BB Seguridade Participações S.A. (BBSE3) Earnings Call Transcript & Summary

Welcome to our virtual meeting to present the results of the second quarter of 2026. This event is being recorded and times translated in English to listen to the audio in English. [Operator Instructions] Event will be divided into 2 parts. In the first part, our CEO, Delano Valentin, and our CFO, Rafael Sperendio, will present the main deliveries of the quarter. The presentation and the slide deck in Portuguese and English can be downloaded from our Investor Relations website at the address bbseguridaderi.com.br. In the second part of the event, there will be a Q&A session. [Operator Instructions] Now I would like to give the floor to Delano who is going to present the main highlights of the quarter. The floor is yours now.

Thank you, Felipe. Good morning, everyone. Good morning, all of you with us here today. It's a great pleasure to be here to show you the results of the first quarter of 2026. .

I would like to start by thanking everybody for joining us for this conference call, I would also like to thank our investors and especially our customers for their continued trust in our company. . I would also like to extend special banks to our employees at Banco do Brasil sales force. We continue to play a key role in the execution of our strategy and I would like to thank them for their contribution to the performance we presented here today. Along the first 6 months of 2020. We continue to operate in a very challenging retirement. The part that we have kept discipline in the execution of our strategy SP1673683492 Taking more in management with a consent of conglomerates to be more efficient both in the way we serve our customers and in the management of our expense. I would like to start the presentation by running your attention to our recurring net managerial income of BRL 4.4 billion, an increase of 3.2% compared to the first half of 2025. The net operating income after access reached BRL 3.5 billion, an increase of BRL 0.3 million compared to the same period as the previous year supported especially by the drop in the loss ratio in insurance operations, which remains at the lowest historical level and the growth in revenue from management fees accompanied by improved operational efficiency with Brazil plan. In addition, the net investment income after taxes has reached almost BRL 1 billion, BRL 99.1 million, an increase of more than 16% compared to the previous year, reflecting the increase in the profitability of our financial insets in an environment with still high interest rates. It's also worth mentioning the payout of BRL 3.9 billion in dividends and a payout of 88%, which represents a to per share, thereby reinforcing our commitment to generating and distributing value to our shareholders slightly belong the bottom line of our P&L. I would like to highlight some operational indicators in insurance, we think premium to an BRL 7 billion in the first half of the remaining practically stable as compared to the year before. In the segment, I'd like to draw your attention to the recovery we saw in the second part of 2026 for credit line written premiums are products where we have demonstrated the greatest capacity to develop new solutions to help offset the impact of the current scenario on high interest rates in addition to the expansion of corporate credit portfolio of persons eligible to insurance, which I have been highlighting since last year and the first half of 2026, added almost BRL 400 million in premiums written. I would like to highlight the implementation of a partial credit life insurance, which allows the pyramidization of policy terms by the relationship managers a way to reduce the effective cost of insurance. And with this place -- facilitate the placement of the product in payroll loans. In pensions, we have reached BRL 496.5 billion in reserves. An increase of 10.6% over the same period in the year before. In the period, we have a net -- positive net inflow of BRL 2.8 billion. This is a very relevant number considering the market context and the intense competitiveness that we have seen further pursuit of investors. Finally, in premium bonds collection reached BRL 3.4 billion in the semester. In addition, we paid out almost BRL 42 million in lottery prices, a growth of 36% compared to the first half of the previous year, reinforcing customer -- the engagement of customers with our products. We think that these results once again demonstrate the solidity of BB Seguridade its execution capacity and the resilience of our business model despite the still challenging environment. With that, I end my presentation, and I would like to give the floor to Rafael, who's going to give you details of each one of our operations. Thank you so much.

