Good morning, ladies and gentlemen, and welcome to Porto's conference call for the third quarter of 2026. This presentation is being recorded and translated into English. Slides are available for download on the company's investor relations website. For English, please press the interpretation button on the bottom right side of your Zoom application and choose audio in English. For those listening to the conference call in English, there is an option to mute the original audio in Portuguese by clicking on "Mute Original Audio." After the company's presentation, we will begin the questions and answer session. Please send us your name and the company you are representing through the Q&A button at the lower part of the screen. Your name will be called, and your question will then be asked. You will get a request to turn on your microphone at that point.
If you would not like to use your microphone, please write "no microphone" at the end of your question so that we can read it for you. 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. Go ahead, gentlemen.
Hello. Good morning, everyone. I am very happy to be here this morning to present our earnings for the third quarter of 2026. I am with our CFO, Celso Damadi, our Investor Relations Director, Domingos Falavina, and the CEOs from our verticals and the head of Porto Asset. This quarter, we posted a ROE of 58%, and this constant value generation, even in a more restrictive credit cycle, is due to the strength and resilience of our business model, which is a lever for the company's results through our diversified portfolio. Our consolidated revenue continued its double-digit growth. One highlight was the auto segment, which continued its trajectory with an expansion of 10%. The insurance vertical overcame 30% ROAE for the second quarter in a row. In Porto Saúde, we continued our expansion.
We had some impact from the loss ratio this quarter, but this is mostly due to short-term dynamics, which we will describe during this presentation. At Porto Bank, in a more adverse scenario for credit cards, we continued conservative in risk management, as we had been in the last few quarters. This cautious approach has resulted in strengthening our provisions. In Porto Serviço, revenues continued to accelerate, and our income grew over 30% this quarter.
Finally, recently, we were recognized by GPTW as the second-best company to work in for Brazil, among organizations with over 10,000 employees. This is the fifth time we have been in the ranking, which reinforces the strength of our culture. Attracting and retaining talents is one of the main pillars for the company's sustainable growth. Throughout this presentation, we will go deeper into these figures and the initiatives that we have had in our different fronts.
Now, I would like to present this year's results, starting with our recurring total revenue, which went up 10%, reaching BRL 11 billion in the third quarter of 2026. The recurring net income went up 14%, and ROAE went to 18% as a consequence of three effects: a more challenging cycle due to the credit costs, reduced financial revenue versus the same quarter 2025 due to three main items. Lower results in our variable income investments, shares performed below the Ibovespa Index, and the most important, due to lower inflation versus the third quarter of 2025, our inflation and IPCA-indexed bonds had a lower performance. Speaking about the first nine months of 2026, we had a recurring total revenue of BRL 33 billion. We are still growing at 10%, recurring net income of BRL 2.6 billion, and a total net income of up 12%.
Our recurring ROAE has been at 21%, and the total accumulated ROAE is at 23%, basically flat from 2025. We continue to expand our customer base at the same pace. 1.2 million customers have been added during this time, but the number of businesses is growing significantly faster. 6.1 million businesses, a total of 38.2 million. This is due to our cross-sell broadening strategy. Brokers NPS is at 86 points, which is an excellent level considering that this is our main asset in our entire structure. We have over 44,000 brokers across Brazil, through which Porto has been reaching its ambitious goals to expand its portfolio. Fortunately, we have been receiving the loyalty and dedication from our sales force, as shown in the company's results.
Speaking about our verticals, the insurance division has sustained a high level of ROAE, 32%, a slight variation from 2025, and revenue went up to BRL 6.2 billion. At Porto Saúde, we have also accelerated the number of members, 352,000, of which 172,000 are in health insurance and 180,000 in dental. Revenue has reached BRL 2.5 billion. At Porto Bank, we are going to go into depth about the effects causing this 6 percentage point reduction to our ROAE that I have mentioned before. But at the same time, we had a material gain in our efficiency ratio. It is now at 27%. Porto Seguro continues to expand its ROAE. It went up 7 percentage points, and net income also reached a record level, up 34%. The main drivers behind this operational performance gain are reducing administrative expenses, especially due to digital client services.
We had 6 percentage point growth in one year, and the share of the digital broker service has grown by 17 percentage points. To talk about the most relevant items in our earnings call, I would like to invite Celso Damadi.
Go ahead, sir. Thank you. Good morning, everyone. It is a pleasure to be here with you to talk about this quarter's results. I will go into some details on the next slide, and our total revenue grew 10%. Looking at our results, we know that revenue, especially in insurance, never really grows 10% immediately, so we are also planning for our growth in 2027 and the first cycle. In insurance, we have grown about 6%, but we are preparing ourselves to expand our premium gain for the next cycle. So insurance grew 9.4%, and this was impacted by auto, which came close to 10%.
This is a great recovery, and that gives us some leeway to expand our gain premium for the next cycle. Porto Saúde grew 12% and Porto Bank 12.5%. Our credit card portfolio has grown 28%, reaching BRL 132 billion in credit for our portfolio. That is also a part of the positive cycle for the next years. Consortiums are a great highlight. They have grown above 20% in the last few years. This year, it has grown 28%, and Porto Seguro also grew 9%. Our growth this year is in line with what we set out in our guidance for this year. Health is growing a bit under the guidance, and I think you have noticed that this will be a discussion in the next slides. Speaking about our recurring ROAE, it is now at 18%. I would like to mention our financial results here.
