Porto Seguro S.A. (PSSA3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Porto's Conference Call for the Second Quarter of 2026. This presentation is being recorded and translated into English. The slides are available for download on our company's Investor Relations website. [Operator Instructions] Any statements made during this conference call about the company's business, operational and financial goals are based on the company's assumptions and beliefs and on the information that is currently available to them. 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 operational factors can affect the company's future performance and lead to results that will differ materially from those expressed in these forward-looking statements. I would now like to invite the executives from Porto to begin their presentation.

Hello. Good morning, everyone. It's a pleasure to be here with you this morning to present the results for the second quarter of 2026. I have our Investor Relations Officer, Domingos Falavina; and the CEOs of our verticals and the Head of Porto Asset. We posted double-digit revenue growth this quarter, and the ROAE was kept above 20% for the eighth quarter in a row. Auto boosted our premium growth and a better loss ratio for this vertical. In Health, we added 20% a year, and there was also an improvement in the loss ratio. In Porto Bank, we had an impact from credit, and we were even more conservative in risk management, including provisions. We were boosted especially by consortium in our revenue nearly -- with a nearly 30% expansion and services strategic partnerships accelerated and the profit in this vertical grew by double-digit rates. We'll delve into these results throughout the call. Starting with the first slide. The total recurring revenue for the second quarter of 2026 was BRL 11 billion, up 11% versus the previous year. Recurring net income reached BRL 889 million with a net income of BRL 879 billion, slightly above the second quarter of 2025. This is a record for this period. Recurring ROAE was 22%, conserving and contributing towards a recurring ROAE in the first half of 2026 of 23% and 25% in total accounting ROAE. For the first half of the year, the total recurring revenue was BRL 22 billion, and we reached a new recurring net income level, BRL 1.8 billion. Looking at this breakdown per vertical. In Porto Seguro, we reached 33% ROAE, up 2 percentage points with a 4.9% growth in net income. In Porto Saúde, we added 329,000 lives or members, of which 153,000 were in health insurance and 176,000 in dental insurance. Net income went up 36% which continues the growth of these verticals. In Porto Bank, we saw an efficiency ratio improvement of 4 percentage points and a reduction in our net income due to bigger provisions that we made, considering some delinquency signs that were higher. So we are protected in the future with this new provision level established by the company this quarter. Porto Serviço had its highest growth quarter-on-quarter. ROAE went up 4 percentage points to 25% and net income went up 11% versus the previous quarter. The main drivers behind this growth in the company and the reduction in administrative expenses are the investments we've made into technology. Here, we're zooming into the share of digital customer services. In 1 year, it grew 9 percentage points to 73% share throughout our entire base. And digital service for brokers had an even more significant growth of 17 percentage points. This indicator and the contact rate performance, which is the number of times in which customers need to contact us if they haven't been currently serviced in the digital channels are factors that make up the variable remuneration and the performance for the company's leadership. During this call, we have a bit more information about these factors, about these drivers. And they have provided this growth to the company, this base expansion, preserving higher ROAEs, as we can see on the next slide and also with revenue expansion. So breaking down per vertical, we can see that Porto Seguro went up 8.5%, Porto Saúde went 14.4%, Porto Bank went up 16.6% and Porto Serviço went up by 5.6%. This is combined to our large scale, which dilutes expenses and penetration with the digital channels. So we have already applied AI on several fronts. And with that, we have protected this expansion trajectory, expanding ROAE along with reduced expenses. So Domingos Falavina will now go into these results in further detail, starting with the mix in each vertical.

