Porto Seguro SA

BOVESPA:PSSA3

Q4-2025 Earnings Call

[Operator]

Good morning, and welcome to the Fourth Quarter 2025 Earnings Call for Porto Seguro. This presentation is being recorded [Operator Instructions] Any statements made during this conference call are related to the company's business and operational and financial goals based on the company's assumptions and beliefs and on the information currently available. Remarks about the future are not a guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events, which, therefore, depend on circumstances that may or may not occur.

Investors should understand that the general economic conditions, industry conditions and other operating factors can affect the company's future performance and leads to results that will differ materially from those expressed in these forward-looking statements.

Now I'd like to invite the executives from Porto to begin their presentation. Go ahead.

[Paulo Sérgio Kakinoff, executive]

Hello. Good morning, everyone. My name is Paulo Kakinoff, and it's a pleasure to be here with you this morning presenting the results for the fourth quarter of 2025 and the full year of 2025, celebrating our 80th anniversary. We have also Celso Damadi, our CFO; Domingos Falavina, under Investor Relations Director and the other CEOs and the Head of Porto asset.

This year, by consolidating our strategy of diversification and strengthening the portal ecosystem we have had consistent growth in revenue and income. They also contributed so that health bank and services represented basically half of our results.

This was accompanied by record satisfaction levels, which made our services more seamless and guaranteed for a sixth consecutive year operational efficiency gains. We continue to take care of people as an essential pillar of our profitability and growth.

We would like to highlight these advances Next, the fourth quarter of 2025 is also a milestone for us due to the results -- the unprecedented results that we had for a first quarter. Total revenue was BRL 11 billion, up 11% versus last year, a net income of BRL 839 million, up 25% and an ROAE of 42.5% up 2.2 percentage points. This quarter added up to our total revenue for 2025 of BRL 41 billion, up 12% versus 2024, and a net income of $3.4 billion, up 28%.

ROAE remains at historical levels for the organization, 22.7% up 2.7 percentage points. Our indicators are the number of clients, EUR 19 million and the number of businesses, BRL 35 million, which are, respectively, up 4% versus 2024 and 16% in the number of businesses.

I consider this the main indicator for 2025 because it demonstrates how consistent we are in diversifying our portfolio. And how much we've increased cross-selling in our customers base. We went from 1.7 businesses per client to 1.9, which is a further step in making use of our assets, which are our customer base.

Brokers, our main business partners are the ones who perceive this the most? And this definitely is reflected in the NPS, which is 86 points reached last year.

Here are the main highlights for all of our verticals. Porto Seguro reached 17 million items up 8%. And up 4% in net income. Porto Saude added 346,000 members to its portfolio. Adding health insurance and dental, we are coming close to BRL 2 million with an increase in net income of 22%. Porto Bank's revenue grew 31%, while its net income but up 35%. In Porto Bank, we are seeing some momentum from the structuring projects that we have been working on in the last 3 years. I believe that starting in 2026, we will start seeing more significant contributions from these new initiatives that we've explained to you in past calls.

With Porto [ Sifiso, ] we had a 5% expansion in our EBITDA to EUR 108 million, and our EBITDA margin went up 0.3 percentage points to 16.3%. Celso Damadi will give you further details on these results. Go ahead.

[Celso Damadi, executive]

Thank you. Good morning, everyone. I'm going to continue the presentation here. and talk about our guidance for 2025, and then we'll go into our guidance for 2026. This year, we delivered results at the best part of the guidance threshold. So we surpassed our budget by a little bit. So our growth was within expectations for the year.

Our loss ratio was lower. We'll talk about this later in the presentation, but we had a good year when it comes to rainfall catastrophes, wind. So the auto portfolio had a very small loss ratio, very good results at historical levels. So the entire company has seen a very good low ratio and productivity gains, as Kaki mentioned right now was different.

Our ADA reduced versus last year, even with some internal situation, some products that we are advancing in the bank, such as checking accounts, individual accounts and corporate accounts. Even with the administrative expenses that usually come first before revenue, even with all of these expenses, we have still been gaining efficiency and productivity. In Porto Bank, we also see the indicators we're within our guidance.

And here, I'd like to highlight the financial results that we've been discussing with you. We met our guidance, but we did not surpass it because, we didn't roll out the 2 billion bonds that will give us better financial results for 2026. So this is going to give us better financial results for 2026 and 2027. In our effective tax ratio was also better than we had expected in our projections because at the end of the year, we were placed in a different bracket and we were able to defer our income tax.

And also, our GCP was higher than we had projected since our assets grew more than we had imagined. So this is all good news for 2025. With these results, we will be able to pay out 55% of dividends. Last year, it was 50. So this is gross dividends.

Last year, it was 45% net, and this year will be 50% net. So this will be our payout for the year. We also approved a share buyback program, a program that we've been running for the last few years.

