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Good morning, ladies and gentlemen, and welcome to Porto Seguro Conference Call to present the results for the First Quarter of '18. 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. [Operator Instructions] The audio and the slide are presented over the Internet at www.portoseguro.com.br/ir and on the MZiQ platform.
At this site, you will be able to identify the conference call banner. Questions may be made also by 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 different factors 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 it relates 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'll 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.
Turn now to Slide #3. 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 gain and the efforts that began in July enabled us to enable and increase the loss ratio. We also note, 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's more competitive.
From the fourth quarter of 2017. This has enabled us to grow with the improved margin, but premium consolidated for the 3 brands have been developed and the sale of new cars has increased by 15% compared to 2017, and in a way, this has eased the price for the [Indiscernible] products. Competition has been harder, but our premiums have also developed. We are developing some measures to increase this segment, especially by hiring sales specialist to help our sales network.
In many segments, many products grew over 2 digits in our Clients Health, concerning the individual products and Credit Cards and financing operations.
On the financial side, the CDI has contributed to decreasing the interest rate to its effect. And in terms of expenses, we continue to work to improve efficiency 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, if we do a partnership with the company that is well acknowledged on this. We are very much encouraged in the improval and some lines have accelerated. We are also taking several actions to overcome the challenges we have in terms of geographic increase in 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 to cancel 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'll 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 the 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 6, you can see the developments of the products. Auto has, and the 3 brands, 7.7%, almost 8%, as I said. And other 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 are do not have a -- such a significant weight on the overall. I'll 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're unable to obtain in the past, in the recent past. This also impact efficiencies, which I'll mention soon. One is details earnings and results -- sorry, on Slide 6, when we grow with that, we went on 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 the Auto, which is very relevant. And because this is a business that is our main focus. We also have gains in BRL 0.6 billion as a whole, if we look at this in terms of year-on-year, and also on tax. On Slide 7, we have the historical operational result and this is important to highlight. Because this has been very much focus of the market, because our ability to generate stronger result in a low interest rate context. This quarter, we had an operational results above the financial results, which is unheard of, it's 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 rates -- result will drop. Even if we do have a medium and long-term strategies on fixed income investments. But we cannot leave out that unavoidably they -- the combined ratio has to improve. So we have a charge for over 15 years we've sold, and how to see that when CDI drops or it actually improved 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 had 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, much lower than the amplified an average. We can see that our margin 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 did not happen across the market, there are opportunities and I'll mention them later on. But it's not only necessarily on the monthly basis. We see it across a certain time of period and it's interesting to see that we have been able to maintain this level. On Slide 8, this is another important aspect when I look at insurance. In this first quarter, we have been able to obtain 17.8%, which is less by 1.2% compared to the fourth quarter of last year. And again, when you see the 5-year run, we have a gain, which is important from 2013 in the G&A plus OE for the company as a whole in terms of insurance.
Mentioning our Auto Insurance performance specifically, which is very important for our total results. In the first quarter of 2017 -- I'm sorry, in 2018, we had an important growth right on the average premium and when we compared it to 2017 going on some -- going to BRL 1,800. and 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 implication with this that we did this being aware of it, was to reduce the fleet, now that we're 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'll do the opposite. But our pricing today is -- matches our interest rates context and of course the loss ratio. On Slide 9, we have a reduction of systematic reduction quarter-after-quarter of the loss ratio in Auto and there is seasonality. But even when we compare to year ago, but also to the previous quarter, we see a drop in our across brands. And this has led us to a reduction totaling 9 percentage point, so little over this, which is the main expense and 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's went to 12.9 percentage points in terms of the first quarter. So there is another aspect I'd like to say, which is the market sees as Phase 2 translate in price increase, because the loss ratio is up by 0.4% in terms of 2017, but the interest rate also great. So the differential that we have in terms of the average of the first quarter was around 4 percentage point. It's 10x higher than the drop that the market had, which is 0.4, which suggest to us, and this is not currently. In fact, we see that there is space to -- we assess pricing and it 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 rates was at 13% to 11%. And today, it's less than half, and we have a loss ratio, which is even higher. This combination for us rationally does not make sense, and least thing is that something will happen. And we don't believe that there will be a change in interest rates in the short term. Therefore, what we believe is that the variable must be adjusted to 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 grow from 1.6 years to 2 in 2017 and 2018. The insured fleet is still increasing, even if this takes place at a much lower rate, it's 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 improvement, we believe that also with, by improving our product, we'll be able to increase this fleet slowly, not as an explosion, but we think that it's a market that do 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 the 2 phenomena: One is Credit Cards, because of the IFRS9, which -- methodology which was implemented for increased tracker, and it's 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 of with our strategy vision in terms of profitability