BB Seguridade Participacoes S.A. (OTCPK:BBSEY) Q2 2022 Earnings Conference Call August 8, 2022 10:00 AM ET
Company Participants
Ullisses Assis – Chief Executive Officer
Rafael Sperendio – Chief Financial Officer
Conference Call Participants
Antonio Ruette – Bank of America
Tiago Binsfeld – Goldman Sachs
Guilherme Grespan – JPMorgan
Henrique Navarro – Santander
Kaio Prato – UBS
Daniel Vaz – Credit Suisse
Operator
Ullisses Assis
[Foreign Language]
Operator
[Interpreted] Good morning. Thank you for attending our virtual meeting to present the result of the Second Quarter 2022.
A few housekeeping reminders before we start. This conference call is being recorded and has simultaneous interpreted into English. If you want to hear the audio in English, click on language interpretation button on the bottom menu of your Zoom screen. The Portuguese version of our presentation will be shown on the screen during the company’s presentation. The English version of our presentation is available at our Investor Relations website that the address at the bottom of the screen. After the company’s presentation, we are going to have a questions-and-answer session. During the company’s presentation, questions maybe send in writing by clicking on the Q&A icon on the bottom of your screen. After the company’s presentation, we are also going to allow a few questions to be asked audio in Portuguese only.
And now with us, we have Mr. Ullisses Assis, CEO of BB Seguridade, and Rafael Sperendio, CFO and IRO. Now I would like to give the floor to Mr. Assis who’s going to start the presentation. Mr. Assis, please you may start.
Ullisses Assis
Good morning, Philip. Good morning, everyone. It’s a great pleasure to be here once again with you. Thank you very much for your attendance on the release of our results of the second quarter. This quarter made us very happy in terms of our performance. And the company is really demonstrating quite consistent results based on better operational performance, strong operational performance with more sale, low loss ratio. Net investment income, again is a significant share of our performance of our bottom line. So, we’re growing on very sound basis.
We ended the quarter with BRL1.4 billion and net income, the best quarter ever. And a growing operational results totaling BRL1.2 billion in a quarter for the 5% higher than the operating result in Q2 last year. Net investment income was BRL166 million consolidated numbers as compared to last year in the second quarter, they had to be negative by BRL102 million. And we know that SELIC change would lead us to a new level of net investment income. And we’re even happier because we are growing very consistently both in premiums written and also in pension plans and premium bonds.
In insurance, we had an increase of 23% as compared to the second quarter last year, almost BRL4 million in written premiums. Loss ratio, it’s 27% lower than last year with a significant drop of 23.7 percentage points. So, we see a drop in the loss ratio due to COVID. And we had no major storms in terms of the loss ratio on the rural loss ratio.
We have had a strong collection of pension plans. So, just we — in the second quarter we had almost BRL12 billion in contributions and a very strong growth in premium bonds. We are again leaders in terms of collection BRL1.2 billion, collection 27% higher than the same quarter last year. All of this will enable us to pay out BRL2.1 billion, which is a payout ratio of 80% as we had announced before.
Now going to our next slide. So, now talking about technological modernization and technological and digital transformation. We see an ongoing growth in the number of businesses that are conducted in the digital environment. It was 15% greater in the first half of this year compared to the first half of last year. Digitals counting to almost 13% of our total sales. This percentage is less significant than how much these businesses are growing over its own bases because 13% share reflects that the network of the bank has been selling and what others channels have been saying. So, the share of the pie is the least important. What matters is that we have a bigger pie. So, when we really celebrate and we have been working, so that the percentage of businesses conducted on digital environment to grow year-over-year, and we have had that 15% growth.
We are also investing heavily on the digital journey, on improving the digital journey. So practically 90% of our digital journeys are already using the best UX practices, and we had almost 2 billion based on data analytics. So, our data analytics model have been have been demonstrating to be increasingly more accurate. And this is good for us to operate in the market, both now and in the future when we analyze open insurance, and I think that digital transformation is fundamental for us. And this heavy investment in data analytics, it’s some something that we’ve been trying to do so that we are better and better positioned.
As to the new IT architecture is the thing that all our products are aligned not just to be sold through the digital channel, they are already sold, but they should be sold in any kind of channel, a BB channel or a channel outside BB and they should be customizable. So, in March 2021 — or rather June 2021, we had 15% of the product was there. And now we are at 55%. And we have the commitment that we will get 100% product ready to be sold and a virtual ready to be sold in any type of channel by the end of 2022, both in Brazil, and we are also preparing for open insurance.
