Good morning, ladies and gentlemen. Welcome to the Porto Seguro results conference call to discuss results for the first quarter of 2020. Today with us are Mr. Roberto Santos, the company CEO, Celso Damadi, Executive Vice President of Finance, Controlling and 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 Investimentos, Lucas Arruda, Head of Strategy and Investor Relations, and Emerson Faria, Head of Investor Relations. We would like to inform you that this event is being recorded and simultaneously translated. All participants will be in listen-only mode during the company presentation. Soon, 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/ir. At the conference call banner, the slide presentation, which will be presented by the management, is also available for downloading. Questions can also be done through webcast through Ask the Speaker icon. Once again, questions can be sent at any time and will be responded during this conference call. Before proceeding, we would like to mention that forward-looking statements made during this conference call referring to projection goals, both operational and financial, are based on the beliefs and assumptions of Porto Seguro's 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 in the future.
Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Porto Seguro and future results that differ materially from those expressed in such forward-looking statements. We would now like to give the floor to the company. You have the floor.
Good morning, everybody, and thank you for participating in the Porto Seguro conference call for the first quarter of 2020. We go on to slide number four, where we would like to highlight the following. We conclude that the first quarter reaching a substantial expansion of 52% in operational results, thanks to our diverse operations in insurance and financial and service businesses. The diversification of businesses has been fundamental to sustaining this portfolio and mitigate the company's risks.
Our total revenue, excluding DPVAT, was accounted for in other expenses and had an advance of 4% vis-à-vis the first quarter last year, supported by the double-digit growth of health insurance, life, financial risk, and the credit card products financing and consumption. Also, we had a drop due to an increase in competition. If we do not consider also the growth in total revenue, was of 11% for the quarter. There was an improvement of 1.1 percentage point for combined insurance ratio, the second-best level for the first quarter in the last 10 years. This because of the continued reduction of administrative and operational expenses, thanks to our efforts to ever more increase the company's operational efficiency. Financial businesses and services obtained relevant results in the period with a profitability of 36.7%.
This is explained by the consistency of profitability in financial businesses, the improvement in the results, and the non-recurring results of the monitoring of our portfolio. Despite the excellent operational results for the first quarter of 2020, the company's profitability was partially annulled by the drop in financial results because of the plummeting of the variable income equity due to the impact of the coronavirus. I would like to underscore that we are very well prepared to go through the present-day crisis with a sound structure based on a model that has generated consistent results in the last few years and a comfortable cash position. Considering the present-day challenges, we were expeditious in adopting measures to protect our business and also to support our employees, brokers, service renderers, and clients through broad actions that contribute to the financial health of all.
We have also offered support to public health, and we have intensified initiatives to contribute to people in social vulnerability. With this, once again, I would like to thank all the employees, brokers, service renderers, shareholders, and investors for their partnership. I reaffirm that we are confident that we will overcome this moment and wish all of you very good health. I would now like to ask Celso Damadi, our Vice President, to continue remarking on the main results for the year and this quarter.
A good day to all of you, and thank you for participating in our conference call for earnings release. I begin speaking about our operational revenues. Porto Seguro had an improvement in revenues of 3.7% vis-à-vis the first quarter of 2019, mainly due to financial businesses that had a growth of 18.4% in the quarter.
In the graph on page five, you see revenues per business line, and since 2015, you can see a compound annual growth rate of 4.2%. What I would like to highlight is an average growth of insurance of 4%, compared to an average growth of financial businesses from 2015 to 2019 of 11%. This shows you the strong growth that we have had in the last few years in financial businesses, a very consistent growth. In 2020, not differently, the growth was 18% for the quarter. This shows our diversification in financial business growing threefold compared to our growth in insurance. This is important for our strategy and diversification. On page number six, Porto Seguro has achieved solid results in auto insurance and its growth and attractiveness in other segments, increasing the diversification of business.
We also show you a very important graph here with a breakdown of profit per segment. You can see that since the first quarter of 2019, the auto insurance on average represents 31% and 30%-40% of our profit. This quarter in 2020 also represented 45% of our net earnings because we had a financial result in variable income that left the result of Porto Seguro somewhat below our average. During the year, we will probably recover this. The auto result for the year 2020 should return to a level between 30% and 35%, returning to that average of 35%, 37%. This shows you the strong diversification that Porto Seguro has attained in the last few years, that greater growth in few businesses with higher profitability. In the last few years, all of this due to our significant diversification and other businesses.
