Good morning. Welcome to the conference call of Porto Seguro S.A., to release the earnings release of the fourth quarter of 2018. Today here with us we have Mr. Roberto Santos, CEO, Marcelo Picanço, Businesses and Investor Relations Director, Celso Damadi, CFO and Controller, and President of Strategies and Investor Relations. The presentation is being recorded and simultaneously translated into English, and all participants will be connected in listen-only mode during the company's presentation. Then we are going to start a questions and answer session when further instructions will be provided. Should any of you need any assistance during this conference call, please request the help of an operator by pressing star zero. The audio and the slide deck of this conference call are being simultaneously presented on the internet at www.portoseguro.com.br/ri, and at the platform MZiQ.
At that address, you will see a banner called Conference Call that will lead you to the presentation. Questions may also be asked on the webcast platform by clicking on the item, Ask the Speaker. These questions may be sent at any time and will be answered live during the conference call. Before continuing, we would like to clarify that statements made during this conference call relative to Porto Seguro's business prospects, operation, and financial projections and goals are beliefs and assumptions of the company's management and are based on information currently available. Forward-looking statements are not guarantee of performance because they involve risks, uncertainties, and assumptions as they refer 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 operational factors may affect the future performance of Porto Seguro and may lead to results that will be materially different from those expressed in such forward-looking statements. Now, we would like to give the floor to the company. Please, you may begin.
Good morning, everyone. This is Roberto Santos, the CEO, speaking. We will be talking about the fourth quarter of 2018. Going straight to slide four, that lists the highlights. In 2018, we have increased our profitability through the improvement in loss ratio and also by increasing operational efficiency with the result of the best combined ratio in our history. As to claims, we have kept a discipline in pricing, have improved risk assessment models, and we also had the benefit of reduction in car crash and theft.
We could capture benefits of all investments that we have made. We have grown in all our main business lines, especially in auto. We increased the insured fleet by 180,000 items. We have increased health premiums and our credit operations by 20%. Life and property insurance grew slightly less than previous years, but we think that the low penetration of those products still offers great potential for growth. We also had a significant reduction of the cost of Conecta Q4, which also contributed to our better performance. The total dividends paid out and their amounts that will be approved in the next shareholders meeting, and we will get to about BRL 1.5 billion, the highest value in history since the IPO that has increased the efficiency in the use of capital.
We also have intensified our actions to have better customer experience such as the campaign, the kinder traffic, service request through WhatsApp, chatbot, and better self-service for customers. We are also very happy with some awards that we have received such as the most recalled brand in a category insurance company and the most beloved insurance company by customers, by the newspaper Folha de S.Paulo and Estadão, most trustable insurer by Revista Seleções, and also considered the 17th most valuable brand in Brazil by the ranking Interbrand. In closing, I would like to thank all our employees, brokers, partners, and investors for the results we have attained in another year of hard work and commitment. We are still optimistic with the potential of the businesses we operate in and will keep focused on profitability, seeking efficiency in the services that we provide.
Now, I am going to turn the conference over to Marcelo Picanço to get into details of our operations.
Good morning, everyone. On slide number five, we will be talking about growth in revenues, which was moderate comparing our history going from a recessive cycle reflecting improvements now. But we had growth especially in the line of insurance, and this was a 2% increase below our historical growth of after 2006. In services, we had a decrease, especially the main factor is because we discontinued the operations of Conecta, and then we made a decision, we stopped selling lines, and therefore, our revenue started to drop as a consequence. But this is because we are discontinuing a business which was not presenting good results for us. Now, about insurance results, more specifically, which is part of our revenues.
In Q4 2018, we still had a growth in automobile that was smaller, and it's important to make it clear that it's smaller growth. Although it was lower compared to our historical rates, it was still above the market. There was a factor that affected the whole market, which was a reduction in claims frequency, and there was a reduction in the premiums, and there was a technical reduction which did not affect margins. On the other hand, this quarter, we are able to reduce by 2.2 percentage points as compared to last year, the combination of DA plus DO, which is important, especially in terms of claims. We had a reduction of 1.4 percentage points in the total combined ratio and 2.2 in DA plus DO.
