Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Porto Seguro's second quarter 2020 earnings conference call. Today we have with us Roberto Santos, the company's CEO, Celso Damadi, Executive Vice President of Finance, Controlling, Investment, and IRO, Marcelo Picanço, Executive Vice President of Insurance, Marcos Loução, Executive Vice President of Financial Businesses and Services, Izak Benaderet, Managing Director of Porto Seguro Investimentos, Luiz Augusto Arruda, Head of Strategy and Investment Relations, and Emerson Faria, Head of IR.
We would like to inform you that this event is being recorded and simultaneously translated, and all participants will be in listen-only mode during the company presentation. Ensuing this, there will be a question and answer session when further instructions will be given. Should any participant require assistance during this call, please press star zero to reach the operator. We have a simultaneous webcast that may be accessed through Porto Seguro's website at www.portoseguro.com.br/ri. You will find the banner called Conference Call.
The slide presentation will also be available there. Questions can be posted using the Ask a Speaker icon. Our team will be arranging the order of questions to ensure a comprehensive section. Before proceeding, we would like to mention that forward-looking statements will be made under Safe Harbor of Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs and assumptions of the company management and on information currently available to the company.
They involve risks, uncertainties, and assumptions as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors could affect the future results of Porto Seguro and lead to results that differ materially from those expressed in such statements. We will now turn the floor over to the company. You may proceed.
A good day to everyone. This is Roberto Santos. We would like to thank all of you for your participation in the earnings call for the second quarter 2020. We go on to slide number four, where we highlight the main points. We had an increase in profitability in the quarter, thanks to a reduction in the loss ratio that contributed to an increase of 83% in our operational result, a period twice as large as that recorded the previous year. Our premiums had a drop of 4.9%, impacted by the sale of new sales. On the other hand, the measures we adopted to protect portfolio allowed us to maintain renewal rates at 80%.
We had a total loss ratio for the quarter, especially due to auto that improved 15.4% and health with a drop of 18.5% vis-à-vis the second quarter of last year. Thanks to the responsible actions of our underwriting policies and benefited by the effects of the pandemic. We continue our trajectory to enhance operational efficiency that had a drop of 1.1 percentage points. In G&A and OME, we reached 16.1%. Thanks to the efforts we have carried out in the last few years through investments in technology and the enhancement of processes. Thus, we reached a combined ratio of 83.1% in the quarter, an improvement of 10.3 percentage points vis-à-vis 2019. The credit card and financing revenues continued to grow by double digits compared to the second quarter 2019.
The number of cards issued increased almost 30%. Despite the impacts of the crisis, the NPL reached 6.1% at the end of June. But even so, it remained one percentage point below the market average, thanks to our effective management of the portfolio and measures to mitigate risks. Our investments generated a financial result of BRL 498 million for the quarter, equivalent to 719% of CDI, explained by the realization of profit for inflation-linked bonds and an increased position in equity that we did in the first quarter. Thus, net earnings increased 72.4% in the quarter, reaching BRL 657 million, with a return on annualized equity of 34.9%. In the quarter, revenues were of BRL 885 million, a growth of 30% vis-à-vis the same period 2019, and profitability of 23.2%.
In this quarter, we began to include in the results release a section to speak about the ESG factors of Porto Seguro. We have a relevant background in terms of environmental and social actions, as well as an observance of the best governance practices. An example of this is the launch at the end of the semester of the campaign Meu Porto Seguro, My Safe Haven, a program that will generate 10,000 temporary employments, helping people that are seeking employment and training in this very difficult moment, generating leads for brokers and the company.
Throughout the presentation, we will be speaking about these projects. Once again, I would like to thank employees, brokers, service renderers, shareholders, and investors for their partnership and reaffirm our confidence that we will overcome this moment. I wish you all very good health. I will now give the floor to Celso, who will speak about the results of the quarter and the semester in greater detail. Thank you very much.
Thank you very much. This is Celso Damadi. Thank you for participating in our call. I will begin on page five , speaking about the growth of our operational results for the quarter and semester. Our revenues grew 0.4% for the half of the year, and with a growth of 3.2% in the quarter, especially due to the impact of COVID-19. We had a retraction in April and May, but I highlight the month of June, where we had a growth of 9.5% in premiums. The month of April was very bad, the month of May less bad, and in June we end the month positive by 9.5%.
