Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Porto Seguro's first quarter 2019 results conference call. Today we have with us Roberto Santos, the company CEO, Marcelo Picanço, Vice President of Insurance, Investment, and Investor Relations, Celso Damadi, Controller and Vice President of Finance and Support, and Luiz Augusto Arruda, Head of Strategy and Investor Relations. We would like to inform you that this event is being recorded and simultaneously translated, and all participants will be in a listen-only mode during the company presentation. After the company remarks, there will be a question and answer session, at which time 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, and at the MZiQ platform.
The slide presentation, which will be presented by the management today, is also available for downloading on the website. All those participating via the webcast can send their questions at any time 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 made during this conference call are based on the belief, goals, and operating and financial goals, and 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 lead to results that differ materially from those expressed in such forward-looking statements. We will now turn the conference over to the company. Please, you may proceed.
A good morning to all of you, and thank you for participating in our conference call for the first quarter 2019 for Porto Seguro. We go on to slide number four, where we would like to summarize our highlights. In the first quarter, total revenues remained stable with a double-digit growth in the health and financial insurance segments, while the growth of the auto segment was negatively impacted due to technical price adjustments and ever-stronger competitive environment. Nevertheless, we did maintain a good growth, and this represents an increase of 6% vis-a-vis the first quarter 2018.
The quarterly profitability was favored by the increase of profit in financial and service businesses, as well as the expansion in financial investments, surpassing the benchmark operational efficiency gains contributed to the growth of our return on equity. The loss ratio increased last year and was impacted by the heavy rain and by an increase in partial losses. Even with these increases, the increase was 0.4 percentage points higher than the average of the last quarter during the last five years. We now have a greater growth of better and more profitable products, and this has maintained our costs at lower averages compared to previous years, even in very challenging operations and the reduction in costs related to Conecta.
Finally, Porto Seguro has entered into a cooperation agreement with Travelers Insurance of Brazil to renew policies in order to strengthen the company's position in P&C and civil responsibility. We have increased our profitability, even in a very challenging macroeconomic scenario with low growth of the economy. Of course, we take all of the business initiatives based on innovation, differentiation, this to benefit our clients. I would now like to ask Marcelo Picanço to speak in details of the results of the operation.
A good morning to all of you. This is Marcelo. I would like to refer to the evolution of our revenues in this quarter vis-a-vis the previous quarter, with a growth of 0.2%. Perhaps the main cause of this stability in revenue is due to relevant products such as auto that had a very slight drop. In our market, we're working with the price adjustment. In the case of the auto segment, since the second semester of 2018, we have had a drop in the theft and robbery averages that led to an increase of premiums initially. Well, there's nothing wrong with this.
The increase in loss frequency has nothing to do with the price increase. It does have to do with some unforeseen situations and the partial premiums. We had very frequent events of crashes that had not been properly priced, and because of this, we were forced to make adjustments more recently. Nevertheless, I would like to clarify that in terms of revenues, we are working with a very challenging scenario. The auto insurance, more than any other types of insurance like life insurance and others, does depend on the pace of the economy.
The economy has grown at a much slower pace than we had imagined. But we also have that microeconomic issue that is associated to the technical price adjustment that led to this relative instability. In the last five years, we have made revenues of 76% a year, and of course, others have a lower weight in our revenues. I would like to refer to the results of our insurance on page number six, as has already been mentioned, health and dental with a growth of 7%, auto with a slight drop of 2%, and P&C with an increase of 2%. Our written premium breakdown in auto since 2014 has remained relatively stable as part of our pricing strategy for other portfolios.
This gives us a better balance and a return, and we're working with products where the intrinsic return tends to be much higher compared to the auto portfolio. Our combined ratio increased to 95.2% in this first quarter of 2019, and it is greater than the previous quarter. Nevertheless, in the previous quarter, our performance historically was not particularly wonderful. If we look at the historical results for the last five years, we do have a very good result in the combined ratio. What explains the increase in this combined ratio for the quarter is an increase of 1.9 points in loss frequency and a gain of -0.8% that forced us to have a slightly lower ratio with administrative expenses and taxes. Despite of all of these challenges that we faced in the first quarter of 2019, our revenues have been higher than in previous years.