It's important to understand it because it explains the reduction of cost in the basis. Then we get the other end of quarter-on-quarter, Q4 on Q4, there's even a sharper reduction along the year, and it reaches 1.2 percentage points. Looking at the combined ratio of the year, we had 92.2% for all insurance. This is the best combined ratio ever since the IPO. A very good combined ratio, which drove profitability of business lines to reach 20% of return on capital in Q4 and 19.4 practically along the year of 2018. So in spite of a worse result and a slight increase, the profitability in the quarter was superior to the average profitability of the year, which was very high considering our history. So we're talking about 20% here.
I would like to talk about this point specifically of the combined ratio and to highlight a very important aspect in our vision on slide seven of our presentation, which is our capacity of delivering operational performance in spite of low interest rates. To us, it is not a coincidence that we had the best combined ratio precisely in the year when we had the lowest CDI since 2009. This is no coincidence. In fact, this is the result of management, that when we seek good results in the bottom line, when we see the interest rates, we need to recompose operational performance. We do not have that in the short or midterm in our rate. We are going to keep those levels for a long time, more than a year. If it grows again, there may be room for us to increase the combined ratio.
Looking at the amplified combined ratio, when we compare the Brazilian market and the international markets with low interest rates, you can see that it is much more stable than the combined ratio itself. The combined ratio varied from 99 to 92, and the combined ratio between 91 and 87. On slide eight, you can see our main product, which is auto insurance, and the dynamics of our loss ratio versus the market versus our history. The relationship of premiums, the premium variation has been smaller over the past few quarters because the recomposition of prices that led to an increase, especially in the second half of 2017 and first half of 2018, that drove our growth. The result is a result of our premium variation, and in this case, it was related to price, to be more precise, rather than items.
At the same time, we had a drop in loss ratio, which is also related to the price evolution and also to the drop in frequency. On the other hand, the price reduction leads. This is the first worsening loss ratio that we have had since the first quarter of 2017, practically two years. With only better and better loss ratio. However, we believe that we are still at a very healthy level, and there is still a margin for loss ratio variation. You can see on the right-hand side of the page. On average, it is 10 percentage points better than the market average. In 2018, we reached 11.5. In terms of the difference, the delta between our average and the market average, there is a range there for us to move. This is what we have been delivering since 2014.
We are also below our own average in the past five years. Our average was 56.1, and we are at 52.7. On page nine, you can see the number of robbery and theft in Brazil. This is total numbers for Brazil, where you can see that there has been a reduction in the region, in Brazil as a whole first. There was an increase that took place from 2013- 2016, which once again reinforces that this is a worse economic scenario, worse employment also leads to an increase in robbery and theft. Over the past one or two years, there is a falling trend in robbery and theft. This is important because this is also related to improvements that are not just economic but also better public management.
What we have learned over these years is that with better prospects for the economy and a drop in unemployment, we can expect a reduction in violence and risk. This implied that reduction in premiums that we may deal with in auto insurance is natural if this trend really prevails. On slide 10, we will be talking about admin and operational expenses. Along 2013- 2016, we invested strongly in systems, processes. We reinforced a few departments. Once we completed these projects, most of them with a stronger agenda in terms of intensifying efficiency gains. When we look, not just comparing 2018- 2017, but if we compare the last three movements of taking 3.1 percentage points in three years, one percentage point efficiency a year that we gained in recent years.
You can also see that we have had a drop in face value of admin and operational expenses in a year of 2% and in a quarter. If we compare costs that we worked on along the year, we had a 7% drop in G&A, which shows that the company is very much committed to efficiency gains. To make it very clear that we do not believe that this agenda conflicts with our positioning of quality and our service strategy. This is an agenda which is complementary and synergistic. When we improve the process, the system, and the quality, this is good for customers too. We also had a reduction in the level of complaints, which was very low already, but it is even lower now with our partners, the brokers. This demonstrates that efficiency is not the opposite of quality.
In terms of financial results, financial and service business results, we have two very different realities here in terms of financial businesses growing by double digits, especially loans and consortium growing too. We are the second-largest consortium of real estate in Brazil. We are leaders. In terms of loans, we are more of a niche market. We can be compared to other players in the market. Other lines grew less, but everyone growing, and a very intense reduction in mobile and telephony, which was a decision that we made before to discontinue the project, which accounted for 5% of our total revenue. In terms of results along these years, it was heavy, negatively speaking, in this chapter of our businesses. Our recurring net earnings in spite of the strongly negative result in 2018 because the operation is still going on.
