BB Seguridade Participacoes (B3:BBSE3) Q2 2026 Earnings Call

0:03 Welcome to our virtual meeting to present the results of the second quarter of twenty twenty six. Into two parts. In the first part, our CEO, Delano Valentin and our CFO, Rafael Osterrengio, will present the main deliveries of the quarter. The presentation and the slide deck in Portuguese or in English can be downloaded from our Investor Relations website at the address www.bdseguridaderi.com.br. In the second part of the event, there will be a Q and A session when analysts and investors will be able to request any questions they may wish. I will come back after the presentation to give you instructions if you want to ask a question. Now I would like to give the floor to

1:05 Delano, who is going to present the main highlights of the quarter. Delano, floor is yours now. Thank you, Felipe. Good morning, everyone. Good morning, all of you with us here today. It's a great pleasure to be here to show you the results of the first quarter of twenty twenty six. I would like to start by thanking everybody for joining us for this conference call. I would also like to thank our investors and especially our customers for their continued trust in our company. I would also like to extend special thanks to our employees and Banco do Brasil sales force, who continue to play a key role in the execution of our And I would like to thank them for their contribution to the performance we'll present here today.

2:09 Along the first six months of 2026, we continue to operate in a very challenging environment. Despite that, we have kept discipline in the execution of our strategy, seeking more integrated management with all companies of the conglomerates to be more efficient, both in the way we serve our customers and in the management of our expense. I would like to start the presentation by drawing your attention to our recurring net managerial income of BRL 4,400,000,000, an increase of 3.2% compared to the first half of twenty twenty five. The net operating income after taxes reached 3,500,000,000, an increase of 0.3 compared to the same period as the previous year, especially by the drop in the loss ratio in insurance operations, which remains at the lowest historical level and the growth in revenue from management fees accompanied by improved operational efficiency with Brazil Prep.

3:22 In addition, investment income after taxes has reached almost BRL 1,000,000,000, BRL 909,100,000, an increase of more than 16% compared to the previous year, reflecting the increase in the profitability profitability of our financial assets in the new room with still high interest rates. It's also worth mentioning the payout of BRL 3,900,000,000 in dividend, at payout of almost 88%, which represents almost BRL 2 per share, thereby reinforcing our commitment to generating and distributing value to our shareholders.

4:11 Going slightly below the bottom line of our P and L, I would like to highlight some operational indicators. In insurance, retained premiums totaled 7,000,000,000 in the first half of the year, remaining practically stable as compared to the year before. In this segment, I would like to draw your attention to the recovery we saw in the second quarter of twenty twenty six for Credit Life written premium, a product where we have demonstrated the greatest capacity to develop new solutions to help offset the impact of the current scenario with high interest rates.

4:57 In addition to the expansion of corporate credit portfolio of persons eligible to insurance, which I have been highlighting since last year and in the first half of twenty twenty six, added almost BRL 400,000,000 in premiums written. I would like to highlight the implementation of a partial credit life insurance, which allows the parametrization of policy terms by the relationship managers a way to reduce the effective cost of insurance. And with this, place facilitate the placement of the product in payroll loans. In pensions, we have reached four and ninety six point five billion in reserve, an increase of 10.6% over the same period in the year before.

5:50 In the period, we have a net a positive net inflow of BRL 2,800,000,000. This is a very relevant number considering the market context and the intense competitiveness that we have seen for the pursuit of investors. Finally, in premium bond, reconnection reached BRL 3,400,000,000

6:18 in the semester. In addition, we paid out almost BRL 42,000,000 in lottery prices, a growth of 36% compared to the first half of the previous year, reinforcing customer the engagement of customers with our products. We think that these results once again demonstrate the solidity of BB Seguridade, its execution capacity and the resilience of our business model despite the still challenging environment. With that, I end my presentation, and I would like to give the floor to Rafael, who's going to give you details of each one of our operations.

7:07 Thank you so much.

