Good evening, everyone, and welcome to the Porto Seguro Fourth Quarter 2023 Earnings Result Conference Call. Please be advised that this presentation is being simultaneously recorded and translated into English. The slides presented are available for download at our IR website. After the end of the presentation, we will start the Q&A session. We suggest that you send your name and company through the Q&A icon on the bottom of your screen. By dynamic default, your names will be announced for you to ask your question live. At this point, a prompt to activate your microphone will appear on the screen. Should you not want to open your microphone live, please write "no microphone" at the end of the question so it can be read by the operator.
Forward-looking statements made during this conference call regarding to Porto business prospects are based on the beliefs and assumptions of the company management and on information currently available. Forward-looking statements are no guarantees of performance. They involve risks, uncertainties, and assumptions as they relate to future events and depend on circumstances that may or may not occur. The overall economic conditions of the business sectors in which Porto Seguro operates and other operational factors may impact the company's future performance. I would now like to invite the Porto executives to begin the presentation. Good evening.
Good evening, everybody. This is Domingos with the IR team. First of all, I would like to thank all of you for your attendance. We have changed the schedule of this call due to the request of some analysts as there were two calls happening at the same time. Here with us, we have Paulo Kakinoff, our CEO, Celso Damadi, and all of the heads of the verticals of Porto. They will all be at your disposal for the Q&A session. I will now give the floor to Paulo Kakinoff.
Good evening, everyone. It is a pleasure to be part of this first earnings result call because today I am the spokesman of truly admirable performance carried out by the executive group that is sitting around the table. We have historical results from Porto, which gives us great enthusiasm if we consider what lies ahead of us and the positive environment of the beginning of the year in terms of the market. The results for the Fourth Quarter 2023 have, among the highlights that we would like to underscore, the group's net profit that grew by 24% year-on-year.
For the entire year, the group's net profit doubled vis-à-vis the year 2022. Return on revenue was 23.9% in the quarter and approximately 20% for the year. It's worth noting that this return includes an excess capital of BRL 3 billion considered managerially at the holding. If we look at the return on equity of the verticals individually, excluding the excess capital, ROE was 38.4% in insurance, 37.7% in health, and 41.6% in the bank. As of the First Quarter 2024, we will be reporting the service verticals with insurance rebates as announced at our investor day. The service results under the new criteria would be BRL 265 million for the year throughout 2024. We will speak about structural movements and the very relevant opportunities in that vertical.
In operational terms, Porto grew in virtually all business lines with highlights in auto, 245,000 more vehicles insured, an addition of 4%; in health, 129,000 more lives, or 31% growth. In banking, a significant improvement in defaults falling from 7.1%- 6.6% year-on-year. At the bank, we saw growth of 84,000 plastics and 22% in consumption revenue. Finally, the consolidated financial result grew 111% year-on-year, reaching 137% CDI. This quarter, Porto became part of the ISE portfolio of B3. I would now like to give the floor to Celso Damadi for further highlights.
Good evening, everybody. I highlight on slide number five the growth of revenue for the fourth quarter. We reached BRL 8.4 billion, a robust growth in all business verticals, and for the year, a growth of 16.2% reaching almost BRL 31.7 billion in revenue.
Now, in insurance, for the fourth quarter, we had BRL 5.4 billion in revenue. Porto Health, BRL 1.3 billion-almost BRL 1.4 billion in revenues, a growth of 48%. Porto Banking, BRL 1.3 billion in revenues and other businesses, a drop of 8% due to the slowdown in subscription cars in the other business line item. During the year, insurance reached BRL 21 billion with 12% growth. Health with a growth of 38% reaching BRL 4.6 billion. Porto Bank, 12% growth, BRL 9 billion, and other businesses with 44% growth during the year. So here we show a growth in profitability and significant growth during the year. On slide number six, you'll see a significant growth in the net income for the quarter, reaching BRL 619 million in the Fourth Quarter.
Historical profitability, although the Fourth Quarter historically is the best quarter in 2023, it ended up being much better than the Fourth Quarter in 2022, and in 2022, it was also our best year.
