Morning, everyone. Welcome to the Porto Seguro S.A. teleconference to discuss the results regarding the First Quarter 2017. We have present at the event, Mr. Fábio Luchetti, CEO, Marcelo Picanço, CFO, and d irector for our relations with investors, Celso Damadi, General Financial Director and Controller 's Officer, and Ricardo Fuzaro , Investor Relations Manager. Be informed that the presentation is being recorded and simultaneously interpreted into English. All the participants will only be listening to the teleconference during the presentation of the company.
Next, we will start the Q&A session, where more instructions will be provided. If any of you, ladies and gentlemen, require any assistance during the call, please ask for the help of an operator by entering star zero. The audio and the slides of this teleconference are being presented simultaneously on the web at the address www.portoseguro.com.br/ri, and on the platform EngageX. On this address, you will identify the banner with the title "Teleconference," which will conduct you to this presentation platform.
Questions may be also submitted through the webcast platform by clicking on the icon "Questions to the Speakers, [Non-English content] Those questions may be sent at any time and will be answered live during the teleconference. Before we proceed, we would like to clarify that possible statements that may be made during this teleconference related to the outlook of business of Porto Seguro, operational, financial projections and goals are beliefs and assumptions of the senior management of the company, as well as information that are currently available.
Future considerations are not assurance of performance. They involve risks, uncertainties, and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur. Investors must understand that general economic conditions of the industry and other adverse factors may impact the future performance of Porto Seguro and may lead to results that are different, quite significantly of those expressed in such future considerations.
Now, we would like to give the floor to the companion. Please, you may proceed.
Good morning, everyone. Fábio Luchetti speaking. I thank you all for your participation in our teleconference in the results of first quarter 2017. Looking to slide number three, we have the numbers. The economy is still in recession, and the drop in interest rates have impacted our performance of the quarter. In addition, in the auto industry, we had more competitiveness in the beginning of the year, along with our price policy in a more conservative way. But we needed to do it to improve our margins and profitability. That made our growth slightly more difficult.
On the other hand, we see some signs of improvement in the economy. Inflation is under control. We have the sales of new vehicles by April that is dropping at a lower rate, 2%, and credit for acquisition of cars has increased 16% over this period. The rate of reliability on insurance, it grew by 10 o'clock, so it shows that the whole market is more optimistic. The lines, social security and financial and services have had better performance. Operating profit has increased over 20%, confirming our strategy of diversification of businesses. Expenses are under control, are below inflation. Administrative expenses have remained stable, even at a challenging scenario for the growth of sales. The financial investments have generated performance above CDI.
However, it hasn't been enough to offset the drop in interest rates it had over this period. In terms of novelties, we have a private pilot project with automatic cars, and we have some bicycles and electric motorcycles in public transportation. Those are initiatives of more agile transportation means, actually reducing impact to the environment and actually contributing to the environment. Sustainability is a principle that we adopt for the development of all our products and services.
To close, we are paying attention to the challenges and prepared for more adverse times as we keep with our policies of developing and fostering new businesses, especially in terms of what we are doing with our policies. In terms of our diversification efforts, we seek to provide innovative and synergistic solutions and providing more options through the main channel, which is the insurance broker.
I would like to ask Marcelo to detail the side of operations so that we can open up for questions.
Thank you very much. Good morning, everyone. Marcelo Picanço speaking. Thank you for your time and interest. We have had an increase, quite reduced in terms of total revenue. It has been a difficult quarter for expansion, especially in the auto industry. Total revenue grew 1%, in line with the same quarter last year. This is reflected in the mix, where we have a drop, 2.7% in terms of total revenue, reaching 2%. We have continued to grow. Now that product is insurance, where we have a participation that is smaller or in line with the policy of the company of diversification of businesses, where we have differential products.
For example, insurance related to people. We also have the result of insurance operations on page five. That is a bit above, regardless of the combined ratio that we have, 99.1. It is actually combined still high for insurance operations. What we have is the amplified. We had an increase of 1.4%. With regard to the financial results, we are fine. We have actually exceeded CDI of Selic. Since we were above that, we were working with a slightly bit higher last year, and this impact is amplified compared an important concept for the Brazilian market, considering the relevance of financial revenues in the total of our results. Insurance profitability regarding market scenario in which we are still having premiums, which are still compressed regarding needs due for the increase in frequency and actually resetting margins in the past.