Like Kaki said, we had a reduction in the variable allocation that we believe in for the short term, and the IPCA index was below average this quarter. This has led our financial revenue that is backed by the interest rates to a very low level this quarter. We believe that the inflation expected by the market for the fourth quarter will help us to bounce back for the next quarter and for the next cycles. We believe that a part of this reduction in our results is cyclical. It is not non-recurring. This is a part of our business, but we believe that a part of this financial revenue will bounce back in the fourth quarter. We also had a very good ROAE for the insurance company. We can see that revenue is flat quarter to quarter, but on an accumulated basis, it grew by 14%.
One of the reasons why it is flat for the quarter is that the premium gains that were strong this quarter had an impact to the commission revenue, especially with the campaigns we had, which leads to a growth of 0.7 percentage points in this vertical. We welcome this expense because we do not defer these commissions, but the premiums will come in the next 12 months. For us, this expense is welcome, but it does have a short-term impact to our results. Even despite that, our ROAE was at 32%. That is good news for the insurance company as a whole. All areas have had consistent ROAEs in the last year. Looking at Porto Saúde, 14%, we had a few events, which we will describe later on, which were seasonal. In July, we had some elective hospitalizations that were not in our radar.
We believe that some people decided to advance these elective procedures during this time. Hospitalization frequency indicators have now gone back to their normal levels, so we believe that July was an atypical month. We also had a slightly higher claims ratio in oncology due to one of our commercial partners that we had to redistribute with unnegotiated tables. We are still renegotiating, and we believe that these loss ratios will go back to normal as we set out in our guidance. In fact, we have sustained our guidance for the loss ratio in health. Porto Bank had an ROAE of 20%, and this was due to the credit risk from credit cards. The other portfolios in the bank, like capitalization, consortium, home equity, have all had very good results, close to what we had foreseen with stable ROAEs.
This was an increase to the credit risk in the credit card portfolio. Provisions will go up, and Dom will describe this later on. Porto Seguro had a ROAE of 25%, so if we also deduct our surplus capital, our recurring ROAE was 25%. This quarter, we had a financial revenue drop, which is allocated to Porto SA. This affects our bottom line because there is a tax issue where we have an effective rate of nearly 0% in taxes. This has an impact on Porto SA. Looking at our breakdown, we see that insurance is also very diversified in our portfolio, and that's why we have such a resilient portfolio. We have insurance products with very consistent ROAEs above 30%, and we have a diversity in the insurance company as well, where other insurance products have a relevant share of our income.
This includes healthcare, transportation, and so on. This makes us more resilient in our results. Finally, these are our financial investment results. Again, this was impacted by a reduction in the inflation rates this quarter and due to the variable remuneration. We saw a reduction in our financial results, but if we compare that to our total assets, this would be about BRL 290 million, our income. A part of it, we believe, is cyclical and will bounce back in the fourth quarter. A part of it will also bounce back throughout the next years. I'd like to invite Dom over to continue with this presentation.
Thank you, Celso. Good morning, everyone. Continuing Celso's presentation, we had a 10 percentage point increase in the insurance company, and this was mainly led by auto. We mentioned that we've been more efficient, especially in this competitive scenario.
Some of our competitors have been more disciplined in origination, and we saw a 10% growth. P&C grew 9%, and life had a strong growth this quarter. The main detractor here was individual life. We've been launching new products and improving our technology platform, but we believe that this will have positive effects for the next quarters, with potential growth acceleration. Looking at the loss ratio, it is basically flat year-on-year, with some slight changes across each vertical. It was at around 60% for auto, 30% for P&C, and about 35 for life. Looking at our distribution, we can see how healthy it is. Auto has 57% of our share, and this is dropping. P&C represents about a quarter of our results. Life and other products represent about 15, 20%. Our ROAE was at 32%, with a net income of BRL 443 million.
Looking at health, we see that the average ticket is still having an impact on us. As we told the market, we had a substantial growth in the number of lives, 22% versus the third quarter of 2025. Due to the lower average ticket, we had a 12% growth in total revenues. Our net income amounted to BRL 84 million. To explain our loss ratio, we had an increase, and as Celso said, we had three different events affecting us. About two-thirds of this increase were non-recurring events. A rupture in our dental services, and we also decided to allocate some of our clients to the available networks, and we also had an atypical seasonal pattern this quarter. One-third would be what we would naturally expect.
Like Celso said, we've seen that this has cooled down and bounced back to normal in the next few months after this peak in the third quarter. This applies to health insurance and also health and dental. You can see that the changes here were slightly lower because we don't see many changes to dental insurance. As a result of these losses, especially the atypical ones, we had a reduction of our ROAE to 14%. Our guidance remains unchanged. We had been below the guidance in our loss ratio in the second quarter. Now we're slightly above, but this does not impact our guidance or the middle of the guidance for this vertical. At Porto Bank, we see that average revenue has remained flat. We've been more disciplined in credit allocation.