For the year, a very robust profitability of 99.7% above the year 2022. Now, this profitability is 100% recurrent. There are no non-recurrent events. There are some non-recurrent events that, of course, reduce this. We had some write-downs of intangibles of approximately BRL 40 million, representing BRL 2.3 billion. Otherwise, ROE in the Fourth Quarter in insurance, 38%, 42% in banking, 38% in health, and 28% for the entire holding, including that capital surplus already mentioned. Even with BRL 3 billion of capital, we are delivering a ROE of 24% in the Fourth Quarter, 20% for the entire year, 38% in insurance, 30% in the bank, and 28% in health. To the right, you see historical profitability vis-à-vis the CDI. The CDI was quite steep, and despite this, we had 51% profitability vis-à-vis the CDI. Financial investments in the Fourth Quarter, 106% of the CDI.
Once again, a very favorable performance leverage by stability in variable income and private credit. Although we do have real interest marked to market, our investments advanced significantly in private credit and variable income, and our allocations were very good in the Fourth Quarter. I would now like to give the floor to Don so he can speak about insurance.
Now, if we delve into the verticals in the next slides, on slide number nine, for example, when we speak about services, well, we had a growth in all business lines, 16% P&C, life approximately 9%. If we look at the loss ratio of vehicles, an improvement to 6% in the year, life 34%. In P&C, we had an advance of 12 percentage points. We have two events that are relevant, contributing to approximately half of this increase.
41%, of course, is a very good loss ratio index. In slide number 10, thanks to that loss ratio, we had a return on net equity and a combined ratio of 87.8%. On slide number 11, speaking about the health vertical, we would like to underscore a very strong result in all the areas: an increase of lives to 129%, 31%, and a growth of revenues of 53% year-on-year. Now, the net income was BRL 200 million, contributing with 10% of the consolidated results of Porto. On slide number 12, once again, we will speak a bit more about the loss ratio. When we look at health individually, the loss ratio was 77.1%, dropping quarter-on-quarter. And in the consolidated position with dental, 58.8%. We have 37.7% for return on net equity with BRL 66 million equity and accumulated BRL 200 million.
On slide 13, we will be speaking about the banking vertical very broadly. We had revenues of BRL 4.9 million and a return on net income of 30% approximately. In terms of business expansion, what we would like to highlight are the consortiums with 29% growth, capitalization growing 10% year-on-year. Perhaps more interesting data that we would like to present for the first time is the prioritization of the Porto Seguro panel that we call the aquarium. And if we break down this information, we see that the open sea sales, non-relational sales, had a drop of 42%, while the relational sales, where we have a better profile, we had a growth of 15%. The same dynamic can be seen in direct credit to consumer, dropping 61% in the open sea and growing 6% with the Porto clients. We ended the year with 3.9 million cards.
On slide number 14, to continue on with this vision, we have added a mix of sales with the same breakdown once again: the Porto relational clients, the Porto aquarium compared to the open sea, reinforcing the prioritization of relational clients. Now, the results of this strategy, which was used for previous quarters, are being captured, showing a better quality of the portfolio. When we look at the top right of the graph, we can see a drop of NPL of 15-90 days, going to 4.2%, and a drop of 90-day NPL, dropping more than 80 base points, going to 6.6%. With this, I would like to end the presentation of the verticals, and I return the floor to Mr. Kakinoff.
Continuing on slide 15, this semester we have decided to show you the market chart and some of our areas of action.
We have added segments where we have a growing focus in terms of investment and protection, consortiums and health. Porto specifically in 2023 with 28% market share in the auto market, BRL 56 billion, 22% in residential, a market of BRL 5 billion, 25% in P&C with BRL 4 billion, 13% in real estate consortium. The entire market has BRL 376 billion and 57% in landlord protection, a market of BRL 1.4 billion. There are markets that have always been more recent focus at Porto, include 44% in car consortiums, 34% growth in health, a market of BRL 228 billion in the first nine months of the year, where we still don't have 2% market share in cars until September. Porto reached BRL 37 billion, representing 2% share, focusing mainly on its own clients.
Now, the idea of this slide is to show our belief that Porto still has an embryonic participation in some segments. That we believe the strength of the brand, combined with the quality of services evidenced by NPSs above 75% in more products, will allow us to grow a great deal. For decades, this has been one of the most active parts of the company and has enabled us to work very positively with all of the products and services, once again bolstering our growth, even in areas where previously we did not participate. We are now going to open up for Q&A, and we're anticipating our vision for the year, as this is of interest. We have had a very healthy first two months. We have been able to recompose our premiums.