We are transferring the lines to TIM, our partner, and we will be doing it along 2019. In spite of this loss, we could expand by about BRL 24 million income or 18% the recurring net earnings of financial and service businesses, and we will be seeing that more clearly in the future without the telephone business. We took the year with the lowest CDI in history, in the recent history in Brazil, at least. Our profitability in the quarter was 2.6%, which is equivalent to 167% of the CDI discounting the expansion. These results were very good for us. We are working with the lowest reference interest rates that we have had in years, and therefore this has an impact in our results with a reduction which was partially offset by our performance. This is related to allocation, and we are allocating more or inflation-linked bonds.
We had the benefit of an over-allocation in bonds as compared to the average we increase along the year. We were between 1.8, 1.5, and we had 3.2 in equity, and with a very strong movement in improving the variable income condition in the stock market. Lastly, not lastly really, but another important aspect in our consolidated results, I would like to show you the effective rate of taxes, and because this is important to explain. Basically, we saw an increase in effective tax rates if we talk about income tax and social contribution. So from 28.3% to 39.6% in terms of the effective tax rate. This is related to what in terms of equity in stable capital that we can deduct. But the result, the basis over which we apply was BRL 0.5 billion to BRL 2.2 billion.
I deduct the same amount of a basis that has grown a lot, and so the effective rate grows too. Also, there was some movement such as 5% reduction retention of social contribution, which is related to a drop that is going to be good from now on in terms of social contribution. However, there is a reversal that was in a balance sheet that leads to an additional payment of BRL 42 million in taxes because of this reversal. We had also some write-off effects because of Conecta of BRL 21.6 million and others. So good news on one hand leads to some bad news here, but which are not recurring. We were not going to always see this.
Now complementing what Marcelo said, we estimated the effective tax rate for 2019, and this will depend very much on the government, and their approach with taxes.
But looking at the tax loads today, the effective tax rate will go back to the levels of 32%, 33% in 2019. So on the adjustment of social contribution of 5%, there was a negative effect in 2018 because there was a write-off which affects cash and accounting results. But in 2019 it will be the opposite, a smaller rate, and so the effect in 2019 will be positive. The write-off of Conecta was because the expectation of results of Conecta in our transaction with TIM and the number that we had in the balance sheet. So we had to write it off so there are no more past adjustments to be made. So we estimated this rate, and obviously this is going to depend very much on our profits, but this goes from 39.5% to 33% of effective tax rate in 2019.
Thank you very much for complementing. I think it's important to make it clear to the market. So we talk about consolidated results, net earnings and ROAE comparing the two quarters and the two years. There was a 44% increase in terms of recurring net income and a 34% expansion in the year comparing the two years. So we went from BRL 982 million to BRL 1. 318 billion in 2018. Also, in terms of recurring ROAE, in the quarter it went from 16% to 22.5%, and year from 15% to 19.1%. It's important for us to mention the adjusted ROAE adjusted to the financial results and to our capital. If we were working 100% of our CDI in all our insurance businesses and providing exceptional treasury results. At the same time working with the necessary capital for each business, so return on equity.
Here you are seeing that in Q4, we are reducing it on one hand and increasing on the other, and we are having 25% of return on capital, 22.5 rather, which is the bank level. As compared to businesses that work, that are leveraged. This is just to make it clear what needs to smaller return. We have cash because we are conservative, and we are going to continue having it up to a certain point, and this is related to what we need to face in adverse times of our business. We are not suggesting that all excess should be paid out. We need reserves. In addition to the minimum requirements from Basel, we need to have another margin, so to speak. On page 15, I would like to show you a slightly more strategic vision for 15 years.