Of course, we haven't recovered the quarter, but June points to a reasonable growth of 9.5% for the month. We leave the month with a growth, and during the first half of the year, the growth of 0.4%. And June, once again, with a growth of 9.5% in premium. On page six, we show you our strategy for business diversification. For auto in the first quarter, we had an increase in the operational results because of the positive effects from social isolation and the loss ratio. Auto represents the most relevant profit in this quarter, more relevant than in other quarters. And despite this, our other areas also represent a relevant percentage in our profit.
Of course, in this semester, we were impacted by the financial results differently from the first quarter, where we had a negative result for the holding. Now, this quarter, we have a positive result for the holding. The share of auto that in the first quarter was 51% of profit, in this quarter was 46% of our quarter. We had very good results, and the share of results in the second quarter for auto had a decrease.
We had a more robust financial result, and the share of other businesses as Life also had very good results, enabling us to diversify the results we had in the second quarter. Auto had a participation of 46%. You will see that in other quarters, on average in 2017 and 2019, Auto had a share of 31%, 32%. This is our diversification strategy that has given us good results. Auto closes with 46% share in the consolidated profit of Porto Seguro.
In the next slide, the significant increase in profitability is mainly explained by a reduction in the loss ratio due to the lower claims frequencies and the increase in financial results, favored both by the increase in allocation in equities and realization of profit in inflation-linked bonds. Izak Benaderet will speak about this in greater detail. So, there's a robust profitability this quarter of 2020, reaching almost 35%. Now, if we do not consider the surplus capital and the surplus that we have in CDI, profitability is 31% on equity for 2020. An interesting profitability for our business in a consolidated way, a significant and robust profitability if we take away surplus capital at 100% CDI.
I will now speak about our historical profitability on page number eight. We carry out a comparison of our profitability based on CDI. We come to a profitability of 665% in the first semester of 2020, based on CDI, and 1,800 and some for the second quarter. So this shows us that we had a mixture of diversification of our businesses. Very shortly, Marcelo Picanço will speak about the insurance portfolio, where we had a better result. I would now like to give the floor to Marcelo Picanço, so he can speak about the results of the insurance portfolio.
Thank you, Celso, for the introduction. A good day to all of you. Thank you for participating in this results call. On slide number nine, we had a quarter with a decrease in premiums of 4.9%, mainly impacted by the downfall in the sale of new insurance. This was, of course, the effect of the pandemic because of the closing down of stores, the sale of vehicles, a decrease in the sale of new and used vehicles. This impacted the auto premiums that, for the quarter, had a drop of 4.9%.
Now, the other portfolios maintained their growth trajectory, such as health and dental. We had a minor retraction of 1.3%, and in property and casualty, 6.7%. This is because of our dynamic with companies. Now, this impact was greater in the months of April and May. In June, we already perceived an improvement, a less accentuated drop, and more recently, practically reaching the figures that we had last year for these portfolios, besides those that have had a positive growth.
Now, despite the fact that the pandemic was more acute and critical in these months, going forward, we observed changes in the risk, and this risk is different in the different portfolios. I would like to speak about the combined ratio. Looking backwards, we had a significant improvement in the result, as has already been mentioned. We had 10.3 percentage points less in the combined ratio, and chiefly due to two effects.
We were recomposing our results in the first quarter of 2020 before the pandemic, especially in the auto business, where we had perceived a certain pressure on results, and we were recomposing underwriting with different prices and acceptance measures. Additionally, we were working with more conservative prices, and we had the effect of the pandemic. These are two conjugated effects which helped us in this improvement in the loss ratio.
Now, besides the fact that the premium was not what we wanted, we had an expressive drop in auto, which is one of our main portfolios, with 60% of premium. Even so, we were able to reduce G&A by 1.4. And vis-à-vis the second quarter of 2019, we had a total grain of 1.1 percentage points, which is very relevant if we consider this drop in the premiums. If the premiums had been stronger, and we cannot not consider this effect, the result would have been better. The combined ratio for the first half of 2020 had an improvement of 5.7 percentage points, taking our results in insurance for the second quarter to reach BRL 552 million, with a 36.2% return on capital.
And for the quarter, BRL 747 million or BRL 48 million, with a return on capital for the six months of 31%. Now, to go into greater detail in terms of administrative and operational expenses, and it is important to maintain our productivity gains despite the pressure of our increase in revenues. This part is strategic. There are effects that may be longer-lasting, having a lower average premium, but this has nothing to do with price competitiveness.