It seems we still have room to grow, and we see a benign and very robust environment to grow. It's still too early to have visibility for the quarter, and we don't give guidance. In terms of strategy, the current focus and effort is towards recomposing margins, already taking risk into account. What I'm trying to convey here is that our focus, especially in automobiles, will remain on the profitability of the operation and not on market share gains. I would also like to point out that the evolution of the current FIPE table, with a small annual drop, is more in line with long-term history. What happened during the pandemic with used car prices rising was actually the exception. We're also excited about the potential of the markets in which we have less relevant market share. We will now go on to the question and answer session.
Once again, should you wish to pose a question, please send your name and company through the Q&A button at the bottom of the screen. Should you not wish to use the microphone, you can write "no microphone" at the end of the question. Please hold while we pull for questions. Our first question comes from Antonio Ruette from Bank of America. You may proceed, Antonio.
Good evening and congratulations for your results, and thank you for the disclosure of your sales and channels and the open sea, which is very good. Now, I have two comments, one in health, the other in auto. In health, do you think this will be another year for the transfer of prices? And if the level of the loss ratio of 23% is the level that you would like to operate at, now that for health in auto.
In the last message given by Kakinoff, it's very clear that the path is recomposition and that the environment is very benign. Now, nowadays we see the fleet growing very close to 4%. Should we expect a price transfer to think about a growing premium from mid- to high-single? Or would you maintain profitability, not expect a drop in prices? And if a growth of the fleet would make sense for 2024. Thank you.
Hello, Antonio. This is Sami Foguel. Thank you for the question regarding health and the loss ratio. A year ago, we remarked that there was a natural process of going back to the pre-pandemic levels between 12 and 24 months. And in fact, this is what is happening. As we had mentioned, the results in the industry are not the same among different players. Some have already disclosed their earnings results.
Luckily enough, we are on a very positive path, and we see the return of a seasonality that we had in the pre-pandemic in terms of loss ratios. A year ago, we spoke about a gradual return to pre-pandemic levels. That this is credible. It is ever more possible than in the past. We're going to see, unless we have a new pandemic or some externality, we hope to see this gradual trend. A great deal has been done in terms of price. Now, to simplify this, you can see the results we have attained. We began pricing very early on at the end of 2021. Beginning of 2022, we had significant repricing. But we also carried out other activities: anti-fraud partnerships, the creation of virtual verticalization that was very important for us.
We're going to continue to grow with our clients for the industry, perhaps not with the same magnitude that we grew last year. Each player will have to analyze their own portfolio. Of course, prices continue to be very important for the current year. Antonio, it's too early on at this point to share any forecast for growth, in certain items, especially because Porto doesn't usually do this. When we speak about that realm of possibilities and the present-day moment, if there's the possibility of growing to a mid or single high digit, yes, there is that possibility. The market is attempting to capture all of the opportunities of price as well as risk. This is the main component that characterizes our dynamic at present. Well, this is the utmost visibility that we have at present and that we can share with you.
Rivaldo, who is the CEO for the Porto Seguro vertical, can perhaps refer more to what has happened with the market at the beginning of the year.
Well, I think we have offered a summary of what is happening at present. This is a satisfactory environment. We're recomposing our prices this afternoon. I was in the performance room following up on the market during the last quarter of 2023. And the market, well, it rehearsed greater competition. But the past, in January, we saw a recovery as well as in February. And we look upon this with very good eyes, and everything is aligned with the market. Thank you.
Thank you very much, Rivaldo, Kakinoff, and Sami.
The next question is from Kaio Prato from UBS.
Good evening, Kaio.
Hello. Good evening, and thank you for taking my question. I have two questions at my end. First of all, referring to the auto segment but focused on the loss ratio, thank you for the messages at the end, Kakinoff. Simply a follow-up. If you could approach those two factors somewhat more, the drop of the FIPE table, I would like to make sure that that drop that we saw recently is aligned or better than you had imagined at the beginning of the year. This could be a relief for your loss ratio. And secondly, the climate effects from the beginning of the year, which is the visibility that you have in terms of rainfall in this region. These two factors and how they have performed in the beginning of the year and your view on the loss ratio. Thank you.
When it comes to the FIPE table, we have observed that even though there is a trend towards a reduction, it is less deep than what we saw even at the end of last year. There is a slowdown. It's important to say that when we look at the different segments, our breadth, our coverage is much greater than that of other segments. For example, auto leasing that is more focused on volume and compact cars. A reduction, a significant reduction will take place. Now, regarding the flooding due to the rainfall, this has been a first quarter that was better than that of last year. Well, everything that you follow up on in the press about these recent floodings, this affected peripheral regions. It has been a month that is well within our forecast.
