Good morning. Welcome to the conference call of Porto Seguro S.A. to announce the results of the third quarter of 2017. Today here with us, we have Mr. Fábio Luchetti, CEO, Marcelo Picanço, Vice President of Financial Services and Investor Relations, Celso Damadi, Vice President of Controllership and Finance, and Ricardo Fuzaro, Head of Investor Relations. We would like to inform that this conference call is being recorded and simultaneously translated into English. All participants will be in listen-only mode during the company's presentation. After Porto Seguro's remarks, we are going to start a question and answer session when further instructions will be provided. Should any of you need any assistance during this conference call, please press star zero to reach the operator. The audio and the slide deck can be accessed at Porto Seguro's website at the address www.portoseguro.com.br/ir, and on the platform MZiQ.
At this address, you will find a banner saying conference call that will lead you to the platform of the presentation. Questions may be asked also on the webcast platform by clicking on the icon, ask the speaker. Questions can be sent at any point in the conference call, and they will be answered live during this conference call. Before proceeding, we would like to clarify that forward-looking statements made during this conference call relative to the business prospects of Porto Seguro, financial and operation projections and goals are beliefs and assumptions of Porto Seguro's management and they are based on information currently available to the company. Forward-looking statements are not guarantee of future performance because they involve risks, uncertainties, and assumptions. Because they refer 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 may also affect the future results of Porto Seguro, and may lead to results that will be materially different from those expressed in such forward-looking statements. Now, I would like to turn the conference over to the company. Please, you may start.
Hello, good morning to everyone. I thank you for attending our conference call to release the results of the third quarter of 2017. Starting on slide number three, and here are the main highlights. Starting on the performance of the insurance industry, the market has grown 6% in the first nine months of the year, and the premium has reached BRL 65 million. In spite of the economic crisis, numbers were positive. In the motor insurance segment, we are suffering some pressure even though some peers already are adjusting prices. Premiums have increased by 10% in the quarter. The good news is that the automobile industry is growing and the sale of cars has grown 8% until September. In Porto Seguro, auto premiums have evolved at the same time as loss ratio has gone down.
On the other hand, the fleet was impacted by a higher pressure on the competitive environment. In other segments, several products have grown more than 10%, thereby contributing to our strategy of diversification. Credit card and property products already have a representative share in our numbers, and we are going to give you more details further ahead in our presentation. Also, in the quarter, we have sold the stocks of IRB The total amount net of taxes was BRL 126 million. We want to focus on businesses where we have a more active share. Our stake at IRB was very small, 2% only. In finalizing, our discipline on recovering margins is working. Price adjustments have favored profitability in spite of strong pressure from the competition.
Both the operation and the financial performances were better, and the recurring net income was 5% higher in the year, thereby reverting the falling trend of the past quarters. Now, Marcelo Picanço is going to continue the presentation with more details of the operation. Thank you.
Good morning, everyone. This is Marcelo Picanço speaking. In fact, this has been a quarter where revenue was slightly below our historical average. We have grown 5% overall in revenue, and the expansion in insurance expansion was 2%, in financial business is 9%, services 13%. Basically, the main issue related to the growth here to these levels is related to a fiercely competitive environment in automobile insurance, which is better than it was before the first and second quarters. But also, we already see indications of some pressure on growth. As we talked in other conference calls, the recovery of margins would need us first to a reduction of our growth. We were kind of expecting this. The question is for how much longer are we going to have pressure in the competitive environment, also regarding prices from other competitors.
If we focus on insurance on page six, you will see that credits are growing apart from auto, especially in health, dental, and life. It is important to say the combined ratio has been the smallest in the past two years. It was not only important to recover margins, but also to prepare the portfolio with dropping interest rates. It is important to emphasize where the financial performance is quite relevant. We are preparing the prices of our portfolio, already looking at an environment with smaller interest rates, which we are expecting in 2018. The average CDI will be approximately half of what we had in 2016, and two years before we had the double. We will be talking about the allocation of the portfolio, which may offset this drop. Just looking at the reference rate, we had a drop of practically 50%.
Therefore, the extension of the combined ratio is very important, not just right now, but also thinking of next year. The profitability of insurance operations year-to-date numbers is in line with last year's at around 12% of ROAE. This quarter, which is usually better than the average, we also were at a similar level as last year with 13.3%. As we usually do in our conference calls, I would like to show a little bit more and to tell the history about some evolution so that we may look better at how we are evolving, not just quarter- on- quarter, but with some other regards. Initially, I would like to talk about property and casualty insurance. In five years, it has gained a larger share in our company. It has had a growth of 15% in the market, and the loss ratio is under control.