This is no longer short-term vision, but looking very much at the long term. From 2003 before the IPO. Along all this period was after the IPO, the average ROAE was 19.6%, 20% rounding it up on average between 2003 and 2018. We had more violence going up and down, interest rates going up and down, and the GDP. The worst year here, we had 12.9% ROAE, which in our vision is still above the capital. In 15 years, we never had a ROAE that was below the use of capital. On the other hand, on page 16, you can see that recent improvement in spite of this return, we are still very much aware that we need to optimize shareholders' capital.
In 2018, we made the highest dividend payout ever with 111%, almost BRL 1.5 billion of payout of dividends, as we said that we were going to do if we could. We had a dividend yield of 8.6%. It was only lower of 2013. That was 8.8%. In 2013, there were special causes for that, and so we had an extraordinary payment because of that. Here we did not have extraordinary results because the fact that we almost doubled it, and so we had reserve of profit from previous years. In addition to the dividend, we also had a reduction in CapEx of 36% because of the completion of many projects.
Also, a reduction in capital surplus from 47% to 40% in terms of adjusted shareholders' equity, which means that we still have a conservative position and we are not trading higher risk and more stability for more return. We are not offsetting one thing for the other. Even so, we could have better returns. Also, we are rationalizing the use of real estate, concentrating real estate. We have rented properties using home office. Many of our employees are working from home. We are saving in terms of footage and also for their convenience. Effectively, we have had BRL 23 million of real estate properties that were sold in Q4 2018 alone. In this manner, I believe that these are the main things that we would like to mention and share with you in terms of short-term results and also a little bit of the long term.
I would like now to open our Q and A session.
Thank you. Now we are going to start our questions and answer session. If you have a question to ask, please press star one. Or you may also send your question to our webcast platform at the icon, "Ask the Speaker." Thank you. Our first question comes from Mr. Thiago Kapulskis from BTG Pactual. Mr. Kapulskis, please may ask your question.
Good morning, Roberto, Picanço, and everyone listening to the call. Thank you for allowing us to ask questions. I have two questions. Number one, where are we in a cycle? As you said in the beginning of the conference call, in terms of frequencies getting better because robbery and theft have a falling trend and in prices, slightly different from what we had over the past two years. I would like to understand both the scenario for prices and also in terms of loss ratio. I imagine that we should expect some worsening after the improvement last year. So what exactly are you expecting, talking about automobile specifically? Regarding the fleet, the fleet has grown. It's better in 2018. How do you see the growth in 2019 in terms of acceleration? Thank you.
Thiago, good morning. Well, in fact, as we said before, in 2018, more theft and slightly less in terms of car crashes.
Fewer car crashes are also translated in a phenomenon that one hand, cars have technology, but reducing slightly accidents such as sensors and everything. On the other hand, the use of platforms also increases the frequency of car crashes. In our understanding, for 2019, we do not see a significant reduction in a scenario of frequency. As Porto Seguro is a market leader in the automobile sequence, usually we are the first ones to price both scenarios. I think that the average ticket that we have implemented, especially in the second quarter, it will not be repeated along the year. Maybe some movements, we have margin for that. We need to look at the loss ratio, and we are okay with our margins. We have margin to reduce prices considering the competition, but not to reduce frequencies, not necessarily.
We don't have a scenario of significant reduction in average ticket in 2019. It's also, we probably will not find a very strong scenario in competition considering the experience of looking at the competition according to information that we see at SUSEP. I don't think that most insurance companies do not have much margin in spite of lower frequencies to reduce average tickets in the future. What we see in December, all the information that has been recently published, only 6 companies have the combined below 100 in automobile. Of those six, three are different brands. We don't see much room for the competition to make movements. We are the leaders and we have a margin, but we have already priced for our frequency.
As to the fleet, as we said, in 2018, we increased our fleet by about 180,000 vehicles, quite reasonable, which was not translated in a growth in revenue. As Marcelo explained very well, average ticket, we do not believe that all the reduction will come in 2019. We have an optimistic vision for 2019 in terms of increase of the fleet. We are really excited about that. We have some products related to Azul Leve and Azul Roubo. We have slightly lower ticket products for us to penetrate in an uninsured fleet.
Just a follow-up. We should expect a slight increase in loss ratio if we compare 2018 to 2019?
Yes, you are right. There might be a slight worsening or increase in loss ratio, as you say, as our reaction to a slightly fiercer competition, which on the whole, we do not believe considering the lack of ammunition of our competitors in the motor insurance business.