We're focusing on efficiency as a result of the challenges that we had with delinquency, and we're trying to make the costs offset these questionable provisions. We went up to 10.2 over the last 90 days, but the main highlight here is that over 15 to 90 days, we had a slight improvement, and Stage 3 has remained flat. There's a slight improvement there as well. Before I describe this chart, I'd also like to mention that in our release, we mentioned the new NPL formation. These numbers also improved by about BRL 50 million quarter to quarter, from BRL 700 million to BRL 650 million. We'll describe what we changed in the guidance, but the new figures are not showing the same levels that we expected from these charts.
Our ROAE is at 20.3%, even though we had these delinquency issues, and we're still at a healthy level for the operation. Now, continuing with Porto Serviço, it's still at around 1.5 million per quarter. Our growth was mainly led by digital products and strategic partnerships. This is very important for us because this is a revenue that has no cost for the insurance company, and it's healthier as it increases our consolidated income. Our EBITDA was BRL 96 million and BRL 59 million in net income, with a 25% ROAE for this operation. Now looking at our guidance. Our guidance was unchanged at Porto Seguro, at Porto Bank, due to the higher and due to the more challenging scenario in the last week especially, we had an increase in the interest curve, which was relevant.
We've also reviewed the GDP scenario from 1.5% to 0%, which means that this caution has impacted our revenue line and our credit losses. Since short-term delinquencies are not getting worse, this is mainly due to the macroeconomic scenario. The company wants to start 2027 with a better coverage level and a more robust provision for these macroeconomic scenarios. The financial results have been impacted by our equity allocation, the IPCA index, and a different tax structure after we reorganized our own structure. This allows us to capture some tax credits from old companies. Porto Saúde was also affected by our mix, so we've reviewed the premium change, but not to a very relevant extent, while loss ratio and G&A ratios will remain the same. At Porto Serviço, we've sustained the same guidance. Now we will continue with the Q&A. Thank you.
We will now begin the questions and answer session. As a reminder, if you would like to ask a question, please send us your name and the company you represent by clicking on the Q&A button. If you would not like to ask your question on the microphone, please write "no microphone" at the end of your question so that we can read it for you. The first question will be asked by Mr. Antonio Ruette from Bank of America. Go ahead, sir.
Hello, everyone. Thank you for your time. On my side, I would like to understand the health loss ratio. You mentioned that this increase was due to a pressure in oncology and an atypical seasonal pattern. If you can tell us a little bit more about that, and also, once this atypical seasonal pattern is over, a part of it will also happen due to the disruptions in oncology.
Should we expect a higher loss ratio from now on after these atypical situations? Also, if you will allow me a second question, I would like to ask about your provisions. This was a negative surprise, especially considering the fourth quarter as set out in your guidance. Like Dom said, we have been seeing some short-term indicators tending towards an improvement, but still, on a consolidated figure, it seems to be trending negatively.
Hello, Antonio. Thank you for your question. It is true, we had some atypical factors this quarter. It went up 4.9 points comparing to the third quarter of 2025. I would like to break down this loss ratio growth into three factors. There are three drivers behind it. The first one is related to your question. There was an increase in oncology costs, which represents 2.1 or one-third of this growth, more than one-third actually.
Let me explain what led to this. The collapse of the Oncoclínicas operation created a need for us to act under free assistance. It was a very sudden situation which affected us, and suddenly, we had thousands of patients who were unassisted. Our focus was to allow them to continue being treated in other partners, and there were a number of charges related to this table, which led to an overall growth in oncology costs.
This is not recurring. We understand that the effects will be completely resolved after the second quarter of 2027. Let me explain that. We have redone and repactuated most of this. In October, we have seen that oncological costs are very close to their normal levels, and we will see this in November and December as well. There is a carryover from recurring treatments. For the first quarter, we will still be pressured. For the fourth quarter, definitely.
For the first quarter, some, and then in the second quarter of 2027, this will be over. With these new partners, we were able to take these effects down to zero. Starting in the second quarter of 2027, these effects will be zero. That is the first part. The second part, and this is not recurring, is also associated to Oncoclínicas. There were a number of things that were no longer in Oncoclínicas, went to a partner, and that changed our cycle, our receivable cycle. Some things that were supposed to be received in the second quarter are now being received in the third quarter. Out of the 4.9, this represents 1.7%. The Oncoclínicas effect had an impact of 1.7 this quarter of these losses. The previous quarter should have been, or the third quarter should have been 1.7% above what it was.
It would still at a controlled level. We would have a slight increase. This was the Oncoclínicas effect. This is due to the recurring cost and to the accounts displacement. This won't happen because we've already gone through this cycle. So, 1.1% was the recurring loss ratio increase. Like Celso said, this has two effects. July usually is slower, and it was much higher this year. This was due to elective procedures. It's curious that this was related to the World Cup, or happened at the same time as the World Cup. That was not necessarily the cause. In the last few months, the loss ratio has basically gone back to normal. We've also repositioned our prices, as we had mentioned before.