7:11 Thank you, Delano. Good morning, everyone. So now looking at the details of our results, second quarter second quarter closed 2,200,000,000 borrella And income, a drop of 3%. Year on year, this drop is a result of the drop, and then adjustment income. So two factors. The most important is negative mark to market, 12,000,000 after taxes in the second quarter and as compared to q two last year, this was positive by 34,000,000, and most of the negative mark to market is resulting of the opening of the structure. The other factor impacting the second quarter comparing year on year was the quite high intent high of the IGPM, which is lagging by one month, which is the rate that we use to update the liabilities of plans as defined by Brazil Prep.

8:23 So in Q2 of 'twenty six, so the lag was 24%. That's compared to second quarter last year. With one month lag, there was a deflation of 0.6. So this effect was not followed up by IPCA and had an effect in Brazil CREP and together with market to market explains the drop in net income year on year. Here on the right hand side, there is a three thing same

8:58 thing. So same of the 3% growth when we look at yearly numbers is a result of a smaller effect of the time mismatch, which was much worse last year. And as I said, in a defined benefit plan, there is a liability in in IGPM is what accounts for most of the results as we see the mismatch. Long time, 16 in investment income, most of it resulting from the time of this March, which is clearly when we break down the net income and its main component.

9:54 So the 3% growth year on year represents BRL 136,000,000,126 coming from a net investment income, and it's very clear here, BRL125 million resulting from the time mismatch and its impact in the first half of this year as compared to the first half of last year. And the benefits resulting from the higher the CELIC rate was booked this year because it was almost in full taken to mark to market, which was 18,000,000 negative after taxes. And last year, it was 23,000,000 positive. So these are the main effects of the financial results when we look the combination of all companies of the group. So in operational, we see a growth of BRL 10,000,000, resulting from a BRL 54,000,000 growth after taxes as we can see increase in management fees resulting from volume as you are going to see. And another benefit that we saw this year was a reduction in the loss ratio, especially in agricultural sector.

11:19 So the improvement in these two variables were partially offset by the reduction in retained earnings premiums very much because of the the worst performance compared to last year in agriculture.

11:39 So in this quarter. So resulting from brokerage. In the correction of the premium bonds and the 39,000,000 negative here, most of the movement is a result of the drop in agricultural insurance premiums, and this variable captures the commission deeming reinsurance premiums. So 75% of the premiums that we issue in agricultural premiums and Brazil Seg as in volume.

12:28 And there is a direct impact in commission. Now operation by operation, first going to insurance operations. There is a drop of 5% year on year in the second quarter. It was 4% in year to date numbers. And as I said, most of the drop arises from a performance that is worse than what we had last year in agricultural segment impacting rural. And share that accounts for most of our written premiums. And you can also see here in other comparisons, a drop of almost 5%. The highlight here in the quarter both in the in the quarter and year to date number is the home insurance growing on both basis. And the other highlight here is our performance in

13:37 terms of retained premiums. So here we isolate the effect of the performance in agricultural insurance that is granted to reinsurance, and we have 5% retention and retained premiums is almost flat second quarter considering year on year the first half both the quarter and the first half. Performance ratios, we can see an increase in the combined ratio resulting especially from commission ratio, which is a positive point because of the mix and more concentration on products that have higher commission rates.

14:24 And the other factor investing, as I mentioned before, is a smaller amount of revenue from commissions from reinsurance, which work to reduce this rate. So they reduce the acquisition cost, and we are always operating considering in income. This rate also goes up because of that. Loss ratio was slight increase because of person segment, and there is better operational efficiency translated into a G and A ratio. Now in year to date numbers, very similar dynamic considering especially the loss ratio in the segment of persons. This is more diluted than there is better loss ratio considering the agricultural insurance.

15:23 Commissions, same explanation, such as in the second quarter year on year, there is better operational efficiency and reduction of SG and A. So financial results dropped year on year, quarter on quarter, and also the okay. There is a first half of the year and expenses in increased and because of SELIC and IPCA. And here, there is the update. So there has been an increase in the actual numbers, and that's why financial expenses went up and offset financial expenses or investment expenses.