Now, if we look at this historical background, this new quarter presents a very good return in terms of insurance of 15.4%. This is the second highest result within a series of six quarters, which means that these are the last years we have had a record year. We knew that we were facing a very competitive situation. On page number eight, we would like to refer to specific growth in each of our business segments. In auto, as was mentioned, auto is an important part. In the last 12 months, we have had an expansion of 300,000 vehicles in the last 12 months, offsetting the loss of vehicles that we had had in 2017. In health, the prices favored growth, and we also had a minor price adjustment, and we also had an increase in growth because of this and the dynamic of our pricing.
The SMEs, which is our focus, enable us to work with less disruptive and aggressive pricing that we use in other corporate markets. In P&C, the part that refers to property and homeowners, our results are below our historical average of 1.9%. Homeowners grew 13% vis-à-vis the first quarter 2018. We have cleaned out our base when it comes to casualty and Itaú homeowner because of the bank had a decrease of 4%, once again due to the dynamics of the campaign and lower sales through the bank channel. Let's see. Travel and life, we have adopted new initiatives, for example, an enlargement of coverage, acceptance of new professions, expansion of training for brokers, and of course, commercial campaigns to enhance this entire process. On page number 9, we would like to show you the insurance results and the historical operational performance that we have had.
Our series here is of 10 years. Despite the extremely low interest rates that we have had prevailing in the last two years, 6.4 of average CDI, what you can observe here is a combined result that is extremely good to offset this drop, and we show you that the company is very resilient in terms of its combined ratio. Despite this worsening vis-à-vis 2018, where we had a record in combined ratio of 88.7, which is the ratio that we use in Brazil when we have a stable interest rate, but in Brazil, we tend to have a great deal of fluctuation. Here you can see the better final margin that we have obtained in this quarter. There were some events that led perhaps to a worsening vis-à-vis the last year.
This is the third-best quarter that we have ever had in the first quarter of the year in the last 30 years. It is among the top three in terms of results and combined ratio. It is only surpassed by the results of last year and the first quarter of 2010, when we had an average interest rate of 8%. The combined ratio at that time was 99.4, and despite the average rate, we got to 99.2. Therefore, we do believe that these results are perfectly adequate when it comes to the final margin and when we consider our financial results. On page number 10, the historical loss ratio for the auto segment until 2017, between 2014 to 2017, it was 50.9. Last year, we had an exceptionally good average, 53.3%, which once again makes it somewhat difficult to compete against ourselves and the results of 2018.
Despite this, we have grown to 58.25 percentage points, but we are still below the average of what we have had in the last five years. These periods are particularly difficult, but the average of the fourth quarter was, of course, 58.9. We are not fully satisfied with these results, and we are working towards enhancing our historical loss ratio. What we obtained this quarter was a one-off outside of what we expected. Once again, we had the very heavy rains and the crashes, and historically, these results are still very good. On page number 11, during the last three or four years, our administrative and operational expenses have dropped more than 3 percentage points. Vis-a-vis 2018, the first quarter, we even had a nominal drop of 3% when we sum these two different fields.
When it comes to the control of expenses that tend to be on a downward trend, the lack of growth has become a challenge. Although the growth is being challenged since 2018 up to this year in the insurance market. Despite this very difficult macroeconomic environment, we were able to maintain our administrative and operational expenses not only under control but with very relevant and expressive figures. I would now like to refer to the results of our financial and service business. Net earnings increased significantly in this set of businesses, especially thanks to the reduction of expenses in costs related to Conecta and an increased result in our credit operations. These are the two factors leading to this increase. As mentioned last year, the operation of Conecta was transferred to TIM.
We still have a part that is under transfer, but most of it has already been transferred. We have come to almost zero in terms of our internal structure. Legally, we do still have a structure that is once again being transferred to TIM. The revenue from this part of the operation increased from BRL 23 million- BRL 60 million this year. The return on capital is once again over 20%, which is the level of return that we believe to be appropriate for this type of business. It reflects the financial risk and services. Some of the operations are still not very mature, and our criticism is that they are not fully developed. The rest are very mature and robust operations, and they are highly relevant in terms of our results. To speak about the financial results.