But this is altered by the lower mobility, and it is important to have a very high operational efficiency because of this change. Now, the gains in the first semester of 0.9% and 1.1 percentage for the quarter is very important. When we look upon a portfolio where the margin is 5%, now, this is highly strategic for us Administrative and operational revenues for insurance.
When we put this in a time perspective and not look at a 12-month period, but based on years, we see that between 2015 and 2019, the drop was of 6%, a nominal drop of 6%, while the consumer price index for the period was 5%. So this is a very important gain for us in terms of increase in efficiency to make the insurance business more feasible and to enhance the company's competitiveness. Having said that, I would now like to give the floor to Izak Benaderet, who will speak about the financial and service businesses and our other business lines. Thank you.
A good day to all of you. Thank you, Marcelo. We're going to speak about the evolution of revenues comparing the second quarter 2019 with the same period in 2019. We have an evolution in the car lease business with an annual and biannual deadline. It ends the quarter with a growth of 46%. Even with the pandemic in course, in the worst month of sales in May, we see that there is a resumption, and we ended the semester with a 12% increase vis-a-vis the same semester last year.
With an average ticket, we were able to market our semi-new vehicles the same level of commercialization as we had last year. We placed these vehicles in the market through the FIPE table at a higher percentage vis-a-vis 2019. Although these are minor gains, this business is doing well and shows a potential for growth. Now, when it comes to financing, despite all of the impacts we had, the revenues increased 10.2%. We have a highlight for our loaner financing portfolio focused on vehicles. Now, we see that our revenues for the second quarter of 2020 are the most important.
We have the consortium as well. We had an impact due to provisions or allowances that we had to do for NPL, and that is why you see that our ROAE is not the same. In the next slide, and here we have a greater breakdown, we speak about financing and credit operations. We continued to grow. We had a 15% increase in the first quarter and 10% for the second quarter. When we speak about our credit operations portfolio in terms of financing, we had a growth of 33% for the second quarter of 2020 vis-a-vis the second quarter 2019. Now, once again, due to the growth that we have in the release of financing for vehicles, our CDC portfolio grew 25%, but most of the growth in the quarter is in vehicles.
To give you an idea, 80% of this portfolio refers to vehicle financing, which of course gives us a greater security for the product. We had 15% in installments and rotational financing. Now, all of this is impacted by invoicing and credit cards, which was somewhat lower for the quarter. What we can perceive is that in the month of June, we're only slightly below what we had before the pandemic in the consumption of credit cards.
For the second quarter, we go into 7,687,000, a growth of 13.8% in active credit cards, thanks to our strategy of issuance of cards and activation campaigns. In terms of total credit cards issued, what draws attention is this growth of almost 30%. This is a strategy that we adopted in the second quarter of 2019 of offering the card with good benefits to those that have the Azul Seguros brand insurance.
The second quarter of 2019 was good, and the second quarter of 2020 even better. This because of the campaign where you can pay your insurance in 10 installments and the marketing campaigns that began last year. Now, the placement of this card for the Azul brand grew fourfold if we compare the semester of 2020 with that of 2019, and the growth is 1.8 or almost 2 times.
In the credit cards, we also implemented sales through the digital means, the more controlled digital means, enabling us to have some control. In the first semester, we have sold almost 25,000 cards. This enables us to place the Porto Seguro card in the market. When we speak about non-performing loans, NPL, in the next slide, of course, we suffered with an increase. We have delays of over 90 days, as was expected, but below the market average by 1.1%.
We also had NPL. We see that the peak happened in April and May. in June, we did not have a significant increase in our main portfolio, which is that of credit cards. Now, in terms of the coverage rate, there was an increase, and our forecast models were able to capture this increase in NPL, and this increased our coverage rate and risk cost as well. In direct credit with consumer CDC, we had loans, and this is a portfolio that was renegotiated accompanying the financial market.
If the customer wanted to postpone the payment of their vehicles, for example, they could do this for 60 or 90 days. The portfolio was impacted because of this, but at much lower rates than that of the market. This ends up covering eventual problems that we could have because of this. This is what I wanted to say in terms of financial and service businesses. I give the floor to Izak to speak about our investment results.