16:13 And then the net income is 2% comparing year on year, the two quarters and 1% down comparing the first half of the year. So it's down year on year in the combined ratio and a drop in investment income, which was partially offset but not in full. And that's why there is a year on year drop by 21% considering the first half. Now considering pension plans with very robust performance both in the quarter and in the first half of the year, 4% year on year and a 7% growth in the year to date

16:54 numbers, BRL 72,000,000,000, a significant drop in redemption rates on both basis. So the it was 11% last year, both in the quarter and in the first half of the year, last year as a whole. And this rate dropped by three percentage points, quite significant drop in reduction rates. Very, very good performance in terms of net inflows, closing the half with EUR 3,000,000,000. The reserve grew 11% in twelve months, getting to BRL $496,000,000,000 in June 2026. Management fee, you can see here a less accelerated growth looking at average fees.

17:48 So the risk aversion still persists in the market and most of the flow that we've been seeing here is concentrated in the lower risk products and as a consequence, lower management fee. That's why there is a reduction on both comparison basis. In terms of operational efficiency, so a considerable improvement, almost three points here. And here, 2.4 if you consider year to date numbers. So most operations of the group except for our premium bond. And so here, the net investment income, second quarter very much impacted, but it's very sharp high of our GPM, which was not followed by a PCA. So investment income was down by 49.

18:44 If we look year to date numbers, 41% growth here precisely because of the effect that I mentioned in the second quarter, you've diagnosed for the six months and most of the growth of 41%. Results from a better effect of the time mismatch, as I said before. And then net income despite better efficiency and the growth in revenue is taken by the negative investment income. Net income dropped 19% year on year, but it's not so sharp if we consider the first six months of the year. So there's a 13% growth also favored by the forty one percent five in investment income.

19:39 Now in premium bonds, we had a drop

19:43 of 12% year on year, 3% in year to date numbers. This part that there's a 2% growth in the balance of reserve in premium bonds because of the level of redemption that is a lot slower than last year. In terms of lot of repriced is paid, so BRL 18,000,000 paid down, 17% growth year on year, 42,000,000 paid in the first half of the year. So far, 36% growth. Net investment income on a high of 7% year on year because of the better financial margin of 20 bps and in year to date numbers, even the more intense growth, 39%, considering the investment margin.

20:30 And last year, we had the negative adjustment of hedge, which ended up causing a negative impact in the first half of last year considering the basis. So that's why it's effective. That's why we had this very, very sharp growth of 39% if we look at the first six months of the And investment income drove the net the growth in net income, 1% year on year, 40% in the first six months. Now BB Corresoro brokerage outlet sold here, a drop of 3% year on year and 1% down by 1%. If we look at the first six months, same reason explaining there is a reduction in the share

21:20 of brokerage from premium bonds. So in terms of net margin, almost flat year on year, up by 0.5 percentage points considering the first six months because of the average rate. And then the stability financial margin, you can see here, if you look year on year, the drop in net income agrees with the drop in revenue. But on the other hand, the improvement in year to date numbers partially offset the drop in revenue, and net income is stable considering revenues at 0.1%.

22:06 Now addressing the guidance for the year. So in terms of actual numbers, in terms of the pension plan, so we ended at 11% in the range from 8% to 11% in terms of written premiums. So we are 05% below the lowest range in noninterest operating results. So we went from minus seven to minus three.

22:36 We ended the year at minus 02%, thereby outside of the expected range. So from here until the end of the year, looking here at our guidance in terms of growth and reserve, the variation of non interest operating results. So they are more asymmetrical, heading towards the top here. From written premiums, the main driver here, the from now till the end of the year is going to be our performance in terms of crop insurance, it's absolutely feasible for us to deliver along the year. Now I end my presentation, and now I am going to join Delayo and Felipe for a for q and a session.

23:28 Thank you. And if you want to post a question inviting, please click on the q and a, which is at the bottom of your screen. We'll try to answer all the questions live during this conference call.

24:58 And if it's not possible for us to answer them during our video conference, we will answer them in writing after the end of the meeting. First, analysts can ask your questions live by audio. If you want to ask a question, just click on the gray pen button.

25:16 You can ask questions either in Portuguese and in English, and we are always going to answer the questions in Portuguese. Now starting Q and A. So we are going to have Enan from Citibank. Enan, you can open your microphone and ask your question. Morning, gentlemen. Thank you very much for taking my question. First is related to the tax reform. This is something that we haven't been talking in much. And in 2027, there will be changes. How are you seeing the potential changes so far, and how can this impact your bottom line in 2027?