More focused on remunerating our executives, we also have an action plan where we distribute shares to all employees in the company. In 2026, if all goes according to the guidance, we should also have additional share buybacks for canceling them later on.

This, of course, is if 2026 goes as expected. Continuing. We see that our total revenue grew 11% and here, we can see that the insurance company grew 3%, health, 22.7%, Bank 30% and services, 3.4%. So I'd just like to mention that -- within insurance, are elements such as health and dental have grown by 2-digit figures.

In auto, we are not making price readjustments in our renewals so that we can retain our customers. So we grew but the average premium has remained low. This is good because the claims cost is under control. And growth in auto is also we see expectations for 2025. Continuing our consolidated ROE was 23%, which is very good.

Our assets have also been growing, and we see here a quarterly ROAE of 32%, 33%, 28% at 36% across our business verticals. Our consolidated ROE was 23%. And with the liquidity we need to support our growth, our average returns are 32% and so this is quite robust, and it's even above the projections we had for 2025. This graph shows what we've been seeing in the last few years, our diversification.

This also provided stable results for this year. This shows that we have different seasonal patterns for each product, but our results are a bit more constant with less volatility. In 2025, it was very similar as well. We see here that insurance represented less because other businesses are growing more we have much more room to grow in other spaces like with service, bank and health care.

And concluding my part -- before I hand it to do Dom, here, we have our financial performance. So we reached a high part of our guidance, and we rolled out some bonds, which impacted our results. This means that in the future, we will have better financial results.

Our allocations have not changed much, but we have a slightly higher allocation in fixed rates and a bit lower in inflation. Dom will continue with our presentation. Thank you.

[Domingos de Piza Falavina, executive]

Thank you, Celso. Good morning, everyone. Now we're going to go deeper into each vertical. In the insurance company, our revenue was BRL 5.8 billion or 22.3% in 2025. And our NPS was between 83 and 84 points. Auto had a smaller growth of 0.2%. And although there was a 4% growth year-on-year. This is due to the topics that Celsos mentioned. It's a technical price that did not allow for any adjustments, and we also have a smaller ticket in our portfolio such as motorcycles and other products that go lower in our pyramid.

P&C grew from last year from 8% to 12%, and we hope to continue sustaining this level. When it comes to the loss ratio, we had an increase of 1.2 percentage points up to 58%, but our ROE continues to grow, as I'll show on the next slide. P&C had a drop of 3 percentage points and life had a drop, an increase of 3.4 percentage points.

As I mentioned before, our loss ratio is posting positive results year-on-year due to some strategic and operational decisions that Porto in 2025. Notably, the consolidation of insurance policy issuance factories into [indiscernible] Not only does this add benefits in terms of expenses, but also in terms of capital.

We had over BRL 100 million in capital efficiency gains last quarter. And this quarter, it's no different. As we see a higher diversity of products, we have a recurring capital benefit, which extends which will extend for 2026.

So this quarter, we had an increase of 4% in premiums, but our regulatory capital is basically flat. Continuing with health care, we had $156 million thousand lives insured. In addition, total revenues were BRL 2.3 billion, and net income was BRL 170 million. And here, we see that the revenue level was very similar.

And this is due to the new products that we've been discussing with you, which have a higher profitability than our older products. However, they have lower prices as well. We have a product called Porto [ Biro, ] which has been adding new members who didn't have health insurance and that can now afford it. When it comes to our loss ratio, we had 1.6 percentage points improvement considering health plus dental and 1.4 percentage points considering only health insurance.

We have to highlight our medical team, according to the most recent data, they have surpassed 40% of the consultations done in Sao Paolo. ROE in health is usually more volatile. A second half of the year is stronger. But if we look at the entire year it was 28% versus 27% in 2024.

So even if we adjusted for the seasonal patterns, we see an improvement throughout the year for this vertical. Finally, or excuse me, continuing with Porto Bank, we had increased revenue and we always like to put a spotlight on our average revenue per client, which is growing. And it has a very healthy distribution.

So we see an improvement in tariffs and in revenue with interests. Our efficiency ratio -- we're going to change this in our guidance to adopt some best practices. And it will be better than what we are publishing, but just for the comparison, we see an improvement of 1.3 percentage points to 32.2%. Looking at our credit portfolio, very similar to our revenue. We see that it has been growing in a healthy way with NPL ratios above the ether the NPL ratio over the short term is going down. But that being said, we are trying to make our assets more robust.

So we're going to give you a guidance that will have a higher provision than last year. as a preventive measure. Continuing with the bank's income and ROAE. We see an increase of from 26.7% to 28.4%. And now we see services. Our service level is still robust. We had nearly 700,000 services for cars as well as for residences, homes and businesses and our NPS was at 81 points. We've been focusing on improving contracts and optimizing our margins.