We have actually had a decrease. We have reached a bit below 10% in terms of our capital. It is a bit below compared to last year. We are actually, as it is being shown in the previous page, the market is being affected by the auto part. When we talk about other businesses, not insurance, financial services and services, we have had a situation that has been quite strong, 19%, almost 20%, and returns on accumulated equity of over 10%, and profit expanded to 31%. The main factor to this recovery is related to expansion of revenue and businesses of credit cards. Once we did it, first factor, and we equalized the risk, we had to compress revenues a bit. We were able to get the risk to levels that we consider healthy. With this, we allowed the expansion of profitability with controlled risk.
Also other businesses in services that have also started having better results than those we had last year, in line with the growth expected in certain business cases and stages that are quite initial or intermediary. Many of them are going through very even and certain situations that are similar. Speaking a bit of financial operations results, we had 3.4% of profitability regarding 112% of interbank deposits or CDI. We mainly had that because of the positions and the difference between the real and the market.
Also, variable income has been quite productive quarter regarding our positions. Because of the smaller CDI, average CDI, we had a reduction, 13% in the financial results regarding the first quarter last year, 13% below first quarter last year. We had 119% of CDI, 126%, and we have also pension funds that has a result that is quite vigorous. The comparison basis is against the quarter in which we had the best result in two years of performance. We have to have the perspective there.
On slide eight, the main conclusion we have is that we maintain a strategic allocation very much in line with what we have done in the past years and quarters, maintaining in fit with a high-end shares. There is a certain fluctuation between 2.5%, 3.5% in terms of our position. We also made some reduction in prefix. This depends very much on the time, and we have certain fluctuations that are relatively small considering our history. Our use of risk measured by the percent of stress. We expose our portfolio is also in line with what we have seen, a certain high in the third quarter, because we believed, and we got it right, that the allocations were quite positive for this scenario, and volatility also even dropped.
Lastly, around slide nine, we have generated net earnings of BRL 216 million, a reduction compared to third quarter of last year of 10%. Return on capital, we had a reduction of 3 percentage points regarding last year. Mainly when we look, we see a decrease of BRL 34 million in the results of insurance, partially offset, but not totally, by financial services businesses with BRL 12 million in the financial. The controlling company that has the carbon credits generated BRL 3 million below. This is actually the main impact with the result of insurance that had a drop of 30%.
With that, I would like to open up for questions.
Thank you. Now we are going to start the Q&A session. If there are any questions, please enter star one, or alternatively, the questions may be submitted through the webcast platform. Icon, [Non-English content] , ask the speaker. Our first question is from Gustavo Schroden from Bank of America. You may proceed.
Thank you. Good morning. I would like to ask two questions. First, I would like you to tell us the competitive environment and in terms of pricing. It has been mentioned that there is competitiveness in this industry, but I would like to understand with more clarity if it has been, what has been more competitive or not. If you have been able to raise or readjust prices in the automobile sector the way you expected, or if you are having a bit more difficulty compared to what you expected before.
My second question is also regarding auto, our ratio that has a growth in the past 12 months, at least. When are we reaching a peak? Have we reached a peak? Is it going to take more time? For me to understand the trend over high. If there are certain difficulties regarding the auto insurance. Thank you.
Hello, Gustavo. This is Fábio speaking. Thank you for your question. Regarding competitive environment, actually, this quarter has been quite complicated. It still is. We noticed a slight move of the market to move to a better scenario, very slow considering the scenario we see in the economy, public security, the drop in interest rates. The market should be much more nimble considering the closing of 2016. We expected that third quarter would have a faster reaction. Unfortunately, it hasn't been as we imagined. We have some signs that people are actually moving.
Regarding prices, we made all the adjustments we considered correct, although the performance has been less because we started aligning since July last year, but the card is a bit longer. We have a cycle of 2.5 . We've gone through six months. When we look at the crops, well, the crops are safe here, so prices would then be according to the outlook of claims we would receive. Then I would answer the question of claims. Yes, if I'm understanding, if we reach the peak, the loss ratio has reached its maximum, and some states have reached the absurd point. Originally, they had over 40% in terms of loss ratio and what we see in the whole media.
I think the scenario is clear to anyone that is pricing, looking a bit behind. Well, it is much better to look ahead rather than back. If we do our homework, we understand that our challenges is to recompose our revenue from the point of view of underwriting and pricing. We are well positioned.
Thank you. Just to follow up to the two questions that. When you say the loss ratio has reached a peak, do you believe that the effect of repricing that you started last year starts having an effect here? Or is it because you have a view of stabilization in the frequency of claims, not only in Rio de Janeiro and other capitals that you would expect?
Gustavo, I would attribute to the price. Our price is very well positioned, and that is why we may have lost some states or market share to actually give emphasis to price. If we see that the current situation in the country, there's no sense in putting the price down. In terms of frequency, we see an increase here and there, but this is very specific to certain states. When you take a state like São Paulo, there are sort of gaps there.
