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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, welcome to the Porto Seguro's results conference call to discuss results for the first quarter 2020. Today with us are Mr. Roberto Santos, the company's CEO; Celso Damadi, Executive Vice President of Finance, Controlling and Investments and IRO; Marcelo Picanço, Executive Vice President of Insurance; Marcos Loução, Executive Vice President of Financial Businesses and Services; Izak Benaderet, Managing Director of Corporate Investments; Lucas Arruda, Head of Strategy and Investor Relations; and Emerson Faria of Investor Relations.
We would like to inform you that this event is being recorded and simultaneously translated. [Operator Instructions]
We have a simultaneous webcast that may be accessed through Porto Seguro's website at www.portoseguro.com.br/ir at the Conference Call banner. The slide presentation, which will be presented by the management, is also available for downloading. Questions can also be done through webcast through Ask the Speaker icon. Once again, questions can be sent at any time and will be responded during this conference call.
Before proceeding, we would like to mention that forward-looking statements made during this conference call referring to projections, goals, both operational and financial, are based on the beliefs and assumptions of Porto Seguro's management and on information currently available to the company. They involve risks, uncertainties and assumptions as they relate 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 could also affect the future results of Porto Seguro and lead to results that differ materially from those expressed in such forward-looking statements.
We would now like to give the floor to the company. You have the floor.
Good morning, everybody, and thank you for participating in the Porto Seguro conference call for the first quarter 2020.
We go on to Slide #4, where we would like to highlight the following. We concluded the first quarter, reaching a substantial expansion of 52% in operational results. Thanks to our diverse operations in insurance and Financial and Service Businesses. The diversification of businesses has been fundamental to sustain the portfolio and mitigate the company's risk.
Our total revenue, excluding DPVAT, was accounted for in other expenses and had an advance of 4% vis-à-vis the first quarter last year, supported by the double-digit growth of health, insurance, life, financial risk and the credit card products, financing and consortia. In auto, we had a drop due to an increase in competition. If we do not consider auto, the growth in total revenue was up 11% for the quarter. There was an improvement of 1.1 percentage points of combined insurance ratio. The second best level for the first quarter and the last 10 years. And this because of the continuous reduction of administrative and operational expenses efforts to ever more increase the company's operational efficiency.
Financial businesses and Services obtained relevant results in the period, with a profitability of 36.7%. This was explained by the consistency of profitability and financial businesses, the improvement in the results and the non-recurring results of the monitoring of our portfolio. Despite the excellent operational results for the first quarter 2020, the company's profitability was partially annulled by the drop in financial results because of the plummeting of the variable income equity due to the impact of the coronavirus.
I would like to underscore that we're very well prepared to go through the present day crisis with a sound structure based on a model that has generated consistent results in the last few years and a comfortable cash position. Considering the present day challenges, we were expeditious in adopting measures to protect our business and also to support our employees, brokers, service renders and clients through broad actions that contribute to the financial health of all. We have also offered support to public health, and we have intensified initiatives to contribute to people in social vulnerability. With this, once again, I would like to thank all the employees, brokers, service renderers, shareholders and investors for their partnership and reaffirm that we're confident that we will overcome this moment and wish all of you very good health.
I would now like to ask Celso Damadi, our Vice President, to convey senior remarking on the main results for the year and this quarter.
A good day to all of you, and thank you for participating in our conference call for earnings release. I begin speaking about our operational revenues.
Porto Seguro had an improvement in revenues of 3.7% vis-à-vis the first quarter '19, mainly due by -- to financial businesses, they had a growth of 18.4% in the quarter. In the graph on Page 5, you see revenue per business line. And since 2015, you can see a compound annual growth rate of 4.2%. What I would like to highlight is an average growth of insurance of 4% compared to an average growth of financial businesses from 2015, fiscal '19 of 11%.
This shows you the strong growth that we have had in the last few years in financial businesses, a very consistent growth. In 2020, not differently, the growth was 18% for the quarter. This shows our diversification in financial business, growing threefold compared to our growth in insurance. And of course, this is important for our strategy and diversification.
On Page #6, Porto Seguro has achieved solid results in auto insurance. And it grows in a faster pace than other segments, increasing the diversification of business. We also showed a very important graph here with a breakdown of profit per segment. You can see that since the first quarter of 2019, the auto insurance, on average, represents 31% and 30% to 40% of our profit. This quarter in 2020 also represented 45% of our net earnings because we had a financial result in variable income that led the results of Porto as somewhat below our average. And during the year, we will probably recover this, and the auto results for the year 2020 should return to a level between 30% and 35%, returning to that average of 35%, 37%.
This shows you the strong diversification that Porto Seguro has obtained in the last few years that greater growth in few businesses with higher profitability. And in the last few years, all of this due to our significant diversification and other businesses. The quarterly profitability was impacted by a drop in financial results, but offset by the significant growth in operational results that attained the highest historical level for the first quarter. We truly had a very good result. A result in the loss ratio in most of our business lines, especially in the auto portfolio, as Marcelo will explain very soon. We also had operational gains and G&A in other lines besides insurance.