We have higher margins than we usually have in other types of insurance, such as, for example, auto insurance, where the margins are smaller. This is important. Our sales force with our insurance brokers and business partners, we have an important relationship. Diversifying, looking at the long term, and see it gaining more relevance in the total mix of our insurance portfolio. It is not just a matter of growth, but also a matter of expanding margins. On the other hand, on page eight, when we look at the historical performance of auto insurance, which is quite important right now, and we look on a longer term, you can see that today in the year-to-date numbers, 2017 and a little bit in 2018, we improved our position as compared to the average loss ratio of the market, which is quite high, which has been quite high over this period.
This is relevant to us because we believe that with a delay that will be a little bit more or less, we will need to see a movement in our peers and competitors of price adjustment because the loss ratio is quite severe for most of the market. The composition in time may vary. Some will do it sooner or later. But looking in the midterm, the loss ratio will not be at the current levels. The loss ratio is likely to drop in the market as a whole. On slide nine, it confirms that in spite of the evolution of 6% in a year for the whole industry, but slight decrease of loss ratio of 0.2 basis points, which is very small as compared to the levels that we see in the market as a whole.
This demonstrates that the competition is still fierce and that the movement of price adjustment as compared to the Selic and the expected drop may have affected part of the market, but not all of it. Looking further into the future, we believe that there will still be more price adjustments in part of our peers that have not yet adjusted their prices. Now, on slide 10, conversely, we have seen that the current situation slightly better if we look in the short term than it was, at least it was in the beginning of the year. So we have differences here quarter- on- quarter in margins. As the financial market usually reports that there has been an improvement where loss ratio was increasing in the first quarter, and then it was the same.
In the third quarter, just this quarter, not year-to-date numbers are still carrying over the problems of higher loss ratio. In the beginning, we have a drop of 2.7%. This means that in the markets where we have a more portfolio, more recent movements, which might not be reflected here, but are in the global performance of the company, they make us more optimistic in terms of the financial margin. There was a significant reduction of 2.7% in loss ratio and an expansion in premiums, which has been the highest in the year for the market looking just on the quarter, and it was 7.3%. This will help in the margin. In the margin, the market is improving as a whole and in the combined ratio, and as well as in our portfolio, but our portfolio still needs further adjustments.
Now, the revenue of financial services and businesses has grown 10%, especially driven by the credit card, which is still growing significantly in terms of our revenue and other financial businesses too. In contrast, we have had additional expenses with businesses that are still maturing, such as Conecta and telecommunications, which have had an impact, reducing the net income in the quarter when we compare it to last year. We have still some issues to resolve in other business lines that we are working on. Zooming into the credit card on page 12, which is important. Revenue has grown over the past five years. Also looking at the historical performance, 19% a year is the CAGR, and the number of customers has more than doubled. In spite of a very strict approach in working with our customer base. We are a relationship financial agency.
We want to work with customers that we already know, and this helps keeping our default rates below the market average by 2 percentage points. However, the evolution of the Central Bank changing the rotation credits and the revenue, which is significant revenue for everyone working with credit card in Brazil. Also encouraging the higher use of payment of the invoices in installments has led our revenue in 2016 not to expand as much as our historical average, but it still expanded. It is positive in our vision in a year when we heard many reports of our competitors working on a reduction of nominal revenue. I think it is important to highlight this. In spite of the resolution of the Central Bank, so far, we have not yet had a reduction of year-to-date revenue in total of our businesses.
This is related to many actions that we have implemented in terms of having a better calibration of credit limits, expanding our bases, seeking other types of revenue, including services and everything else. The evolution, as I said, of the customer base in the long term continues with more than 2 million cards already. We also have a level of relationship that today is the third largest of all Brazilian banks. Behind only Citibank and Diners because they have a very specific demography. Here, speaking about monthly average expenditure. Now, talking about our financial investments. This has been a quarter of recovery of our results above the CDI. Internal benchmark, we also consider exposure to stock, but we have had a 3% profitability, which is quite interesting, highest of the CDI in the past few years.