And as I had said this year, we have doubled the investment in our budget for IT only in the first half of the year, we have invested BRL219 million, 38% higher than we had in the first half of last year, and it’s going to get to almost BRL600 million, so that we complete the digital transformation before December this year.
Now talking about the diversification of distribution. Since I joined the company, this is a recurring theme. And we really believe on this new business divergent it has demonstrated to be very successful. In the first half of this year, we have issued 350 million premiums were written through partners. So, we went from zero practically. And as in previous conference calls, and as you have been seeing when we you monitor and you still follow up with a number of partnerships, we have almost BRL350 million premiums written via partnerships, which represents 5% of our total insurance premiums written. And we hope that in the midterm, this is going to be much more representative in terms of the share. We are still investing heavily. And our main veteran has always been and will be through Banco do Brasil. But the company as big as ours needs to have the ambition to grow in the open sea. And we have the capacity of using both strategies very conducting, both of them very well.
And as I had said before, we want to have new — 10 new partnerships operational. And this is an overview of everything that is already operational and partnerships under negotiation. Just in terms of cooperative and agro sellers, we have more than 15,488 agro banking correspondent selling our rural insurance banks. We have two digital banks operating. We have closed a partnership with postal service company as we announced as a material a few months ago to loyalty companies, not to mention the partnership to sell large risks and transportation insurance in the wholesale segment.
And in these three modalities, we are talking of a market that is greater than BRL10 billion in premiums in the market where we weren’t present in. Last year, we issued less than BRL70 billion in premiums in a market of more than BRL10 billion. So, we went after two strategic partnerships with companies that are specialized in this industry so that we become relevant brand players and seek our fines market. So, this is another business front we get into. And we believe we are going to grow considerably over the next quarters.
Not to mention the negotiations, we have more than 20 and we are talking about more cooperatives and agri resellers. We are discussing with another six financial institutions, three digital wallets and retail companies, one benefit service provider and one access in ticketing service providers. So, we have a wide range of partnerships for each one of our colleges, all of them today have a structure to work with partners. And we hope that through this work, that we have only very recently started, but it is already providing results, and we hope that in the near future, our company can be much bigger and that channel will be increasingly more representative. Our main focus in terms of partners is Banco do Brasil, and it will continue to be our main sales channel, but we have the ambition of occupying or having a bigger footprint in the market. And as insurance companies, we already have a basis. We need to be able to distribute our good products, take it to more customers and occupy more space in the market.
So, I’m going to turn it over to Rafael to talk about the numbers, and then I come back for the questions-and-answer session.
Rafael Sperendio
Thank you, Ullisses. Good morning. Now on slide number six, talking about our net income growth. So, BRL1.4 billion in Q2, 2022. So, the growth of 87% year-on-year with loss ratios going back to more normal levels in line with our track record until 2019 before the pandemic and also the strong performance in sales, and I will talk about that further on. And so, in all our business lines, a quite significant contribution, especially of rural insurance.
Another factor that has contributed quite significantly to this result was the financial — the net investment income. As you can see on the right-hand side, BRL166 million in terms of net investment income after taxes. And this is driven both by the increase in the average volume of funds, but also because of the higher SELIC interest rate and also because of the slowdown in the IGP-M that reduced significantly the financial expenses of Brasilprev in this manner in the second part of 2022. The net investment income accounted for 12%. It could have been better. We had a quite significant impact of mark-to-market, especially because of the opening of the actual interest rate at the end of the second quarter, more specifically on the second half of June. And when we look at the yearly numbers, BRL399 million in terms of net investment income, this represents 15.4% below historical leverage, but going back to historical levels of 2022, 5% that we used to have.