In insurance, the growth in operational profit was approximately 33%. And it shows, of course, that Porto Seguro in the last few years, with that drop in financial results, with a drop in the pricing and the underwriting has offset that financial loss for operational gains, not only in underwriting, pricing and others, but also with operational gain and operational expenses. And we believe that not all financial losses can be transferred through price. And we have to continue to gain productivity, which is what we have been doing with very positive results, and this quarter has not been different. This is what this graph shows us. The quarter of -- the first quarter was quite impacted by variable income as we will refer to further ahead.
At the bottom of Page #7, when we take away that financial loss and we carry out a managerial calculation, business results at 100% CDI, which is a calculation with in-house, removing excess capital, business generated 19.4% of profitability, a very good profitability with a very low EBITDA scenario. Even with a drop in CDI, we went from 21% to 19.4%, maintaining that profitability.
On Page #8, Porto Seguro has obtained consistent operational results despite fluctuations in interest rates. The ROAE was threefold higher than during the same period. This shows you how resilient we are in terms of the drop of interest rates. Our pricing is anticipated by 1 year. And of course, we take into account different economic scenario, and we do our homework in terms of operational expenses, administrative expenses and technically working with pricing, underwriting and recession to be able to face that drop in financial revenues that we can foresee 1-year before.
This quarter, once again, was not different. The operational results was in other businesses within our expectations. It was a good quarter in terms of operational results, with that drop in financial earnings, which will be explained.
Thank you very much. I would now like to give the floor to Marcelo Picanço, who will speak about insurance.
Good morning to all of you. I would like to underscore the insurance results. During this quarter, we had a growth, a moderate growth, always boosted by the auto where we have the pricing impacted by the competitive environment with a drop of 8% -- 2.8%.
The other (sic) [ life ] insurance had an increase of 12% during the period, enabling of a moderate growth of 12.3% vis-à-vis the first quarter 2019. We're working to expand this growth rate and doing this based on innovation and products and more sophisticated and more innovative pricing model.
On the next page, Slide #10, I would like to highlight the improvement in the operational results. Based on the combined ratio that reached 94.1%, better than last year. And here, we have better days at the end of March because of the benefit of our auto portfolio that was immobilized during the quarantine. This is the best operational result and for the first quarter in the last 10 years. A very positive result for the period, despite once again having had very strong rainfall in February that hit São Paulo in a concentrated way. March was somewhat calmer. And although we were somewhat bolder, we did have a very good operational result, and we are showing you this.
And it's important to highlight the return over -- return on capital based on the CDI, this was the best return we have had historically, adjusting for the necessary capital in this portfolio. And adjusted insurance results standing at 24.6%. It's a return on capital that you rarely see throughout the world when it comes to results. A very positive and of course, adequate results and it's important to isolate the results of financial one, surplus capital that also help us. But we also have the natural volatility in this unheard of moment that we're going through at present.
On Slide #11, I would like to also highlight the following that we continue to observe efficiency gain and operational one in insurance. Our administrative and operational expenses had a reduction of 0.5 percentage points vis-à-vis the first quarter 2019, and we were able to maintain that trajectory -- that significant increase in operational efficiencies, reaching 15.6%.
Now when we compare even nominally this since 2015 and an accumulated inflation of 19.6%, the nominal drop was at 6%. When we add administrative and operational expenses -- and this does not happen only because of cost dilution or growth. And although, in the last 2 years, our main portfolio has had more difficulties in growing, we still are able to gain in operational expenses.
Having said that, I would like to give the floor to speak about Financial Businesses and Services.
Good morning. We're on slide #12 to speak about the evolution of our operational revenues in our financial businesses, such as credit cards, financing and automobile financing, growing 20%.
We also have, once again, significant growth in vehicle financing vis-à-vis the previous quarter. Consortium around 12%. And in services, we have Carro Facil where we lease vehicles to individuals for 1 year or 2 years with a growth of 6% (sic) [ 3.8% ]. And these have -- our products were the very good placement in the market, and we have 3 products with a focus on vehicles, the Consortium, the rental car and of course, the credit operations for vehicles.
We had a sale of monitored alarm. We have recurring sales and representing BRL 30 million. We also had the Credit Card operations, contributing to an increase in our revenues and companies such as Carro Facil, Porto Facil. That's enabled us to get to a breakeven point contributing to these results. When it comes to the return on investment, it lies at 36% in the first quarter.
In the next slide, #13, you see our credit and financing operations with a growth of 20%. If we look at the portfolio, the Credit Card portfolio where we see the use of our product growing 30% and the use of loans and financing also with a growth of 30%, growing well for both businesses. In terms of active credit cards, they have a growth of 12% and total credit cards with a growth of 33%, and we're going to increase the sale of credit cards to also increase the invoicing of this business.
In the next slide, you'll see the figures referring to default. In the first quarter, we were below the market average once again, and this thanks to the 2 products. And despite the month of March where we had some days indicating the periods that we are now undergoing, this required [ calm ] for us. The expectation is that we will suffer less than the market in terms of nonperforming loans because of the characteristics of our portfolio that is very strong for our entree. Now these are the main information pieces that we wanted to share with you.
