Good morning. We bid you welcome to our teleconference for Porto Seguro to discuss the results concerning the second quarter 2018. We have here Mr. Roberto Santos, CEO; Marcelo Picanço, Vice President of General Business, Investment, and Investor Relations; Celso Damadi, Vice President of Controller and Finance; and Ricardo Fuzaro, Head of Investor Relations. We would like to inform that this is being simultaneously translated as well as recorded. All participants will be in listen-only mode during the presentation. Then we will start at the end Q&A session, where more instructions will be provided. Shall you need any help during the conference, please ask the operator, press star zero. The audio and the slides are simultaneously presented in the web at www.portoseguro.com.br/IR. Our platform in the IC, you identify the banner with the title Conference Call that will lead you to the platform of the presentation.
Questions can be also done by the webcast if you click on the icon, questions to the speaker, and they ask the speaker, and they will be answered live during this conference. Before proceeding, we would like to clarify that any statements that might be made during this conference relative to the business perspectives of Porto Seguro, projections, operational goals, financial goals, are premises of the board, as well as based on information that are currently available. Future considerations could not guarantee performance. We are talking about future events, and they depend on circumstances that may occur or not. Investors should understand that general economic conditions of the industry and other operational factors may affect the future performance of Porto Seguro and lead to results that are materially different from those expressed in the future considerations. Now, I would like to give the floor to the company. Please go on.
Good morning, all. We thank you for being in this teleconference for Porto Seguro concerning the second quarter 2018. Now, going to slide number four. On the main points or the highlights on this first semester, we had significant increase in the operational results, having a return 4x higher than last year. With that, we more than compensated the interest rates fall. We had adjustment made last year to price recovery, better underwriting, and higher operational efficiency. Besides that, the external environment also has contributed, especially in the drop of vehicles and a competitive environment that is more rational. The auto insurance, the new strategies on brands implemented at the end of last year, with more focus in the results, consolidated results, also gave us improvement in this semester.
The new model has been presented almost all over the country, except the state of São Paulo, where we intend to implement by the end of July or August. I am sorry, August. In the other business, we are still expanding with P&C, life, and health insurance as highlights. In the first semester, credit cards and vehicles and autos increased a lot. We also have concluded the sales of medical centers, Portomed for DaVita, and achieving BRL 27 million. DaVita is a global company recognized by its expertise. It has very good professionals and provides good care for their patients. We understand that negotiation of the clinic should contribute to increase our focus in the other businesses where we act. Also, in this quarter, we have captured a total amount of billions of reais that were destined to improve in 2017.
We also achieved BRL 500 million, increasing the company's capital efficiency. Besides that, we also announced the partial accounted credit recurrence in BRL 229 million concerning 2018. The extra value will be defined in the last quarter. We are satisfied with the results achieved, and we trust the capacity of recovery in the country and the capacity of expanding our businesses. Now, Marcelo Picanço will detail the results and the operations.
Good morning. Thank you for coming to our call. I would like to go to slide five and talk about the growth in the second half of 2018. We grew 8% as compared to the same period of last year. The most important point here is that we had a better increase in insurance. 30% of this increase, not according to what we had in our history. We are in a situation where we had to reduce margins, and the macroeconomic aspects also crashed the growth of this segment. We have healthier growth than we had last year. 40% of this growth came from other insurances. What we see as strategically important, especially in the long run, we have two-thirds of our business in auto insurance, and we should become more diverse, especially in retail insurance. Insurance is for families and small and medium businesses.
We also grew in financial investment that grew 22% as compared to last year. Services, not as much, 4%. We also have adjustments in operations that are looking for more consistent results. That demanded some adjustment in the operation. What hindered a little bit this growth in services. Historically, when we look from 2013, in services, we grew 19% a year. In insurance, 7% a year. Financial business is 14% in the average of last five years. This will give us a better view, a better perspective of the growth that we had. Talking about results, I think this is the most important aspect of this quarter. We have a process of margin recovery, and I believe that this process is already finished. With that, we had a quarter that captured all our composition that led to combined results that were low as compared to history, 91.4%.
