Good morning, ladies and gentlemen, and welcome to Porto Seguro conference call to present the results for the first quarter of 2018. Today with us, we have Roberto Santos, CEO; Marcelo Picanço, Vice President of Financial Services and Investor Relations; Celso Damadi, Vice President of Controller and Finance; and Ricardo Fuzaro , Head of Investor Relations. We would like to inform you that this event is being recorded and simultaneously translated to English, and all participants will be on listen-only mode during the company's presentation. After, we will begin a question-and-answer session, when further instructions will be given. Should any participant need [inaudible], press star zero to reach the operator. The audio and the slides are presented over the internet at www.portoseguro.com.br/ir and on the MZiQ platform. At the site, you will be able to identify the conference call banner.
Questions may be made also via the webcast platform by clicking on Ask the Speaker icon. These questions can be sent at any time, and they will be answered live over the conference call. Before proceeding, let me mention that forward-looking statements will be made during this conference call concerning the perspectives of Porto Seguro, and on financial and management targets are based on information currently available to the company. They involve risks and uncertainties and assumptions because they relate to the 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 could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to the company. Please, you may begin.
Good morning, everyone. Thank you all for attending the Porto Seguro conference call for the first quarter of 2018. Going on to slide number three, we have the agenda for today. We were able to achieve sound results, mainly due to the operational results, and the combined ratios were the best ones for the last years. Our pricing policy has enabled our gains, and the efforts that began in July enabled us to enable and increase the loss ratio. We also know there is a sound relationship between interest rates that are the highest rates in history, and we have able to readjust the prices, which enabled and helped the loss ratio. We continue to expand our earnings, both in insurance and services and financial businesses. In the auto industry, it is more competitive. From the fourth quarter of 2017, this has enabled us to grow with an improved margin.
The premiums consolidated for the three brands have developed, and the sale of new cars has increased by 15% compared to 2017, and in a way, this has eased the price war. The patrimonial products, competition has been harder, but our premiums have also developed. We are developing some measures to increase this segment, especially by hiring sales specialists to help our sales network. In many segments, many products grew over two digits, like client health, the PME, the individual products, and credit card and financing operations. On the financial side, the CDIs have contributed to decreasing the interest rate to its effect. In terms of expenses, we continue to work to improve efficiencies, and the overhead expenses have decreased around 1 percentage point, and we still see productivity gains potential.
In this quarter, we sold Portomed clinics to DaVita due to our strategy to increase the focus of the main business and to increase the quality of services to our clients through a partnership with a company that is world acknowledged on this. We are very much encouraged in the improvements, and some lines have accelerated. We are also taking several actions to overcome the challenges we have in terms of geographics, increasing our portfolio, intensifying the digital platform usage, and also by consolidating the less mature businesses that we have, mainly the service segment. Well, I will ask Marcelo Picanço to provide more details in terms of operations. Thank you for your attention.
Good morning, everyone. Thank you for attending and being interested in our conference call. I will go through the main highlights in terms of results and putting a perspective on how we are seeing this evolution of the quarter, and also how we see this in the longer term. In terms of the operational revenues, we were able to grow 8% compared to the same quarter of last year, and t he news is that the insurance, especially car auto insurance, has been responsible for a greater part of this growth. We have seen a reality in the car insurance market that has been much better than what we were being able to obtain in 2017. On slide six, you can see the development of the products. Auto has, in the three brands, 7.7%, almost 8%, as I said, and o ther businesses grew over 10%, such as health, and dental, and life. Others have reduced, such as pension.
We had more growth in last quarter, but these do not have such a significant weight on the overall. I will speak of the results later on, but for us, this was an important quarter for us to take up the growth in the auto sector, which we were unable to obtain in the recent past. This also impacts efficiency as well, which I will mention soon. When we speak of earnings and results, sorry, on slide six, when we go that we went from 9% to 14.6% in terms of insurance profitability, that went from BRL 136 million to BRL 211.7 million in the first quarter of this year in insurance. This was due to the reduction in the loss ratio, especially in auto, which is very relevant, and because this is a business that is our main focus.