We had mentioned that the loss ratio was not going to remain the same as we grew, and that we would naturally need to reposition it at a higher level. So this 1.1 growth quarter-on-quarter is related to this price repositioning and this strong frequency increase in July. I hope that made it clear for you. Dom is going to tell you about provisions.
Yes, I'll answer your question about provisions. We have some predictive models, but the factors that underlie it have changed. As you know, when you get a CECL revision in Bank of America, you have to update your models according to GDP projections and so on. Something similar happened to us. We basically had to update our GDP from 1.5 to 0. Indebtedness went up for our clients and for Porto as well.
Our predictive model says that it's healthy to work with higher coverage levels for 2027 with this scenario. If we have a better than expected performance in our economy, this might not happen, but we decided to be careful, and this will have an impact on the fourth quarter.
T hank you. That was very clear.
The next question will be asked by Mr. Arnon Shirazi from Citi. Go ahead, sir.
Hi, everyone. Thank you. I'd like to ask about banking. Your credit portfolio has not grown at the same level as the previous quarters. What should we expect for the next ones? Will it continue to slow down? How does that match to your origination? When should we expect an inflection point for that? Thank you.
Thank you for your question, Arnon. I'll start with what you highlighted. As we mentioned in previous quarters, credit cards deserved more attention, and we made several restrictions. So that is why we were expecting it to go down. On the other hand, we have other credit lines, which includes products that have guarantees and products that service our ecosystem, and they continue to perform well. They continue to grow.
So far, in the first few months, we've even made some risk removals procedures in our system. So we want to continue to be strong in our origination for the credit portfolio, and we want to accelerate credit products that have guarantees. That has been our direction so far. With that, these products have an ROE that is higher, and we're balancing our income with that. As a reminder, credit cards have a higher share of our credit products. It's been going down, but it's still very significant for our results.
If I can say something, just to give you some data, our credit card portfolio, our transactional, it has been growing 6% year-on-year. We believe that is a healthy level. Our measures have been led by the macroeconomic scenario and the delinquency rate, and that means that interest rates, especially for our credit cards, has gone down 6%. We have mentioned de-risking, so our risk did not grow year-on-year. Our portfolio reduced 6%, and that has an impact to our entire portfolio, as you mentioned.
Thank you. What else are you expecting for the next quarters in distribution?
We are not talking about 2027 much yet, but what is implied in our guidance is that lean post-PDD will have a worse scenario in the next quarter. We are starting 2027 at the right position, but for 2027, we still have not disclosed anything.
Thank you.
The next question will be asked by Mr. Eduardo Rosman from BTG Pactual. Go ahead, sir.
Hi. Thank you, everyone. I would like to ask about auto. This was a highlight this year. Premiums have been accelerated, and the loss ratio delta is doing much better. So I would like to ask about the competitive scenario. I know it is hard to talk about the future, but do you believe that the competitive scenario will be healthy still? Also, I would like to ask about the effects from Chinese electric vehicles. I know that they still have a small share of the Brazilian fleet, but I know that you have a higher share of Chinese cars. So I would like to ask what the effects are from that. I know that these electric vehicles are also pushing down used vehicle prices. So, what is your take on that? How is that impacting your business? Thank you.
Thank you for your question, Eduardo. The auto insurance market has grown 6%. It will grow 6% by the end of this year, and our goal has been to sustain ROE growth levels and accelerate auto growth to sustain our portfolio. That is why for the first months of the year, we are growing at 6.5%. In September, auto has grown 7%, and this allows us to get a higher scale. In this competitive scenario, this growth is due to the continuous analytical improvement, repricing, and launching new products under Azul and Itaú and Porto, and working with our brokers to take our brand to all parts of Brazil. We have seen that light and commercial vehicles have grown by 17% a year, and definitely Chinese vehicles and the higher number of imports will have a positive impact on sales.
We always say that we have 30% of the Brazilian fleet covered by insurance, but with new cars, this rate is higher. So, with Chinese brands and other growing brands, we will see a positive impact to our market and our growth. To mention the loss ratio effect, we do see that the market is more pressured by losses, an increase of 2.5% year-on-year for the entire market, and this is also due to the price competition that we had in the last year and the weather events we have been seeing in the second half of 2026. So, in Porto and in the competitive scenario, we need to be disciplined in pricing so that we are able to sustain this growth and protect our future margins.
Thank you. Also, if you could tell us about Chinese cars, has that impacted your prices? Is that positive for your loss ratios?
Right. Chinese car imports continue to make our fleet grow, although they are not a high share of our fleet. As you know, the Brazilian fleet takes a long time to be renewed. Chinese vehicles have had higher sales, and their prices have been under control. We do not expect this trend to slow down. In fact, we have just seen figures from Fenabrave, and we continue to see a strong growth in the fleet. But since Porto has 6.5 million vehicles in its covered fleet, we have a considerable share of electrical and Chinese cars. This has allowed us to gain experience in prices, and our after-sales chain has also been very healthy. So, we are still growing, but the loss ratio is still under control as well to service these Chinese vehicles.
Yes, and this trend will be higher when Chinese manufacturing plants start their operations. They are being built in Brazil now. This has created two very relevant effects, like Patrícia mentioned. New car prices are under control. They are actually held back, and this is sustaining the industry's growth. This was not foreseen, but they have sustained an important part of our share, and they have had very healthy results.