So except for hiring at Portal, we see that income went up in our partnerships and in our digital sales as well. This led to a net income of BRL 91 million and ROE went up to 74%. We had a societal incorporation which allowed us to optimize our capital. We'll also have some fiscal benefits.

So we're going to see a discount of BRL 500 million, which will have amortization and will generate tax benefits from BRL 35 million to BRL 40 million per year, which will contribute to our capital, a better rate, but also higher ROEs Continuing with our guidance. I'm not going to go through each point, but this is our guidance and the premium growth guidance in comparison to 2025 have a bigger range. What we're trying to indicate is that we're going to accelerate the growth in premiums issued. The loss ratio is favorable versus 2025, where we have been prioritizing margins over growth with Porto Bank, we had 2 changes that we have to explain.

The first is that we implemented a new consortium system that will provide efficiency gains in SG&A, sales and new group launches, but they will be accounted for differently. So when we apply the accounting rules for this new product, which now includes accounting per copy and no longer per groups or for experience, we have a negative revenue effect.

This quarter, we had about BRL 276 million impacting us, and we can discuss this during our Q&A because we had to balance this for 2025. So the revenue between 2025 will not be comparable to 2026, and that's why we didn't put it in percentage terms, but in nominal terms to facilitate a comparison.

This is all on the footnote here. There was a second change that we made to adapt to best practices from the market. We had been classifying some expenses that in the cards industry are standard and are correlated to the volume as operational expenses. Banners like Mastercard and Visa, royalty expenses, rewards programs but they are now being deducted from our revenue.

In 2025, we had about BRL 700 million in this. So this comparison would also be BRL 720 million to EUR 730 million higher. This, of course, impacts our efficiency ratio. And again, this is all detailed on the footnotes. But I'd just like to say that although this revenue seems to be nominally lower than last year, this is basically due to the comparison.

We do expect it to grow very well. Credit losses, as I mentioned, are due to the provisions that we're making has a concern with clients that are over leveraged. And we also have health care and services. They're very similar. The guidance is very similar to last year.

And the financial result, we're seeing a higher expectation due to a more optimized portfolio and an increase in technical reserves. The effective rate of 28% to 32% does not include that amortization for discounts and services. So this will be our accounting rate and will give you more details about this because the cash effective rate will probably be below this.

We always like to show the products that we have the most share in and the ones that we have the lowest share in. As an indication of the areas that we've been focusing on. So without further ado, I'd like to invite you to the Q&A.

[Operator]

[Operator Instructions] The first question will be asked by Mr. Arnon Shirazi from Citibank.

[Arnon Shirazi, analyst]

I'm trying to understand the dynamics behind the banking segment. I'd just like to understand this -- the impact of consortium at the top line. Should we expect further effects than this, what should we expect?

[Paulo Sérgio Kakinoff, executive]

Yes, these effects are interconnected. As Dom mentioned, we had a change to our process at the levels in which we provide deferrals for consortium contracts. Now with the new system, we can put this at the quarter level which will allow us to defer revenue and commercial expenses per quota.

So in the fourth quarter, we had a more perceivable effect because we were able to look at this retroactively. So that led to a reduction in revenue, and there was also a deferral credit because when we adapt to these 2 lines, they provide us with some credit.

When we analyze this impact, it basically did not affect our bottom line. But our guidance for 2026 is incorporating this new dynamic. So this is already in our revenue guidance.

[Arnon Shirazi, analyst]

Great. If you'll allow me to ask another question. When it comes to premiums for 2026. What do you expect in auto and other lines?

[Paulo Sérgio Kakinoff, executive]

So we've been seeing some indication on the auto segment, considering the data that is being provided by navi industry data that this industry can be favored if the basic interest rates expectations are correct. So we expect volumes to increase.

This is a market that, as you know, is very peculiar in its competitive dynamics. The company has tried to conserve its results through its own strategy, and we're also, of course, trying to defend our own portfolio. We expect levels to be higher than we had planned, so we can continue investing in tactical and strategic actions to defend our portfolio and to solidify our share.

So I'm looking at Patricia who I'd like to introduce to you formally. This is her first earnings call. She became the CEO of the insurance company in January after volatility. So Patricia, would you like to say anything?

[Unknown Executive]

Okay. So looking at life and you can see we have an insurance market that is not that does not have such a high penetration. So we can grow by double digit figures with excellent results. And we believe that if we have the right products, we can continue to grow as Kaki mentioned, in auto, in 2025, we saw a scenario in which we prioritized our margins, but we are seeing very solid results above our guidance, which for 2026, will allow us to seek a better balance between growth and profitability, and this is all in our guidance.

[Arnon Shirazi, analyst]

Perfect. And good luck, all the best to you, Patricia.