The quarterly profitability was impacted by a drop in financial results, but offset by the significant growth in operational results that attained the highest historical level for the first quarter. We truly had a very good result, a result in the loss ratio in most of our business lines, especially in the auto portfolio, as Marcelo will explain very soon. We also had operational gains and G&A in other lines besides insurance. In insurance, the growth in operational profit was approximately 33%. This shows, of course, that Porto Seguro in the last few years, with a drop in financial results, with a drop in Selic, the pricing and the underwriting have offset that financial loss for operational gain, not only in underwriting, pricing, and others, but also with operational gain and operational expenses. We believe that not all financial losses can be transferred through price.
We have to continue to gain productivity, which is what we have been doing with very positive results. This quarter has not been different. This is what this graph shows us. The quarter of the first quarter was quite impacted by variable income, as we will refer to further ahead. At the bottom of page number seven, when we take away that financial loss and we carry out a managerial calculation, business results at 100% CDI, which is a calculation we do in-house, removing excess capital, business generated 19.4% of profitability, a very good profitability with a very low CDI scenario. Even with a drop in CDI, we went from 21% to 19.4%, maintaining that profitability. On page number eight, Porto Seguro has attained consistent operational results despite fluctuations in interest rates. The ROAE was threefold higher than during the same period.
This shows you how resilient we are in terms of the drop of interest rates. Our pricing is anticipated by one year, and of course, we take into account different economic scenario, and we do our homework in terms of operational expenses, administrative expenses, and technically working with pricing, underwriting, and other sections to be able to face that drop in financial revenues that we can foresee one year before. This quarter, once again, was not different. The operational result was in other businesses within our expectations. It was a good quarter in terms of operational results with that drop in financial earnings, which will be explained. Thank you very much. I would now like to give the floor to Marcelo Picanço, who will speak about insurance.
Good morning to all of you. I would like to underscore the insurance results during this quarter.
We had a moderate growth, always boosted by the auto, where we have the pricing impacted by the competitive environment with a drop of 2.8%. But the other insurance had an increase of 12% during the period, enabling a moderate growth of 12.3% vis-à-vis the first quarter 2019. We're working to expand this growth rate and doing this based on innovation and products and more sophisticated and more innovative pricing models. On the next page, slide number 10, I would like to highlight the improvement in the operational results based on the combined ratio that reached 94.1%, better than last year. Here we have better days at the end of March because of the benefits of our auto portfolio that was immobilized during the quarantine. This is the best operational result for the first quarter in the last 10 years. Very positive result for the period.
Despite, once again, having had very strong rainfall in February that hit São Paulo in a concentrated way. March was somewhat calmer, although we were somewhat bolder, we did have a very good operational result, and we are showing you this. It is important to highlight the return on capital based on the CDI. This was the best return we have had historically, adjusting for the necessary capital in this portfolio, and adjusted insurance results standing at 24.6%. It is a return on capital that you rarely see throughout the world when it comes to results. A very positive and, of course, adequate result. It is important to isolate the results, the financial one, surplus capital that also help us, but we also have the natural volatility and this unheard of moment that we are going through at present.
In slide number 11, I would like to also highlight the following: that we continue to observe an efficiency gain and operational one in insurance. Our administrative and operational expenses had a reduction of 0.5 percentage points vis-à-vis the third quarter 2019. We were able to maintain that trajectory, that significant increase in operational efficiencies reaching 15.6%. Now, when we compare even nominally this since 2015 and an accumulated inflation of 19.6%, the nominal drop was of 6% when we add administrative and operational expenses. This does not happen only because of cost dilution or growth. Although in the last two years, our main portfolio has had more difficulties in growing, we still are able to gain in operational expenses. Having said that, I would like to give the floor to speak about financial businesses and services.
Good morning. We are on slide number 12 to speak about the evolution of our operational revenues in our financial businesses such as credit cards, financing, and automobile financing growing 20%. We also have, once again, significant growth in vehicle financing vis-à-vis the previous quarter. Consortium around 12% and in services, we have Carro Fácil, where we lease vehicles to individuals for one year or two years with a growth of 6%. These are our products with a very good placement in the market, and we have three products with a focus on vehicles, the consortium, the rental car, and of course, the credit operations for vehicles. We had a sale of monitors alarms. We had recurrent sales and representing BRL 30 million.