Welcome, and I would like to speak about our financial results that highlight two large events. We had very strong results. We had investments in variable accounts and equity. This allocation was done in the first quarter, and we had a strong appreciation in the second quarter with positive results. These results were reduced during the quarter, but at levels much higher than we carried formerly. We also had results from our inflation-linked bonds. These are short-term bonds where we attained very good levels, the levels we had as a target. We maintained the bonds with longer maturities, and this is where our results arises.
I would like to highlight the environment with very low Selic rates, and this will continue on during some of the quarters going forward. We have a higher position in terms of equity vis-a-vis what we had in previous years. I would like to speak, as we mentioned previously, about ESG, which we have included in our results. We are working in environmental, social, and governance factors. Environmentally, we do have some initiatives. We begin with the electrical winch that we began as a pilot project to help us service customers that have electrical vehicles. I would also like to refer to a program where our service renderers use subways to be able to service our customers, of course, based on specific distances. We also carry out service using bicycles.
Besides reducing the impact on the environment, all of these actions bring us significant reductions in operating expenses. We have Renova, which is our eco-efficiency business line that recycles spare parts and resells them with the guarantee of Porto Seguro with full respect to the environment. We have our eco-efficiency panel, we have selective collection programs, and water and energy resources management.
Something that we have had for many years in place is Hora da Terra program that has generated savings of more than 1,000 kW . We also have installed solar panels in most of the buildings belonging to Porto Seguro since 2018, with very significant savings in terms of kilowatts. We have also recently put in place a program for the recharge for electric vehicles at all of our service centers, beginning in São Paulo. We also offer this at our parking at headquarters.
Now, in terms of the social arena, what draws attention is Meu Porto Seguro, with a goal of generating income through 10,000 temporary jobs. We pay BRL 1,500 per month for a three-month period. Now, we have an online training course that is fully free, and we speak about the services and products of Porto Seguro, and this enables us to generate leads. Now, during the pandemic, besides supporting our stakeholders and the society at large through several investments in health and donations, we also were part of the manifest of not dismissing employees.
We took a commitment of not dismissing anybody during the crisis. We also have a program that leverages the development of social and cultural programs in the communities with which the company has communication. We have the Association Crescer Sempre to fulfill the demand for education and training in the Paraisópolis community in São Paulo.
In terms of governance, since our IPO in 2004, Porto Seguro has been part of Novo Mercado, the segment listing companies. We are part of the IGC, the corporate governance program, and the ITAG, the differentiated tag-along shares, that brings together companies offering their minority shareholders greater protection. We work with transparency and openness, and equity and respect for our shareholders.
Presently, we have a management board made up of seven members, three are independent, and an executive committee made up of a CEO and five Vice Presidents that jointly manage 22 business boards. We also have statutory committees for auditing, for personnel, for compensation, integrated risk, investment, marketing, the digital area, and the code of ethics. These are the main financial highlights as well as the ESG highlights for our presentation. We would now like to go on to the question-and-answer session.
Thank you, and we will now go on to the question-and-answer session. Should you wish to pose a question, please press star one. Alternatively, the questions can be sent through the webcast platform at the icon, '' Ask the speaker.'' Thank you. Our first question comes fr om Thomas Peredo from BTG Pactual.
Good morning to all of you. I have several questions. The first, if you could give us more color, as Marcelo Picanço mentioned, in terms of your premiums for June and July for each business line. During the presentation, he referred to a considerable improvement in all of the portfolios, and I would like to know if you could go into more details regarding each portfolio, health, life, and give us greater color in terms of what has happened with the renewal of premiums and the prices, of course, the issue of prices during the second quarter as well as presently when we are entering the third quarter. In principle, we're going back to some sort of normalcy.
The second question, if you could give us more color in terms of the NPL. We see an increase in NPL, and there has been a reduction in the gap with the system. If you could refer to which is the part of your portfolio that you had to renegotiate for 60 or 90 days, what will happen going forward in terms of the cases that have gone back to paying what they owe, if the coverage rate that you have at present is adequate, or if you will have to increase the level of provisions going forward. Thank you.