In the first quarter of 92% was very good. Especially, the most important change as compared to the same period of last year, was due to the drop of loss rates in our main product, which is auto insurance. With that, the increase of almost 4x in the operational results of insurers. This drop in loss ratio was because of two movements. One of certification that is quite important, and also because of a decrease in frequency. So it is not just a matter of size, but of adjustment and acceptance of the operations that were good. Not talking about strategies, talking about how we place our three brands. So it is a quarter that shows this recovery in the results of auto insurance, our main product, that led to improvement in operational results in a very expressive one.
But when we look or better clarify even more that besides short-term cyclic movement of the market, and we now have a peak of results, we believe that this is a process that has oscillations. History shows that not always in the peak, not always in the south. It is an industry that varies. Looking from 2009, making a nine-year analysis, what is more important, more than just looking in the long run, is to see how stable we are relative to the combined results. That is an index that is not used in markets that are developed, where we have rates that are much higher than Brazilian ones. When we consider Brazil, it is relevant to look at it in an integrated way, in a holistic way.
In our cases, that is confirmed by figures and facts, is that oscillations in insurance rates are compensable, can be compensated in the operational results. We have here oscillations that varied between 14% and 6%, which is relevant. We also had higher ones. We can see that a much stable level of stability in the combined shows that we are managing in a way that we are looking at interest and with pretty different prices. Of course, this does not happen instantly, or when we look only every month or every quarter. We have to look further to see that it is not just a very short period of time. We would rather look in the medium and long run. Going to slide eight. We see the growth in efficiency considering G&A plus E&O.
The OpEx of business as a whole has decreased as compared to the first quarter 2017, 1.4 percentage point. We believe that this is recurrent decrease, and we have a buffer here. We have here improved processes that were put into place by the many projects that we finished, or we are finishing in technology that allow us to achieve a gain productivity that is quite expressive. At the same time, other initiatives that go beyond those technological improvements. We had, looking nominally, it is important for us not to look just at prices, what increases premium. The G&A and operational expenses quarter by quarter nominally has decreased 1%, more than the rate it decreased when we compare the quarters. Looking at auto insurance, which is the most noble part, we maintain market share. I would like to emphasize that the drop in loss ratio increased 9 percentage points.
Our historical differential between when we compare, we have increased to 12 percentage points instead of 9 percentage point. Our big challenge now is to expand the insured fleet in a sustainable way, acquiring, getting more clients at a sustainable price in the long run. We had periods of reduction that are quite significant in the fleet, but we have already recovered. We grew again, and our great challenge is the mean price right now without not stopping guaranteeing adequate earnings. On slide 10, we have financial service businesses results. We had progress in revenue that was relevant in every business except mobile operator, where we had to refocus to accept clients or to adjust clients. That impact on our revenue, but it also improves quality of this revenue.
We have more premium clients now and revenue distribution considering business is much more in credit cards and consortium. The two are more than 75% or 2/3 of revenue. A drop in earning, a decrease in earning, was especially because of the result of mobile operations that still has some operational financial issues that are being fixed. So that really weighs on results. In financial investment results, we had a quarter with a performance that was okay, a little bit less than CDI when we don't consider pension. It was quite volatile because there was worsening in markets, especially in variable income. We had a variable income that is in long run, but it had abrupt movements. BOVESPA had a decrease, had a drop, and hence our revenue for investment also suffered. That hinders a little bit results.
But we do consider that considering volatility of the market in this period, we had a reasonable result, a little bit lower than average of the year. But this is volatile and the characteristic is not recurrent. We have an allocation where in this second quarter we increased a little bit more the inflation index numbers, but we believe that it's important because of scenarios ahead where we are going to have the elections, a government change. So we believe that in Brazil it makes sense that real will increase a lot, and this also makes us to favor considering inflation. Our view is that this will increase in the coming weeks. Except when you consider last quarter, we have a backlog that is quite coherent, consistent with our history. Not much oscillation.