On the next page, there is a brief summary of how we are doing in terms of year-to-date numbers. So, you can see the BRL2.6 billion net income in the first half of the year, growth of 44%. And as a contribution for this performance is distributed in a uniform way between the two main components. This growth of BRL855 million in our net investment income, BRL449 million came from the operational result and approximately BRL566 million, including the increase in revenue because of earned premiums, because of sales then during the quarter, our accrual of earned premiums from past sales together with brokerage results. So, we have an increase in sales contributed with BRL566 million, BRL35 million due to management fee Brasilprev revenues because of the balance — and with interest rates related to our reserves, about BRL89 million came from the reduction in the loss ratio that we had the benefit of the reduction of notices in terms of COVID claims, a decrease in COVID claims and three quarters 4 of this improvement, which was BRL325 million in reduction in our loss ratio and BRL266 million was related to a higher loss ratio in agricultural or crop insurance loss ratio. So, we had a worsening deterioration of crop insurance loss ratio, which leads to a balance in terms of better loss ratio of BRL89 million.
And lastly, the last part is BRL271 million that has taken part of this growth, which is the result of investments that we’ve been making on technology and the migration of the technological architecture, more focusing on services and the expansion of our staff to — the deal with all of our efforts to increase our scope and improve our business model. So, we had an BRL855 million improvement in results going from 36 came from a net investment, [indiscernible] came from the net investment income, 433 came from volume and rate variation, especially the SELIC rate and the slowdown of the IGP-M, the inflation index, that time mismatch of Brasilprev and a negative — it was not as negative as it was in the first half last year, contributing with BRL19 million.
And lastly, part of the improvement was taken by the opening of the interest rate curve, as I said before, more specifically, in the month of June, which then moderated to have an impact of BRL95 million year-to-date numbers in the first half of a negative mark-to-market, especially for Brasilprev. Whereas last year, even though the improvement was quite significant, the impact was even smaller, was BRL79 million in the first half of last year.
Now moving to the main highlights of each one of our businesses. So on slide number eight. You can see our insurance premiums growing 23% year-on-year, 21% year-to-date number with a quite significant contribution from rural insurance that grew 42% year-on-year and 43% in the first half and also had a positive significance for home insurance 27% quarter-on-quarter and 29% half year-on-half year.
[Foreign Language]
As to the mortgage life or rather credit life, more specifically in the first half of the year, we had a performance that really fell short from our potential, demonstrated a strong recovery in the second quarter, growing 1.4% year-on-year, reversing most of the drop that was accumulated closing the quarter with 4.2% retraction.
Now talking about the operational indicators. You can see the combined ratio with a good improvement driven by the lower loss ratio that was significant comparing last year to this year, going from 51% in the second quarter last year to 27% this year, especially considering agricultural or crop insurance.
And lastly, we have commissions, had a minor shrinkage. So here, you can see rural insurance gains from written premiums with average brokerage fees, different from other insurance products and also the credit life that has a performance bonus for sales that BB brokerage house uses expenses of the insurance company that because of the slowdown in year-to-date numbers. So, this performance bonus for credit life was quite small. And so most of what is being booked, it relates to life insurance.
As to expenses, there was an increase if we look year-on-year, so the GA ratio — so 0.2 percentage points retraction. And then, if you see year-on-year, there was stability, especially because of rural insurance and once again, all the investment that we’ve been making in terms of personnel and technology to conduct the strategy, to expand our business model. So, net investment income has more — suffered a more direct impact of the SELIC rate with 136% growth year-on-year, not just SELIC, but also a significant contribution coming from a higher average volume of funds. So, written premium is growing on the combined ratio because of a lower loss ratio, and the net income grew 202% year-on-year and 89% year-to-date numbers.
Now talking about pension, contributions grew 5% year-on-year as compared to the same period in 2021. Accumulated has grown 13% year-to-date numbers, first half — compared to the first half. Net inflows has grown too. You can see that redemption rate ratio has started to drop as we expected in the first quarter, and this became during in the first — in the second quarter, an important fact coming from redemptions for investment or for consumption.
As to our reserves. The trends that you can see is 4% year-on-year growth in 12 months. The contribution from multi-market representing 31% of the total of assets under management. And even though, we’ve been seeing a decrease — if we look at quarter-on-quarter, this is because of a higher version to risk from our customers. Our customers have been preferring to invest their funds on lower risk products like fixed income. And this explains this shrinking if we compare quarter-on-quarter, which had an impact in a drop of the average management fee quarter-on-quarter that even though it went down — even though it increased the volume of revenues by 4%. If we see year-to-date numbers, this effect cannot yet been seen. So, it’s not here, one basis point and the total volume of revenue has grown above the growth of the balance of assets under management.