26:07 Do you see any risks associated to that? And then the second thing is related to credit line. I think April was a very weak month, but May and June, and especially June, considering your results, they were not good much. Do you think this is going to continue from now on?

26:32 Well, Anna, thank you very much for your question. So let's start from the tax reform. So there is still a lot of uncertainty in the the reinsurance environment. But overall, for the country as a whole, it's not 100% clear. So so far, we're not giving you any guidance on the impact and in pension and premium bonds, we are seeing more of this transition considering especially the new regime.

27:18 But in insurance operations, we still have the potential impact involving the way we manage risk and reinsurance operations, especially because of some changes in tax rules, which are not yet 100% clear. So in insurance, this is where we place the greatest emphasis

27:43 in the transition to the new regime, not just just operational, but also potentially considering the financial impact year on year in the way we designed it and in terms of seeking alternatives and maybe if these changes happen as we expect them to happen. As to Credit Life, in fact, there has been a very sharp recovery in May and June. And here, most of the recovery is due to two factors. One is external. To BB Seguridade Banco do Brasil, which was a change in a max times for pay loans that with more months. And this by itself gave us improved the credit origination.

28:47 So it opens more room for the insurance products to be offered for the life of customers. So this was an external factor that favored the performance. There's an internal factor that is also contributing, as Delano mentioned, and partial credit life. And it's now credit life with parameters in terms of time and coverage or coverage time considering the more restrictive environment with interest rates at this level and now for the distribution rate there is an alternative more flexible coverage times to make the product

29:33 more accessible so that we are more successful in selling the product. So these are the two main factors that explain the better credit line profit. Okay. You. Okay.

29:54 Our next question by Antonio. So thank you so much for your time. My first question is related to the loss ratio. So we can see that your operational results have been changing above the guidance, which is related to some worsening in loss ratio from now on. If we look at the loss ratio and interim life and credit life, the difference is really rural, which is considered low historical averages. Could you tell us what you're seeing as the potential impact of El Nino?

30:43 Are you pricing it to wait for the loss ratio to go back to normal? If I may ask another question, it's slightly broader about El Nino. So we are seeing in the guidelines and the impractical effects of Almirio already showing themselves present. What are you seeing? Higher demand for insurance? Are you getting repairs with more reinsurance? So the second question, what are the prospects of having a slightly more severe El Nino this year? Well, about the guidance of operational results.

31:37 So the distribution of likely was more asymmetrical. So fact said, considering the first half of the year, it's very much the result of an effect, which is likely to become more difficult in the second half of the is because the loss ratio in the first half of twenty five was higher than the loss ratio in the first half of twenty six and a more normal loss ratio with a smaller carryover of earned premiums. And that's why I mentioned the likelihood of us closing the EU. So it's not wise to review the range because this gradual convergence was already expected for the second half of this year.

32:35 But in anyway, we we're not really ruling out that that we might overcome, but anyhow, it's not going to be too soon. As to El Nino, well, we could go on for hours about it, but trying to be objective and think refined. So how does El Nino impact the main aspect of your question? Well, as to risk management, in terms of reinsurance, it didn't change. It remains the same. We defined 15%. So whenever we work in the management of our reinsurance panel, we look at the longer horizon and all the questions considering non proportional contracts in terms of denials and everything. We look at the longer time range.

33:42 In terms of demand, no significant changes on it. Now as you said, some time ago, we were discussing the likelihood of it happening. Now it looks like it's a given. It's taken for granted. It's it is going to happen. Apparently, it's already happening in some regions. And the question now is related to the intensity of the rain, whether it's going to be more moderate or more severe and how this is going to affect considering the sensitivity to our business, especially considering the center of the country.

34:32 So considering a draft in the north of the country, in the center of or the South, and how it impacts our country. So this except rainfall, it may impact most issue. I would focus on our portfolio of damages and how excessive rain might impact our portfolio, more focused in the center and South of Brazil. For the crop insurance, we should look at the longer horizon. For 2026, in terms of El Nino, we don't really see much of an impact this year.