Eduardo, this is an important thing because our discipline in underwriting and in prices is very important. We have seen a reduction in the used car prices in the last 12 months, but theft is at a historical low. Full payment prices do not have the same impact as they have had in the past. Also, when we look at the partial impact, there was an inflationary pressure from the IPCA rates, parts, and so on. So we need to be attentive to pricing. We need to keep these pricing levels very flat.
We have seen that the different groups are behaving very well. We are starting 2027 with structured levels, but we cannot lose sight of our pricing. We do not have a lot of space for price discounts, so we have to be very careful about that because there is some inflation that we are expecting for next year in labor and in parts. IPCA is not expected to go down next year, so we have to be very careful with these variables. We have a very interesting prospective analysis about this.
Great. Thank you.
The next question will be asked by Mr. Rafael Nobre from Safra.
Good morning, everyone. Thank you for taking my questions. I would like to talk a bit about the credit portfolio quality. I understand that the pressure from delinquency and the expected losses is affecting a specific cluster, so customers with a certain level of income. Has anything changed since then? Do you expect this to spread to other segments? I would also like to ask about a longer horizon, considering these origination restrictions that you mentioned. How much of that is structural, and how much of it is just due to the current scenario? Are you not servicing certain client groups? Are you focusing on the top of the range?
Hi, Rafael. Thank you for your question. I think these two recent changes help us clarify these two positions. As we mentioned in the previous quarter, there has been a change in profile and adjustments, and we are starting to see signs as we see new people going into debt. We also reinforced our credit policy, and so we let go of a certain group of customers, which is no longer being included in our origination process for credit cards. Right now, we are more prospective.
The macroeconomic scenario is making us protect and increase our coverage due to the deterioration that we can have in payment levels, considering all the different macroeconomic factors that affect credit card payments.
Thank you.
The next question will be asked by Tiago Binsfeld from Goldman Sachs. Go ahead, sir.
Hi, everyone. Thank you for taking my question. I would like to ask about your financial results. With this reduced guidance and the implications for the fourth quarter, we are not expecting such a significant improvement in the fourth quarter. The comment we heard was that IPCA will normalize. I would just like to understand if this range for the fourth quarter, I mean, are you being conservative? Would you expect to be at the top of this range? If you can tell us about the main moving parts, IPCA, variable income.
Hi, Tiago. Thank you for your question. It is important to explain this better. After the second quarter, we had the second round of the Brazilian elections. After that, we also saw that interest rates went up and Ibovespa went down significantly. This will have an impact on our fourth quarter. What are we considering in this guidance? Until the end of this year, we do not expect this to bounce back, so we are being conservative in that sense in our guidance. You are right about the IPCA. A part of it will bounce back. We believe that inflation in the fourth quarter will also be at the scenario we expected. The reduction that we had in October in Ibovespa will not bounce back by December. It will remain relatively flat at the level we saw in the last two weeks of October.
We are being conservative in our guidance because we are considering that Ibovespa will not bounce back. If it does, we might be positively surprised. Since we do not have a well-designed economic scenario for the next few months, we have not had any official market scenarios. We see that the market is becoming more stressed. The stock exchange is going up and down. The stock market is going up or going down. We are still considering that it will remain flat at this level. Yes, those of you who have kept up with the company for a few years still understand that this preventive strategy is not surprising if you consider our history. What we are seeing as economic projections for 2027 will have an impact on the cost of credit.
In line with our historical strategy, we are trying to guide the market in this decision to increase our coverage level at these rates. These two aspects are important to highlight. As Dom and Celso mentioned in their presentations, looking at the third quarter, we do not see that deterioration yet. We do not see that that would protect us should that happen. In the third quarter, we had a slight improvement in NPL formation and in short-term delinquency. That is one part of it, and the other one is the current volatility.
In the last few days, we have seen some volatility. We do not know how that is going to change in the next few days. Our position is always to be an insurance company, of course, and be conservative in guiding the market. That is our guidance if the indicators that were foreseen for 2027 remain that way.
On the financial side, the bright side from all of this is that our cash generation and our asset volumes continue to go up. That is why I say that in the accumulated results so far, we had a nominal improvement below what we had in 2025, but our financial results went up by about 10% on an annual income base. Like I said, this is cyclical. Inflation will bounce back, and we also have an allocation for the long term that we believe in. We believe that it will return in the long term. We do not expect this to happen in the fourth quarter, according to our guidance, but in 2027, we will have a new guidance that we will discuss with you. But our variable income allocation also, we believe, will go back in the long term.
The macroeconomic scenario will tell us when that will happen, but the good news for us in this scenario is that our cash generation is very healthy and is within our expectations for the year.
Great. Thank you, Damadi. Thank you, Kaki.
The next question will be asked by Mr. Kaio Prato from UBS. Go ahead, sir.
Thank you. I have two questions. First, about health, considering the macroeconomic scenario, I would like to ask your expectations about growth for next year. I know that you are seeing an improvement in mix, but it seems like there was a slowdown in your growth levels, so I would also like to ask if health is expected to grow considering the lives you added. I would also like to ask about the tax reforms. Do you have any overview on that and how it will impact this vertical? In auto, do you believe that prices will go up? Thank you.