Second change in the second quarter, and that protected results a little bit, was that expenses were reduced throughout the quarter, and we had 1.8%, what led towards results. But it was better than if this allocation were higher as it was last quarter, 3.4%. In slide 12, a comment on results. We had good expansion in the quarter, 41%. The result of this half. Operational result at last year was a result that was much lower than the financial result, less than one-third of financial result. Now it's the largest part of the result, so this is quite healthy. We improved recurrence of results. As that, we're not as exposed to the volatility of the market. There was an structural drop in CDI, and we have a backlog that depends on that, and there was a reduction in financial result and operational growth.
So we believe that the mix of results, we like it like that. It looks like the result of an insurance company of a more normal country financially-wise. Our ROAE increased a lot, 20% result in this quarter, 18% in this semester. So I'd like now to open for questions-and-answers. Thank you.
We now start Q&A. Shall you have any questions, please dial star one, or the questions can be referred by the webcast. We ask the speaker. Our first question comes from Frederic de Mariz from UBS. Go ahead.
Good morning, Marcelo and the others. Thank you for the opportunity. Congratulations on your results. I have two questions that I'd like to hear your opinion on. First thing, on loss ratio and autos, and the frequency, I would like to hear from you, when do you think competition could become more aggressive? If you have room for frequency and whether there's a rate of loss ratio that is quite good, do you have room for other processes? Second question has to do with diversity of the revenues, part of your strategy. I would like to hear from you whether you have, in the medium or long run, any ideal mix of revenue between auto and other insurances and other products that you have. If it is the case, what other products would you like to increase or add?
I would like to understand a little bit more what products would be interesting, and if you expect to do this in an organic or inorganic way. Do you think you lack something in-house, or do you have everything you need?
Well, Frederic, good morning. This is Roberto speaking. In relation to the specific question about loss ratio and competitiveness, talking about autos, in the first semester, we had a competitive environment that is a little bit more rational. We understand that most likely this second semester will not behave the same way. What I mean is we do not imagine a scenario of a reduction in loss ratio, although we are firm on the progress using models of analytics to reduce the frequency of claims. In summary, we believe that we still have some room to reduce the frequency of claims. That does not mean that we are really going to decrease, because we do not believe that this second half will behave in a rational way if our competitors will be rational. This is what we understand.
We will go on reducing frequency via improving substitution or replacement, although, as you said, we still find opportunities to have more efficiency in processes that will end up in reduction of operational expenses as well as administrative expenses. We do not understand that we are going to have more reduction this semester. In relation to your second question, I give it to Marcelo to answer.
On the second question, actually, we intend to grow in other businesses, basically, who are priority for us, which is personal individual insurers, families, small and medium companies, and also residents. We are leaders, but even being leaders, we believe that the market, it is not a question of gaining market share, but increasing the market. The market is very small in Brazil, although we do penetrate a lot in the market. We depend on tools, communications, and yes, we intend to grow in an organic way. This market does not demand a price focus in very specialized lines. We have a specific way of making business and strategies, and the idea is to grow. It is a growth in the long run, medium run, in order to really enter our businesses. We do not have specific target in mix, but we would like to grow in an important way.
Also financial businesses that are quite energetic, like insurance and credit cards. Within our relationship networks, we can increase, but this increase is conditioned to increasing insurance clients because we are focusing on our customers. So one depends on the other. It is happening, it is growing a lot. So I think that these are what I could say.
Thank you.
Our next question comes from Gustavo Schroden, Bank of America.
Good morning. Thank you for the opportunity. Congratulations for your results. I want to ask two questions. The first one is a follow-up on the. I would like to understand a little bit about distribution of the auto network. It is quite clear why you had slow growth. But if you look forward, did we think, as I mentioned, that competition may become stronger in the second half? Porto Seguro itself, Marcelo has mentioned that we will focus on growth of fleet. With a more stable interest that may also strengthen the competition. Since you mentioned don't have much room to decrease, is there a possibility of increasing? I would like to understand how much we can grow or what can we work on. This 50% level is low or not, or could you think of 60% to try to understand how we project the ratio frame.
My second question is based on the breakdown current rates of 17%.