We also have gains in [inaudible], 0.6% as a whole, if we look at this in terms of year-on-year, and also in taxes . On slide seven, we have the historical operational results, and this is important to highlight because this has been very much a focus of the market, which is our ability to generate stronger results in a low interest rate context. This quarter, we had an operational result above the financial results, which is unheard of. It is very rare to happen. But for us, this was important because it tells us that we like to look to this equation in an integrated way. When interest rates are lower, financial results will drop, even if we do have a medium and long-term strategies on fixed income investments. But we cannot leave out that unavoidably, the combined ratio has to improve.
We have a chart for over 15 years that shows and helps us see that when CDI drops, it actually improves the operational results, and therefore, the combined ratio in Brazil because of how important the financial result is in a relatively stable way. If we look at the combined ratio, which was 89% this semester, and this has happened, as I said, in 2010 and 2008, and 2006 and 2007 were out of the curve. But the fluctuation of the combined ratio is much lower than the amplified average. We can see that our margins, in terms of financial and operational, together, they are much more stable than when we look only at the operational or only at finance. And this discipline that we have does not happen across the market.
There are opportunities, and I will mention them later on, but it is not only necessarily on a monthly basis. We see it across a certain time period, and it is interesting to see that we have been able to maintain this level. On slide eight, this is another important aspect when we look at insurance. In this first quarter, we have been able to attain 17.8%, which is less by 1.2 percentage points compared to the first quarter of last year. And again, when you see the five-year run, we have a gain, which is important from 2013 in the [inaudible] for the company as a whole in terms of insurance.
Mentioning our auto insurance performance specifically, which is very important for our total results, i n the first quarter of 2017, I am sorry, in 2018, we had an important growth rate on the average premium when we compare it to 2017, going to BRL 1,800. On the other hand, we had a drop by 5 million insured vehicles. We understand that we need to move and adjust our margin composition, and one of the indications of this, that we did this being aware of it, was to reduce the fleet. Not that we are happy with it in the long run, but in the short term, this was necessary, and now, we are working to increase the fleet with a price that is very much according to the Brazilian reality.
Of course, if criminality rates drop due to increase in employment, there is room to reduce prices, and on the other hand, if the risk increases, we will do the opposite. But our pricing today matches our interest rates context and of course, the loss ratio. On slide nine, we have a reduction, a systematic reduction quarter-after-quarter of the loss ratio in auto, and t here is seasonality, b ut even when we compare to a year ago, but also to the previous quarter, we see a drop across brands. This has led us to a reduction totaling 9 percentage points, a little over this, which is the main expansion driver in terms of results. Another point is the loss ratio of Porto versus the market loss ratio. In this quarter, we were able to increase this difference even more.
It went to 12.9 percentage points in terms of the first quarter. There is another aspect I would like to say, which is the market sees a space to translate in price increase because the loss ratio dropped by 0.4% in terms of 2017, but the interest rate also did. The differential that we have in terms of the average of the first quarter was around 4 percentage points, is 10 times higher than the drop that the market has, which is 0.4 percentage points, which suggests to us, and this is not certainty, is that we see that there is space to reassess pricing. And this is relevant for us because if the environment is more composed in terms of price, this makes it easier for us to grow in a more rational environment in terms of pricing.
So, we see that this might be possible if we look at this chart. Today, we have a level of loss ratio in the market of 66.2% compared to 64.7% or even 66.5% compared to last year, when Selic rate was at 13% to 11%. Selic today is less than half, and we have a loss ratio which is even higher. This combination for us, rationally, does not make sense, and we think that something will happen. We do not believe there will be a change in interest rates in the short term. Therefore, what we believe is that the variable must be adjusted with the loss ratio variable.