I don't believe there's anything alarming or outside of context now to underscore this. Although we do have climate change, we cannot debate this. When we look at our own background and the risk modeling technology at Porto, there is no event that could suggest a systematic change that could impact our loss ratio when speaking about risk. An example was just given differently from the first months of last year that were characterized by the very strong rains on the coast of São Paulo as a counterpoint. We have had a relatively dry period when it comes to rainfall. Of course, there are visible evident changes in the climate, but nothing that could impact our loss ratio due to systemic changes. Thank you.
Thank you. That is very clear, Kaki. The second question, if you allow me, when we look at your investment portfolio, there is a shift. There was a growth of 20% in the portfolio. It has now gone to 28% with a drop in mark-to-market in the curve. If you could remark on your 2024 strategy and give us details in terms of what we can expect during 2024?
Yes, this has been a one-time change. We saw an opportunity in the prefixed income. We made low applications because of the scenario at the end of the quarter. We decided to reduce our prefixed investments. And this quarter, we have made some movements to recompose that part. It was a tactical move pre and post the mark-to-market.
Thank you.
Next question, Daniel Vaz from Safra Bank.
Good evening, Daniel .
Good evening. Thank you all. And thank you for taking my question. My question is to Marcos Loução. So I want to ask about Porto Bank. I see the invoicing growing vis-à-vis the industry. I would like to know if you're going to speed up during 2024. You have changed the risk profile of the card. If we compare this year-over-year, there has been a drop. Which is the concession or granting of the CDC? The last question for that vertical, which is the impact that you are expecting due to the change of the revolving credit?
Well, thank you. Let's speak about the impact of the drop of interest rates. Although we do have impacts on the revenue and the profitability of the credit cards, it will be immaterial when we look at the vertical as a whole. This is part of the complementarity that we have among products. We have some actions to mitigate this, and we expect to have significant growth in the vertical in terms of the credit card and the invoicing.
Well, the invoicing of clients that use our credit card has grown. The vintages that we sold in the past, we now see a better reactivation and a generation that is 30% higher. We believe that the more relevant these new vintages become in our portfolio, the more growth we will have. We believe that the growth will be higher in the market if we compare 2023 to 2022. We had a significant environment of adjustment, especially in the financing of vehicles, focusing on our internal audience. We have significant growth in another modality, which is financing in vehicles. We showed you the potential of consortiums, and I can refer to this. We have the release of financing and credit for vehicles. That is still very incipient, but it's an enormous opportunity we could explore in 2024.
Well, thank you. Allow me to carry out a follow-up. Well, in terms of the rotational credit, you said it could reduce the revolving credit. You said it could reduce your invoice.
Now, when we were speaking in other calls and when we had this question, this scenario was still uncertain in terms of the implementation and what would happen with the first vintages in the bank, Danielle. The impact will be immaterial.
And in terms of funding opportunities, do you have a disclosure in terms of CDI if it will be pre or post, if you're going to increase what you do in 2024?
Now, in the final funding strategy with the digital accounts we are developing, we are going to make sure we don't have a great impact on CDB. We have already seen an improvement because of the risk adjustment and the revenues that we have released for the known clients. Our strategy for 2024 is very similar to that of 2023.
Thank you. And congratulations for your overall results.
Thank you, Daniel.
The next question is Tiago Paura from BTG.
Good evening, Tiago.
Good evening, everybody, and congratulations for your results. I have two questions at my end and a follow-up in terms of previous questions. Beginning with Treasury, we saw a much better mood in 2024, less volatility, that shift between the pre and the post. Now, thinking in the short term for 2024, what is it that the company will pursue so that we can have the right outlook in terms of the drop of interest rates?
Well, thank you, Tiago. Good evening. This is Izak. In terms of guidance for returns, we're speaking about risk factors very clearly. We have an allocation in real interest rate, an allocation in the curve. Of course, we depend on the IPCA. Now, the prefixed parcel has a relatively short duration. We're not going to change this. The greatest risk is variable income, where we have a strategic allocation for the mid and long term that has fluctuated 4%-5% per year. This is where we expect to have a return IPCA with something very close to 5%. This will be the cap in the result of the year.