This is very much related to our portfolio of shares and what we have in treasury. Our allocation has not changed significantly. There has been a small reduction of our inflation-indexed bonds and we still have a long-term strategy with allocation ranging at about 3% in equities. But in terms of insurance companies, I think this is one of the highest that we know of. Lastly, on slide 14, our recurring net earning has expanded by 27% in the year, BRL 651 million, a 5% growth in year-to-date numbers. It has been BRL 13.6 million in a year and BRL 16.1 million in the quarter. If we consider the sale of our IRB shares and also the anticipation to the second quarter of interest on equity. Right now, I would like to open for questions- and- answers.
We are now going to start our questions- and- answers session. If you have any questions, please press star one or you may send your questions on the webcast platform on the item, ask the speakers. Thank you very much. Please stand by while we poll for questions. As a reminder, if you want to ask a question, please press star one. Or alternatively, you may send your questions on the webcast platform at the item, ask the speakers. Please stand by while we poll for questions. Our first question comes from [Felix Hathaway] from [Rosen Certifications], please.
Good morning. With regards to your dividends and interest on equity, will there be any additional decisions this year, next year, or has it already been decided and this is the final decision and nothing will change this year?
Good morning. We have not approved any decisions of extraordinary dividend payout this year, but we are working at a range of payout of 35%-40% for next year. It's not extraordinary, but it is an extension as compared to what we have been doing over the past few years as compared to the percentage of payout that is paid out as dividends.
As a reminder, if you want to ask a question, please press star one. If you want to ask a question, please press star one. As a reminder, if you want to ask a question, please press star one. Right now, there are no questions, so we turn the conference back over to the company. Ladies and gentlemen, please stand by while we reconnect the speakers. There is a question that came through the webcast. This is from Marcio. He asked us to talk about the increase in expenses, especially commercial expenses.
Marcio, this is Marcelo Picanço speaking. This expansion in other businesses has a dynamic where sales do not come at the same time as revenue. We pay commissions upfront, and then the revenue comes a long time. Sometimes when we expand businesses at all, because we needed to make any adjustments to increase the sales of something with the brokers, these expenses have grown, in fact.
There's another question from Pedro Gonzaga from Pacifica Investments. Two questions, actually. One, asking why we have a smaller rate of income tax in the quarter, and the other one is about how we see our property in the banking channel.
Pedro, thank you for the question. This is Celso. The effective income tax rate in our corporate structure that are 27 companies, one of them is Porto Seguro S.A. Holding. It was this company that sold IRB because it held a stock on IRB. We had a tax loss in the year and a deferred income tax from the past. As we realized part of the profit this year, we could reverse part of the provision that we had for the past. We had a tax gain this year in this operation because we sold our IRB shares.
Hi, Pedro. This is Fábio Luchetti speaking. The revenue from property insurance in the banking channel, we have been working hard together with the bank. Our aim is to improve it more and more and the quality of sales and everything to have a portfolio with a smaller turnover. And now we are also working in order to improve the operation through the digital channels. We believe that we are going to have a more positive scenario, making better use of the digital channels in the bank.
We have a question from [Gustavo Oliveira] from [SSA Investments]. Please, Mr. Oliveira.
Good morning, everyone. Congratulations on your performance. Could you give us an explanation about Conecta with a 24% growth, and even so, there was an operational loss? Thank you.
This is Marcelo Picanço speaking. Well, Conecta came. There is an expansion. But at the same time, we have also had some additional expenses in terms of operations, technology, customer service, and also the company itself. So in fact, we needed to do that to keep our strategic position in terms of quality in a sustainable way. And that is still being solved looking into the future with more expansion in revenues and a better cost structure.
Do you know when this operation will become profitable for the company?
In fact, there has been some variation as compared to what we expected, and this is a new fact. This is innovative initiative in Brazil, so we need to adapt the business model. So it is an innovative business model in Brazil. We believe that we will be able to get to that equilibrium. So there is still some learning in terms of the sales channel by people who have never saw this type of business. And this market is fiercely competitive. Because now there has been a stabilization in the number of lines, so there is a price war in the market. So there are many movements being made here. We are working very hard to make this business break even within one year and a half, two years. This is our last announcement.
If you want to ask a question, please press star one. If there are no further questions, I would like to turn the conference to the company for their closing remarks.
I would like to thank once again, everyone, for the questions, contributions, for interest in our company. And I would like to reinforce if you still have any questions, please feel free to get in touch with our investor relations department and in 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 we wish you a good day. Thank you.