Hi, Kaio. Like Dom said, we are not discussing 2027 yet. But we believe that a slowdown in the economy can impact employment, so that affects our businesses. So layoffs can have an impact, as has historically happened in our industry. For smaller businesses, their existence or their ability to pay health insurance to their employees can also be compromised. It is still early to speculate. The industry has been very strong in the last few years, but that is something on our radar. We have to keep it on our radar.
Thank you, Kaio, for that question about the tax reforms. Someone had to ask. For insurance and for the banking system, according to our analysis, we used 2025 as a basis. We looked at the upcoming legislation that will be enacted. The impact for the three business verticals that we have, health, bank, and insurance, will be zero. We will not have a negative impact, and we are not expecting our pricing to be pressured. Looking at the credit we have for this new modality, this impact is expected to be neutral.
At Porto Serviço, we are expected to see increases in the tax burden, but since 80% of what Porto Serviço does, the tax burden goes to the insurance company, and the insurance company uses these credits, the impact on our business will be marginal. We are starting to negotiate the price with some of outside service providers that can consume these services. So, according to our analysis, the impact from this tax import will be neutral for 2027, 2028, and until the end of the implementation of these reforms, at least for what has been passed so far.
Great. Thank you.
The next question will be asked by Mr. Marcelo Mizrahi from Bradesco BBI. Go ahead, sir.
Hi, everyone. Thank you for taking my question. I would also like to ask about health. This quarter, we are seeing that the average ticket has gone down year-on-year. This is due to the new plans, and it seems to be an even sharper drop this quarter. So, what do you expect on that end? We have seen a reduction. So, what are you expecting for your average ticket growth? How much will it affect your revenue? I would also like to ask if there are any changes to your expected loss ratio in underwriting. Thank you.
Okay. Thank you, Marcelo. You are mentioning that the average ticket is going down, and this is not due to discounts or lower average tickets due to competition. This is due to the change in mix in our portfolio. For Porto Saúde Pro, and others, we have smaller average tickets. We are still selling the traditional lines. We like them a lot, but we see a natural change in our mix, and that has an impact in our comparison. This had an impact year-on-year. It will continue to impact us in 2027, and it will become more favorable for us in 2028, or mid-2028, where this mix will be stable.
On a comparative basis, you will start to see some growth. Iso mix, this growth is even more robust. We have run these tests, but the mix is different. I think it is very important to separate discounts and competitive pressures versus changes to our mix. I think that was a part of your question. To answer your question, competition will remain acute.
We are responding to it by adjusting our table, as we always do, based on clusters, understandings. We are doing this based on technical factors. We will grow more or less in each quarter, but this is based on our distribution force. What was your last question? When it comes to underwriting, does it change or not? You mentioned there was a change to the base case. Even when it was low, you mentioned it was not too low. Should it still be at 76% or 77%? I think so. I think the top range of our guidance is a good recommendation.
Thank you.
The next question will be asked by Mr. Henrique Navarro from Santander. Go ahead, sir.
Hi, everyone. Thank you for taking my question. Great to see you. Like you said, we had a change in the macroeconomic scenario, and what happened up until the third quarter?
Starting or after the third quarter, we might see some significant changes to several figures, and not just your company, but several other companies. Inflation will be higher, the tax burden. I would like to ask about a specific thing. When we speak to banks about this new macroeconomic scenario, their consensus is that credit will slow down, and vehicle is one of the targets for this deceleration. Whenever a bank does that, you end up seeing the fleet getting older, new cars are less sold, and it is the same old story. It is important to have a new fleet because these are the ones that usually get insurance.
I know that you're still working on the 2027 budget, and that will serve as a basis for your guidance, but I'd just like to ask you what you expect from banks in vehicle credit. How does that impact you? Thank you.
Thank you, Henrique. We have cars that are over 10 years old insured by our company. We say that the average vehicle has been running for six years. at Porto, we are not usually in sales dealership, so our market share in the first year is actually slightly lower, but about 5%-10% of our fleet represents new cars. So if there's a reduction, it would be maybe 50 basis points. So that's not so relevant. Obviously, this builds up a base. We're lucky because we have a higher consolidation in a higher share of the more recent vehicles.
Since we came out of record car sales in 2011 or 2012, and after that, new car sales collapsed, when we add up this entire fleet in the last 10 years, what we're selling now is far above this average. So even in this hypothetical scenario, even if access to car credit cools down, this does not influence our entire historical base. The second important thing is that sometimes this depends on the customer that takes out car insurance. Customers are replacing their cars less frequently, and that means that they continue to have older fleets. So, it's not necessarily that an older car will not be insured. So given these variables, we're not so concerned about car credit. We also work with car equity. This is a segment that we work well in, and our margins are very positive in the sector.
It's a much more dramatic effect than we see in our projections right now. You mentioned the aging fleet, but that doesn't necessarily have a negative economic impact to our business. Quite contrary, in many cases, we have a higher commercial rate in the premium than the car. So, what would affect us is if people stopped taking out insurance for their automobiles. But, it would need to be a winter of many years with a very significant drop in order to affect us. That's not what we're seeing.