We also had the credit card operations contributing to an increase in our revenues and companies such as Carro Fácil, [PortoFácil], that enabled us to get to a breakeven point contributing to these results. When it comes to the return on investment, it lies at 36% in the first quarter. In the next slide, number 13, you see our credit and financing operations with a growth of 20%. If we look at the portfolio, the credit card portfolio, where we see the use of our product growing 30% and the use of loans and financing also with a growth of 30%, growing well for both businesses. In terms of active credit cards, we have a growth of 12% and total credit cards with a growth of 33%. We are going to increase the sale of credit cards to also increase the invoicing of this business.
In the next slide, you see the figures referring to default. In the first quarter, we were below the market average once again. This thanks to the two products. Despite the month of March, where we had some days indicating the period that we are now undergoing, this was quite comfort of the expectation is that we will suffer less than the market in terms of the non-performing loans because of the characteristics of our portfolio that is very strong for our insurance. These are the main information pieces that we wanted to share with you. I now give the floor to Izak to speak about our financial or investment results.
Thank you all. In the first quarter, I would like to highlight the performance with a very strong drop in our variable income equity. It was greater than the profit we had in public treasury.
Because of this, our profitability for the quarter was 29% of CDI, including provision that was negative 1% CDI. The strong reversion that we had in our portfolio in the fourth quarter 2019 and the first quarter 2020, where we worked very strongly on prefix securities, increasing our position in the variable income portfolio throughout the month of March, and an increase in private equity as well. These are the highlights for the quarter.
I would like to refer to the company initiative when it comes to facing the COVID-19 pandemic. We were very quick to react, first of all, thinking about caring for employees and their health. One week after the social isolation, we had 95% of employees working in home office, and we had 3,000 employees that before social distancing were already working this way.
We had a great concern when it came to in-house communication to preserve the environment, internal communication. Porto Seguro was one of the first 20 companies that additionally adhered to the non-layoff policy of the government. We're also trying to protect our brokers, which is the main sales channel of the company. We created a subsidized credit line. We have created a process to postpone commission reversal once policies are canceled, and we adopted certain protection measures for customer portfolio when it comes to a differentiated pricing and renewal. We also care for our service providers, especially those that offer assistance, because there was a drop in their service. We have offered advanced payment of services to supplement their income, and we have created credit lines, differentiated lines for these service providers.
All of our service providers that are over 60 and those that are in the group of risk have had to stop working for obvious reasons. We were especially concerned in helping our merchants and helping the merchants that live and operate around our headquarters. We created partnerships with most of these merchants in the neighborhood, disclosing advance sales vouchers for Porto Seguro's employees and offering guidance on finances to support them socially. We have made donation of food. This represents almost 40 tons of food that has already been donated. Through Instituto Porto Seguro, our seamstresses working at the institute have been producing masks to be donated to service providers and those that work at the institute. We're working two ends, generating income for the dressmakers, and of course, also protecting those that depend on the institute and in the region surrounding the institute, offering these masks.
In terms of health, we are donating materials to hospitals, needy hospitals. This is not limited to São Paulo. I would like to highlight the state of Amazonas, Manaus as well, and Ceará in the state of Fortaleza. What I would like to underscore is the partnership with Raízen and Natura to distribute hand sanitizers to people in social vulnerability. We have provided the Porto Seguro ambulance for the Pacaembu field hospitals. This is for the hospitalization of six patients. We have a program to help the nursing team when they displace themselves from their homes to the hospitals, and all of this offered by Porto Seguro. This concern, of course, is still underway, and we continue to make investments when it comes to these social issues. To conclude, I would once again like to thank everybody for participating in our conference call.
Thank you for your questions, your contributions, and for your interest in Porto Seguro. Should you have any additional questions, please visit our IR section at www.portoseguro.com.br or speak directly with our IR team. Thank you very much.
Thank you. We will now go on to the question- and- answer session. Should you have any questions, please press star one, or the questions can also be sent through the webcast platform where it says "Ask the Speaker" banner. Our first question comes from Mariana Taddeo from UBS [inaudible].