As net investment income, as I said before, so the slowdown of the IGP-M and IPCA. So, the fall was less accelerated, has helped considerably in the financial composition in terms of the funds that we are retaining. And then, in the second quarter, the net investment income was negative by 89%, much better. Then minus BRL368 million that we had in the second quarter last year, it could have been better and much better if it weren’t for the negative marking to market in the month of June. And in July, it opened even more, and in August, most of this opening is back. The market is very volatile, but even so our expectation for the year is that Brazilprev will have much better performance than it had in 2021.
And finally, in closing, the pension business saw on the net income, and we had a significant improvement driven 346% year-on-year increase more than doubling, if we look at the first half of the year-to-date numbers comparing 2022 to 2021. Brasilcap, we see a strong increase in collection, 27% year-on-year, and the net investment income also improved significantly with more funds and a significant improvement of the financial margin very much because of the higher SELIC rate and a positive hedge result of pre-positions that we have. So, net investment income growing 315% year-on-year, more than doubling.
If we look year-to-date numbers for the first half of the year. So, net income, we had a 201% growth year-on-year and 68% in year-to-date numbers. In terms of dental, business, you can see a gross operating revenue growing 2%, 3% year-to-date numbers, EBITDA margins with a slow shrinkage if we compare both quarter-on-quarter and year-to-year because of higher loss ratios of higher use of the plant, but even so — both in terms of revenue. And there is financial result of the operations, there was a growth of 17% year-on-year and 20% in year-to-date numbers.
And lastly, the last operation, brokerage business a 12% growth in brokerage revenues year-on-year, 11% year-to-date, driven by rural insurance, especially because of a strong growth in premium bonds. Net margin has grown 4.2 percentage points year to — year-on-year and 2.9 percentage points year-to-date numbers, the first half of the year, not just because of revenue, but also because of significant better net investment income where all the investments of the brokerage business are invested in bonds and operations that are post fixed and this contributes greatly for the company’s net investment income in the quarter. So, there was a summation of better revenues and better financial performance with — you provided a 21% increase in the net income and 17% improvement for the year-to-date numbers.
In terms of our guidance, our three indicators that we announced to the market, we have exceeded two of them. In terms of non-interest operating result, we were expecting a range between 12% to 17%, and we had 25%. So, this yield was attributed to a lower loss ratio than we were initially expecting for the first half of the year. As we — when we announced the guidance, we had the peak of claims in terms of crop insurance and there was an uncertainty in terms of the impact of the Omicron variant on life insurance.
Policies, so for the half year, the effect was much smaller than we initially expected. And the sales volume, especially for crop insurance was much above what we were initially expecting, and that’s why we have that — this also explains on this operation in the range of premiums written of Brasilseg, we were expecting from 10% to 15%. We delivered 21.2%. So, the range of growth of the reserves we are below, so the range from 9% to 13%. If we compare it to 12 months, we delivered a growth of 3.9%.
So, we really talked a lot about this indicator in the — our conference call in the first quarter. The best way to follow, this up is not to compare year-on-year because the variation of reserves along 2021. The idea is to compare the growth rate of year-to-date numbers annualized, which would be 7.5%, even though below this range, although quite close, and this is related to what I said before. So, the opening of the interest rate curve until May until half of June within this range. We had this at the end of June, but we understand that this is absolutely feasible before the end of the year.
So based on the — because we overcame our expectations or our estimate, we are reviewing up the outlook or the guidance for non-interest operating results, revising it up for the range between 15 and 20 premiums written between 20 and 25, also up. And for reserves, we keep the range of 9% to 13%.
These were the main highlights that we had in terms of our performance in the second quarter. And now we can move to our questions-and-answer session. Thank you very much.
Ullisses Assis
Thank you, Rafael. As Rafael said, we are going to start our Q&A session. If you want to ask a question in audio in Portuguese only, just click on the raise hand button. If you want, you can send your questions in writing either in Portuguese or English by clicking on the Q&A button at the Zoom screen. And if we do not have time to answer your questions here live, we are going to answer all your questions by e-mail, e-mails you used to register.
Question-and-Answer Session
A – Ullisses Assis
Our first question is coming from Antonio Ruette from the Bank of America. Antonio, please you may ask. You can open your audio.