We are not satisfied with that as yet. There is much opportunity. We invested in the last years, as you said, a lot in technology, BRL 1 billion almost in the last few years. We are now seeing the yield of this investment, the return of this investment in technology, efficiency, reduction in [IDO], and also process review. When you use technology to improve process, the way of doing the process is different, much more simple, and brings positive consequences. So we understand that this process goes on. It is an ongoing process, and we have much opportunity, and we are not satisfied with the reduction rates consistent that we saw in the first quarter. We will have good results in this segment. In relation to bancassurance with Itaú, we have progressed a lot. The residential insurance that had an operation that was a little bit failed.
In last first quarter, we saw an increase in the portfolio. This was a result of process review, and also we sold through different processes, and it will advance a lot inside the bank. In relation to efficiency, we concluded a process called embarking [Non-English content] for individual insurance for automobiles. We are launching the second phase of this project in relation to the fleet process identification. This will bring an improve or better process in sales and also cost reduction. So summarizing my answer, the rates that we reached in the first quarter still have much opportunities to progress in the coming quarters. Now second question, Marcelo.
Good morning. In relation to the CapEx dividends, how do you see it? First, the result, as Roberto said, we have a cycle where we are invested in technology, and we don't have in the pipeline projects that are so relevant. So CapEx of technology has decreased, should remain as it is for some time. Of course, new opportunities will come up. We have a digital center that is important, and we were changing decades, so there was much investment to be done, and we did in a concentrated way. But it was concentrated, but not recurrent, so we are not maintaining this CapEx. In relation to real estate, we have reduced a lot in the last two years. We do have some maintenance, of course. We have sold some, optimizing. We concentrated our real estate. We have rented, so we have invested there in technology.
It is a high-availability building. But the CapEx that we expect for next coming years will be lower than in the previous years. Not that the company is not going to invest. We will invest, but not the way we did that it was so concentrated in the last five years. Second point about dividends, yes. We had some extraordinary. We have perspective of increasing payout to around 50% and maintain it throughout the years. In the past, we had to reduce. We do not like that. But we intend to maintain CapEx at stable levels. We do not intend to have high oscillation. This does not mean that we cannot pay or give extraordinary payments and dividends. It will depend on investment and inorganic opportunities. We are not a company that does much inorganic movement. The market does not offer that many opportunities for acquisitions.
We have international players and invest in insurance. Of course, we did some acquisitions that were not large, 1%, 0.5% of the auto portfolio in the last two years. We believe that using capital like that will allow us not only to increase payouts, but also some extraordinary dividends as possible, depending on the results of the year. We know that we are in a good moment of results. That is not going to be forever. There is variability that is inherent to business, and we believe that the capital use will be done. We will keep on doing in a rational way, and we are growing.
Excellent. Thank you.
Now, Jefferson Lima de Oliveira, webcast question. I found it interesting the result concerning the earnings and financing and credit cards. Is there a projection of connecting this process with our bank? Was there a study or anything in this sense since the bank has important participation in the company?
Marcelo Picanço answering. Our card is very focused and dedicated to Porto Seguro clients, especially associated to Porto Seguro. They have discounts, like facility of payment in automotive centers, discounts in franchise. So it is a product that is quite specific. Hence, the management is done in an independent way, and it is 100% by Porto Seguro, not by the bank. It is not sold at the bank. So the answer is no. There is no integrated action between bank and Porto Seguro as far as cards are concerned. This has been like that. We understand the relevance. Itaú is market leader in Latin America, where it is quite respected. It has its strategy that is a little bit different from ours, quite focused, quite different. The shareholders understand that there is the need of having differentiated focus.
Management is focused here, and this is comfortable among ourselves in relation to going on with the card's operation and also financing loans. We have this financing operation that is quite focused on our auto portal clients, our service providers. We have vehicles that provide service and also insurance plans.
To ask questions, you should press star one or ask your question by the webcast. Please wait while we collect the questions. Since there are no further questions, I would like to give the floor to the company for their final considerations.
I would like to thank all of you for your questions, contributions, for the interest in our company. Reinforce that if you have any further questions, please be comfortable to contact us or visit our section of relational investors at our website, www.portoseguro.com.br. Thank you.
Thank you. This teleconference of Porto Seguro is closed. We thank you for participating. We wish you a good day.