A good day to all of you. Thank you for taking my question. I do have a question for the auto segment. During the presentation, you mentioned that the results of the first quarter were impacted by a fiercer competition.
What has been the competitive pressure in the post-coronavirus scenario, and which is the outlook for growth of premiums in the coming quarters? There has been a significant drop in the sale of automobiles. What happened with renewal and, initially, your loss ratio had a positive impact. Will this be maintained going forward? Thank you.
Hello, Mariana. This is Marcelo speaking. When it comes to the auto segment, we think that the competitive environment is more stable. We do not see an exacerbation for the time being. While there is the sale of new vehicles that has been impacted, compared to the total portfolio of insurance, the amount is low. It is less than 10%. The impact will not be so great.
I would like to stress that 60% of total fleet is still not insured, and we do believe in a growth curve through individual products, especially for insurance. Not more of the same during insurance with those that normally do insurance. I think we have a lack of inclusion here now in terms of growth. I think companies have been very responsible because of this unique period we are living through, and we will see what happens going forward. In our vision, between the quarantine that has decreased mobility, exposure to risk, and of course, has a lower loss ratio initially. Although this has had an effect, we do have econometric models that show that there will be greater unemployment. We believe despite all of this, that this year will be good. We will have good results. The loss ratio will have a good behavior in the auto portfolio.
We're not concerned with the general results or the margins or the combined ratios for the year for the auto segment. Our main concern is a sustainable growth, and I underscore the word sustainable. We're not going to do this only technically, of course, to work with a sustainable price. This is not a strategy that we use. We're going to see growth through innovative products, innovative approaches. This is what we are looking for. But in terms of results, it will be a good year. Despite the scare that we had in February with rainfall, that was very concentrated in February. The rainy season is over, and in general, the results are better than expected. Public security has improved. We have a great deal of bad news, but of course, the thefts and robberies have had a decrease.
We have a very well-behaved index here, and all of this will enable us to work on greater growth. I believe that going forward, therefore, the scenario will be somewhat more positive.
Excellent, thank you very much.
The next question is from the webcast platform from Pedro Gonzaga, Pacífico Resource Management . Congratulations on your results, and if we have a reduction in the sale of autos, and if this sale is low, can this compromise the sale of auto insurance? Can this have an impact on other types of insurance and services, such as credit cards, where you use cross-selling?
Improve the sale of vehicles, and the outlook for the automobile industry is not very good this year. As I mentioned previously, we look at the circulating fleet, 70% or 60% of the circulating fleet is not insured.
This, of course, represents a very relevant opportunity for us, and it will improve with the flow of new vehicles. It's 2.5 million vehicles a year. So 70% of a fleet of 30 million is much more relevant for us. We're looking for other initiatives to work with credit cards, for example. In the case of credit cards, yes, of course, there has been a slight drop with a drop in auto insurance, but not to the point of compromising our expectations for the year. We can also sell the credit card regardless of the insurance, and we have just concluded a strategy to offer and make available the contracting of credit cards without the auto. When it comes to the other products, they can complement the insurance, especially car rentals.
We see that the search for car rentals did not have a big impact in March, although we had 15 complicated days. So it will be complementary. These are my remarks, therefore.
Our next question comes from Felipe Salomão from Citi.
Good morning to all of you, and thank you for taking my question. I have two questions. The first, if you could give us more color, more details on the impact of COVID-19 on the company in the month of April. If you have been impacted by the consequences of the lockdown, and because of the drop in the sale of automobiles and much more. How does this compare with a normal month? My second question, compared to other industries, what are you doing in terms of the pricing of products? Of course, there are several impacts, a great deal of uncertainty.
There is a drop in the loss ratio. Perhaps this could give you more room to reduce prices. Once the lockdown is over, the circulation of vehicles will increase again, and you do have to have an action for when the lockdown is over. Finally, you speak about the renewals, which without a doubt will also have a reduction. Now, very generally, consumers will not be willing to spend any money, and the scenario we will consider to be uncertain. So how are you going to tackle this scenario? If you could give us more color on the price trends, that would be excellent. Thank you very much.
Felipe, this is Roberto, and thank you for the questions. I am going to refer to the first part, giving you an overview on the impact on businesses as a whole.