In case of growth of the auto market, when we look at the long term, even if the economy has suffered with the sales of cars, as we can see on the chart of slide 10, we go from 12.6 years to two in 2017 and 2018, t he insured fleet is still increasing. Even if this takes place at a much lower rate, it is still increasing. We have not had a shortage or a decrease in insured fleet, although we have had an increase in the average age of the fleet. But we believe that with the economy picking up again of improvements, we believe that also by improving our products, we will be able to increase the fleet slowly, not as an explosion, but we think there is a market that is not shrinking at all. Going on to slide 11, we are going on to the financial and services business results.
Our revenues in the company has dropped this quarter compared to what we had before, and especially because of two phenomena. One is credit cards, because of the IFRS 9, the methodology which was implemented for increased debtors, and i t is a better method, of course, to anticipate losses. And number two is that we have an increase in risk. We had a more challenging first quarter than we are used to. But very clearly, the risk in terms of credit cards and the profit revenues are very much in line with our strategy vision in terms of profitability and risk. The second phenomenon is that the result in Conecta operations is still impacted by the stronger competitiveness in the mobile segment. We have had a price war, which was very strong in cell phone operations. We are not relevant actors in order to influence the market yet.
We are very small compared to the big operators. But this has made it difficult for our base to increase. In terms of revenue, even, it would be very easy to reduce price, but this would not bring the results that we had, and t his has not enabled us to offset this business, the mobile operator, and it only developed 3%. In terms of the credit card operations, even with the change in the structure on how we can collect interest and charge interest, it still grew 20%, and this again, has proved to be interesting. The total revenues for this was 14%. This grows more. Of course, there are businesses which are smaller than what we have, and we continue to grow and to mature these businesses. Going on to the results of our financial investments.
This quarter, we had a structural impact of the CDI which dropped by 48% versus the first quarter of 2017. However, the relative performance of financial investments was better, chiefly due to the fixed income and inflation-linked bonds. If we look 151%, if you take a look at the pension funds, and this has lowered our drop, t he corporate bonds were 26%. It is a drop, but it was much lower. If everything was post attached to the income, it would be even worse. But this is a portfolio which is longer. We have reduced our portfolio risk. We were doing this since the end of the year, and t his, for a structural way, we have been doing this for fixed incomes. If you go into pre-fixed income, they are much less attractive than they were before.
We have made some mistakes, but we got some other things right because of timing, usually. The point here is that our risk today is lower in fixed income than we had nine months ago. In terms of shares, we still 3%, a bit more, a bit less. It is not a big position, but today, because we are reducing the pre-fixed income bonds, this exposure focuses our risk budget. And I would like to say some words on the consolidated results on page 13. As I said, before the ROAE, we had a quarter with some historical marks. We had the best combined ratio in 10 years. It was the first time that we saw in the recent history of the company that the operational results were better than the financial results.
One has dropped and the other has spiked, and it is three times higher than the quarter compared to the first quarter of 2017. With this, we have arrived at BRL 278 million results for this quarter of this company as a whole, with a return on our capital at 29% without the business combination and the ROAE, and this is a reference at 20.9%, which is the return, a hypothetical return, if we did not have that. It would have been 20.9%. This is interesting because it shows the ability of the company to generate value regardless of the cash policy. And in 20.9%, we also apply the CDI. We are not including the 146% of CDI that we obtained. If the company allocated the money at CDI, and I will quote this, "Not running any risk," the businesses intrinsically will be generating almost 21%.
We're not saying that we should do this, but only to give you an idea that companies have capital policies that are different. This figure helps us to compare and equate this to better understand our businesses. Our average in the mature businesses that do not have return on capital is on average 21%. Having said this, I would like to go to our question-and-answer session. Thank you very much.
We will now begin the question-and-answer session. If you have any questions, please press star one, or you can forward your question through the webcast platform on the icon Ask the Speaker. Our first question came from the webcast platform from [Mauro Moraes] from [Rosas Participações] .
Is there a forecast for distribution of dividends?
Speaker, you may answer the question.
