about loss ratio and premiums. First, to speak about the loss ratio, which is your outlook for the third quarter, the second quarter was the catch-up that we expected from written premiums. And if for the second half of the year, we should see an increase of loss ratio in auto. If not, which would be the drivers for this? If you could relate to the industry and yourself specifically. On the other hand, the growth of premiums -- how do you consider the competitive environment, we see that players are recomposing their margins with the improvement in loss ratio. Are people more competitive in terms of prices or not? And how can this translate in terms of the growth of premiums for the second half of the year, I see that the fleet grew again. If you could refer to your expectations for the second half of the year regarding fleets as well.
Now regarding the premiums, we truly do observe that the market is somewhat more competitive. As I have said before, as a market leader, we have matured to have a good price competition. Any movement of ours can shake the market and this strategy has worked out. For the time being, we have maintained our prices within our expectations. Well, because we have to fulfill our budget, we see the results. So we should not despair in terms of this. We do observe that there are some companies that due to the good market results are making their movements. Of course, this is a reason of concern, but we have held back in doing this so as not to cause an imbalance in the market as a whole.
Now regarding the loss ratio, Yes, we did surprise the market with our figures. Now the main effect of all of this is pricing and the underlying underwriting that was done way back, but we did have some surprises, which helped us a bit. The VP table, as I announced here, there was a 3.5% accrual. Now in our volume, this has a very favorable impact. And it could be that this will length out a bit more. And I would say that our expectations are good. We cannot guarantee anything, but the expectations are very good.
This is Roberto. I'm going to add something -- to what was said by Rivaldo, in terms of premiums. It's important to recall that although the scenario is somewhat more competitive than in the previous quarter, the fact that the average value of the fee despite that 3.5% accrual, this is insufficient, allowing companies to transfer to consumers a price reduction. The market is more concentrated in terms of number of players, and it was before -- so the market has become more responsible when it comes to reducing prices in a non-technical fashion, we have observed this we are able to sustain a higher average premium for some time. As Rivaldo mentioned, last year, we suffered because of the increase of the VP table, where we had price based on lower VP levels, we had to pay higher indemnities because of this. Now looking forward, the effect is the contrary one, it will be positive. If I have price with a higher CP, it will be 3.8% lower. And this should also lead to more adequate loss ratios in the coming months.
Our next question comes from Bank of America. Antonio Ruette.
Congratulations for the results. I have 2 questions at my end. First, a follow-up in auto, how has a drop in used cars impacted the growth of premiums, which is your outlook for demand for new vehicles, used vehicles and the growth of premiums in the coming quarters. The second question refers to health and the strategy. I would like to better understand your pricing strategy, which is the rationale in the market and your outlook on competition.
This is Rivaldo Leite, now referring to that reduction in VP. It has a much greater meaning for our loss ratio therefore price. In price, the impact is almost imperceptible but there will be an impact in loss ratio. Regarding the sale of new vehicles, we have been following up on the government measures to incentivize the industry, and we believe that with the drop in interest rates, perhaps consumption will be resumed very soon. Our expectation is that more vehicles will be manufactured, and we will have -- we will serve the wave of sales. Our expectations, therefore, are very positive.
To capture your question about the prices in health. Well, the question refers more to price. First, trying to understand the coverage of a potential inflation? Are you transferring costs more or less to customers? And how you see that price dynamic?
Well, we work exclusively with entrepreneurial plants. And here, we have 2 significant subsegments, the small- and medium-sized companies where we have a pool, and we had a readjustment in the market of 24.9%. In in this pool. And obviously, the dynamic of the pool is monthly, and -- with a great tell of discipline we have been proceeding on the market is very close to this level. We perceive that the market use technical criteria for their pricing. Now we price this one by one, and we have been repositioning the prices as necessary. And the companies have been sufficiently responsible to put in mechanisms to reduce frequency, increase participation and other elements in our dialogues for readjustment.
Now the risk premium here is made up differently. We're based on the configuration of the product, which has a significant impact. So very generally, we foresee a positive trend. And as we have been mentioning during the last 3 or 4 quarters the future forecast for profitability of monthly sales will continue at very reasonable levels and ever more adequate levels .
The next question comes from Daniel Vaz from Credit Suisse.
We have 2 questions. One is a follow-up in health. We see a repricing when we compare loss ratio year-on-year. There has been a slight increase. I would like to understand if there are more contracts that have to be repriced. If you have a large number of contracts that will undergo repricing in large companies and in medium and small companies. And if this will be sufficient, of course, so that you can begin working in a more normal way in terms of your pricing. And I will then go my second question.