It is very clear. Thank you very much for your answers, Roberto.
Our next question comes from Eduardo Nishio from Banco Plural.
Thank you very much for the opportunity. Congratulations on the result. I have two questions. I am going to ask the first question. Picanço mentioned that there is an impact on average prices. Could you explain the technical impact in the quarter? Has unit price dropped this quarter or not for you? Because it did not drop, we may adjust our models. This is important for us to understand the cycle a bit. Thinking of 2017, when you were more aggressive in terms of prices and the loss ratio increased in the beginning of 2019, 2017 rather, sorry. Do you see the same risk this year? I know that probably interest rates will be lower. Macroeconomic indicators are shifting their change, but also the macroeconomic scenario is much better. There might be another insurance company that will be slightly more aggressive. Thank you very much.
Nishio, good morning. This is Roberto. The technical adjustments that Marcelo mentioned is the dynamic pricing process for the project. As we see a reduction in frequency, and we see that the frequency is not specifically recurring in terms of market behavior. The price needs to be adjusted to the new reality. This does not mean that there is a reduction in margin because of that. The price is technically adjusted in terms of frequency. It also happens with the average cost of claims. Here we had an adjustment in terms of frequency. I would like to highlight that this is dynamic.
We saw that movement basically in the main capitals in the country, especially in São Paulo and also in Rio de Janeiro, that had a very critical situation and also in the last quarter. Rio de Janeiro had a significant drop in robbery and theft. Differently from 2017, you can see in our numbers that we did not reach the budgeted revenues in automobile. In spite of everything, we are not tempted to reduce prices to sacrifice margins to get our results to meet the budget. The budget that we defined in 2017 for 2018 was much beyond what happened in the market in terms of frequency. Even so, we were not tempted to reduce prices unnecessarily to meet the budget. We kept the responsibility in terms of results, and this is what we are going to do in 2019.
In 2018, just to give you an idea, even though the revenue did not meet the budget, it was 25% the market average. If we take Porto Seguro from the market, we grew even more than the market. But we were not tempted there to reach the budgeted revenue that we are not going to do that in 2019. We want to have our budget better and better calibrated and more sensitive, more accurately sensitive. The technical adjustment is something that we do according to what happens in the market. We should also highlight that we are using more and more analytics tools with machine learning and everything to be ahead of the changes. We are not just going to react with sophisticated actuarial models that react to market trends. Within actuarial markets, we look at the past.
We want to look into the future and be ahead of future market trends and changes, and this will close the gap. We are really okay with that regard in terms of the adjustments in pricing. It is really an ongoing process before in terms of reaction that we see in the market.
Thank you very much. This is all very clear. My second question relates admin expenses. You got a lot better. Do you still have any more room to improve admin expenses?
We had a strong work seeking operational efficiency in 2018. We started seeing the results of the investments we made in technology over the past few years. We have accelerated all our processes for this harvest, so to speak. Now we have a very strong agenda in reviewing operational processes.
Trying to make our processes less complex and simpler, because we believe that is very good. We did that during a year, and during the year, our expenses still reflect payment of labor termination contracts. There are still some costs of employment termination contracts. They are not recurring. They will not affect our numbers in 2019. As Marcelo mentioned, if we look at Q4, the reduction is even greater as compared to the first three quarters. We believe in answering your question directly. We believe that operational efficiency agenda will continue in 2019, maybe not as significant or as strong as in the past quarter, but we still have a lot of room to move there. We have a digital transformation agenda going on. This is another issue. It is not directly related, not just to operational efficiency.
Operational efficiency too, but also seeking excellence in customer service. We want to transfer to the digital world all the excellence we currently have in customer service. We have one to go to the digital transformation, which will lead to a reduction in admin and operational expenses. Maybe not as sharp as we had in Q4, but a continuing reduction in those expenses.
Thank you very much.
Ladies and gentlemen, as a reminder, if you want to ask a question, please press star one. Please wait while we look for questions. Our next question was sent by webcast. The first by Mr. Pedro Gonzaga from Pacífico Asset Management . The better performance of your brands are a result of pricing. The third consecutive drop in your current base, is it a result of the cleanup of your bases? Let us say all of property and life insurance, if it is related to the relationship between Porto and brokers, would that be anti-cyclic with the motor insurance market?