Thomas, this is Marcelo Picanço. I would like to respond to your first question in terms of the evolution of insurance premiums. In fact, at the end of the quarter, we saw a recovery going back to positive levels in most of our portfolios. When we look at the auto segment, there has been a marginal growth vis-a-vis May and June. June last year was very strong, and this is our base. I would say that all of the portfolios have had an improvement in growth. Almost all of them going back to positive figures, eliminating the drops that we had, which means that we have much greater confidence in the second semester.
Although the pandemic will continue on, it seems to be something chronic until a vaccine is discovered. We have had a positive growth in our portfolios. This, of course, is of supreme importance for us, this resumption, and it is thanks to the adjustments that we have made, not only in terms of price to improve competitiveness, as I said, we began the year with more conservative prices for auto, but also due to other techniques and the review of products and portfolios. Some of the clauses, for example, were reviewed to increase the competitiveness of our offer. This is an organic growth that is allowing us to have a better growth for the end of the quarter.
Thomas, when it comes to your questions about NPL and the coverage rate in general, what is it that we perceive? I will begin by speaking about our coverage rate. Our models were able to capture the delays in payment, and perhaps there will be a second wave because of an acceleration in employment beyond what we have projected here. This will contemplate the NPL that we had in the first quarter, and we are comfortable with this. Now, when it comes to our renegotiation, this happened in May with part of our financing, especially for vehicles or working capital for our in-house chain in our clean loans. All of our service renderers, our brokers, and consigned loans, we had a renegotiation of almost 15% of our portfolio.
The portfolio that was renegotiated still has some maturities. Most of this was done in April and May. What we see now is we have an NPL that is worse vis-a-vis the portfolios that were renegotiated, not much worse. When we speak about the credit card portfolio and the division in installments of the invoice, this has not grown as we expected. It has increased. There was a growth in NPL with a peak in May, and we now see a slowing down.
We are somewhat concerned with revenues and non-NPL. A 15-day delay, for example, has dropped to levels below the pandemic. We think that our coverage rate is adequate, and if there is no new fact, we should maintain these ratios for the coming quarters. Now, compared to the market at large, there is an adjustment in the vacation period. We had a more accelerated growth than the market in the last quarters, and this perhaps explains why we have this difference in terms of the gap or the market. I hope that this has explained your question.
Yes, that was very clear. Thank you for your answer.
Our next question comes from Giovanna Rosa from Bank of America.
A good day to all of you. Thank you for taking my questions. I do have some questions. My first question refers to the loss ratio in the different segments. What will happen with your churn until the end of the year? Are you going to go back to historical averages? Is there some unfulfilled demand that could take place in the coming semester? If you could give us more color on this. My second question refers to the proposal at the Senate in terms of a cap in terms of the credit card levels or ranges. How will this impact you? Which are your intentions if you intend to reduce the limits? If you could speak about this, I would truly appreciate it. Thank you very much.
Giovanna, this is Marcelo Picanço once again. We do have some different effects regarding your first question, and I am going to speak about this per portfolio. In new vehicles, we have an increase in mobility. Until the end of the year, we do think that we will have a lower mileage than the normal one because of the change of habits, of structural changes. On the one hand, we have the home office, people who are not going to work. That is on the one hand.
On the other hand, we see a loss ratio frequency that has remained at low levels with a trend to increase. This is theft and others. In crisis, historically, this tends to increase, but this will depend on public policies. There is no guarantee that this will happen. In net figures, I think the auto business will be positive. In terms of health, we may have that effect of a resumption. I do not know if we will have an exacerbation.
We do believe that we have a positive result because we have the phenomenon of telemedicine that has helped a great deal. A patient does not need to go to a first aid center when they can work with telemedicine. This is for low-complexity diseases and because of a reason of convenience, and because they can set up an appointment. Because of this, there will be a benefit for health.
In terms of life insurance, the pressure is greater because of the COVID cases. This is a loss ratio that is relevant in the life insurance portfolio. In companies, the loss ratio has had a very good behavior, and there has been an increase in the premiums. The effects here are positive. Of course, there are some risks, but not with the same intensity that they had in the second quarter.
This is Roberto speaking, and I would like to add something to what was said by Marcelo in health and life. In the case of health, our actuarial elements have already captured part of the unfulfilled elective surgeries that were held back during this period. This will be a relief for the loss ratio in the coming quarters as this has been captured in the loss ratio of the second quarter. These are the actuarial models that we have and the provisions for losses incurred but not reported.