Good morning. So very briefly, we're going to go over our ROAE. It was 22% for the insurance company -- excuse me, 33% for the insurance company, 24% for Porto Saúde, 16% for Porto Bank, mainly due to the provisions that we will discuss during this call and 25% in Porto Serviço. So on a consolidated basis, it was above 20%. And without excess capital, it was at 26%. Looking at the breakdown, we can see that net income went up 1% to BRL 889 million. And the market share in auto in the insurance company continues to diversify even though we have more robust growth as we'll see on the next slide. We went from 58% to 56%. The breakdown of other verticals remained stable. We see some growth in health and the only one that is reducing due to the provision rate was the bank division. Looking at our technical reserves, the results and total revenue was BRL 462 million, which is a return of CDI during this period. And you can see that our portfolio didn't change much except for this growth from 18% to 27% in our post-fixed portfolio, which is linked to the CDI rate. Looking at Porto Seguro, this is one of the positive highlights. We saw a fast growth in auto of nearly 8% year-on-year. And we have been seeing according to public data with SUSEP, that our growth in auto has been happening on a monthly basis. So we're finishing this quarter with 8% growth with quality levels above 80 points. In P&C, we grew by 12% and in Life, we grew by 6%. We're going to show that the profitability rate is still robust in these areas. In auto, we had a reduction of 2%. Despite the strong growth, we maintained loss ratios under control. In P&C, it was also below 30%. So this is a very healthy loss ratio and the same applies to life with 33%. Looking into the operations, we've talked about auto, but we should mention also P&C and Life as drivers for our results, and they continue to grow. Net income was BRL 456 million and ROAE was about 33% this quarter. Looking at the health operation, we added 153,000 lives year-on-year. so adding 20%, and the revenue went up by about 14%. This follows the same dynamic as we saw in previous quarters. Average tickets have lower prices, but the profitability has been similar or even better than our current base. Net income went up 36% year-on-year to BRL 144 million, driven by growths in insurance and in dental, and they were all double-digit growth. Looking at the loss ratio for health and dental, we saw an improvement of 0.4 percentage points in Health and in Health and Dental, which are very strong ROAE levels as we'll see. It's important to highlight that we have a significant seasonal pattern in our industry. So this ROAE of 24% is more comparable to the 22% ROAE in the second quarter of 2025. So it was a significant expansion. Looking at Porto Bank, we can see strong growth in business, 33%. During this call, I think we'll talk about delinquency, but it's important to highlight that our delinquency rate is mostly in credit card. And the bank is priced of several other products. Consortium has been leading this growth. Credit in other areas as well. So we can see that business went up by 33%. We made substantial work to reduce expenses as a percentage of our revenue, the so-called efficiency index. And we're important to see -- excuse me, we're excited to see this improvement because it has been structuring for our operation. We saw a growth of 120 bps in our delinquency rate over 90 days. Looking at a similar portfolio with the Central Bank, we're closing the gap, but we're still a bit below. Looking at delinquencies of 15 to 90 days, we see a 20 basis point improvement which is related to the new groups that have been added to our portfolio. We have been more selective in providing credit. And when we look at Stage 3, we can see that it's bouncing around 14%. What this tells us is that Stage 3 has already been classified by the bank as higher risk potential. So since the fourth quarter of 2023, we have been more cautious with our customers in this Stage. So we've been reducing some of our exposure. And as a consequence, we see that delinquencies have not been appearing. Finally, our ROAE was 16.3% for Porto Bank or BRL 137 million for the quarter. Continuing with our services operation, we are around 650,000 to 700,000 service visits to homes and automotive. And our NPS is at around 80 points. We have seen some revenue expansion. Our top line had been pressured before due to the company's decision to remove some negative contracts. And this quarter, we grew by 6% again, led by digital products and strategic partnerships or B2B partnerships. ROAE is growing in services with a net revenue of BRL 57 million and an ROAE of 25%. You probably saw some changes to our guidance. It was changed in 4 items. First, the loss ratio has allowed us to reduce our guidance by 0.5 percentage points. In Porto Bank, the strength of some other products that I mentioned like consortium, other credit lines, capitalization products and so on have allowed us to increase our revenue projection. We're also cautious about credit losses. So we increased our provisions and the efficiency ratio went down 3 percentage points. From the reports we've been seeing about the market and according to our estimations, this change, excluding tax rates should be neutral or slightly positive for our profits. The tax rate remains -- was reviewed 1% downwards due to 3 items: TJLP that is higher, the Lei do Bem and the third is the incorporation of CDF by Porto Serviço, which is something we published in the first quarter. All other rates are the same, are maintained, and now we will continue with the Q&A.

[Operator Instructions] First question will be asked by Daniel Vaz from Safra.

Congratulations on these results once again. Like Dom said, I'd like to focus on the delinquency rate at Porto Bank. If you can tell us a little bit more about this. I'd just like to understand where this is coming from or what kind of client is defaulting, if this is below your expectations? I mean, in the previous quarters, we understood that this was getting worse. But if you could give us some more information. Is this a high income group? Is most of this something that had already been diluted before? Is the OpenSea customers that you acquired recently? I mean when we look at Porto client, we believe they are high-income customers who have a high potential in vehicles. So it would be important to try to qualify where this is coming from, if it's an overall factor, if it's concentrated, if it's in a certain region. I'd just like to hear a bit more about that.

Thank you for your question. I think your question is something that we've been analyzing, but it's important to break this down into a few categories. The first one that you mentioned has been discussed in previous quarters. We have a customer profile that were refinancing their debt. And that's when we understood that it would be important to do some prevention work and create a credit structure in which we could not allow this portfolio to grow. And so we've been controlling it according to our expectations. What we noticed in the second quarter, which was important to recognize and communicate to the market is that we found a profile in our portfolio that despite coming from our credit policies. Since they are closer to insurance, in other cycles, they have been more resilient to the current scenarios like this one, but they have shown to be less resilient this time. So how can we identify them? These are clients that have been with us for some time, 3 or 4 years. But there are clients who are having their first insurance policy. They're starting with lower tiers and in some regions that we found. This was the profile that deteriorated more than we expected. Of course, this is not -- this doesn't stand too far apart from what we see in the macroeconomic scenario. So what happened to these customers? We see that these are entrepreneurs. These are customers who work for small and medium enterprises, which is something that we're also seeing in the macroeconomic scenario. So this is something that we expected in the first quarter. We expected these customers to have a lower performance. So that's what we identified, and this is going on as we expected. And that added to this profile was what resulted in this adjustment that we made that will be necessary for 2026.