Once again, favored by the prefix bonds, inflation-mixed bonds, and fixed income. All of these are products that we have had in the long term, and all of these different layers would have positive results. As you can see here, we ended up with a very good revenue. This is equivalent to more than 154% of the CDI this quarter, and the operation is very similar to what we had since the first or second quarter of 2018. We do believe that we have a very good ratio of return and risk with the present-day level of interest rates. Once again, the inflation seems to be completely under control. But in the long term, the situation could, of course, become different. Since the first quarter of 2018, we have not had a single quarter where we were below our benchmark, which is the CDI extension.
We were somewhat below 98, but in all of the other segments, once again, we are above the benchmark. Net earnings and return on capital in the first quarter 2019 on page 19, an increase of net income of 8% and return on equity reaching 1.7 percentage points more and 17.6% during this quarter. This is an intermediate return if we compare this to the last five quarters. The first quarter tends always to be somewhat more difficult because of the instability of our portfolio. We have already spoken about the growth and the challenges that we are faced with when it comes to net income. All of this is very much within our expectations, perhaps somewhat below our normal results, but very close to them.
When we put this in perspective and think about the last decade of first quarters, this year we had a result that is perhaps the second-best result for the first quarter when it comes to return on capital. It is a fact that this also benefits from the financial results and our return on capital. We would like to remind you that last year, as dividends, we paid more than BRL 1.2 billion. I do apologize. I think you could correct this information. Correct, the total amount of dividends reached BRL 1.5 billion last year.
Of course, this helped us strengthen our capital structure and our return on capital was the second highest in this very long period of 10 years. This shows the commitment of the company in having a more rational vision when it comes to the necessary capital requirements for the company. With this, we conclude the presentation, and we would like to offer you the floor for the question and answer session.
Thank you. We will now go on to the question and answer session. Should you have any questions, please press star one, or alternatively, the questions can be sent by the webcast platform using the icon Ask the Speaker. Thank you very much. Our first question is from Felipe Salomão from Citibank. You may proceed, sir.
Hey. Good morning, and thank you all, Roberto, Marcelo. Thank you for taking my question. I have a question about the competitive environment when it comes to the auto segment. Marcelo Picanço mentioned that the price dynamics did have an impact on the growth of the company, especially in the auto segment.
My question is the following: How competitive is the market when we look at the scenario, we see that in terms of insurance, Porto Seguro and perhaps one or another are obtaining very low figures when compared to the historical figures that we obtained in the past. Within this scenario, it seems to me that competition and price drop or downfall can be quite profitable. It seems that Porto Seguro is leading, perhaps, the price reduction. Perhaps you could give us some more color in terms of what is truly happening in this segment. Is it truly you, those who are leading this price downfall? This is the first question, and if the response to that is affirmative, hasn't it been somewhat excessive considering that perhaps the price of other competitors continues to be very cheap? Thank you for the question.
Felipe, this is Roberto Santos, and thank you for your question and for the opportunity to clarify what is happening. It is very difficult for Porto not to be the leader in this movement because of our market share that is practically 29%, and the entire market attempts to follow up on what Porto Seguro does. What I would like to clarify that has happened in the last three quarters is a significant drop, especially in the frequencies of robbery and theft, and of course, this ends up affecting the prices. It's a fact. Although Porto Seguro is a leader, it also becomes a target because of that. Now, imagine with the results that Porto Seguro has as a leader with growth, the market tends to turn against Porto Seguro considerably, and the drop in frequency of theft and robbery has led us to repositioning our costs.
We're not leading a price war. Quite the contrary, we're reacting to the fact that we have been set up as a target, and of course, this translates in adjusting the prices to the new scenario frequency in theft and robbery. As you can see in our figures, there has been a slight increase in the commercial cost in terms of auto insurance. This is another way of reacting. This causes perhaps greater vulnerability in the channel. As we do have a 29% market share, we end up translating our experience of results and figures perhaps at a greater speed than that of competitors. This is also a fact. We come out ahead oftentimes, not only with positive measures, but perhaps with more bigger remedies.
To dwell a bit on the results here, we had an impact on the quarter due to the heavy rainfalls, which are deemed to be a non-recurrent event. Every first quarter of the year, we do have these heavy rainfalls, and we were aware of the fact that the rains would be heavier this quarter. So much so that during last year, we ensured to have the right price to be able to face up to these heavy rains. Nevertheless, the heavy rains were perhaps the worst in the last 10 years, especially in the southeastern region, but in other regions of Brazil. We had an increase in loss ratio, and half of this is due to the flooding, the heavy rainfalls. The important thing is to react faster than the market. We're referring to a competitive scenario of prices and a war in terms of prices.