[Operator]

The next question will be asked by Daniel Vaz from Safra. Go ahead, sir.

[Daniel Vaz, analyst]

Congratulations for these results. I'm looking at your guidance for 2026, and it's about 3.7%. Looking at all estimates and the consensus, it seems like that's where you're at. Unless, of course, projections change. But I have 2 questions because I think most discussions will refer back to these 2 topics when we talk to the investors.

First, competition in health, we heard from you that in May or June, there was a player had been a bigger aggressor. And secondly, when it comes to bank, when we heard balances being reported, we got Santander and Itau, and it seems like life is a bit more complicated than banking.

So I'd just like to hear from you how you're dealing with your asset quality and -- what's your expectation for this year? Will this start to accelerate, what are you expecting after this marginal loss in growth? So again, competition in health care and if you believe your growth levels will remain the same for auto.

[Unknown Executive]

Daniel, thank you for your question. I think the market has a similar level of competition as last year. If we look at our competitors, they've been very aggressive in pricing and in campaigns and so on. Out of home and all of that. So I think the market's changed significantly. Speaking about ourselves, we continue doing what we've always done.

We have a technical approach. We're pursuing competitiveness through innovation, through products across our 4 lines. And a different distribution strength trying to grow technically. Of course, we're going to grow more or less depending on the quarter.

And the last one has been solid despite having a competitive environment, maybe the most competitive in the last 4 or 5 years without letting go of our technical margins, of course. So that's our perspective and this is reflected in our guidance as well. So about the bank we are going to continue growing within our strategy, focusing on this ecosystem.

I can share with you that since we said this in 2024, we were able to reach very good profitability levels in this area. This is a product that is correlated to what you mentioned, individuals, which our credit cards. Of course, we did identify that although there's less than 0.5% of our portfolio. It might have a different use behavior that would deserve some attention from us.

And that's why in our guidance, we're adding a provision if we need to for this target. But I'd just like to compliment that the bank has grown a lot in lines with a better structured and better return especially the credit portfolio. It expanded significantly. So in the credit portfolio that allows us to balance thanks very well.

So the quality in our credit portfolio continues to be very high due to the strength of our ecosystem. The new groups have been very good. And another complementary part of Porto Bank is the ability to generate more key-based businesses like consortium. So we really respect this scenario, the macroeconomic scenario, of course, deserves some attention, but we continue to see some growth according to what we expect.

[Celso Damadi, executive]

Daniel adding to these answers from a group perspective, results in 2025 are above our expectations. So this allowed us to prepare for the results in 2026. How did we do that? Well, we are using the excess for some movements that will protect and give us more predictable results, keeping our ROE at higher levels and also with growth in profit and revenue across several verticals.

So we've rolled out NTNs last year, in the last quarter. And we're also making provisions as a prevention. And this is a group that represents a very small percentage of our portfolio. but it would be affected if it deteriorates given the stability that we have. So these are just some examples of movements that we've made to try to protect our evolution in revenue and in profits.

[Operator]

The next question will be asked by Antonio Ruette from Bank of America. Go ahead.

[Antonio Gregorin Ruette, analyst]

Hi, everyone. I have a couple of questions. First, if you can tell us a bit more about the effects that you will have from your tax bracket, we can see that it's lower this quarter. I imagine there were some nonrecurring effects. And also since Patricia is here...

[Paulo Sérgio Kakinoff, executive]

Sorry, Antonio, we had a problem with your audio. If you can repeat your question for Patricia.

[Antonio Gregorin Ruette, analyst]

Of course. So we expect to see interest rates going down throughout 2026. So what's your best estimate on the auto market and how it would behave.

[Celso Damadi, executive]

Thank you. Antonio, this is Celso. Thank you for your question. So our effective rate this year was below the guidance we had, and this is due to a few reasons. Our JCP, our rate was lower than we had estimated in the beginning. We saw some effects from deferred income tax, about $40 million.

And when you increase the rate, first, you have to update all of your tax credits and this is placed in the balance sheet. So you have to reduce this later. So you have a higher rate in the future. We also had a JCP adjustment in health, which was retroactive.

So we had to recompose the company's corporate structure, putting health in a holding. So this was not worse in the past, and we had to do it now. So there is a nonrecurring effect but this GCP effect in half will be recurring for the next years.

So we had a number of situations that led our effective rate to be at a higher level than we had foreseen. And the effective rate for 2026, as Dom said, will be between 28% and 30%. We had a tax benefit of about BRL 120 million from in our health structure. It's also worth mentioning that with the tax changes -- sorry, let me explain something else, and I'll come back to this.

So we had 20.5% benefit there, but we have 2 entities under Porto Saude, meaning that we had to pay the PIS and COFINS task twice. So that led to some inefficiencies. If we adjusted the net benefit was low and our IBT would have been better than what we published because this is a line that was impacted. So it's 120 gross.