Antonio Ruette
Congratulations on your performance. Thank you very much for your time. So, my questions are related to the guidance. Number one thing I would like to understand in the growth of premium, how do you see the different lines? I think this is important — its relationship with credit. So, what do you expect for the growth of rural as related to crop and credit life related to [indiscernible]? And the second question is related to the operational guidance. What is your expectation for the loss ratio of the different business lines?
Unidentified Company Representative
So, I’m going to start talking first about premiums. Well, as to premiums now with the new crop, we expect a strong growth of rural insurance and until September, we should still have a quite robust performance. And because of the growing loss ratio, this is a product that has changed very much the behavioral customers in relation to the product. It has been very much demanded. We understand, and we see that in movement markets than many insurance companies along this period, because of the high loss ratio do not have full capacity to cater to this market, and whereas we are very appropriate to support the need of our customers. So, we are very optimistic with the growth of our rural insurance.
Credit life as we are still below what we expected, we had a recovery of credit life insurance in the second quarter. And for the second half of the year, we are expecting it to get better and better, going back to a level — a reasonable level of growth above what we’ve been having. So, we are optimistic about credit life insurance to have more intense contracting. And then first, you asked about premiums. I’m sorry, I missed the second part of your question.
Antonio Ruette
More details on the operational guidance in terms of the loss ratio.
Unidentified Company Representative
Well, the loss ratio, we have noted in the second quarter, a normalization of the loss ratio, both in terms of COVID and in terms of rural insurance. We don’t have major expectations in terms that the loss ratio scenario will change in the second half of the year. This is reflected in our guidance. So, we expect very well-behaved ratios of loss ratio in the second half of the year. Based on what I said, number one, that we are seeing a slowdown of the COVID pandemic. We are not seeing any changes in the market. And even in terms of the rural insurance even in the beginning of last year, this year, we did note that so everything is within normal levels and we are expecting a quite well-behaved loss ratio in the second half of the year.
Antonio Ruette
Great. Thank you very much, and congratulations on your performance again.
Operator
Thank you. Our next question comes from Tiago Binsfeld from Goldman Sachs. Tiago, please you may open your microphone and ask your question.
Tiago Binsfeld
Good morning, Ullisses, Rafael and Philip. First, I would like to ask a question about pension. Could you talk about the trends that you’re seeing from now into the future in terms of redemption? And we are seeing net redemptions this quarter? And also your expectation in terms of management fee considering the multi-market versus fixed income mix effects?
Ullisses Assis
Okay. So, redemptions from pension plans. As we have been seeing, and I even talked about that in the participation, we are seeing a slight improvement in redemptions. So, what we have always been doing in Brasilprev is all our redemptions that are conducted through our channels. We monitor both the quantitative and qualitative aspects to understand what’s going on. And we are really seeing that we still have a very strong demand related to cost in considering the challenging economic scenario. We see a minor slowdown of that and once we analyze in terms of transfer-in and transfer-out, very much within what has been going on. So, it’s under control.
I would say — and they will be more aggressive this year. So, we have increased our appetite in terms of transfers, and work that was very well done by the company. And for the next few months, we expect this trend of falling redemptions to go on, and then we’ll convert it in the second half of the year to something positive. With more — if there is economic stability, this scenario will continue. So you saw that last year, the strong movement that we had in terms of market, we got to almost 32% of our portfolio in terms of multi-market. We went from 10 to 32. This is related to the increase in our management fee.
This year, because of economic issues and a higher SELIC, all major players and here especially the 10 top plays, all of them had a significant drop of their reserves in multi-market. And Brazilprev fell less than the market if we are compared. Some of them have their AUM in multi-market has dropped by half or some places, but we didn’t. So our management fee varies 0.1 percentage points in the first half from the first half of last year to the first half of this year, if you compare June 2021 to June 2022. So, considering the work that we have been doing in terms of being close to our customers.
Talking about scenarios, providing a closer consulting and we have been able to make our customers more stabilized in terms of the changes in the economic scenario. So, we don’t have much of an oscillation in terms of investment mix and also in terms of our fees. So, answering you objectively, I think that our management fee is very much in line, very much because of this slight drop in multi-market, but it’s not going to be very significant along the next few months. I will say that it will be a natural accommodation of the market, nothing different.
Tiago Binsfeld
This is very clear, Ullisses. And if you allow me to ask another question. I would like to understand better the results of your brokerage business. We saw growth close to 11%, but expenses grew 18% quarter-on-quarter. So, this would mean a narrower margin. So, would like you to give me more color on that, especially in terms of the expenses?