The period of 2021 and the beginning of 2022, this seems to be nonsense, but last year in the first and second quarter, we still had problems with COVID and other material events. If we think about 2017 to 2019 before the pandemic, we had a return to normalcy in terms of seasonality, and this was important. If I think about 2017, '18 and '19 with an increase in 5% during the first and second quarters. The increase was 6.9% pre-pandemic period. In '23, it was 25-point-something. So this curve is adequate. Now secondly, if we think of 2017 to 2019, only in 2019, we were at 82.5%.
And as was mentioned now, there's an increase of 1.5% above this at 84 and some percent. But we saw that in the pre-pandemic curve, and the curve was coming closer together. If we see this versus the competition in the first quarter or second quarter, we will see that Porto has a position of a great deal of strength. We thank you for your question because it enables us to speak about this. We are now at a level, and you did mention that some players dropped level, they drop from very high levels, and they got to the second quarter at higher levels. So we're quite calm regarding all of these elements. The second part of the question, by looking forward, we continue to see evolution -- as we have readjustments as they accumulate and all of this will work. Historically, we have the maturity of policies, especially in the third quarter. So when we get to the third quarter, our loss ratio naturally will be higher. And after these readjustments, they tend to drop. Now we have this composition of this maturity between portal and [indiscernible] 1, 2, 3. And we don't know what they will do. We can't comment on this, but we're quite comfortable with the progression of our results .
Now if you allow me to ask another about Porto Bank, -- by looking at your sales in the presentation, we see there is a significant expansion. And perhaps this will play against you at the time of origination Well, how do you consider the sales with relationship compared to sales without this relationship. The relationship is a very important product and what we tend to call the open seas. How do you balance these? And what is happening in your new funding and credit card attempts.
Once again, thank you for your results of Porto Bank. Well, thank you -- to speak a bit about our credit strategy. At this point in time, and the entire market has done this. We're beginning to have a greater release within the Porto Bank system, and we have millions of tax customers tax numbers, we have 20% that we continue to work on in terms of a learning of NPL and the levels of NPL have been very good. In the last 2 years, we had an expansion of credit card and relationship where we suffered a great deal the entire market. In our case, we continue to work with a more direct sale online with the NPN levels that were fully expected and consolidated with our indicators. So -- we're prepared for a favorable market and the growth that we expect for 2023 is within what we wanted, there's still a great deal to do in terms of relationship with some customers. Thank you. That was excellent. Thank you for the question.
The next question comes from Thiago Paura from BTG Bank.
Congratulations for your results. And in my question. If you allow me I would like to carry out a follow-up on what was said at the beginning of the call regarding the strategy for cars, by subscription. What are you thinking in terms of that avenue? And the second question refers to services. Yes, we have seen that you have incorporated CDF. And in the bottom line of the quarter, there has been an improvement quarter-on-quarter on losses. When we look at the pretax result, the operational result, there is a worsening perhaps due to the consolidation. But what is it that we can expect in terms of results for this vertical going forward? We understand that CDF led to a breakeven in 2023. Now the rest of the portfolio will support a considerable improvement or will growth be more time with better expectations for 2024. Well, thank you for the question. Let's begin with your last question about services. As part of our results, we have several businesses some businesses that have a greater impact in terms of cash generation and the financial results such as cars by subscription. In CDF, yes, we made some adjustments. They are now fully consolidated. But in these results, we still do not have the [indiscernible] operation that will be demonstrated beginning next year as part of the service vertical. Well, the figures are extremely incipient compared with what we're planning for it. Now if we look at our results that were impacted financial expenses of cars by subscription, and there's a consolidation of CDF. These are the 2 positive aspects in revenue. And we still have some contracts that are pending, and this shows the potential that we have for growth. To speak specifically about the [indiscernible] strategy. We began the year with the idea of preserving this instead of having aggressive expansion of subscription. We're going to spend the year seeing how we can include this in our business. These are important businesses for the customer. And our strategy is to no longer carry this asset. We have a sales force. We have the brand and a digital presence to continue offering a car by subscription without the need of purchasing the asset but allowing the customer and the broker to have the same service in our insurance operation. And this makes a difference for the market. We began the year with 15,000 cars. We are now at 12,000 cars. We're demobilizing all of these cars.
Thank you -- as we have no further questions, our question-and-answer session has come to an end. I will return the floor to Roberto Santos for the company's closing remarks. You may proceed, sir.
We would like to thank all of you for attending our earnings results conference. I would like to remind you that should you have additional doubts, please contact our IR team. Now the information for contact is available at our IR website. @riportoseguro.br. Thank you very much. We hope to see you at the next quarter at Porto for all of your cheers.
Thank you. The Porto Seguro S.A. conference call has come to an end. Thank you once again, and have a wonderful day.