Thank you, Delano. Good morning, everyone. So now looking at the details of our results second quarter. Second quarter, close to BRL 2.2 billion. And income, a drop of 3%. Year-on-year, this drop is a result of the drop in investment income. So 2 factors. The most important is negative mark-to-market, BRL 12 million after taxes in the second quarter and as compared to Q2 last year that was positive by BRL 34 million, and most of the negative mark-to-market is resulting of the opening of the structure. The other factor impacting the second quarter comparing year-on-year was the quite high intense high of the IGPM, which is lagging by 1 month which is the rate that we use to update the liabilities of plans as defined by Brasilprev. So in Q2 of '26 so the lag was 24% as compared to second quarter last year, with 1 month lag, there was a deflation of $0.6 million. So this effect was not followed up by PCA and had an effect in Brazil prep. And together with marking to market explain the drop in net income year-on-year. Here on the right-hand side, there is a 3% growth in investment income and segregating the time mismatch, so the net income is almost flat. So most of 3% growth, when we look at yearly numbers is a result of a smaller effect of the time mismatch, which was much worse last year. And as I said, in a defined benefit plans, there is a liability and IGPO is what accounts for most of these results as we see the mismatch. A long time, 16% in investment income. Most of it is resulting from the time mismatch, which is clearly when we break down the net income in its main components. So the 3% growth year-on-year represent BRL 136 million, BRL 126 million coming from net investment income, and it's very clear here, BRL 125 million, resulting from the time mismatch and its impact in the first half of this year as compared to the first half of last year, and the benefit resulting from the high selling rate was booked this year because it was almost in full taken to mark-to-market, which was BRL 18 million negative after taxes. And last year, it was BRL 23 million positive. So these are the main effects of the financial result when we look the combination of all companies of the group. So in operation, we see a growth of BRL 10 million resulting from BRL 54 million growth after taxes as we can see increase in management fees resulting from volume as you are going to see and another benefit that we saw this year was a reduction in the loss ratio, especially in agricultural sector. So the improvement in these 2 variables were partially offset by the reduction in retained earned premiums very much because of the worst performance compared to last year in agriculture. So in this quarter -- so resulting from brokerage in the correction of the premium bonds and BRL 39 million negative here, most of the movement is a result of the drop in agricultural insurance premiums and this variable captures the commissions in reinsurance premiums. So 75% of the premiums that we issued in agricultural premiums and Brazil is in volume, there is a direct impact in commissions. Now operation by operation, first, going to insurance operations. There is a drop of 5% year-on-year in the second quarter. It was 4% in year-to-date numbers. And as I said, most of the drop arises from a performance that is worse than what we had last year in agricultural segment impacting rural and share that accounts for most of our written premiums. And you can also see here in other comparisons a drop of almost 5%. The highlights here in the quarter in the quarter and year-to-date numbers is home insurance growing on both basis. And the other highlight here is our performance in terms of retained premiums. So here, we isolate this effect of the performance in agricultural insurance that is granted to insurance and we have 5% retention and retained premiums is almost flat, second quarter considering year-on-year and the first half both the quarter and the first half. performance ratios, we can see an increase in the combined ratio, resulting essentially from commission ratios, which is a positive point because of the mix and more concentration on products that have higher commission rates and the other factor impacting as I mentioned before, it's a smaller amount of revenue from commissions from reinsurance, which work to reduce this rate. So they reduced the acquisition cost, and we are always operating considering income. This rate also goes up because of that. loss ratio, a slight increase because of a person's segment, and there is better operational efficiency and translated into a G&A ratio. Now in year-to-date numbers, very similar dynamics considering, especially the loss ratio in the segment of persons. This is more diluted and there is better loss ratio considering the agricultural insurance. Commissions, same explanation such as in the second quarter year-on-year, there is better operational efficiency and a reduction of SG&A. So financial results dropped year-on-year -- quarter-on-quarter. And also the considering the first half of the year and expenses increased and because of SELIC and IPCA and here, there is the update. So there has been an increase in these actual numbers, and that's why financial expenses went up. And offset financial expenses or investment expenses. And then the net income is 2% comparing year-on-year, the 2 quarters and 1% down comparing the first half of the year. So it's down year-on-year and the combined ratio and a drop in investment income, which was partially offset, but not in full and that's why there is a year-on-year drop by 2% and 1% considering the first half. Now considering pension plans with very robust performance both in the quarter and in the first half of the year, 4% year-on-year and 7% growth in the year-to-date numbers, getting to BRL 24 million, was significant drop in redemption rates on both basis. So it was 11% last year, both in the quarter and in the first half of the year, last year as a whole and this rate dropped by 3 percentage points, quite significant drop in reduction rates, very, very good performance in terms of net inflows closing the half with BRL 3 billion. Reserves grew 11% in 12 months, getting to BRL 496 million in June 2026. Management fee, you can see a less accelerated growth, they're looking at average fees so the risk aversion still persist in the market and most of the flow that we've been seeing here is concentrated on lower risk products. And as a consequence, lower management fee. That's why there is a reduction on both comparison basis. in terms of operational efficiency, so a considerable improvement, almost 3 points year-on-year, 2.4% if we consider year-to-date numbers. So most operations of the group, except for our premium bonds. So here, the net investment income, second quarter very much impacted, but this very sharp pie of the IGPM, which was not followed by a PCA. So investment income was down by 49%. If we look year-to-date numbers, for the 1% growth here precisely because of the effect that I mentioned in the second quarter is diluted for the 6 months and most of the growth of 41% results from a better effect of the time mismatch, as I said before. And then Net income despite better efficiency and the growth in revenue. It's taken by the negative investment income. Net income drops 19%. And year-on-year, but it's not so sharp if we consider the first 6 months of the year. So there is a 13% growth also favored by the 41% high in investment income. Now in premium bonds, we had a drop of 12% year-on-year, 3% in year-to-date numbers despite that there's a 2% growth in the balance of reserves in premium bonds because of the level of retention that is a lot slower than last year. In terms of lottery prices paid so BRL 18 million pay down, 17% growth year-on-year, BRL 42 million paid in the first half of the year, so far, 36% growth. Net investment income on a high of 7% year-on-year because of the better financial margins of 20 bps and in year-to-date numbers, even more intense growth, 39% considering the investment margin. And last year, we had a negative adjustment of hedge, which ended up causing a negative impact in the first half of last year, considering the basis. So that's why it's affected. That's why we had this very, very sharp growth of 39%. If we look at the first 6 months of the year and investment income drove the net -- the growth in net income, 1% year-on-year, 40% in the first 6 months, now BB corridor or brokerage outlet. So here, a drop of 3% year-on-year and 1% down by 1%. If we look -- the first 6 months, same reason explaining there is a reduction in the share of brokerage from premium bonds. So in terms of net margin, almost flat year-on-year, up by 0.5 percentage points considering the first 6 months because of the average rate. And then the stability in financial margin, you can see here if you look year-on-year, the drop in net income agrees with the drop in revenue. But on the other hand, the improvement in year-to-date numbers partially offset the drop in revenue and net income is stable, considering revenues at 0.1%. Now addressing the guidance for the year. So in terms of actual numbers, in terms of reserves pension plans, so we ended at 11% in the range from 8% to 11% in terms of Britain premiums. So we are 0.5% below the lowest range in noninterest operating results. So from minus 7% to minus 3%. We ended the year at minus 2% thereby outside the expected range. So from here until the end of the year, looking here at our guidance in terms of growth in reserves and variation of noninterest operating results. So they are more a symmetrical tending towards the top here from written premiums, the main driver here from now until the end of the year is going to be our performance in terms of crop insurance. And it's absolutely feasible for us to deliver along the year. Now I end my presentation, and now I am going to join Delano and Felipe for the Q&A session. Thank you.