Oh, thank you, Izak. The second question also refers to insurance as a whole. If we look at the last quarter, we had a combined ratio that was somewhat higher. The loss ratio of November had an impact. I would like to understand if it's due to that behavior of the loss ratio, the combined ratio of approximately 90% is more sustainable for the short and mid-term or for the mid and long term, or if you can still capture some improvements in that index through G&A or if the interest rates drop again in 2024.
This is Celso, Tiago. Our pricing for insurance very generally, and we're referring to auto, has had good results such as in life, residential, and auto, of course. Our vintages are very well positioned. We understand that fluctuations in results in 2024 will tend to decrease. We will have a stable result during 2024, of course, if we respect seasonality. And the fourth quarter tends to have higher seasonality. And health, for example, that always has a good result in the fourth quarter.
I do believe that we won't see significant changes in commissioning, for example. We should have gains of productivity this year. And yes, we're seeking productivity gains and results that are compatible in 2024, compatible with those of 2023, something more stable, always respecting the seasonality of each quarter. But during the year, the results will be quite compatible with those of 2023. Thank you.
Thank you once again, and congratulations.
The next question is Guilherme Grespan from JP Morgan.
Good evening, Guilherme Grespan.
Good evening, everybody. Thank you for the presentation and the Q&A. I have two questions. I would like your help to think about profitability. Now, for some quarters, Porto has been reporting 22%-23% ROE. Now, in the long term, five to eight years, ROE has increased 15%-16%, and before the pandemic, to 21%-22%. When we look at this by product, we're speaking about margin recomposition. Then if we look at the SUSEP data, some players are operating at levels of 25%-35%. I'm asking for your help to see how we should think about the Porto profitability going forward, if that ROE above 20% is sustainable and if it should be increased to higher profitability because of the company.
Secondly, speaking about banking, one of the banking things was to have a digital account to pay third parties through the account so that Porto can have the float of the operation. Is this a short-term or long-term desire?
Thank you. Guilherme , to speak about the strategy, we have two avenues for opportunity. One for deposit. We've already spoken about funding. Another avenue are accounts that will work with PJs, and we will capture the value of this anticipation. We're developing this. We're trying to work with individual people and then companies. Now, what we're doing is to work a bit with potential anticipations to extract value, regardless of the account being digital or not. For the short term, yes, we will be using anticipation products to capture some of that benefit.
Guilherme, to speak about ROE, of course, we do have certain outlooks here, but it's very, very difficult to give you figures or levels if we consider the exogenous factors. Now, to speak about the present-day moment, a benign moment, a coherent and robust positive competitive market. Now, the main drivers of high return rates will be the structuring actions carried out by Porto. I'm going to refer less to the auto vertical.
We're always speaking about the auto vertical and its perspective. I would like to underscore other products, other verticals, the consortium, for example, a product with very consistent growth throughout the months with an enormous potential for expansion. And with offers that are ever more frequent in this product, we foresee significant growth here in terms of health. We see enormous consistency in delivery, the strategy when it comes to how we act, the quality of the portfolio management as a whole. I think that you will agree that this has been a highlight in that industry with significant potential for growth. Now, perhaps the most important vertical that I would like to mention in terms of potential and the right to penetrate that Porto has is our service vertical. It is an asset of the brand.
Now, the market perception is the high quality that we have in Porto Services. And through organic growth and through M&A opportunities, we can accelerate that expansion in terms of the portfolio and in terms of our geographical footprint. We can do this significantly. And this is one of the main agendas for Dom among all the other hats that he has of M&As and strategic planning so that perception of the brand can be joined together with a very important infrastructure. And this includes the auto agenda. We have accredited car workshops. We have Renova, which is the greatest automotive spare parts renewal system in Brazil. Now, all of this under the management of the service vertical do make up some of the examples that I would like to convey to you, enabling us to sustain these high levels of ROE that we have observed.
That was very clear, Kaki. Thank you very much.
We would like to remind you once again that should you wish to pose a question, please press raise hand or send your question through the Q&A icon. Please hold while we pull for more questions. The question and answer session ends here. We would like to return the floor to the company executives for their closing remarks. You may proceed.
Once again, on behalf of the entire team, I would like to thank all of you for your attendance, especially at this time of day. And thank you also for the questions that allow us to go more in depth in some of the important issues that we want to share with you. Our IR team is always at your disposal for any additional doubts or questions that you may have. Once again, thank you very much for your attendance. Have a good evening.
The earnings results for the fourth quarter 2023 for Porto ends here . We would like to thank all of you for your attendance. Have a wonderful evening.