35:25 We see the basil is covered. The first crop has been harvested, corn. So it's already almost fully harvested, so there might be some marginal effect on loss ratio, but really marginal for the summer crop. So for 2026, the El Nino effect may be in damages portfolio, but exposure to risk in our in those portfolios. So considering how big Brazil's tech is, this is very limited. It's not going to have an impact in our bottom line in 2026.

36:11 Now depending on the severity of the impact and how it may affect the replanning of the soy, so we should look at the rainfall, especially during planting September, November this year. So so the amount of rainfall and too much rainfall may delay the planting of soybean and may affect the crop next year. And then if planting soybean is delayed and then the harvesting of soybean is further ahead, thereby compressing the planting and the interim crop.

37:05 So it's going to be later The off season prop with incidents of prop and may have a potential impact in the loss ratio in the second and third quarters of twenty twenty seven. It's not certain. So this year for 2026, a very limited effect and for 2027 in the second crop. So, potentially and we need to observe the level of rainfall between September and November this year. Thank you, Rafael.

37:51 Could you explain in terms of damages for 2026? While damage line in home insurance, is there reinsurance, or is reinsurance focusing more on agriculture? We have coverage for excess damages. It's not in the way you are familiar in the agricultural, but we buy soft gas coverage. Thank you, Antonio. Our next our next question comes from Kyle from UBS. Kyle, you may open your microphone and ask your question. Good morning, everyone. Good morning.

38:40 Thank you for taking my question. So first question regarding Gru insurance. Can you tell us more about premiums? We have a better performance with a line with 10% year on year terms of growth. So what are the drivers of this specific line and others and the other rural lines. And the second one is related to brokerage props with a weaker premium in recent. There was a contraction of revenues in broker, almost 3% year on year. My question is how much you have deferred thinking of this pace of premiums. What should we expect for next year? And what could be the drivers for us to see it growing again?

39:35 Thank you. Thank you very much for your question. Fine. Kindly since you you got back to the team of rural insurance, and I forgot to mention in Antonio in terms of impacting our bottom line. Yeah. So because of reduction in the portfolio, the impact in the drop loss ratio is very small. Today, considering the share of the portfolio and the whole, which is less than 2% of retained premiums if our loss ratio doubles, it has a 1% impact. So even in agriculture where it would have be more impactful, it's still very much limited for the numbers as a whole.

40:22 Now your question about written premium. But to date, our main difficulty in rural segment is very much related to crop insurance, especially for soybean and corn crops. And how does it reflect on the insurance company? As we expand the portfolio of products, so crop insurance today that is suffering the most is very much limited to the modalities of costing, in a brain that is suffering the most, and that's why we see this drop year on year. When we expand to lean life so that our credit lines to cross sell the products. For rural lean and insurance, we see the costing investment lines and in life.

41:20 So we see the cost. So also in costing, we can go in renegotiating. In terms of crop renegotiation, the cost of agricultural insurance, it's that's it. So if they had insurance or they harvested, and they sold the crop. So in renegotiated, the only risk that we can somehow cover e Farmers Life Insurance risk and even for renegotiated. We have Farmers Credit Life insurance that's why it's better than the other two lines despite the higher interest rates. Now I would say that in rural insurance, we are not really certain in terms of the second half of the year considering.

42:28 And but I would say that most of the growth that is easier to be captured, it was captured in the first half of the year. So we can estimate that we can keep the same base that we have for Farmers Life Insurance. Now there is a combination of events and the way the higher interest rates between 1425 and how it affects our business. There's a combination between insurance products and accumulation products. Most of the insurance companies are associated to credit.

43:20 So this environment favors accumulation, problems which are pension and premium bonds, and this favors or rather makes it more difficult to sell credit or products related to credit like credit life and other kinds of insurance. So as you see the faster pace of growth, we need to count on the slowdown and in interest rates. I'm not talking about spots. So interest rates, you have slightly more breadth for the lines related to credit.