[Operator Instructions] So we are going to have Arnon from Citi Bank.

First is related to the tax reform. This is something that we haven't been talking much. And in 2027, there will be changes -- how are you seeing the potential changes so far? And how can this impact your bottom line in 2027? Do you see any risks associated to that? And then the second thing is related to credit life. I think April was a very weak month, but May and June and especially June, considering your results, they were not good months. Do you think this is going to continue from now on?

Well, Arnon thank you very much for your question. So let's start from the tax reform. So there is still a lot of uncertainty in the reinsurance environment, but overall for the country as a whole. It's not 100% clear. So, so far, we are not giving you any guidance on the impact. And in pension and premium bonds, we are seeing more the transition considering especially the new regime. But in insurance operations, we still have the potential impact involving the way we manage risk and reinsurance operations, especially because of some changes in tax rules, which are not yet 100% clear. So in insurance, this is where we place the greatest emphasis in a transition to the new regime, not just operational but also potentially considering the financial impact year-on-year in the way we designed it and in terms of seeking alternatives and maybe if these changes happen as we expect them to happen. As to credit life, in fact, there has been a very sharp recovery in May and June. And here, most of the recovery is due to 2 factors. One is external to BBC Seguridade and Banco do Brasil, which was a change in Maxx for pay loans that with more months -- and this by itself gave us -- improved the credit origination. So it open more room for the insurance products to be offered for the life of customers. So this was an external factor that favored the performance, there is an internal factor that is also contributing, as Delano mentioned and partial credit life. It's now credit life parameters in terms of time and coverage or coverage times considering the more restrictive environment with interest rates at this level, and now for the distribution rate, there is an alternative, more flexible coverage times to make the product more accessible so that we are more successful in selling the products. So these are the 2 main factors that explain the better credit life product.