And another point I'd like to mention is that this tax inefficiency we have now, according to the new tax rules should not exist after 2027. So although this went up, our understanding is that this inefficiency will no longer exist. And the next point is that we're also going to see that these discounts will be -- will have some amortization, as I mentioned. So there are several positive effects.

[Unknown Executive]

Antonio, to answer your question, it's hard to predict how the market will behave, but I'd just like to reaffirm that these models are based on financial results, but they are not sustainable over time. And that's why in a scenario where interest rates will be higher we will not be healthy as an insurance company.

We have to be able to generate in core and returns from our core business. So we'd like to reaffirm that we are committed to profitability without considering interest rates, but always considering excellence. In 2025, we were at record levels. So we're also considering provisions for 2026, and this is a part of our guidance as we mentioned earlier.

[Antonio Gregorin Ruette, analyst]

Great I'd just like to ask a follow-up question from. So also, I understand that it was BRL 40 million net from this reorganization in the Health JCP. And there was also an effect from the CLL. Is that right?

[Paulo Sérgio Kakinoff, executive]

That's correct. What Dom said was that when you look at R&D, we see some inefficiency in our operational results. But that efficiency is not true from a business perspective because it has $80 million in [indiscernible] from this JCP. So the net effect to our results was BRL 40 million.

That's 1 point. A part of this BRL 40 million will be recurring because we will have future JCP in Health as well. So a part of it will be recurring and a part of it will not be. As an effect, our consolidated result was not as relevant. It's more relevant in the effective rate. And the BRL 40 million for banking, that's correct.

We have some credits there that we have a deferred income tax on but this will be lower later on. When the tax rate is higher, we have a tax benefit, which updates our tax credits, that addition of 40%. We'll go to 42.5%, which will be the new full rate for 2026 and 2027.

So this is a temporary tax benefit and that creates a BRL 40 million effect.

[Operator]

The next question will be asked by Kaio Prato from UBS.

[Kaio Penso Da Prato, analyst]

I have 2. First, about the holding and others line, we saw a significant increase in expenses. First, I'd just like to confirm that this was due to that effect in PIS COFINS that was accounted for in this line. And besides that, we also saw a significant growth in SG&A so I'd just like to understand the drivers behind that.

Also, I'd like to ask about banking. We've talked about provisioning and about your appetite, but I'd just like to understand what you're imagining for 2026 in this portfolio. Should we see a slowdown? Or will it continue in the same pace this year.

[Celso Damadi, executive]

Kaio, you're right. So a part of -- well, the BRL 80 million in PIS/COFINS, as we mentioned, and the operational results will go to the holding BRL 105 million debt rollout will also be placed in the holdings results. Our business model pays our portfolio at 100% CDI. And when you roll out an appropriate this expense, which was in our assets and pleased to say in our results is also is in the holdings results.

So this quarter, it's going to take these impacts quicker temporary. So the holding has a smaller result because we have higher financial results for the future and the risks of treasury, as we call it, internally, usually goes through the holding. Commercial expenses. We also have some criteria to allocate this between holding and portfolio to make it more linear in our expenses line.

We don't have to price it up or down. There are things that we understand make this more linear in our portfolio. We cannot do this in the societal. Of course, we are audited. We have to do it according to some standards. So we are doing this through the holding.

So again, it goes through that and then is included in the portfolios during the grouping period, as [indiscernible] mentioned recently. In general, before we answer your next question, the results for the holding and the same magnitude actually even higher than the magnitude that was impacted by this rollout will be benefited in 2026 and 2027 due to this asset swap that we had within TMBs.

And commercial expenses also have grown marginally below the expansion of our portfolios. So we'll also see an increase there. Commercial expenses are also growing, but we have been fortunately able to leverage them as well. We don't have a guidance for the portfolio. Our guidance in revenue and losses represent us very well.

But I'd just like to take this opportunity to talk a little bit about what Kaki mentioned in the opening. In the last 2 years, especially with Porto bank, we developed and we prepared new businesses and new products to explore our ecosystem even more. On this line with risk and working capital for credit in our organization in the last quarter of 2025, we reached BRL 200 million, BRL 250 million.

So this is a line that did not exist, and now it does. In addition to that, now in early 2026, we are starting to operate -- or starting to operate in private consigned, which is a product that did not exist. In consortium, we also see a huge opportunity of maybe even having a more organized and structuring campaign to talk about financial education and the media to promote this awareness in using planned purchases.

And that's why we are anchoring this in consortium because we really believe that this product plays an educational role. So we believe that with new products and with the new system, we're also going to have very good performances in consortium. Another thing we saw in 2025 was the power of our digital channel.