Ladies and gentlemen, I would like to remind you that should you wish to pose a question, please press star one. Once again, should anybody wish to pose a question, please press star one. Should you wish to pose a question, please press star one. Our next question comes from Thiago Capucci from Itaú BBA. You may proceed.
Good morning, Roberto, Picanço, [inaudible], and everybody listening to the call. I would like to ask two questions, if you allow me, after the questions by Salomão. I would like to gain a better understanding of the results that do not come from the auto segment. For some time, we have seen that results are more important compared to the rest, and it has shown us that the diversification of the company into new areas does make a lot of sense and should be very relevant. If you could remark in terms of your outlook looking forward, will other lines continue to increase their share in results? Which are the business segments that can contribute more importantly going forward?
My second question refers to your cost. This quarter also showed us that you're continuing in your improvement with G&A. Besides G&A, there were other revenues and expenses that have had a very good result, and I imagine that this is due to the sale of Conecta. Once again, these two line items, other expenses and revenues, and G&A, what is your outlook for the future? If with the sale of Conecta, especially in the field of other expenses, if we should observe a drop as we did this quarter. Thank you for taking my question.
Hello, Thiago. This is Marcelo Picanço. Thank you for the question. In fact, as I had mentioned, in the last five years, we have been saying this. As we gain more relevance, we draw the attention of the market more. We are a company that several years ago began with a focus in the auto segment, especially in São Paulo. Of course, we began to diversify. We believe that the channel requires diversification, and we can service these retail accounts and small and medium-sized companies, of course, and we continue to believe in this strategy. It refers to the following.
I'm thinking about some segments, travel and life, and working with SMEs, still have a very low penetration level, which means that we have an enormous opportunity for expansion. Evidently, this is not simple. We have to increase awareness. We have to increase training. This is a medium-term process, but the dynamic in terms of results show that the results will be better. The tickets tend to be lower than the tickets that we have in the mindset of our auto clients. People don't realize this. Once again, I think this is work that the brokers and the entire market have to do together to improve this awareness. Now, the company will continue to seek to have a growth in these products to a three times in terms of the auto segment. Of course, this will involve a number of activities.
We did have a transaction with AIT and that agreement with Travelers that is ongoing this year, which means that we have a great deal of appetite to continue growing in a sustainable and brave fashion in these new products. Even the lower leaders in terms of the residential segment, we would like to have a growth of 50%. This is not a forecast, it refers to the market. More than 50% of the homes in Brazil have absolutely no protection. Life insurance, we don't have an appropriate coverage when it comes to individual life insurance.
When the Social Security reform becomes a more mature discussion, all of this will help us in terms of this awareness, will help families to seek these products. Once again, this is a medium-term process. We do not want life insurance to be what sustains the company. We do not think that the auto segment will have a strong impact on the company. This is what we believe to have a long-term return.
Thiago, Roberto. This is Roberto. When it comes to our expenses, I would like to say the following. We have a scenario where we are still harvesting significantly what we planted some years ago in terms of systems and technology. This is one of the lines. This is a procedure that has an impact not only on our expenses, but in other fields of expenses. I would like to mention the restructuring that we underwent in the company. Presently, areas are lighter, they are more focused. Of course, in the search of savings, everybody is geared to this without losing quality, of course.
An example of this pursuit of savings when it comes to operational expenses and G&A, as you know, most of the insurance fleet has this device that will help us to recover the vehicle if it is stolen. If it is robbed more than stolen. Therefore, we have focused a great deal on this item, trying to identify opportunities. This is based on an art in which vehicle you should have this device, this satellite device. We have an entire schedule designed for this based on the automobile, the region, and the profile of the client, and we are working with a great deal of efficiency. Of course, this includes a great number of situations that we have here. Efficiency gains, a reduction of cost, an enhancement of information and data when it comes to pricing, a renegotiation with vendors and suppliers.