44:06 So for now and for the time being, considering all the geopolitical issues that is the environment is very volatile. And we also are going to have elections in Brazil in the second half of the year. So it's very difficult for us to make any predictions in terms of timing, and so we need to wait and see. And we hope that geopolitical issues lose strength in the second half of the year. And once we define the elections, how this is going to impact the curve so that we are slightly more at ease in terms of our lines that depends on credit origination.

45:09 Thank you, Kyle. So now Daniel Vaz from Safra is the next one to ask a question. Daniel, good morning. You may open your microphone and ask your question. Good morning, Philippe. Thank you very much for taking my question. Good morning, Delano and Serendio. I would like to focus on rural insurance, and I think some of my colleagues have partially asked this question. I was looking at your subscription because today, two thirds come from rural. Looking in previous years, that are 50%. And most of the underwriting is related to the loss ratio. There isn't an effect of the need there is more farmers' life and lean.

46:04 So there's a very high level in your segment looking looking at crop insurance, 35, 37. Today is 20, And lean is 16. And Farmers Life is slightly lagging behind thinking of sustainability. So we would like to you could hear the likelihood of these three lines, whether it's below expected and whether it's going to become normal for any of those lines. We try to model that, and the analysts have been getting it long for better. Your loss ratio is below historical average.

46:59 So is this going to go back to normal, or is this a new normal? Daniel, thank you for your question. I'm going to try and answer in part because the reasons are different considering the three products. For rural lean and a farmer's life, we are not expecting much change. For Farmers Life, we had an atypical change when we had the 700,000,000,000 BRL for Farmers Life that died because of COVID.

47:47 And that something happened, and we hope this never happens again. We don't expect that kind of pharma credit life insurance. So there may have been some unmaterial oscillation because of damages. So wind, hail storms, that might affect the storage and the warehouse houses. And we are not really expecting that. That might be a one off thing. Now crop insurance, as I answered to Antonio, considering El Nino, a social insurance company that are more sensitive to La Nina than El Nino.

48:41 This is where we have the greatest uncertainty. It's we are currently from three very favorable climate cycles. This is not usual considering current levels. We have historical lows in terms of loss ratio in in crop insurance. So the likelihood and the distribution is more asymmetrical. It's difficult to improve, And the expectation is for it to increase. And thinking about Antonio's question.

49:26 So considering La Nina and its sensitivity, so there is a substantial increase. Now when we look at the longer time frame, the loss ratio is around 60 to 70%. So naturally, it would be average. It's bound to happen in a short time span, and it might be more gradual. Thank you very much. Thank you, Daniel. Our next question comes from Marcelo Mizari from Bradesco Media.

50:12 Mizari, you can open your question. Your microphone and ask your question. Thank you very much for taking my question. We're now combining team and looking at rural insurance. So first, Rafael talked about the impact. So considering the provisional measure, you are not expecting any effect from the bill for rural credit that might impact the risk appetite. My question is, considering this and thinking about the operational dynamics of the bank, when you talked about the results.

50:58 So before interest, in terms of the guidance in premiums, what do you see the premium guidance for the year? Also, because it hasn't been realized, how do you see this? Is it going to be more favorable in the second half of the year? How can we see that? So, miss Ari, thank you very much for your question. So First, the impact of the bill. It's difficult to quantify impact. So I can quantify it positive considering that now there are no more more uncertainties associated.

51:45 So farmers were waiting for the definition. How does this impact? So sometimes farmers in arrears that were waiting for this bill once it's defined whether they settled the loan or whether they are eligible to that provisional measure. They will again become eligible for the card. That's for summary. And we somehow extend the number of customers that are eligible considering crop insurance.

52:39 Now giving you numbers is very difficult for us. About now about refunding considering that provisional measure, and only Farmers Credit Life can be measured with a more positive effect resulting from the provisional measure is the limitation of customers that can take credit. That's the premium. So I circumvented in the presentation considering when I explained the guidance, we're just half a point below the range.

53:25 So going back to the range is absolutely feasible in the second half of the year. Now most of this movement of convergence depends very much on the recovery of insurance, which in principle, we do we can't really see very clearly in term of the levels of premium origination that we can see in the second and third quarters, especially this month and next month. So for now, we are very conservative, and we do not yet have any more positive prospects of bringing it back to range considering the lower half.