Certain states have reached that level. We won't have more loss ratios. In Rio de Janeiro, I think it would be more a critical point for the state itself and for the platform. Everybody's moving to try to control violence there. From now on, we move towards stabilization and better.
Thank you very much.
Thank you very much. Next question is from Mr. Thiago Kapulskis from BTG Pactual. You may proceed.
Good morning. Thank you very much for the possibility of asking questions. I have two questions, but the first one is regarding non-insurance businesses that is becoming more relevant in the company. It is already 20% of bottom line. It was 13% a year ago. To what level can this area reach, considering your focus on diversification and other lines that are not, for example, auto or other insurance lines?
My question in this regard is regarding credit cards. We had the changes in the rotation, and we had April as a month of implementation. How do you see this dynamic of delinquency? Has it been more or less what you imagined? These are my two questions.
Hello, Thiago. This is Fábio speaking. I will speak more about the non-insurance for cards. I will let Mr. [ Picanço] talk because he has more details on that regarding the revolving credit. We do not have a clear goal saying that non-insurance we wanted to account for 30%, 20%, 40%, 50%. We have a strategy that has to be strong, that we benefit from the synergy from the block of customers that come through insurance at a very large distribution channel, brokers that have lots of relations and introduce new products that suddenly have better margins. Because there are certain products that are being placed in our society. For example, even within insurance, we still have home, life, funds, pension funds.
Since autos suffer more, this distribution network ended up feeding off of it. That is our wish. Even though we have it in our strategy, we try not going to open sea to operate with cards connected. These things mature over time, as is the consortium today. As a result, the broker channel in the past accounted for 5% of consortium. Now it accounts for 40%. The distribution channel gradually learns how to introduce new products. If the market is competitive to us, it is also to them. Above all, to us, this growth is important, not only because it helps decrease in our strategy, the price, but also profitability.
The distribution channel, for us, it is interesting that it is in line with our policies and strategies. Our outlook in a very macro point of view in the mid, long term is that we can actually reduce the dependence on the South, Southeastern regions in Brazil, and insurance especially, auto insurance is a great opportunity for relationships to us. Our great dream is that the net income of Porto Seguro S.A., that also would account for 30%, not the margins that it represents today. We are working hard on that. We have noticed that we have been able to evolve in crisis like this we have been going through, actually adapt to the strategy we have.
I will ask Marcelo to explain the revolving credit on credit card and the impact we noticed.
Thank you. Just to add something that Fábio said regarding cards. We have the strategy of the product. We are aiming very much to working in synergy with customers, with our clients. The best way we see the possibility of actually exploring our internal bases and that are far from saturation. We still have a possibility of growing the product. I am speaking specifically of the card within our internal basis with synergy more than what we have today. The most penetrated portfolios did not reach 40% in terms of penetration. We need more penetration, credit card, and insurance portfolios.
Specifically talking about the recent changes, I believe that first of all, the first month to look at that will be May, because April was the first maturity. People are still on revolving credit. The transfer to a model of payment invoices on installments there will actually be effective as of May and the critical variable. It is too soon to talk about because we haven't seen the margins are clear in this new model. The people have not chosen them. Those that started early in the month, they did not get to the maturity that would be in June. We have to look at it, but not only delinquency.
The main factor is to ensure that we have results that are balanced, that do not suffer a compression towards the end is related to the average terms clients will choose in terms of paying and invoices on installments. That may lead to greater risk because this is not clear because on the other hand, in times of smaller installments, that does not overload the pocket of consumers so much. We have to see which one will impact more, whether installment is lower or the terms are longer.
The unemployment dynamics affect less population in general since we work with a more specific customer base. We are less fearful of unemployment rather than the open retail. But obviously, the midterm aspect is perhaps the most critical variable to be observed more than in delinquency. We are only going to have this clarity in about a month, 1.5 month .
Perfect. Thank you very much for the answers.
Just to close, our expectation is to seek to maintain results close to what we have today without major losses in terms of our bottom line.
Perfect. Thank you very much.
Our next question comes from Gustavo Lôbo from J.P. Morgan. You may proceed.
Good morning. I have a question that is more geared to midterm. Correct me if I'm wrong, but over this period of cycles of the cuts in interest rates with the market with auto insurance under pressure, we go through a transition period in which the ROE of the company will be a bit below the normalized level. First, I want to understand whether it makes sense to have these estimates. Second, how long should this transition period take? Third, what should be a sustainable level of ROE in an environment of interest rates in terms of insurance? Thank you.