This has enabled us to obtain significant savings, but we still have a great deal to do when it comes to this segment. This is one of our footprints, an important footprint. The entire company is focused on the search for operational efficiency of doing better with less. It has become a mantra at the company to do more and better by spending less, and of course, with greater quality.
Thank you very much. Based on what you have said, my understanding, therefore, is that we should continue to see the benefits of these measures that you have already taken, as well as new measures that you may take in the future.
Yes, Thiago. Doubtlessly.
Thank you. Thank you for the chance.
-From Eduardo Nishio from Brasil Plural . You may proceed, sir.
A good morning to all of you. Roberto, simply a complementation, a question regarding the auto segment. If you could explain the dynamics that you had in the first quarter and during the year, this increase of almost 5 basis points compared to last year. I would like to better understand the dynamics and perhaps compare this with the market results where we have had a drop of 3.4 percentage points. Therefore, if you could explain what happened and what it is that you are doing to improve your work in the auto segment and contrast this if it is something regional, especially in São Paulo, where we have that concentration of heavy rainfall. If we could have more color on this, please.
Yes. In truth, the comparison of the first quarter 2019 with the first quarter 2018 is not a very fair one. We had exceptional results last year, and this explains a great deal. The drop is due to the flooding, the heavy rainfall. Since last year, in 2018, we were already aware of the fact that the impact this year would be greater. Therefore, we priced this increase, but perhaps below what we had imagined, and this had an impact on our loss ratio.
This is only part of the explanation. In the market, due to our market share, especially in São Paulo, we have 40% market share in São Paulo. Azul Seguros, the insurance company, was highly impacted more than Porto Seguro. Why? Because Azul Seguros acts more in the peripheral regions in São Paulo. They are very important, and those were the most affected areas, vis-à-vis the downtown area where Porto Seguro tends to be stronger.
Our three insurance companies do have a significant share, not only in São Paulo, but also in Rio, where we are a market leader, and we suffered more because of this and because of the heavy rainfall. Had we been able to forecast the true impact of the rainfall, this is, of course, connected to price, but the impacts were much greater than we had expected. I think it was the greatest impact in the last 10 years, and this explains the problem partially. The rest of the problem comes from the car crashes, collisions. In the last three years, we have been observing a drop in the frequency of these collisions for several reasons. We have what is called the Lei Seca, non-drinking law in several of the capital, and an improvement in the behavior of drivers.
What is common nowadays is that if a person is going to be drinking, they do not take their own cars. This is the positive side of it, that people have become ever more responsible. Particularly during this quarter, these frequencies had no additional drops. They became stable at a lower level. Nevertheless, on the other hand, the cost of repair had an increase, more notably the in-house cost, that had a significant impact during this quarter. This is something that began in November and became stronger during this quarter due to the in-house cost. This is something that we had not predicted at the end of the year in 2018. This process began in November. We had not detected it.
We only detected it in January, and this impact on the loss frequency comes already from the previous quarter, but we have already changed the prices and have included the impact of collisions for the coming quarters. We do believe that the second quarter will have a reduction in terms of this loss ratio, as we have already taken measures to include this in our costing. Rainfall, they are non-recurring events. Once again, there is that entire learning curve. We did price for this, but perhaps in a highly conservative fashion. In this very competitive scenario, we are managing to navigate well with it. We, as a company, are much stronger. It is important for you to know that every five seconds there is a quote being taken out on the street, and of course, this does have a stronger impact on the market.
I can say that we are better structured, we are stronger. For the auto insurance business going forward, the scenario continues to be a highly competitive one, despite a lower release, but the company has obtained good results. It is a very difficult scenario, but Porto is prepared to react to it, and I believe that we will have a second quarter without the events that would explain at least 50% of this impact. If we compare this quarter with the first quarter of 2019, I think that the comparison is not a very just one.
Thank you. Thank you for the explanation.
Ladies and gentlemen, we would like to remind you that should you wish to pose a question, please press star one. Once again, should anybody wish to ask a question, please press star one. As we have no further questions, we would like to return the floor now to the company for their closing remarks.
I would once again like to thank all of you for your participation, for your questions. Once again, should you have any additional doubts, please do not hesitate in contacting our IR team at the site www.portoseguro.com.br. Thank you very much.
This concludes the presentation of the conference call today. Thank you very much, and we wish you a good afternoon.