We have about 40% of our business coming from car equity or credit lines and credit cards across digital journeys. So we continue to grow in our ecosystem strategy, the adjustment that we made to the losses are already in our guidance. so that we can go through this period preventively. And we will continue to grow.

[Kaio Penso Da Prato, analyst]

So just as a follow-up, I don't know if DC [ AMDA ] was very clear. Was that related to that adjustment in bank quotas? I'm just trying to see if I understood it correctly.

[Unknown Executive]

A small part of it because when we look at societal DR, it's all there. When we look at our bank balance, we have a finite adaptation of that average rate. We cannot do this on -- at a society level due to accounting standards due to technical reasons. But we know that the extension is a bit longer. So it goes to the holding and then it changes in a holding depending on these quotas.

So a part of it was in the bank portfolio and another part was more correctly allocated temporarily at holding and then it is included, and then it goes back into our portfolio.

[Operator]

Next question will be asked by Guilherme Grespan from JPMorgan. Go ahead, Mr. Grespan.

[Guilherme Grespan, analyst]

I also have 2 questions. First, health. Looking at the loss ratio, this is the first year you have a guidance where your midpoint was flat year-on-year maybe we're conservative in increasing it. And this year, you were confident in putting a flat midpoint versus 2025.

So from your -- from the underwriting perspective, what do you expect from your loss ratios in health and from the ticket perspective, we've been talking about an increase in lower ticket products, but does that affect your loss ratio? Will this group have a smaller loss ratio? And just to clarify something. When I look at the bank's managerial DRE, I see that there was a negative impact from the deferral of the consortium and a positive impact in commissioning of 380. So looking at these lines, you had a benefit of BRL 100 million.

If I understood it well, there's a benefit at the holding. Is that what I should understand? I'd just like to understand this impact line by line. This isn't clear to me yet.

[Paulo Sérgio Kakinoff, executive]

Starting with your last question. Our target loss ratio doesn't change per product line. So from Porto Biro to the traditional lines to the Portugal line. We have a target loss ratios per size. Of course, larger companies have a different one. But we don't change this for the same target -- excuse me, for the same size company, the target is the same.

So that's how we calculate our pricing. So when we compare our loss ratio for Porto, we're at a level that is equivalent to verticalized companies before the COVID pandemic. I would say our loss ratio is appropriate according to our maturity, and it shows that the challenges that we received so many people asked us if Portugal was being too aggressive on price.

Now with a more mature portfolio with this number of lives, most of them with us for over 2 years, our pricing equation suggests that this was contrary to some of the challenges that we received. So the issue is, do we want to continue reducing loss ratios? Or do we want to have a balance and sustain the growth suggested by the guidance.

So given the results, the returns on the capital. We expect to be at an appropriate claims ratio sustaining reasonable growth considering our size. This is, I think, what would maximize our growth.

[Unknown Executive]

Yes, it's exactly as you said. The accounting effect that we had in consortium is actually an extension of the revenue and the commission expenses. This means that expenses and our returns are proportional. This used to be done at the group level announced at a quota level, but the effect is very low.

There's also a tax effect, which is materially smaller, but the effect that you're mentioning is an extension, like we said before, of the amortization of the revenue. So now we have a smaller revenue and it expands over time and also a commission. So also the commission is smaller on the short term.

So smaller revenue, smaller revenue and the net effect is nearly 0. I'm asking our accountants to send us this, but 380 is actually to 330, and there's some small differences that we can speak about later on.

[Operator]

The next question will be asked by Marcelo Mizrahi from Bradesco BBI. Go ahead.

[Marcelo Mizrahi, analyst]

So talking about adjustments, when it comes to Porto Bank, I'd just like to understand what your revenue guidance for Porto Bank is. With these adjustments reducing the revenue from consortia. If they were not there, and there's also that expense with credit cards, and you are following the best practices of deducting this from your revenue.

That means that your guidance is not completely comparable to 2025. So my question is, if you do not have these deductions, and if you didn't have these adjustments to the consortia, what would be your adjusted guidance, either in nominal terms or as percentage growth. Maybe give or take 1% or 2%, but about 20%.

[Celso Damadi, executive]

I was a good said that we weren't able to show how much we're actually growing. This is due to an accounting issue to systems adaptation, but it would be about 20%.

Yes. I think that summarizes how much we actually grew despite these adjustments that we made to the reporting -- so 20 is mid -- is an average estimation. It can be more.

[Operator]

The next question will be asked by Eduardo Nishio from [indiscernible]

[Eduardo Nishio, analyst]

I have 2 questions as well. First, about insurance. Considering premiums for 2026, you gave us the premiums gained, but I'd just like to understand your growth perspective across these several verticals probably life and P&C, as Patricia mentioned, are doing well with still double-digit growth.