Our next question by Antonio Ruette.

So thank you so much for your time. My first question is related to the loss ratio so we can see that the operational result has been changing above the guidance, which is related to some worsening in loss ratio from now on. If we look at the loss ratio, and in term life and credit life. The difference is really rural that which is considerable low historical averages. Could you tell us what you're seeing so potential impacts of El Niño? Are you pricing it to wait for the loss ratio to go back to normal. If I may ask another question, slightly broader about El Niño. So we are seeing in the guidelines and in practical effects of El Niño already showing themselves present, what are you seeing higher demand for insurance? Are you getting paired with more reinsurance. So the second question, what are the prospects of having a slightly more severe El Niño this year?

Well, about the guidance of operational results. So the distribution of likelihood was more asymmetric so that said, considering in the first half of the year, it's very much the result of an effect, which is likely to become more difficult in the second half of the year is because the loss ratio in the first half of '25 was higher than the loss ratio in the first half of '26 and a more normal loss ratio with a smaller carryover of earned premiums. And that's why I mentioned the likelihood of us closing the year -- so it's not wise to review this range because this gradual convergence was already expected for the second half of this year. But in any way, we are not really ruling out that we might overcome but anyhow, it's not going to be too soon. As to El Niño, Well, we could go on for hours about it, but trying to be objective and simplifying. So how does one impact the main aspects of your question? Well, as to risk management, in terms of reinsurance, it didn't change. It remains the same. We defined 15%. So whenever we work in the management of our reinsurance panel, we look at the longer horizon and all the questions considering nonproportional contracts in terms of denials and everything. We look at the longer time range. In terms of demand, no significant changes either. Now as you said, some time ago, we were discussing the likelihood of it happening. Now it looks like it's a given, it's taken for granted. It is going to happen. Apparently, it's already happening in some regions. And the question is related to the intensity of El Niño, whether it's going to be more moderate or more severe and how this is going to affect considering the sensitivity to our business, especially considering the center of the country. So considering a draft in the north of the country, in the center or the south and how it impacts our country. So this excess rainfall, it may impact loss ratio. I would focus on our portfolio of beverages and how excessive brain might impact our portfolio more focused in the center and south of Brazil. For the crop insurance, we should look at the longer horizon for 2026 in terms of El Niño, we don't really see much of an impact this year. We see the resales curve. The first crop has been harvested, corn. So it's already almost fully harvested. So there might be some marginal effect on loss ratio, but really marginal for the summer crop. So for 2026, the El Niño effect maybe in damages portfolio, but exposure to risk in those portfolios so considering how big Brazil sees this is very limited. It's not going to have an impact in our bottom line in 2026. Now depending on the severity of the impact and how it may affect the replanning of soy. So we should look at rainfall, especially during planting September, November this year. So the amount of rainfall and too much rainfall may delay the planting of soybean and may affect the crop next year. And then if planting soybean, is delayed and then the harvesting of soybean is further ahead thereby compressing the planting and the interim crop. So it's going to be later -- the offseason crop with incidents of frost and they have a potential impact in the loss ratio in the second and third quarters of 2027. It's not certain. So this year for 2026, a very limited effect and for 2027 in the second crop. So potentially, and we need to observe the level of rainfall between September and November this year.

Thank you, Rafael. Could you explain in terms of damages for 2026 while damage lines in home insurance is their reinsurance or is reinsurance focusing more on agriculture. We have coverage for excess damages is not in the way you are familiar in the agricultural, but we buy stop-loss coverage.

Our next question comes from Kaio from UBS.

Delano, Rafael, Felipe. First question regarding rural insurance. Can you tell us more about premiums, we have a better performance with a live with 10% year-on-year in terms of growth. So what are the drivers of this specific line? And others, and the other rural lines. And the second one is related to brokerage crops with a weaker premium in recent -- there was a contraction of revenues in broker almost 3% year-on-year. My question is how much you have deferred thinking of this pace of premiums? What should we expect for next year? And what could be the drivers for us to see it growing again.