Pedro, this is Roberto Santos. The first question regards Azul that is still growing and Itaú is also growing and Porto slightly less. The question is, the answer is yes. This is a reflection of the new strategy that we implemented in 2018 when we took out the safeguards between the products. This led Itaú to have a better positioning effectively as a brand for brokers. Azul i s the combat brand and Porto is our premium brand. If we think of the three brands this year. The second question w as the drop in property and life, and Marcelo can answer.
We accelerated the growth. There was a smaller growth than we had in the past.
We had a few cancellations, a few issues in the portfolio, a few adjustments that we had to do in the portfolio in terms of cancellations. We were cleaning up our portfolio. We cannot conclude that there are fewer brokers. We have more and more brokers selling our products. In five years, we doubled the number of active brokers selling life insurance for us. We are market leaders. We have issues to improve the processes, and we are working intensely in that for these two products. To increase by 15%-20%. In fact, there were some cancellations in terms of our reducing our basis. As to the credit card that you also asked a question, there are a few effects. The first effect is that sales suffer slightly more when it is more difficult for us to have new sales in automobile.
In the last year and a half, we had to implement significant price adjustments, and we are fully aware of that. Because of automobile, especially the Porto level, which is the main vehicle for the sale of the cars. I think we are going to recover that with strong sales in a new economic scenario for the brand Porto, and this leads the credit cards to have better sales. Secondly, we also had a cleanup in our bases, and this is recurring. This is not going to happen every time, but it is not a one-off event. We are being very careful. The revenue grew strongly. You are having quite a robust increase in revenues. The fact that we cleaned up, that there are fewer cards, plastic cards, physical cards.
We do not think it is the best use for our shareholders' money to be attached to plastics that are not being used. As those initiatives are not 100% successful, and they are not always fully successful, we need to cancel those cards to clean up the bases to free the capital. We had some rationalization movement there.
This year, as Marcelo Picanço mentioned, we sold many real estate properties that we were not using, and also that we merged some properties that we were using, and we decided to reduce. We sold almost BRL 100 million in real estate property. We still have quite a few properties on sale. In this manner, we reduce the fixed asset, realize revenue and cash, and reduce the maintenance cost of those properties in terms of taxes and maintenance. We have many properties that are close to our headquarters and that can still appraise, and we are not going to sell them. Maybe in the future, we are going to go back to that discussion in 2019. We are not going to discuss our real estate property. Did we answer all the questions? I believe we have answered all of them.
We can move to the next question. The next question was sent by webcast by Mr. Dante Bagherati from Citibank. Could you talk about the expectations of the management on insurance prices for cars and loss ratio for 2019?
Going back to the previous question. Last quarter, we had a significant reduction in frequency, and we adapted without any margin forecast. We do not see the continuity of these reductions next year. There may be a slight reduction.
We don't see that this frequency is going as a trend, a falling trend in terms of dropping. We don't see a generalized price war considering the margins of our competitors. Low financial results does not give room of working with price to attain financial gains, and also the operational results. We also had an increase in fleet and the strategy and repositioning of the brand and another 180,000 items. There are products such as Azul Leve with lower tickets for penetration and an insured circulating fleet. We think we are going to continue our fleet growth cycle that will not directly lead to a growth in revenue considering the recent price positioning, considering our lower frequency. We're going to have more revenue in automobile, but rather an increase in insured fleet. This is the scenario that we foresee without any abrupt movement in loss ratio in 2019.
Our next question comes from Mr. Lucas from Bradesco Seguros. What is the main reason justifying the reduction in admin loss ratio and increasing efficiency in 2018?
I think that we have addressed this in previous questions. In 2018, we were very successful in terms of getting the results of all investments that we made in technology, processes, and systems in the company, and also an agenda of process review, trying to reduce the complexity of our processes, simplifying them intensely. This even goes through a change that might even be a cultural change in our managers in the company as a whole. We are very successful. This was done in 2018. We now understand that this agenda continues in 2019, but maybe without such a significant reduction as we saw in the last quarter of 2018. Yes, we do understand that this will continue in 2019.