Well, we have, obviously, the concern of allocating capital in a rational way. There have been some changes that were recent in SUSEP [inaudible], t hey have liberated around BRL 600 million. We have also arrived at the end of the cycle of investments. Not that we'll not be making investments, o bviously, we will, and we'll have new opportunities of M&As in the market that we're looking at. We do have an excess, and we believe that two things may happen. One is that we may have an increase of the percentage of distribution of dividends, but we are looking at other alternatives to adjust the company. Maybe, we'll have an extraordinary payout. We don't have a decision on this. There's no consensus yet. But this is a possibility that we're looking into.
Thank you.
Again, if you have a question, please press star one. Please hold. Please hold. We will collect the questions. Our next question comes from Eduardo Nishio from Banco Plural. Sir, you may proceed.
Good morning, everyone. Thank you very much for the conference call. Congratulations on the results. I just have a question, more a provocation, if you will. Your DA then has, as I can see, has been improving, but d o you see more room to improve? I f we compare on the calls yesterday, the DA ratio is much higher. If you compare the mix in terms of insurance, what is the difference between you and the competition? How do you see the DA developing across time, and do you see if there is room for improvement in terms of efficiency? Thank you very much.
Eduardo, this is Roberto. Thank you for your question. First of all, Porto Seguro is very verticalized differently from other companies in the market which are in the same segment. They outsource a lot of their processes. Today, Porto Seguro operates at a level of operational expenses a bit higher than the average of the market. But regardless of this, we believe there is a lot of opportunity to reduce expenses, both administrative and operational, for the next few years. This is an ongoing work that we have been doing in Porto Seguro. We have lots of investments in technology to enable this. And the answer to your question is that there is a lot of room to reduce operational expenses. Yes.
Thank you very much, Roberto. Si nce you're there, I would like to ask, what changes with the new management since you're going to the CEO position, w hat do you intend to change and transform for this year or the next four to five years? How do you see Porto developing? What are the main points of your strategy? Thank you.
Eduardo, since July of last year, I have been taking care of the businesses of the company. Concerning Fabio Luchetti, who was here for 12 years, took Porto Seguro to a new level. Many investments were made in technology and systems. In my term of office, we intend to focus on growth. We want to reap the fruits resulting from my predecessor's work. So, what we can expect as of now is greater efficiency, a lot of work in terms of processes, and income growth because of an approach which will be stronger in terms of our distribution channels, not only with the brokers but also with the others, for instance, Itaú. This is basically what I have in mind for the future.
Thank you very much.
Our next question comes from Mr. Alexandre Masuda from SFA Investimentos.
Good morning. Thank you, and congratulations on your results. I would like you to comment a bit more on the distribution channel. How do you see this in terms of strategy? How are you exploring digital channels? Because of Roberto's coming to you, what can we expect for the future? Thank you.
Masuda, good morning. This is Roberto. This is a very good question. We are beginning a process of digital transformation for the processes in the company. We will be making some investments to this area, but they are different from the investments that we say and what we see in the market. Our approach is not for direct sales. We are speaking of working on efficiency in terms of the journey of our clients across our processes and of course, of the broker as well. So, through a major digital transformation that begins in 2018, we plan this to be carried out in the next three years, and a lot of focus in terms of improving the efficiency of our processes and of the brokers' processes.
The main challenge will be to transpose or to translate to the clients that the service level that we have of excellency in the analogical channels. We want to take to the digital area, the efficiency that our customers see in the analogical channels. We want to keep our service excellence levels across channels.
Thank you very much.
Again, thank you. If you have any questions, please press star one. Since there are no more questions, I would like to give the floor over to the company for final remarks.
I would like to thank you all for your questions, for your comments, for the interest in our company, and I would like to highlight that if you have any other questions, please contact our IRO area or even to visit our website, www.portoseguro.com.br. Thank you very much.
Porto Seguro's conference call for the first quarter 2018 is now closed. Thank you very much for attending and wishing you a good afternoon.