Well, in fact, we perceive that there were impacts in the month of April in the case of the auto segment. During the first fortnight, we saw a reduction in the frequency because of a reduction in mobility because of social distancing. But in the last fortnight of the month, there was an expected increase in mobility, not only observed through frequency, but through a measurement of mobility through apps. Most of our fleet at present users are app, and we have been able to perceive their mobility through the app. So we have those two movements in the month of April, the first two weeks, and in the last two weeks, a very strong resumption in most of the capital cities, allowing the frequency to return almost to a level of normalcy.
But during the first fortnight, of course, the reduction was much greater, and this affects the loss ratio of the auto segment, of course. We have social isolation. This is now mandatory confinement, and it is different. In the two portfolios in auto, Porto, Itaú, and Azul. Well, Azul has a greater prevalence in the outskirts of the cities. Porto and Itaú in the cities. So the movements have been different, and there is a different exposure to mobility in the outskirts. I think Azul has a higher loss ratio because of this effect. As Marcelo explained very exhaustively, there has been a drop in the sale of vehicles, but this does not represent a large share of our business. It represents 10%. In terms of health, I would like to highlight a loss ratio or claims much lower than what we had estimated initially because of the hospitalization for coronavirus.
Much lower when we compare the hospitalizations of coronavirus. Once again, well below our expectations and much lower than we have observed in other countries, and we compare ourselves with other insurers in the country. Of course, what is obvious, a strong reduction in elective hospitalizations because of the situation of hospitals, and as a consequence of this, in therapy and exams. Most of this, of course, will be resumed once social isolation is over, and this will bring us a gain during this period that will be important for the yearly results. We still have not had a drop of revenues in health. We work with corporate health. We do not have an individual portfolio. I think this is the last thing that companies are going to cut, a health plan. There may be an impact, but not a very expressive one in the second semester.
In terms of life, although we do have a specific clause for pandemics in our coverage, we have opted to give coverage and up to present, the number of claims and death in our life portfolio is also much lower than what we had estimated because of this impact. Everything is under control, and we have had no significant impact in our revenues. Perhaps the most impacted business is the lease insurance. It has had a lower revenue, of course, because there are no longer people leasing buildings during social distancing, and this should have an impact in the second quarter. Unemployment has led to a higher frequency of communication of claims for the same reason, because of unemployment and economic crisis. We believe that the lease or the rental segment will be the most impacted one in the company.
I'll give the floor to Marcelo to speak about pricing.
We have already spoken about this. We are carrying out an assessment and some aspects favor us. We have a critical mass throughout Brazil that enables us to have very detailed information on displacements per profile of driver and age, per site outlook, if it's downtown, based on income brackets and age brackets. We have important information on pricing. We do believe, and we're remodeling our pricing to mirror this, not only for this period and for their scenario, of course, this can change according to the evolution of the curve in the country. But during these two or three months, we're working with May and June, and then we believe that there will be a certain return to normalcy in quotation marks. The question is, what is normalcy after the quarantine?
We may have a significant change in behavior as we see in the air companies. How many people are going to go to another place in the city to hold a meeting after the quarantine? Because this will have an impact on the risk exposure and price. This could change one way or another. We're thinking of a different level of change. We're assessing this, and it is important to say that the company, because of its analytics sophistication, because of the size of its portfolio and the monitoring of its fleet, will be able to do all of this with a very good competitive edge.
Simply to add to the pricing question, we have very sophisticated models implemented in the company, and we tend to look not only through the rearview mirror, but also through the window cleaner.
We base ourselves not only on indicators of the insurance company, but also on outside indicators of other companies that apply to our risk. I think this gives us a good competitive edge because of the size of our portfolio, because of the mobility apps that we have and trackers that are of our property. Of course, this gives us a significant competitive advantage.
Thank you very much for the responses. Everything is very clear.
The next question comes from the webcast platform from Murilo Soares, Pegasus Participações . Good day, and congratulations for your results. There's a question on the performance of the financial investment. Was the loss due to the amount of the investment or a loss with derivatives?
Thank you for the question. No, the loss was due to our shares that are dealt with strategically.
It wasn't a loss with derivatives. You can see that at the end of the last quarter of 2019, this portfolio represented 4% of the resources that we invest. In the last quarter, in the first quarter that ended in March, the level was 9%, and this portfolio is basically made up of shares.
The next question comes from Thomas Peredo from BTG Pactual. You may proceed, sir.