Kaio, since you got back to the theme of rural insurance and I forgot to mention in Antonio, in terms of impacting our bottleneck so because of reduction in the portfolio, the impact in the crop loss ratio is very small. Today, considering the share of the portfolio and the whole, which is less than 2% of retained premiums. If our loss ratio doubles it has a 1% impact. So even in agriculture where it would be more impact forward, still very much limited for the numbers as a whole. Now your question about written premiums that to date, our main difficulties in rural segment is very much related to crop insurance, especially for soybean and corn crops. And how does it reflect on the insurance company? As we expanded the portfolio of products, so crop insurance today that is suffering the most is very much limited to the modalities of costing, especially in grains that is suffering the most, and that's why we see this drop year-on-year. When we expand to lean and life so there are credit lines to cross-sell the products for rural lean insurance, we see the cost in investment lines and in life. So we see costs -- so also in costing, we can go in renegotiated in terms of crop renegotiation, the cost of agricultural insurance, it's [indiscernible] So if they had insurance or they harvested and they sold the crop. So in renegotiated the only risk that we can somehow cover [ e-farmers ] for life insurance risk and needing for renegotiated we have farmers credit life insurance. That's why it's better than the other 2 lines despite the higher interest rates. Now I would say that in rural insurance we are not really certain in terms of the second half of the year considering and but I would say that most of the growth that is easier to be captured, it was captured in the first half of the year. So we can estimate that we can keep the same base that we have for farmers life insurance. Now there is a combination of events and the way the higher interest rates between 1425 and how it impacts our business. There is a combinated between insurance products and accumulation products. Most of the insurance companies are associated to credit so this environment favors accumulation problems which are pension and premium bonds and this favors or rather makes it more difficult to sell credit or products related to credit, like credit life and other kinds of insurance. So as you see, the faster pace of growth, we need to count on a slow go in interest rates. I'm not talking about spot. So interest rates to have a slightly more breadth for the lines related to credit. So for now and for the time being considering all the geopolitical issues that is -- the environment is very volatile and we also are going to have elections in Brazil in the second half of the year. So it's very difficult for us to make any predictions in terms of timing and so we need to wait and see. And we hope that geopolitical issues lose strength in the second half of the year. And once we define the elections, how this is going to impact the cars that we are slightly more at ease in terms of our lines that depend on credit origination.

So now Daniel Vaz from Safra is the next one to ask a question.

I would like to focus on rural insurance, and I think some of my colleagues have partially asked this question. I was looking at your subscription results today, 2/3 come from rural. Looking in previous years that was 50% and most of the underwriting is related to the loss ratio. There is an effect of the mix. There is more Farmers Life and Lean. So there's a very high level in a segment, looking at crop insurance 35%, 40% today is 20% and lean is 16% and farmers life is slightly lagging behind thinking of the sustainability. So I would like you to hear the likelihood of these 3 lines, whether it's below expected and whether it's going to become normal for any of those lines. We try to model that and analysts have been getting it long for better your loss ratio is below historical averages. So is it going to go back to normal? Or is this a new normal?

Daniel, thank you for your question. I'm going to try and answer in part because the reasons are different considering the 3 products. For in Farmers Life we are not expecting much change. For Farmers Life, we had an atypical change when we had BRL 70 billion for farmers like that died because of COVID. And that's something happens and we hope this never happens again. We don't expect that kind of farmers credit life insurance. There may have been some material oscillation because of damages. So wind, hail storms, that might affect the storage and the warehouses, and we are not really expecting that. That might be a one-off thing. Now crop insurance, as I answered to Antonio considering El Niño. So insurance companies are more sensitive to La Niñ than El Niño. This is where we have the greatest uncertainty and we are coming from 3 very favorable climate cycles. This is not usual, considering current levels. We have historical holes in terms of loss ratio in crop insurance. So the likelihood and the distribution is more asymmetrical. It's difficult to improve. And the expectation is for it to increase and thinking about Antonio's question. So considering La Niña and the sensitivity, so there is a substantial increase. Now when we look at the longer time frame, the loss ratio is around 60% to 70%. So naturally, it would be average it's bound to happen in a short time span, and it might be more gradual.

Our next question comes from Marcelo Mizrahi from Bradesco BBI.