But if you could give us some color on what you expect for auto in 2026 and also in auto, if you can give us some more details on how this is going. There's a bill on car restrictions.

So if you can give us some more color on how you're tackling this segment, the size of the market and your distribution strategy, which seems to be the biggest challenge in distributing this product.

[Unknown Executive]

Thank you. So I'm going to talk about 2025 because it will allow us to understand what we expect for 2026. In 2025, we decided to focus on conserving margins. So our ROAE in insurance was 29%, and specifically in the last quarter was 32%. An important part of that led to a slowdown in sales and a more competitive scenario in auto.

And this affects us this year because we're starting the year with a stronger balance across all of our portfolios and the results that we generated in 2025, which are record levels for Porto allow us in 2026 to find a better balance between profitability and growth. So we're always focusing on profitability, preserving margins, but trying to balance things better.

And this connects to your second question because we invested in a structuring agenda. There are several components there, but one of them is portfolio expansion. So we brought some new things to our corporate portfolio, that 15-minute commitment in Sao Paolo, and we also relaunched our starting portfolio, which has more compact products and products for motorcycles.

This is a fundamental strategy when we talk about associations and APV. We want clients to have a high-quality offer with a strong balance so that they can take out insurance and so that it is there for them when they need it. This expansion of our portfolio is intentional. The fact that we're growing 4% year-on-year in items and that we added 230,000 items or vehicles to our fleet is due to this strategy.

So yes, we do have a strategy so that we can offer to a price-sensitive target, a high-quality product. And the next important point is that in our growth agenda, we also invested in unifying Porto and Azul. This means that brokers can use a single platform to see all 4 brands. All of our operation and technology is based on the same corporate tax ID. So this gives us operational efficiency. So just to underscore, we have a solid balance between profitability and growth.

We have a broad portfolio on the premium and entry lines to tackle this price-sensitive segment. And we also have a significant agenda of making tech investments so that we can become more competitive in the market.

[Celso Damadi, executive]

Nishio, this is Celso. I'm not going to say exactly how much we're going to grow, but we expect the auto market to grow about 6% this year.

Here at Porto, as Dom mentioned when he talked about the guidance. We were also a bit more competitive because we joined some factories from AZ and Itau, and this is also under Porto's corporate tax ID with our systems. And this also gives us some smaller regulatory capital. There's a capital diversification.

The excess in [indiscernible] can be taken to Porto SA, where we don't have the same tax burden and core to auto becomes more competitive and can have a smaller loss ratio with an ROE at a high level. This makes us a bit more competitive. So what we expect for 2026 is for the auto market with reduced interest rates also will grow more than in 2025.

So we will have a higher penetration in this auto segment and more competitiveness where we'll be able to connect this gain in productivity, joining these 3 brands under the same ID with this investment that we made in technology in process and will make us more competitive so that we can grow a bit more in retained premium.

Gain premium doesn't capture all of the retained premium because a part of it will be gained in 2027, but we expect to grow a bit more in 2026 including in the auto portfolio because we believe this market will grow a bit more. Nishio I'm just trying to understand your question. I think you were referring to move, right? The auto recycling program.

[Eduardo Nishio, analyst]

No, I was talking about the bill that regulates APVs.

[Paulo Sérgio Kakinoff, executive]

Okay. So Nishio, we are favorable to that process. and class organizations sector or industry organizations worked for many years for this achievement to regulate this. When you look at the number of agents in this market, before the regulation was proposed the ones that just got approved.

These numbers fell significantly. So this is a piece of good news, which means that we're now at a more level of competition, and we're at the same formal level. EVs have a specific part of the market. This is a complementary activity to hours.

Of course, if it is executed with the right guarantees, we've seen many stories over the years of association that had higher loss ratio. So I think it's an important step in regulating our industry.

[Eduardo Nishio, analyst]

Great. And this bill has passed, right?

[Paulo Sérgio Kakinoff, executive]

It's still being regulated, but yes.

[Operator]

The next question will be asked by Tiago Paura from BTG Pactual. Go ahead.

[Thiago Paura Mascarenhas, analyst]

We've talked about these 2 points, but I just want to make it clear. At the range of the financial guidance, just to try to understand what's behind this, what do you consider at the bottom? And what do you consider high here? The range is 1.4% to 1.8%. So it's relatively broad. So what do you assume to have an expansion but this is a midpoint expansion of about 30% year-on-year after 20% from 2024 to 2025.

So I'm just trying to understand what's and viewed in this expectation for a marginal drop. So the main index is IPCA, but it's also sensitive to SELIC and IPCA.

[Unknown Executive]

So go ahead, Izak.

[Izak Benaderet, executive]

Thiago, in general terms, our midrange expectations include having a lower CLiC we're at around 12%. IPCA are within our focus. So there's not much to take into account these are the things that affect our portfolio the most -- our average cash generation in 2025 was robust. In 2026, according to Dom's guidance will not be different from that.