A good day to all of you. I would like to ask about the financing line from the credit card. You do not have any additional provisions for this. When we look at the large banks, of course, they have a different portfolio mix, but the banks created high provisions, especially Itaú and Bradesco banks. What are you going to do in terms of provisions in the case of default in the coming quarters?
We believe that the default or non-payment levels will begin to increase in the next four quarters, considering that the market is offering a grace period to its clients when it comes to some installments. What are you going to do? Are you going to anticipate the PDD?
In our case, specifically, we have a portfolio, as you mentioned in your question, it's somewhat different. We already operate with a population that has a vehicle. Not the majority have vehicles, and those that have vehicles, not all have insurance and not all have premium insurance, which is an important segmentation. In terms of non-payment, of course, we will have an increase. We have been through other crises, not at this level, perhaps.
We run our models, we see the results in former crisis, and this is what we're doing presently to see how much we should put in additionally in provisions. We will probably have these additional provisions, but always keeping in mind the different characteristics of our portfolio vis-à-vis the market.
Thank you very much.
The next question is from Eduardo Nishio from Banco Plural. You may proceed, sir.
A good day to all of you. Thank you for taking my question. On page number six, when we speak about conciliation, and we're speaking about the financial part, where there's a drop of 15%. It's almost half of your profit that comes from this financial business. What is it that you're losing here in terms of the results?
[inaudible] Now, this result is on page 12, and it refers to financial businesses and services.
Marcos went to the slide very quickly to explain this. In these businesses, we have a result for this quarter that was very good in Porto Capi. In the Porto Capitalization , we had a sale, what we call Porto Capi, as well as a sale of the monitored alarms portfolio, where you see the BRL 126 million that includes financial businesses and services. This is a non-recurrent revenue of approximately BRL 30 million of this total amount. That is why you see this leap during the quarter. During the year, this will now be material, but for the quarter, it seems to be highly material. It will not be important for the entire year. Two events for the profit of Porto Capi. These are made the year 2019 and the sale of these monitored alarms.
Now, jointly, this leads to a result in results, losses of smaller companies that had greater losses in the last quarter, and we have almost come to a break even in these companies. This also helps us in this difference of results in the first quarter of BRL 63 million to BRL 126 million in the first quarter 2020. This is on page 12 of the presentation.
A follow-up in the loss ratio, if you could break down the month of March for the auto segment with the COVID-19. Thank you.
[inaudible] T he quarter was 56.3% in the month of March. It was approximately 55% for the auto segment. The last 10 days, it was somewhat lower, but if we consider the quarter, it did not significantly impact the quarter in terms of autos because of the size of the auto portfolio.
We had a minor reduction, but as we work with informed loss ratios, we are still accounting for these loss ratios of previous days. So for the quarter, it was not significant. The greater impact for the reduction of loss ratios and also something we will only see in April and May. For the quarter, there was an impact, and we do not have an exact figure. It is very difficult to separate what is and what does not result from the COVID impact. The daily averages are one percentage point for the month of March, not for the quarter. Reduction of 1.5% for March, perhaps because of the loss of frequency in the auto segment in March. I think I can estimate that it will be 0.5% for the quarter. We will see a greater drop now in the second quarter.
In the first quarter, it is immaterial, this impact of COVID in the auto portfolio. Thank you.
Thank you very much.
The next question is from Guilherme from JP Morgan.
Thank you all, and thank you for taking my question. We have two questions, very quick ones. A follow-up on your credit card business. In some countries, there is a discussion of provisioning, and there has been a drop in the credit card balance due to a lack of demand by the population. What is happening with your balance in credit cards, and what is happening with the provisioning? Have you seen a significant increase or decrease in credit card use? Secondly, in terms of capital allocation, you were able to maintain a very comfortable position, and it seems that you have changed your strategy in your allocation strategy. Thank you very much.
This is Marcos, and I would like to refer to the invoicing of credit cards, and I think you are referring to the use of credit cards day after day. The drop was of almost 38%, 35%, and it is now coming back to normal. But of course, there was a drop in invoicing. When it comes to the sales, the month of March includes a search for a credit card. It was the second-best month for the quarter, basically. So theoretically, as there is a penetration of the sale of the credit card along with insurance, not a mass penetration, we believe that we will continue increasing the penetration to guarantee the number of sales that we expect for this channel. We expect to open up sales in other channels and strengthen this during this period. Thank you, Guilherme, for the question.