Ullisses Assis
Well, Tiago, as to the expenses of our brokerage business, yes, there was a shrinkage of our operational margin. Summarizing it, we have more investments that we’ve been making in technology with the migration of the architecture service center and the platform, that will provide us more flexibility in launching new products so that BB Corretora will plug into any product provider today whether they are our owned or third parties. There’s also a part of the expenses, which is the result of transfer of commissions to partners, because of that strategy of creating channels and also a higher headcount of our brokerage businesses in line with the strategy.
So, we created this line in seeking commercial partners. So, we have increased our data team and our analytics team, and we have replaced some vacancies in other areas of the company. And because of the pandemic, they were not being filled. So, in the period of 2021, we didn’t. We had some staff that had left, and we had not refilled those vacancies during the pandemic, but now we did. So, now we have a higher headcount.
Tiago Binsfeld
Thank you very much and congratulations on your performance.
Ullisses Assis
Thank you, Tiago.
Operator
Our next question comes from Guilherme Grespan from JPMorgan. Guilherme, please.
Guilherme Grespan
Good morning, Ullisses, Rafael and Philip. Thank you for your presentation. My question is regarding rural insurance. We see a very strong performance again. And I think that the guidance is implicitly incorporates the growth that we will see in Q3 and 4 in this segment. And we’ve been seeing the segment growing between 30% and 50% year-on-year. It’s more related to reinsurance and risk retention. We see that in reinsurance, there is a significant movement of the main players of rural being renewed. So, what is your reinsurance strategy today? And could you talk a little bit about the distribution of reinsurance between the many commercial partners that you have? And we are seeing for the second quarter this year a potential weakness of the main reinsurance layer in terms of that. And does this change anything in your strategy in terms of reinsurance in this segment? Thank you very much.
Rafael Sperendio
Well, Grespan, as to reinsurance, we had a considerable expansion because of the capacities offered by the reinsurance panel because of a strong growth in the Agricultural segment, especially. We have gone through the worst time in terms of loss ratio in total volume of claims paid in the first quarter, especially. But we didn’t have any type of difficulty to receive any reinsurer from our reinsurance panel. All of that have met their obligations. So, our reinsurance provide great services to us, and there were some advances sometimes even before our calendar. So, we didn’t have any type of problems in the first half or even in August. We have another considerable amount of claims to pay in the last week.
So, we have noted an expansion in capacity. We are aware of the capital situation, not just IRB, but other reinsurance companies that have faced some difficulties that were time-specific temporary and that will be reversed over the next few years. Other reinsurers that have gone through difficulties have already received capital investment and are back to usual business and usual operation. And we are observing and monitoring very closely the capital insolvency status of all reinsurers in our panel. Today, the company already has capital allocated to our own operation to face any need of higher risk retention, whether that is necessary. So, today, we have a concern regarding that.
And in terms of exposure to risk, we used to have an exposure that was very much concentrated on a single reinsurer in the past IRB. And since 2018, we have diversification policy in our reinsurance panel, because in the past, we used to have only two reinsurers. Today, we have five reinsurers. So, our exposure to IRB was almost as high as the 80%. We had that much concentration in the last renewal. And today, we are at 30% allocated to IRB. And we have established an internal limit that no reinsurers should concentrate more than 50% of all our risk exposure. If that happens, you need to be submitted to the Board of Directors, and this would be an exception depending on the scenario. So, today, nothing impacting our appetite for growth in terms of crop insurance. So, we have reinsurance capacity. And if we find it necessary, we can also have our own funds and other strategies for risk mitigation that will not impact our capacity in that area.
Guilherme Grespan
Thank you very much Sperendio.
Rafael Sperendio
Thank you.
Operator
Our next question comes from Henrique Navarro from Santander. Henrique, you may ask your question.
Henrique Navarro
Thank you, Philip. Thank you for the opportunity of asking a question. Sorry to go back to the previous theme, but this is still related to the IRB as the service provider. When we analyze the reinsurance market, whenever there is a catastrophic event, this affects the profitability of the industry. And then in the following year, reinsurers put a margin return that is major because of re-pricing. If you consider what happened with a loss ratio for reinsurers, such as rural, we can almost, call it, catastrophic. It’s a major event. What I mean is that we should imagine that there will be a significant attempt of price recomposition for crop insurance next year. In your calculation for next year, do you consider that, that they will try to recompose or recover margins. So, those doing coinsurance individual session, everyone trying to compensate the losses because of a very high loss ratio this year. How does this goes into your calculations for your numbers for 2023?