Great. And if I can ask a second question. Have you made all adjustments? Do you have any visibility? Do you understand if this curve will flatten out at some point? Or is it still early for that?

Well, we had a deep back test about these profiles in the last quarters to see our credit model. And what we found was that the compliance of these macro -- when we find customers that fit into these macro characteristics, we are already blocking them. So 93% of the people approved for new credit cards are far from this profile. So although our credit policies always need to reproduce what we see in the market, the latest fine-tuning has been very precise. What changes slightly, and you'll see some variation in our credit cards base is that once we identify our customers that are already in our portfolio and that have been with us for some time that fit into these categories, we're going to be more rigorous in managing their limits and their portfolio for these products.

The next question will be asked by Arnon Shirazi from Citi.

It's great to be here again. My question is for Patricia. I'd like to ask about auto insurance. We saw a fast growth this quarter and also a share gain for the first month of the year and a market share of around 27%, if I'm not mistaken. So this is something that we've been discussing internally, which is competition. How do you see the competitive scenario? We know that there were some more aggressive players. So do you think that went down recently?

Thank you for your question. In auto, I'd like to highlight that the competitive scenario is still intensive as it always has been in auto, but this acceleration is due to a few factors. We have a high commitment to profitability, and we've been firm on that, but there are some things that helped us to accelerate our growth in Porto. First, we've been working in reviewing our portfolio. So from entry point to premium categories, we have different products according to each customer's need. Another reason for this growth is our analytical sophistication. As you said, we have a 27% market share in Brazil. In areas like São Paulo, it's 39%. And we have a fleet of 6.3 million vehicles. So that gives Porto a very relevant critical mass to have more sophisticated analytics. So this data added to our investment in these capabilities have allowed us to find more opportunities in this segment. The third point is technology. We made a significant investment to unify our technology to Porto and Azul. This means that in the past, a broker that used to have quotes in 2 different platforms now have their claims systems in a single platform. So that helps them in receiving their services from Porto. And the next point is our broker relationship. We have ahead of 40,000 brokers who believe in Porto, and we are investing in them. So this partnership is also very important in this acceleration. So we're attributing this growth in auto, which grew 3% in the first quarter and now 8% in the second quarter due to the company's investments to defend our market position and keep profitability levels. And that's a commitment that we are maintaining.

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

I have 2. The first one is still on auto. If you can tell us about your loss ratio this quarter. It was very healthy below what was expected by the market. So that was a very good result. And I'd like to understand what you attribute this performance to this quarter and what we can expect in the future because it seems a bit lower than usual. My next question is about health. We see that your growth has been lower than previous quarters, but I'd just like to understand your take of the competitive environment in health and what this can tell us about this year and also for what you expect in terms of growth for next year?

Kaio, starting with insurance. This was a quarter with -- in which the loss ratio was under control. The main factor behind our loss ratio is that the portfolios are working very well. You mentioned auto, but P&C and Life is also contributing. And in auto, specifically, we're attributing this to a subscription policy related to pricing and management with a lot of discipline. So our pricing strategy has been sustained, and we're now getting the results from these groups that had their loss ratios under control. Everything was within our expectations, and we see that this improvement is appearing in our guidance. The loss ratio in auto has made us review our guidance to -- from 50% to 54% with an improvement of 0.5 percentage points in the loss ratio. So we've already adjusted our expectations for the year.

So 2 things here. First, you're correct. This growth was slightly lower, but there's an important impact in the product mix here, which changed. About 70% of our portfolio 1 year ago were traditional and 30% were new lines. But now it's 50-50. So when we look at this pro forma according to the previous base, if we had the same mix, we would be growing by 23%. So we have this impact from the portfolio mix, which on a comparable basis, will pressure our growth for the next year for sure considering that we have this growth in lives, which is far higher than our portfolio growth. So you can see that there is a mix factor here. Does that make sense? Yes. Considering the performance in claims and losses in these new product lines. But looking at this year-on-year, we will still be pressured for a few quarters. And after flattening out, this will grow along with our portfolio. Considering market competition, excuse me, we see some competitive players. I don't see that the competition will cool down. Some are extremely aggressive, some are only aggressive. So we continue to be technical in our product strategy with new products, new lines. This year, we started working in new towns in upstate São Paulo. We have a few regional projects. We're going to open up new areas, especially in the state of São Paulo and launch new products there for health and dental. So I think that next year, the entire industry and including Portugal will have slightly higher loss ratios. So given that, we have to highlight that this is the 12th quarter in a row in which our loss ratio has reduced. So that's 3 years in which loss ratios are going down. And as we said, we are below the expected levels. So from now on, considering a technical readjustment that will bring us to the target premium and the products we launched, which performed better than expectations, we're going to see a gradual sequential increase in the next cycles, I believe.