Now, because of the pandemic, this business has been sought out more by society at large. We expect an increase in the number of life insurance sold, and this will offset part of the loss ratio because of COVID. To refer to the question that you made about the project that is in Senate, we are following up closely, as is the entire market. What is happening at present is a discussion. This discussion may go on, and we do not know what will happen and based on what was proposed by Alvaro Dias.
In credit cards and in CDC, especially in credit cards, our revenues are somewhat different. Our propension to finance is much lower than that of the market. We depend on revenues, and we try to increase the financial revenues from this. On the other hand, we have collections. We charge for annuity, and we are going to continue to do this. It is an important revenue, and because we have several other businesses in Porto Seguro. We think that we can develop products to counterbalance the revenues. If we have a stronger drop in terms of these interest rates, we will have complementary products to continue to have profitability in this portfolio. Thank you.
Thank you for your answers.
Our next question comes from Mr. Ikemoto from Santander Bank.
A good day for all of you. I have two long-term questions. You have spoken about the diversification of revenues. What will become more sustainable for you in terms of revenues, a limit of 30%? Which are the areas where you will grow more, health insurance or your financial and service businesses? An update on the digital part that you are working with your online sales and much more that is done digitally.
I will first of all refer to your first question, the diversification and the issue of vehicles. It is not easy to base yourself on a percentage in time specifically, but we have worked on that diversification, as we have shown you. In 2019, the profit from autos was 32%, fluctuating between 30%-40% more recently. It could go below 40%, below 30%. It depends on the time horizon, if we have a lesser dependence on this. This because we do not want to grow our portfolios at any cost and in any way.
In insurance, it is easy to make money, but to do both of these things, it is quite complex. We are using this strategic procedure. Which are the portfolios we most believe in? We mentioned two. We have those that have a double-digit growth, an increase of 15% or 20% recurrently through the years. In health, at least, which is a business, we have BRL 500,000 a month, and life. In life, we have a lower ticket per year.
This growth of the portfolios has a different impact on our earnings. Now we have a renewed appetite in terms of life. We have a modest market share, approximately 7%, which means that we have quite a bit of room to growth and a very strong demand. Now in life, well, we also have the financial business, which has been an important leverage to help us in our insurance business. Credit card, for example, we work in an integrated way with a great synergy between the businesses. Is there anything else that you would like to add?
Yes. To speak in isolation of the main two financial businesses. In credit cards, we still have a great deal of room for growth, and it is our understanding that this is a product that will continue to move forward with new options for those customers that we cannot service with our product. Of course, the financing of vehicles to dominate this chain that we already dominate in terms of insurance could be important for the auto segment, and we could have a significant growth in auto financing.
When it comes to the digital part, we have two significant fronts. One, operating efficiency, where we have already carried out several actions that have been perceived by our customers. The more classical is to allow our customers to be serviced through WhatsApp, even when they have an emergency. We have also made a great deal of strides in terms of our service through chat. We have a long way to go to have a better solution in this.
But we also have a service center where we have increased the operating efficiency. We are the first issuers in credit card to do this business through a chat. We work through Apple and we service our customers through text. We are also developing an app that integrates several of our businesses. We have the credit card app with more than 1 million customers using this every month.
This other app will also be used by all of our customers, which means that we begin with a customer base with an app that is considerable, and we are going to integrate all of our apps so they become ever-present in the life of our customers and to simplify the service. We continue to service through telephones and text. Now, to center these digital platforms for customers will enable us to make better offers, cross-selling products, taking into account the moment of life of our customers, and gearing good leads and complementing this through our brokerage channel.
We are going to move forward with our online business strategy, maintaining the work of brokers. That is what we have at present with some of our minor products. The strategy is this, two large blocks, operational efficiency and to help in the sales process in two different moments, lead generation and customer protection. Thank you.
Thank you very much for your answers.
Our next question comes from Eduardo Nishio from Plural Investimentos.
A good day to all of you. Thank you for taking my question, and congratulations for your results. I go back to the question that was asked and would like you to refer more to the pandemic. You had some very clear movements in terms of digitizing. If you could refer to these, besides those that you have already mentioned, more in the medium and long term. What is it that you expect from this digitizing movement? In the market, we also see several companies anchoring themselves more on these credit operations. If there has been any interesting movement that came about during the pandemic, if you could also refer to your investment pandemics.