Unidentified Company Representative
Navarro, thank you very much for your questions. As to the recomposition of margin, this happened in the renewal for the next cycle 2022, 2023. We definitely needed a rebalancing, not just in terms of reinsurance, but also for the insurance. Business because of higher loss ratios, we need to readapt the pricing of crop insurance and this was done together with the reinsurance panel. This has already happened, not just in terms of pricing and premium, but on the end of reinsurers reducing reinsurance commissions that we pay for them for origination. So, that movement has already happened.
Henrique Navarro
Thank you very much.
Operator
Our next question comes from Kaio Prato from UBS. Kaio?
Kaio Prato
Good morning, everyone. Thank you for the opportunity of asking a question. I have two very quick questions. One is a follow-up on pension. You did more mention a more aggressive work of transferring by BB Seguridade. Could you give an example of the measures that you have implemented to increase transferring?
The second is also about rural insurance also. We have recently noted that some players are more vocal in terms of this opportunity and news have been published of other — of another public bank with intention of having a more active share in rural insurance. So, what are you feeling in terms of the competitive environment in the rural insurance business?
Ullisses Assis
So, I’m going to start and Rafael will continue. As to pension, we work in pension in two different ways. Obviously, with our main sales counter being Banco do Brasil and especially through the very segmented network that they have. So, when we talk about transfer-in, transfer-out, we are talking about very high concentration in retail and private. This is the main focus in terms of transfer-in and transfer-out.
In addition to the network in a very segmented market and the models that we are seeing, Brazilprev, that has — we have turned more robust in terms of specialized. So, both in terms of portfolio. So, this is the private model, and there is a dedicated Brazilprev consultant that serves us so many customers and the consultant talk to those customers about pension. So, this transfer-in, transfer-out market.
In terms of transfer-out to us, it hasn’t changed much. What we’ve been monitoring along years is a quite stable line in relation to what we are attacked. Of course, we are attacked by others. So, we have BRL100 billion in our portfolio. Of course, if there’s someone who’s much smaller, they will be much less attack. This is the good problem of being very big. So, we are slightly more attacked. But if we have good strategies, the access to this consulting that we are taking to our customers to bring them closer to us, has an interesting effect in terms of retention and diversification of investments and customer relationship, why couldn’t we use this strategy to be more aggressive in attack and this is what we are doing. So, there is a dedicated team in Brasilprev to complement the Banco do Brasil network today that communicate constantly with those customers because many of those customers that are coming back to us — some point in time, they left with the promise with a different portfolio, with a different profitability. And we know the results that was delivered to these customers out there. So, when we talk to them and discuss their portfolio as a whole, this ends up facilitating to us to deliver even more appropriate value proposition. So, this is basically what we’ve been doing in pension.
As to rural insurance, the — we can see a major movement in the market, especially with smaller and seasonal insurance companies. So, a semi player tries to gain market share and they do sometimes. However, whenever there is a wave of loss ratios such as we had many of those non-insurance companies lose capacity to operate very aggressively. So, we see this very much.
Seasonality. So, there is someone — they work very hard. They can’t meet for next few years, they leave and there’s someone else the year after, and this is how the market has been regulating itself. In terms of the major players, we don’t see any strong movements, nothing that is very, very intense. But the market as a whole, Kaio, is still under-explored when we talk about funded areas versus planted areas versus insured areas, we are talking of a little bit more than 50% of the planted area with insurance. In U.S., it’s 80%. So, this rural insurance market still can grow a lot, an awful lot.
That’s why our concern of growing a lot within Banco do Brasil’s customers because those are customers to whom we already provide loans and financing, and they already have a rule of credit, but also our desire to grow outside the bank. We are not interested only in the area that is funded by the bank. There are other areas. So, I could tell you today that we are preparing and we are preparing both in terms of product capacity.
And now in terms of diverse distribution channels to be more and more aggressive. Of course, within a quiet cohesive and robust underwriting policy in appropriate level of reinsurance. But yes, we do have appetite to grow within a business of good businesses because the market has many opportunities over the next few years. This is a market that is likely to grow a lot.