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

I have 2 questions. First, in asset quality, referring back to Vaz's question. I'd like to understand this trajectory. If we look at your expenses in provisions in the second quarter, and if we assume that this will be the same level until next year, if I'm not mistaken, that would be the middle of the guidance. So this is a new level of provisioning. So I'd just like to understand what your best estimate is. Will you need to have more higher provisions? Are you adjusting to the guidance? Do you expect provisions to go down? Or are things still uncertain? Is there still a likelihood that this will increase in the next quarters? I'd just like to understand your mindset on this right now. I understand that a lot can change, but what is your mindset on provisioning now? My second question is about the insurance vertical. We see a significant increase in expenses and sell-in. The ratio went up. So are we expecting a new level here? And are these expenses required right now?

Thank you, Antonio. I'll answer the first one, and I'll let Patricia answer the next one. The guidance was it built with this amount of fat that you're referring to? The middle of the guidance is our best estimate right now. But I don't think I would say that this is a new level for the company because as the market has been seeing and as you know, we have credit cycles. We've been increasing the cost of risk in this portfolio, especially in credit cards. When we look at our estimates for 2026, we will see -- we can't break it down per product, but in credit cards, this does not match the past and our risk appetite. It's a bit difficult for us because we can map what's happening now. The market has been getting worse margins. So it's hard to say because we still don't have the right inputs for the guidance next year. But the middle of the guidance would be our best estimate right now. And if this is the new level, no, we hope to work with one below that.

Antonio, talking about the growth in auto, like I said, there were 4 things that led to an acceleration, portfolio, analytic intelligence and our partnership with brokers. To answer your question, in our partnership with brokers, there were several programs that worked very well with Porto and our commissions level is higher than the traditional market. So we tested some new programs this quarter, and some of them worked while others are being retired. So when it comes to commercialization expenses, we are still at a high level, but this tends to go down by reviewing some of the programs this quarter.

Let me -- I'll say something else, there were 2 things that I have to mention. We're talking about the risk cost in credit cards. So when you talk about nominal, since the entire portfolio is growing since provision levels are -- well, in general, what I'm saying is that in general, they will be either flat or will grow. I was referring to the volume before.

The next question will be asked by Tiago Binsfeld from Goldman Sachs.

I'd like to talk about revenues in Porto Bank. You reviewed the guidance. So I'd just like to know how much of this will be from services, consortium and credit. I know that you're not giving any guidance for portfolio, but I'd just like to understand what your appetite is in this more challenging credit context that you've been mentioning.

Thank you for your question. When it comes to revenue growth, a lot of it comes from services in our consortium and capitalization markets. So rental guarantees. There is a natural movement in the portfolio in credit card, our transactor is also growing. But naturally, a higher provision for losses would include rotational credit lines. But most of the increase in our business is due to the free base increase. If we compare to the previous quarter, it went up by over 40%, financial risk and consortium. To answer your question about deceleration, this is natural. If you look at the number of cards, you'll see 100,000 fewer than the previous quarter. So this shows that we are selective in credit cards. Our credit portfolio is 80% credit cards. So we've been diversifying this. We have other products now. And over time, we want to diversify this portfolio to make it more comparable to other players that have the same number of products that we have. Our focus in Porto Bank and with all of our partners is credit with guarantees, especially car equity, which has been growing significantly.

Tiago, from our total portfolio of BRL 23.5 billion, we have BRL 6.5 billion giving us interest. If we break this down into 2, our card portfolio is growing between 0 and 1. And the other ones is coming from financing, car equity and et cetera. And that represents about 100% of our growth. If you double-click on that, you would see more. Adding to that, this diversification that was mentioned is a third driver, adding to digitalization, reducing telephone calls, and this is a part of our growth agenda. This has been very successful in the insurance company. And when we look at financial institutions that have similar product portfolios to the bank, have a very protected growth avenue, which is the growing number of customers, about 19 million people in Porto's ecosystem. So what we will likely see in the next years is a mixed growth of other credit products beyond credit cards, although this will still grow, of course, in these healthy levels that we mentioned.

The next question will be asked by Guilherme Grespan from JPMorgan.