54:33 Thank you, Marcelo. Next question comes from Ricardo Bospivo from BTG. Good morning, Ricardo. Please ask your question. Welcome very much for taking my questions. Prevention for a property insurance program. So combining some concerns that would search to offset climate losses. How could this catastrophe fund affect BB Seguridade?

55:28 Thank you for your question, Ricardo. Well, there was a reduction, really, and we should consider what was budgeted and what was truly spent in the subsidy for crop insurance. So we are not expecting any material reductions or in terms of what is going to be effective expense for the subsidy program. Yes? There was a considerable reduction in insured area. It's something like 15 to 18%, and it went down to 7% with a low bias.

56:21 It's difficult to tell how much of the results from the subsidy program or whether this is a result of the change in the matrix of of funding for farmers. So this is something that we want to okay. The catastrophe fund, this is an alternative that that government has been studying. We have this, And it was not as expected. It's very difficult for us to go into details because it would be too early.

57:17 And so it might not be the right time for us to quantify the impact So there are discussions involving the mandatory insurance when I'm subsidized by the government, the catastrophe funds, and there are many things under discussion, that nothing has been has reached the final decision yet. Ricardo. Thank you, Ricardo. Goldman Sachs, question three. You for taking the questions.

58:04 So with Brazil, Prev, I would like to change the the change in dynamics between the first and second quarters. You talked about the end of the competition with advances has an effect. And what about the second quarter? So considering net inflow, is it any different from what you're expecting for the second half of the year? Hi, Thiago. Thank you very much for your question. Well, there are many factors contributing. So the high interest rate environment ends up favoring our businesses and provide slightly more stability. The side effect is that most of the flow goes to low risk strategies with lower prices.

58:56 But in terms of volume, considering favorable environment. So first of all, we've been seeing that most of the impact of last year, considering incidents of IOLF and considering the amount, this very much affected the management and the calendar that we had in terms of distribution, which was designed, not taking that assumption into account. So the entire mechanism of induction and the incentive program for distribution was designed based on IOF at a certain level.

59:47 And so at some point in time, we didn't even have the structure. Just us, and no one in the market had the structure for retaining the iOS. Sometimes, we would suspend allocations above the limit because we couldn't retain that. So this is not the case this year. So last year, the impact this year, the scenario has already been defined. We are okay. We have adapted to the new environment and all targets for incentive agreements. The factor number two, and we can take a look at time. So this is very similar to what we are seeing in terms of interest rates and inflation than what we saw in twenty fifteen, sixteen, and the level and behavior of pension operations was very similar.

1:00:45 If there is an initial movement where customers are more averse to risk because of shocks, So as the structure kind of stabilizes a higher level and we take the risk from funds, customers are slightly more at ease with the profitability. And then in this environment, competition with equity, private, it is more favorable for fixed income bonds. So there is less competition in certain class of act assets, and this is combined, as I said, to less interest on private bonds than incentivized bonds.

1:01:39 So we don't know how much came forth as to each one of these factors that are more favorable than in the last two years. You, Thiago. Now we have a question from Anairios from Santander. Anair, please, you may ask your question. Anairios. Hi. Good morning. Can you hear me? Hello, Grace. Good morning. Thank you, Felipe. Good morning, everyone. Thank you very much for taking my question. Well, my question is about commission rates, and Rafael talks about the dynamics that are driving up that rate, There is a mix effect and less commissions from the reinsurance, but considering that we are seeing a consolidation in the next steps today, do you think we should still see an increase in commission rates in future periods, or are the levels today more or less normal for you?

1:02:53 Anahi, thank you for your question. Well, there are two things and you summarized well. So when we look at commissions of Brazil Seg, there is an increase resulting from the change in mix with loss of the share of crop insurance, which is the product with the lowest commission and increase in the share of home insurance, sometimes even credit life compared to crop insurance in the building of the premium, which leads to higher average commission. And even though this is in principle negative for the insurance company, it has a positive impact in a brokerage company.