Your business is quite traditional. You operate with brokers. Perhaps you could enhance this sales journey and become more assertive in terms of sales. I think this would be an interesting topic to explore. You've had a very strong result. In the longer term, if we can expect results, perhaps not as this one, but where we will observe some structural changes. Some of the companies have truly benefited from this during the pandemic. Perhaps this is not only a one-off event, but could be something for the longer term, and I would like to know what you're thinking about going forward.
Thank you for the question, and we were speaking amongst ourselves. When we speak about this digital transformation movement, what we saw during the pandemic is that maybe we were ready for the year 2030. All of the activities carried out by companies were accelerated, and Porto Seguro was not different. We do have a digital board. We have a large number of products, more than 20 products, and there is a great deal that we can obtain through cross-selling and by crossing these projects.
We're working with structural projects in this with customers areas of life and pension to extract the most from this. During the pandemic, some of our initiatives were tested, and we did very well. We continue to service our consumers very close to them. Some of them are being serviced remotely, and this because of platforms that we created during the years. To speak about this process that we have undergone along with our brokers, of course.
We control all of that movement of offering quotes for the insurance, and this has enabled us to develop models for our offer. This is something that we have done in the last two years, and this explains part of the success we had in vehicle financing. We have structural processes, some of them for the online service. They are available to our customers. They were used during the pandemic and also with the business in terms of vehicle financing. Simply to add to this, the vehicle financing portfolio grew 33% quarter-on-quarter.
The strategy in terms of financing or credit for vehicles, does this also involve a credit card? If you could refer to your new products, your longer-term products. You have had this project ongoing for some time. But the first stage apparently was not launched very successfully. What will happen with the credit card in lower ticket operations? If you could speak about this product more at length as part of your pipeline of launches.
I will begin with financial services, and Marcelo will complement with a part of the auto. We have several development projects for new products. As part of our product range, we do have solutions that will better service the market. For example, when you speak about the traditional consortium with a financing company, perhaps we can generate a new product. Confidence can also give way to a new product. We have several initiatives underway, and in the pipeline, we have new products involving these solutions.
To refer to that question about credit cards, it is our understanding that we have grown so far by exploring auto insurance, which is a closed market. We have learned a great deal. To give you an idea, as part of our credit card customer, we have 40% that presently do not have auto insurance. We have a good product compared to the market products, and we would like to expand this to the customers that have the right profile.
This could be complementary for our chain, and we can also sell auto insurance through the credit card. This would be an evolution of our traditional product. We also would like to have an entry product for credit cards. We have a project for this, and we are analyzing the creation of a digital account to round up all of these businesses.
This is Marcelo from insurance. Now, in fact, we do have a product with a lower ticket for the security inclusion, and the focus is to bring in the customers that don't have auto insurance. We're thinking of coming out with a very competitive product. It wasn't launched in the past. We're working with an architectural or strategy to avoid any sort of cannibalization and, of course, to respect the channels that we have.
Of course, a competitive product that will bring in people that formerly did not have insurance. Now, although the price is an important component, it is not the only one. We want to work with this inclusion in the way that this is offered, it is packaged for those customers that only have mandatory insurance and who have certain difficulties in understanding the product. We acknowledge that the market could improve in terms of this. We are working on this, and very shortly, we should have more news for you.
Excellent. Thank you very much. My first question referring to that sustainable call in times of the pandemic. Some portfolios, of course, will grow more than the auto portfolio. In five, six, or 10 years, will you be able to maintain this balance? If you can maintain your return on investment for auto, for health. Health has had a significant growth. If you will maintain the levels of growth in health, for example. Once again, if you could refer to this in greater detail in this very difficult and competitive environment. Thank you.
Nishio, this is Celso Damadi. Of course, we do have a very broad product diversification in the company, and the drop in the Selic rate brings in a challenge for the insurance business. It is a significant challenge. But in our graphs, we have showed you that Porto Seguro has a very good background in terms of its quest for profitability. Marcelo showed you the gain of productivity, the reduction in G&A, OME.
Part of this goes to profitability, a part of this goes to competitiveness. In the coming years, we will have growth. This growth will bring us productivity gains and increase the competitiveness and profitability. Now, we can transfer this drop in the Selic rate to prices. Of course, we will try to maintain our average profitability in the last years. Now, with the drop of cost of capital and the Selic rate, we will see which are the levels we will be working with in coming years.