and risk. And if second phenomena is that the result in Conecta operation is still impacted by the stronger competitiveness in the mobile segment. We have had a transfer, which was very strong in cellphone operation. We are not -- relevant access 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 review price. But this will not bring the results that we had and this does not enabled us to upset this business the mobile operator. And it only developed 3%. And in terms of the Credit Card operation, even with change in the structure on how we can collect interest and charge interest, it's still grew 20% and this again has proved to be interesting. And the total revenue for this was 14%. This growth more, of course, there are businesses, which are smaller than what we have, and we continue to grow into maturities businesses. Going on to the results of our financial investments. This quarter, we had a structural impact of [CDI], which dropped by 48% versus the first quarter of '17. However, the relative performance of financial investment was better, chiefly due to the fixed income and inflation-linked bonds, and if we look at 151% -- if we take a look at the pension funds. At this has lowered our drop. But the corporate bonds were 26%, it is a drop, but it was much lower. If everything was postattached to the income, it would be even worse. But this is a portfolio, which is longer. We have reviewed our portfolio risk. We were doing this since the end of the year and therefore, a structural way we've been doing this for fixed incomes and if you go into prefixed income, we are much less attracted than they were before, and we have made [indiscernible] , but we've got some others inside because of timing usually. And the point here is that our risk today is lower in fixed income than we had 9 months ago. And in terms of shares, we grew 3% with bit more or bit less. It's not a big position, but today because we are reducing the prefixed-income bond, this exposure is focuses our risk budget. And I'd like to say some more words on the consolidated results on Page 13. As I said, before the ROAE, we had a quarter with some historical facts. 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 are better than the financial results. One has dropped and the other has spiked and it was 3x higher than the quarter compared to the first quarter 2017. And with this, we have arrived at BRL 278 million results for this quarter of this company as a whole. With a return over 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 do not have that, it would've been 20.9%. And this is interesting because it's so -- the ability of the company to generate value regardless of the cash policy.
And in 20.9%, we also apply the CDI. We're not including the 146% of CDI that we obtained, it's the company allocated the money at CDI. And I will quote this, "not money any risk", we, the businesses intrinsically will be generating 20% -- almost 21% we're not saying that we should do this. But in order to give you an idea of that companies have capital policies that are different and this figure helps us to compare and equate this to better understand our businesses. And our average in the mature businesses that do not have return on capital, it's the -- on average 21%. Having said this, I would like to go to our question-and-answer session. Thank you very much.
[Operator Instructions] Our first question came from the webcast platform from [indiscernible].
Is there a forecast for distribution of dividends? [indiscernible] You answer the question.
Well, we have of obviously the concern of allocating capital in a rational way. There has been some changes that were recently projected and actually they have liberated around BRL 600 million, and we have also arise at the end of the cycle of investment, not that we'll not be making investment, but obviously, we will. And we'll have new opportunities of M&A in the market that we're looking at. We do have an excess, and we believe that 2 things may happen. One is that we may have an increase of the percentage distribution of dividends. But we are looking at other alternatives to address the company. Maybe we'll have an extraordinary payout. This is -- we don't have a decision on this, there's no consensus yet. But this is the possibility that we're looking into.
[Operator Instructions] Our next question comes from Eduardo Nishio from Banco Plural.
I just have a question, it's more a clarification, if you will. The -- your idea then has -- as I can see, has been improving but you see more room to improve, if we compare on the calls yesterday that the [indiscernible] ratio is much higher? You do compare the mix in terms of insurance, what is the difference between you and the competition? How do you see this [ deviate ] developing across time? And do you see if there is room for improvement in terms of efficiency?
Eduardo, this is Roberto. Thank you for your questions. First of all, Porto Seguro is very verticalize differently from other companies in the market. We're trying the same segment they out force a lot of that 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 investment in technology to enable this. And the answer to your question is that there is a lot of space to reduce -- a lot of room to reduce operational expenses, yes.
Roberto, since you are there, I would like to ask what point is where the new management into a growing to the CEO position. Not do you intend to change and transform for this year or the next 4, to 5 years? How do you think focus developing? What are the main points of your strategy?
Eduardo, since July of last year, I have been taking care of the businesses of the company. Concerning Fabio Luchetti, he was here for 12 years took Porto Seguro to a new level, many investments were made in technology systems. And in my term at the office, we intend to focus on growth. We want to reap the fruits resulting from my predecessors 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, [indiscernible] This is basically what I have in mind for the future.
Our next question comes from Mr. [indiscernible], FSA Investment.
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 is coming to CEO, what can we expect for the future?
This is Roberto. This is a very good question. We are beginning a process of digital transformation for the processes in the company. We'll be making some investments to this area, but they are different from the investment that we say and that we see in the market. Our approach is not for direct sales. We are thinking of working on efficiency in terms of the journey of our clients across our processes. And of course, of the broker as well. But 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, and the main challenge will be to transpose or to translate to the client that the service levels that we have of excellency in the analogical channel, we want to take to the digital area. The efficiency that our customers see in the analogical channel because we want to keep our service excellence level across channel.
[Operator Instructions] 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 of 2018 is now closed. Thank you, very much for attending, and wishing you a good afternoon.