When it comes to our capital surplus, our risk appetite policies have a model that guarantees us from some crisis. We have never imagined a world pandemic, of course. But in other types of crises, economic or political crises, we have always had a capital policy. We enter the crisis soundly with an excess of solvency, with free cash, reserve cash, to be able to sustain several types of crises, including a liquidity crisis. We came into the crisis well, and we're going to be leaving this crisis well in terms of capital. We have a policy for dividend payout, and this year we have maintained an average of 50%. This was approved in the assembly. We have only set aside a part of this, 22% of the dividend, to pay until December 20th. As everybody knows, at that time, the capital is up here.
We have maintained somewhat more capital until December, until the pandemic is over, to have a greater negotiation capacity to roll over our debt. We're being more conservative and maintaining our liquidity. In December, therefore, we will pay those 22% and pay out 50% of dividends this year. There is no proposal to pay additional dividends this year. Nothing has been foreseen for obvious liquidity reasons. In terms of M&A, Brazil was very costly as a country. Now with this crisis, some opportunities may arise, and we're very attentive to these opportunities. Our M&A area is keeping its eyes open, and we're willing to work with businesses that will have synergy with us, as long as the price is attractive.
I believe that now we will be able to do good business, and we will be willing to do this business if we believe that it will have synergy with our present-day businesses.
Very well. Thank you very much.
The next question is from Giovanna Rosa from Bank of America. You may proceed, ma'am.
A good day to all of you. Thank you for taking my question. I also have two questions. The first question is a follow-up of Thomas' question. Perhaps you could share with us how your initial formation behaved this semester, and if the provision will increase with the increase of non-payment going forward. You spoke about the results of other businesses. How do you expect that the contribution to the results will evolve during the year?
Thank you. Giovanna, this is Marcos. If you could you confirm your first question?
I don't think I understood it correctly.
Referring to non-payments or defaults, how was the initial formation? How did non-payments behave in the first quarter, and how will provisions evolve because of this going forward?
In the first quarter, our non-payment, our NPL, had a behavior that was better compared to the first quarter in 2019. We ended the first quarter in a good position. Now, considering the scenario that is within our expectations, we were increasing our vehicle financing portfolio as well as the use of credit cards, and of course, this was a benefit. We have a specificity in our collection that I would like to detail considering the concern there is about this topic. We have a collection that is done in-house within Porto Seguro until 80 days of delay in the special cards. We have accounted for this.
Now, in this scenario where several clients have to reinforce their collection structure, they have to hire call centers if they do not have a good home office, and they may face difficulties. In our case, we do have that first front in the company with a certain ease of increasing this contact. Several calls have decreased for other operations, and this is what we are doing. We are preparing several operational activities, sizing new provisioning that we believe will be necessary to be able to have a greater coverage for this period. In terms of our expectations, we are reinforcing our collection strategies and policies and the provisioning, the complementary provisioning. I do not know if this was clear for you.
No, that was very clear. Thank you.
The second question, this is Roberto.
Giovanna, you want us to speak about the impact of the frequencies and claims due to the social isolation and then the loss ratio of the company as a whole. Marcelo previously explained that we imagine that we will have a relative impact on our loss ratio in the last months of the year. Notwithstanding this reduction in frequency during social isolation will be significant on our results. To make it very clear, as Marcelo mentioned, we expect a positive loss ratio this year compared to what we will feel as a whole. The impact of this social isolation should annul the effect of any increase in frequency when we resume our activities. We will see this not only in auto insurance but also in residential and corporate insurance and in health insurance. We have the impact of elective surgeries that I mentioned.
Our reading is positive, and there will be a reduction of the loss ratio during the year. There will be a negative impact on revenues, of course, and what we have to do will be enhance our operational efficiency. Whatever we do will be ever more important. We have an agenda to reduce our administrative and operational expenses. Nominally, this will be done during the year. But the reduction of revenues will have an impact on administrative and operational expenses. We will have this in the second quarter and in the second semester. But as a whole, the effect will be positive because of the significant loss ratio reduction during social isolation. The only exception would be the rental insurance for buildings, for example, which I already mentioned.
Could you comment on the contribution of the financial and service businesses to the results throughout the year, if you could?