1:03:43 So part of the higher commissions is negative. When we look at the numerator of that number, we see acquisition cost of commissions paid by the brokerage firms, and there is a reduction factor, which is the commission received by the premium of reinsurance, especially for crop insurance. So the reduction of written premiums in crop insurance, so there is a lower volume of commissions coming from reinsurance. And as a consequence, there's a lower share of this commission reduction in commission rates, and this would be negative. From now on, there is no indication that increase in commission rates is likely to persist in a longer horizon time.

1:04:37 So our expectations with a reduction of crop insurance is precisely of a reduction again of that rate considering the longer time spent. Even if recovery doesn't happen, its share the share of crop insurance, considering total numbers, will not be sufficient to take this number to an even higher level. Thank you very much. Thank you, Anain. Now we have a question from Carlos Gomez Lopez from HSBC. Carlos? You are allowed to unmute now and make your question, please. Thank you very much.

1:05:24 I regularly ask you about the renegotiation of contracts with your partners. I don't know if you have any update on that. And second, can you give us your your estimate for interest rates for the coming three years? Thank you. Carlos. Hi, Carlos. Good morning. As to contract, we do not have any horizon for the beginning of negotiations, and we did not talk to the bank about about that, but we are going to and let you know if we have anything new coming up in that.

1:06:13 Congress, as to the rates in principle, so it's $14.25. So soon there will be a coupon meeting and consensus we are betting on a drop of 25 bps. If that becomes true, if that happens, there is no indication that the Central Bank might drop interest rates at the sharper rate that we had in the beginning of the year. And so we might end this year with a silly crate, very similar to the one that we ended 2025 with the impact that affected the results of 2025 of the year, we had the guidance, the expectations of for 2026.

1:07:02 And so we expected that financial would suffer a lot. Now for future years, in our vision, the cover is pricing a risk premium that is very high, way above what we think would be reasonable considering the foundations. Today, it's very hard for us to estimate how much premiums will be because of the uncertainty in the second half of the year considering the political scenario, not to mention the entire geopolitical scenario that has been affecting the country, creating some inflation, and we can see the effects being reflected in our structure. So our expectation is that there will be a reduction. Now how big this is going to be, it's very hard for us to estimate now.

1:08:02 But but when you look to your budget, you are assuming that there will be lower rates in the coming two years. Yes. We are going to start discussing the budget this month, and we are going to use the assumptions of the economic scenario for Banco do Brasil, following Banco do Brasil, but we will begin budgeting over the next few days. Thank you, Carlos. As we have no more questions in line by audio, we just have one question in the q and a regarding our admin expenses that we have seen in some of the companies of the group, better operational efficiency.

1:08:54 And the question here is how much of that is recurring and what we expect in terms of management of expenses. I'm going to take the opportunity and give you my final message. So this control of admin expenses is part of our day to day work, and I believe that in the second half of the year, we are going to focus on that with great emphasis. And as you've been able to see, especially in the answers that we have given, and as Rafael said, we are very confident in our business model, the sustainability, resilience of the business. We know that we are faced a very complicated scenario, not just in Brazil, but also internationally, geopolitics, influences lots of volatility.

1:09:48 We have just had the provisional measure of renegotiation of rural debt, and we believe that somehow this will bring back many customers and may favor our business. And even so, we are going to work very carefully so that we may continue delivering the robust results that we have been seeing so far. A special highlight after the closing of the first half of the year, had BRL $05,000,000,000,000 in reserves in Brazil. Perhaps this is a historical landmark, not just for our company, but for entire private pension market in Brazil. And I believe that we still have a lot to build. We are working together and very intensively with Banco do Brasil to try and develop new journeys, new products to have a better product mix to try somehow fill the gaps that we have already seen here, as we mentioned, that arise especially from high interest rates that end up impacting the credit cycle and as a consequence, some of our projects.

1:10:59 The idea is to keep up the good work and the hard work to continue delivering the same very good results. I would like to thank your attendance to our earnings release, video calls. I'd like to thank our shareholders and customers for their trust in us. Thank you so much. Well, now we are ending our earnings release video call. So there is a short research after the event just to hear what you think about it. Thank you so much, and have a good day.