That was very clear.
The next question will be asked by Mr. Guilherme Grespan from JP Morgan. Go ahead.
Hello. Thank you. I have two questions, and I apologize if I repeat any that have been asked before. First, I'd like to ask about El Niño. I'd like to get an update about your thinking on that, both for auto and property. I know that usually flooding is the most important effect for you, but I'd just like to understand your understanding of the risk of El Niño for insurance. My second question is, I know that you're reassessing a part of your business for the next years, so I'd like to ask about your investment portfolio. Have you come to a conclusion on your technical reserves for the future? I'm asking because historically, you were indexed to the inflation.
It's hard for us to assess that. In financial results, this might have benefited from the current scenario. So, I'm playing devil's advocate here, but I'd like to ask about your financial results. In the last four years, it was 80% of the CDI, so 20% of your results would come from your financial results. And if you were at 100% of the CDI, we are expecting your income to be 6% higher.
What I'd like to understand from you is, Brazil is becoming a difficult country from the macroeconomic scenario. Companies that have resilient results have a higher market value. So, would it make sense to have a more conservative investment policy to create more resilience for your income? I'd just like to understand if you've discussed this this year, and if there were any changes. Thank you.
Guilherme, in line with our projections for the second quarter, we're seeing a higher incidence of weather events. A strong El Niño for us implies on higher heat waves in the northeast, and rain and even tornadoes in the south and southeast of Brazil. But these weather events are a part of our coverage for auto and property. From an operational perspective, we always get prepared for that. We've been seeing this in the recent months. And insurance, although it might be affected in a quarter due to these weather events, these are not structural changes.
So, we built a strong balance this year in auto lines and in property to take these events. This is the sixth quarter in a row in which the company has had an ROAE above 30. Our net income for the first nine months is more than BRL 1.3 billion. And even with this higher incidence of weather events, we were able to reinforce our guidance. But definitely, these rains, wind, storms have impacted our insurance portfolio. There were two impacts.
First, coverages for weather events, floods, and wind, but there's a strong correlation between strong rain days and pollution. This happens especially in larger cities in the south and southeast. So, we're starting to see an impact to that, but we've built resilience over the year to face these stronger weather events. It's important to make it clear that we made a decision.
Sorry, we're not getting your audio. We're just going to fix this and get back to you. I apologize. I don't know if you can all hear me, but Isaac's microphone doesn't seem to be working. If you can just wait a few seconds.
Hello, thank you for your question. So, talking a little about what you mentioned in the last four years, I'd just like to get a longer perspective. Since 2026, we decided to have more diversity in our portfolio. And we don't believe that it's too aggressive with our allocations, because we understand that the real interest rates are a component that must be a part of our allocation. IPCA has a significant level of importance to our indexes, so we need to use real interest rates as one of our assets as well. If you look at a longer time span, 10 years, we are reaching the CDI index.
In 2021, we had significant returns, and real interest rates had a negative impact to that. So, we believe that over time, looking at this in a long-term perspective, actual interest rates must be a part of it. What we saw since 2023 was that interest rates were very high, expressed by the Selic rate. It was nearly four years of CDI at around 15%, with an inflation of 4.5%.
We don't think that this will continue from now on. We know that these four years had an impact, but it would make sense to keep a share of our allocation in real interest rates. This is our understanding for the next few years. We believe that this level is a long-term opportunity where you can conserve your purchasing power without compromising the company's cash. I hope that answers your question.
Grespan, this is a very pertinent question for us. Our allocation model is very conservative, I would say. We are conserving the ROI level that we intend to have, 20% on a consolidated basis. Our prices and our liabilities and inflation, we have liabilities that are not only technical, but expenses and so on, which are indexed by the inflation. Brazil has had high inflation rates recently, even 5.5%. Our real gains are also in our product portfolio when we look at the loss ratio in order to have a nominal financial revenue that would lead us to a profit and a minimum ROI.
The CDI percentage for us, if we look at our allocation before the Brazilian elections, has been preserved at a much more nominal value, you'll see this in our guidance for 2027, than a percentage of the CDI. If you look at the scenario in our allocation before the elections, it was at a financial revenue of X. After the election, it's X plus something, with a slightly lower percentage of the CDI. Our allocation is preserving a structural financial revenue so that we can price this better and take less of a risk in our business. In our model, business verticals receive 100% of the CDI.
This volatility means that on the long term, we are reaching the CDI index, but that's not our benchmark. Although that's an important base, our benchmark is a basket of allocations. We're conservative. We're trying to preserve a very stable nominal level of profitability. This year, we had a variable rate allocation, meaning that since there was that drop in Ibovespa, it affected us, and we believe this will bounce back on the long term. This year, we had an atypical factor that brought us to a medium CDI, but our guidance was at 94%, 95% of the CDI, and we believe that that's reasonable. Our scenario for 2027 will be very similar.