But we're going to work with a very satisfactory return on annualized equity. We want to maintain our combined ratio at levels that will bring us a return on equity, something we have always sought to offer to our shareholders. We are going to follow on the drop of the Selic rates, having a lowered combined ratio, but maintaining a return on annualized equity.
Could you give me an approximation of the levels of ROAE?
Well, Nishio, as you know, we do not offer guidance for the future. We are still working with the 2021 budgeting. This is a great challenge. We do intend to maintain a reasonable profitability for the coming year, as we have delivered in the last few years. This is the outlook going forward. I am sorry, I was not able to understand your question.
Which was the ROAE in 2019?
It was 17%, 16%, 18%. These are the figures that we have worked with in the last few years. With the drop in the Selic rate, we could deliver this figure or perhaps a somewhat lower figure. We truly do not know. We have had a good return on equity in the last few years. Now, because of the Selic rate, perhaps our levels will be somewhat lower than that. In-house, we still have not discussed which would be our balance, but we will, of course, attempt to have very good profitability in the coming five or six years. We do not know which would be our break-even point so far.
Our next question comes from Guilherme from JPMorgan.
A good day to all of you, and thank you for taking my question. The first is a quick question, refers to the provisioning for the semester. Which is your construction of IBNR for the coming semester? You spoke about what happened in mental health, but we still do not have a dimension of that provisioning. We see that there is an increase of approximately 40 in this IBNR. Now, which would be the magnitude of this? If you could speak about your financial business and the provisioning, it was BRL 190 million. Now, if we have a deterioration in financing, have you also increased in this provision losses? A second question, based on the taxation reform, if there is anything that you can convey to us, a drop in that CSLL and this first part that was presented.
Guilherme, this is Celso Damadi speaking. In terms of the IBNR provisions for losses incurred but not reported and for credit, what did we do during this quarter? We tried to leave the balance of the first quarter in such a way that we will not have a withholding because of events that technically have already happened in the quarter. We worked on a technical provision, and we believe that if any event happens in the second semester based on a statistical calculation, we would have been warned of it, of a person not going to a physician, for example, and not carrying out a surgery because of COVID-19. Our forecast tried to approach this type of procedure.
I believe that our balance is quite robust to withstand this type of event. The main portfolios that had an increase in IBNR was the health portfolio, mainly. I believe we have sufficient IBNR provisions considering these events. In terms of CDC and credit cards, this was already explained. In the months of May, June, and July, we observed a healthier portfolio going back to more reasonable levels.
Our risk model has already captured the risk that we had, especially in April and May, and we believe that the worst phase of provisioning is over and that the provisions we have at present are sufficient for a credit risk, unless we have a second wave in the future, but we do not believe in this. In terms of the provisions, these are our responses. When it comes to the taxation reform, we have worked with some simulations.
So far, we do not see any material effect on our consolidated balance. We have followed up very closely on this. We have a committee following up on these discussions. Every week we have an update, and in our base scenario, there will be no material effect. Of course, there will be an impact, but no material effect on our consolidated balance.
If you allow me a follow-up on the first question. In terms of magnitude, we are looking at BRL 40 million in your income statement for IBNR, an increase of BRL 40 million. Does that figure make sense?
This is what we do at the bank. We think about this makeup of provisions. The order of magnitude, we would like to know if this is correct. Guilherme, the reading that you have done is not correct. The provision we have in balance is somewhat greater. When we look at the balance, the IBNR balance is different. We had a reduction of the portfolio this quarter, and in principle, the IBNR should have decreased. The amount that we have in the balance is more than BRL 40 million.
Technically, I cannot tell you how much more we should have additionally. I would say that it is more than BRL 40 million. The amount that you see is BRL 40 million, but the provisions go beyond that. That difference that you see, therefore, is not the right reading. What we have additionally goes beyond the BRL 40 million.
Thank you. That was very clear. Thank you.
As we have no further questions, we would like to return the floor to the company for their closing remarks.
Once again, I would like to thank all of the participants at this conference call for their questions, for their contributions, and for their interest in Porto Seguro. Should you have any additional doubts, please do not hesitate in visiting our IR section at the website, or you can directly contact our investor relations team. Thank you very much.
Thank you. The Porto Seguro conference call closes here. We would like to thank all of you for your participation, and we wish you a very good day.