Our next question comes from Horacio from SSA Investments. Roberto, congratulations on your results. Could you tell us the auto insurance sales in Itaú branches?
Our banking channel is doing very well. In 2018, we had many interactions with this channel through our operational committee. In 2018, I can tell you that we had a growth in automobile segment, which was superior to the average of the company, considering the broker channel and also in the bank channel was superior than the broker channel. It did very well in 2018 and we're still optimistic for 2019.
Our next question is from Mr. Nishio from Banco Plural. Mr. Nishio, please.
Thank you for another opportunity to ask a question. I would like to ask about return on equity. You had almost 20% in the quarter, more than 20%. I think that you can sustain the 20% or even exceed it. Do you still have any room to pay more extraordinary dividends along 2019? Capital surplus has increased this quarter according to the performance in the quarter, so theoretically you would still have some room for more payout. Could you explain this part of return, which was really a highlight more recently in terms of capital release and the combination of the two things, if we can envisage a sustainable ROAE around 20% or even above?
Mr. Nishio, this is Marcelo Picanço answering your question.
Well, in fact, when we were talking about return on equity slightly above 20 something, it was based on a reality of capital allocation that was higher compared to the size of the business. I think that, I believe with the optimization that we have conducted in many different fronts in automobile and real estate and margins, I think that in that manner, it may keep at the level close to the current one. I think this is sustainable. What is our mindset for dividends? We want to keep it slightly stable, the level of recurring dividends. We want to keep it stable and to have our policy of extraordinary dividend payouts whenever possible, whenever we exceed our internal margin we work with.
We prefer to use this method rather than increase payout a lot in one year, and then the market might be a little confused in whether this is going to be recurring or not. Is it stable? No oscillations, and we are going to work with extraordinary dividend payouts. If numbers keep as healthy as they are, we are going to accumulate, and it will still be possible to pay extraordinary dividends. It does not mean that it will be at the same level as this year because there was a payout that had some history. Yes, it is possible to keep paying extraordinary dividends, and I cannot precise the amount. But yes, I believe that two things are possible: profitability and dividend payout. That is very appealing as compared, not to our own opinion, but to national, international dividend payouts of insurance companies. We are not a utilities company.
We have an expansion level that is very low in terms of expansion. We are in an industry where penetration level is still very low, differently from utilities. So there is room for us to grow on different fronts, people, things, even with inorganic movements. And we are paying attention at all those movements. Our market is not saturated. We can have organic and inorganic growth, too. If there are any potential movements at some point in time, we might use our cash. So we want to hold on to it slightly because we envisage movements, and there might be intricate opportunities for capital that we use our capital. We want to find the opportunities to use the capital. Well, if we do not find, we are going to pay out the dividends to shareholders. We want to be very active in the market of acquisition.
ROAE around 20, you think this is sustainable or not?
Well, it is difficult to assure the maintenance in terms of results of the combined ratio. And so the interest rate and operations. If interest rates keep at the level where it is an operational result sets a record, it may drop a little bit. We do not want it to drop. If it is between 20 and 18, it is a level which is above our historical margin, which was between 16 and 18. So important initiatives regarding efficiency have been adopted, as Roberto said. Our management body is committed to that, and this has come to stay. Differently from the loss ratio that is very subject to the market, both in terms of efficiency and pricing. Our efficiency gains is something recurring, and we have changed a level.
The third question will depend on a higher growth of the businesses with intrinsic profitability that is very high and superior than the automobile business. Also considering the level of maturity of this business, such as property and casualty and lines. As our portfolio grows in those business lines, we still have a lot of room for policies because there is a very low market penetration, because we have a low penetration in life and property. We can have more return on portfolios with higher return. As this grows along years, this will contribute for even higher ROAE.
If there are no further questions, I would like now to turn the conference back to the company for their closing remarks.
I would like once again to thank you all for your questions, contribution, for your interest in our company. To reinforce, if you have any additional questions, please feel free to get in contact with our Investor Relations department or to go to our website, www.portoseguro.com.br. Thank you very much.
The conference call of Porto Seguro has now ended. We thank you for your participation, and have a good day. Thank you.