If CDI goes up too much, if the Selic rate goes up too much in 2027, we might have a better nominal financial result than we are proposing in our budget, but with a smaller percentage of the CDI. This is not an issue for us. We're more concerned about conserving our consolidated ROI and the nominal level of income. That's we tie down all of our financial results. You mentioned the last four years. If we look at 2021 and early 2022, the Selic rate was at 2%-4%. And we also have a percentage of our portfolio in prefixed rates. If Selic goes up too much, it might be higher on nominal terms.
But if you look at the bonds that we purchased three or four years ago at lower rates, I had purchased it at a return rate below the Selic rate, and if it drops, we will have the opposite. The Selic rate will go up, and the nominal rate will not. I just mean that we are taking some prefixed interest rates from a longer area. I just wanted to ask about the operational side and connect it to the elections. Apparently, it was positive. So I would just like to ask if in the future, if results are resilient, and since you are growing in a business that is related to the economy, like healthcare, if it would not make sense to have a more conservative approach to make your results more resilient.
That was very clear. Thank you. Thank you.
The next question will be asked by Mr. Eduardo Nishio from Genial Investimentos. Go ahead, sir.
Good morning, everyone. I have a broader question about the economic scenario, and I will mention your guidance as well. Your changes to the guidance, and your guidance has changed a lot throughout this year. At least in our estimates, we expect mid-single digits income growth throughout the year. It grew to low double- digits, and now it has gone back to 7% according to our projections based on the figures you gave us. But considering you are expecting an ROE of 20 for 2027 and 2028, and considering the challenging scenario that we are facing, like you said, a lot has been contracted already for next year.
So, in a way, you do have some predictability for 2027. So I would just like to ask if you intend to change your strategy to grow in segments that have more profitability, or if you expect to grow where you are growing well now, which is auto and traditional markets. What you are expecting in cost. I know that you connected some systems, and we are not seeing the reduction expected from that. So, what do you expect from these variables? If you could tell us about your strategy, if that changes, we now see that the GDP is being forecasted at zero, so it seems that everyone is concerned about the scenario for 2027.
Thank you. Nishio, I think your question is very representative of the conversations we have every day in the executive committee. In retrospect, things seem more obvious. What Porto has done, and I am speaking here on behalf of our entire committee, is that we got it right when we look at a longer timeframe. We are celebrating the excellent performance that we had in the insurance company. We are seeing that credit risks are more difficult.
The loss ratio in healthcare seems a bit more difficult. If you look at this call, the same call one year ago, it was the opposite. So the beauty of Porto is that we are more robust against adversities, because navigating successfully in a country that is traditionally volatile and will continue to have a volatile economy is very difficult, and our formula has been very rewarding, and we seem to have gotten it right.
When we look at the data from the company's IPO until now, all the returns that we've made to shareholders and all the stakeholders in our organization, I mean, we have a significant volume of commissions paid to brokers. We're very competitive. We can attract talent for the market, and this is all due to our strategy. To answer your question, not only are we developing our verticals, but we're also doubling our bets in the company's main results drivers, which are reduced administrative expenses, and that benefits all of our businesses at the same time. Looking at our operational results, it's an important gain, and the same has been contracted for the next year. That gives us strength to compete in a challenging scenario with a right to win. So assets that were very important for us to continue growing in this journey.
What I want to make clear to you is that in the next quarters, we're going to see some verticals performing better or worse, but looking at the entire group, we're able to sustain, and I'm not even going to say minimal 20% ROAE, because this makes sense now since we're operating this machine at the levels that everyone knows. You mentioned our projected Selic for next year. So we're expecting it not to vary that much, but we're continuing to navigate in this scenario. We're always keeping a spread between capital costs and our results. Right now, in these current circumstances, it's been consistently above 20%, and we're returning to the value that we've historically posted. This is a summary of our strategy.
To answer your question, we will continue to develop our verticals and create a natural operational hedge for the company to a country that will continue to be volatile.
Great. Thank you. That was very clear.
The next question will be asked by Mr. Gustavo Schroden from Citi. Go ahead, sir.
Good morning. Thank you for taking my question. This topic drew my attention. We saw yesterday that Itaú changed its capital cost, and we know how important that is, not only for our analysis on the return on capital and capital costs, but also for the investment decisions that you have across your verticals. You have a threshold of returns per vertical. In any case, my question is, can you tell us what your expected capital cost is, what's your minimum, and if that's changed? I'm asking because yesterday, Itaú was a bit more explicit about that, and their capital cost went up. I'd just like to know if you can share your capital cost with us. Thank you.
Gustavo, for new projects, we still haven't disclosed that. We're still expecting the macroeconomic scenario to settle down in 2027. We're working with a 15% figure right now. We had a more positive scenario, interest rates for the future, and we expect capital costs to increase. Our capital cost is at about 15%. We had better macroeconomic expectations, but now we're reviewing our budget, and the capital cost will be reviewed and probably will go up.
Great. Thank you.
This concludes our questions and answer session. We will now hand it over to the executives for their closing remarks. Go ahead, gentlemen.
Once again, I would like to thank you for your attention, not only during this call, but every day, and underscore that your insights and questions are always welcome. So on behalf of the entire team, I would like to thank you, and I hope you have a great day, especially as we get prepared for the next economical cycle. Thank you.
This concludes Porto's conference call for the third quarter of 2026. Thank you, and have a good day.