Kaio Prato
Very clear. Thank you very much, Ullisses.
Ullisses Assis
Thank you, Kaio.
Operator
We have another question by audio from Maria Lama [ph] from Credit Suisse. Maria?
Daniel Vaz
This is Daniel Vaz from Credit Suisse. In the monthly dynamics when you see the top line and the breakdown to the pension and premium bond insurance, how can we compare April, May and June, year-on-year, month-on-month for us to understand the monthly evolution of these revenues. Could you talk to us more about the monthly movement to understand which month was slightly lower? And also, if you can, to talk a little bit about July, how has it been? Are you seeing any recovery? What is the premium bonds and pension top line?
Unidentified Company Representative
Well, Daniel, as to the inter-quarter, always good to remember, we have a budget that is allocated to the network that has a six-month basis. So, in the first quarter, we had a performance that was well above what we had initially expected in our pension — in budget allocated to pension and also in terms of premium bonds. What happens there is that there is a management of distribution based on the budget.
So, the performance is much stronger in pension than in insurance in the first half. And then in the second half, there was more focus on insurance and less on accumulation products so that we could deliver the budget that was estimated for the period of six months. And if you see premium bonds for six months, even though we have exceeded the budget in all lines. But this dynamic depends heavily on the management along the half year. So, one line with the other is not really related to origination capacity, and it’s more related to the management of the budget along the period.
Daniel Vaz
Okay. Makes sense. So, would it be fair to say that you are going to focus slightly more on pension in the second half of the year to try and catch-up the middle of the guidance.
Unidentified Company Representative
This is natural we are already seeing in June and August our work in pension, but it will be more intensely concentrated in Q4. Seasonally, that is the movement that we usually see here internally.
Daniel Vaz
Okay. Thank you very much. Congratulations on your performance.
Unidentified Company Representative
Thank you, Daniel.
Operator
We have no more questions in audio. There are a few on a chat. So one of them, they want to know about next year, what we expect, especially considering our business features because in terms of carryover to the following year when there is growth in premiums. And another one asking about the payout of dividends because we made a few allocations on some operations last year. Is there any opportunity this year or next year of payout, an increasing payout.
Rafael Sperendio
So, let’s separate here and into two components that we always emphasize in terms of operational performance. So, so far, we are having a good expectation for 2023. We see two economic indicators. We see a considerable reduction in the unemployment rate in Brazil, an improvement in income. So, we see a trend of improvement in terms of the income available, which will favor even further the volume of written premiums and the inflow too. So, we are expecting an even better 2023. So, in principle, SELIC, in terms of our market expectations will remain at high levels along 2023, which is part of our interest rate curve in terms — reducing it along the second half of the year, and it will continue to favor our net investment income.
And as SELIC goes down, it’s important to remember that we still have the impact of the marking to market that will start to be positive. And as we said, even though the net investment income had a significant improvement as compared to 2021, we have almost BRL20 million of the mark-to-market. And this is related to BB Seguridade. Our face values are even higher than those. So, if this improvement in this scenario as a whole becomes due in 2023, which shall not have quite significant marking to market. It won’t affect so significantly our bottom line next year.
As to the payout of dividends, we have been retaining slightly more funds in our operations and also in the holding. Also because of the uncertainties and volatility that still persist in the market and in our understanding, this volatility should go down towards the end of the year. And then, as we note, a scenario in the short and midterm — and the uncertainty level will release the excess funds that we are retaining today in the operations of our holding. So, today, we can — in terms of percentage of the net income, the payout, regarding to the second half of the year, is likely to be much higher than what we paid for the first half of the year.
Operator
Thank you, Rafael. Well, we have no more questions, neither in audio or on — in writing. So, in this manner, we end our conference call for the results of the second quarter of 2022. When we end, could you please answer our assessment, providing us some feedback analysis.
And Rafael, would you like to make any closing remarks?
Rafael Sperendio
I would just like to thank you all for your participation, and we are available to answer any other questions you may have. Thank you very much. We just like to thank you for your presence and greetings.
Ullisses Assis
Likewise, I would like to thank you all for your participation. I and the Investor Relations team remain available to answer any other questions that you might want to ask after our conference call. Thank you very much.
Operator
Thank you. Have a good day.
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