There are some tax credit offsets, but our cash generation and the rollouts that we had with an average rate being higher, we will have one, cash connected to the reserve and a nonreserve and both of them will be higher. So with CDI going down after March, this is what we expect -- we expect a slow drop in CDI, and this is what makes our financial results come to this level between 1.4% and 1.8%, so about 1.6%.

So that's it at the end of the day. It's a number of things that we're including in this -- and we had a very good cash generation in 2025. We talked about share buybacks. Of course, this is going to affect our cash availability depending on when it's done. Another thing you mentioned was provisions.

We're not seeing a portfolio an increase, but I would use an estimate we expect to grow in line with the rest of the market, and the rest would be an increase in the cost of credit, cost of risk, which is based on our desire to have an increase with some clients that are indebted.

We see that default is not worse in this period, but we're a bit more concerned about the a low number of clients with a higher-than-expected leverage. This target is seen as the most exposed to risk. So it's about 12,000 out of a total -- excuse me, 12 million people who could, especially in difficult macro comic scenario have trouble in honoring their payments.

So as I said in the beginning, this is just a preventive measure. And we have space to do this. We have some leeway. So -- and this is in line with the organization's corporate culture. Protecting our -- the predictability of our results. So that's why we have this additional provision.

[Paulo Sérgio Kakinoff, executive]

And Thiago, it's not that they are late, but they're generating a financial expense that is longer. So we also want to have a provision for them. We understand that this has a higher risk. And we don't want this to snowball and continue until 2027.

So we have a higher expectation. So this is not very relevant, but the expense line is there. But it does not affect our balance in a significant way.

[Operator]

The next question will be asked by Tiago Binsfeld from Goldman Sachs. Go ahead, sir.

[Tiago Binsfeld, analyst]

I'd just like to ask about your capital management. So you mentioned the potential buybacks. So I'd just like to understand if you're accelerating buybacks this year. And I'd also like to hear about your M&A in general.

If you find any need to close gaps in the company? And you talked about private partners in the health business. So has anything changed considering the organic growth that you've been seeing in health.

[Paulo Sérgio Kakinoff, executive]

Thank you. I mentioned this in the call that we were going to talk about this, so that was a very good question. So as I mentioned before, our cash generation was relevant in 2025. And as you were able to see in the results we presented just now, we also had some effects reducing our need for assets when we talked about diversification and uniting our factories in Porto.

So that's why this year, we are going to pay out 55% last year, it was 50%. In 2026, if everything goes according to our guidance, of course, there is a challenging macroeconomic scenario for 2026, but our guidance is also interesting in our results with good cash generation.

So if all goes according to plan, then we probably the share buyback plan that we approved will allow us to buy $5 million to $6 million this year. And we'll be able to extend a part of it to cancel some shares. So part of this cash excess will be used for share buybacks and to cancel some shares.

It will depend on how much we generate the results we get and the size of our appetite for 2026. From an M&A perspective, Tiago, we are looking at things that will give us competitive efficiency, maybe new technologies and claims, maybe something that will create a new channel.

We don't have anything imminent, but this is all on our radar.

[Tiago Binsfeld, analyst]

And a follow-up question I asked about health. If you can give us some color on that line.

[Paulo Sérgio Kakinoff, executive]

You had asked about partnerships, right? So we continue to be engaged with several partnerships and I'll let Celso give us some more color.

[Celso Damadi, executive]

Yes, Tiago, I didn't really understand your question.

[Tiago Binsfeld, analyst]

Right. So last year, we -- you had talked about strategic partners, private partners to provide more intelligence to this business. Does that advance at all?

[Celso Damadi, executive]

Well, they always contact us. I think you can see that in our numbers, and we're very open to that. There's a particular thing about our business that we don't need cash. We don't need to strengthen our balance. We don't -- the machine is rolling with capital efficiency, with provisions. So it would make sense to have a partner that would add to our business in some way, whatever it is.

Obviously, with values aligned to ours, our CAGR was 80%. So we want to continue growing. If anything relevant comes up, we will mention it. But for now, we haven't had any.

[Operator]

Thank you. This concludes the question-and-answer session. We will now hand it over to the Porto executives for their closing remarks.

[Paulo Sérgio Kakinoff, executive]

Go ahead, gentlemen. Well, on behalf of Dom, Celso, Patricia, Lene, Izak and our entire team. I'd like to thank you for being here. Thank you for your time. Please don't forget to send us her suggestions and questions to our Investor Relations department. We are always here for you. Thank you, and have an excellent day.

[Operator]

This concludes Porto's Fourth Quarter 2025 Earnings Call. Thank you, and have a great day.