And I now give the floor to Izak to speak about our financial or investment results.
Thank you all. In the first quarter, I would like to highlight the performance with a very strong drop in our variable income equity. It was greater than the drop that we had in public treasury. And because of this, our profitability for the quarter was 29% of CDI, including a provision that was negative 1% of CDI and the strong reversion that we had in our portfolio in the fourth quarter '19 and the first quarter 2020, where we worked very strongly on prefixed securities, increasing our position in the variable income portfolio throughout the month of March and an increase in price of equity as well. These are the highlights for the quarter.
I would like to return to the company initiatives when it comes to facing the COVID-19 pandemic. We were very quick to react. First of all, thinking about caring for employees and their health 1 week after the social isolation. We had 95% of our employees working in home office. And we have 3,000 employees that before social distancing were already working this way. And we had a great concern when it came to in-house communication to protect preserve the environment intent communication. And Porto Seguro was 1 of the first 20 companies that additionally adhere to the non-layoff policy of the government.
We're also trying to protect our broker, which is the main sales channel of the company. We created a subsidized credit line. We have created a process to postpone commission reversal once policies are canceled. And we adopted certain protection measures for our customer portfolio when it comes to a differentiated pricing and renewals. We also care for our service providers, especially those that offer assistance because there was a drop in their service. We have offered advanced payment of services to supplement their income, and we have created credit line, differentiated lines for these service providers. And all of our service providers that are over 60 and those that are in the group of risk have had to stop working for obvious reasons.
We were especially concerned in helping our merchants and helping the merchants that live and operate around our headquarters. We created partnership with most of these merchants in the neighborhood disclosing advanced sales vouchers for Porto Seguro's employees and offering guidance on finances to support them. Socially, we have made donation of food. This represents almost 40 tons of food that has already been donated. And through Porto Seguro Institute, our seamstresses working at the institute have been producing masks to be donated to service providers. And also work at the institute, we're working in 2 ends, generating income for the trust makers, and of course, also protecting those that depend on the institute and in the region surrounding the institute offering these masks.
In terms of Health, we're donating materials to hospitals, needy hospitals. This is not limited to São Paulo. I would like to highlight the state of the Amazon Manaus as well [ Piada ] in the state of Alameda. What I would like to underscore is a partnership with Raizen and Natura to distribute hand sanitizers to people in social vulnerability. And we have provided the Porto Seguro ambulance for the Pacaembu fields hospital. This is for the hospitalization of sick patients, and we have a program to help a nursing team when they displace themselves from their home to the hospitals and all of this is offered by Porto Seguro. This concern, of course, is still underway, and we continue to make investments when it comes to these social issues.
To conclude, I would once again like to thank everybody who are participating in our conference call. Thank you for your questions, your contributions and for your interest in Porto Seguro.
Should you have any additional questions, please visit our IR section at www.portoseguro.com.br/ir or speak directly with our IR team. Thank you very much.
Thank you. We will now go on to the question-and-answer session.
[Operator Instructions] Our first question comes from Mariana Taddeo from UBS.
And I do have a question for the auto segment. During the presentation, you mentioned that the results of the first quarter were impacted by a fiercer competition, and which has been the competitive pressure in the post coronavirus scenario. And this is the outlook for growth of premiums in the coming quarters. There has been a significant drop in the sale of automobiles. What will happen with renewal and initially your loss ratio had a positive impact, will this be maintained going forward?
Hello, Mariana, this is Marcelo speaking. Well, when it comes to the auto segment, we think that the competitive environment is more stable. We don't see an exacerbation for the time being. Well, there is a sale of new vehicles that have been impacted. But compared to the total portfolio of insurance, the amount is low -- it is less than 10%. The impact will not be so great. I would like to stress that 16% has full fleet and is still not insured, and we do believe that our growth curve [ indiscernible ] especially for insurance. Not more of the same doing insurance with those that normally do insurance. I think we have a lack of inclusion there.
Now in terms of growth, I think companies have been very responsible because of this unique period we're living through and we look to what happens going forward.
In our vision, between the quarantine that has decreased mobility, exposure to risk and of course, has a lower loss ratio initially, although this has had the effect, we do have a kind of metric model that shows that there will be a greater unemployment, but we believe despite all of this that this year will be good. We will have good results. The loss ratio will have a good behavior in the auto portfolio. We're not concerned with the general results or the margin with the combined ratios for the year for the auto segment.
Our main concern is a sustainable growth, and I underscore the word sustainable. We're not going to do this only tactically, of course, but work with a sustainable price. This is not a strategy that we use. We're going to see growth through innovative products, innovative approaches. This is what we are looking for. But in terms of results, it will be a good year. And despite the scare that we had in February with rainfalls, it was very concentrated in February. The rain season is over. And in general, the results were better than expected.
Public security has improved. We have a great deal of bad news. But of course, the [indiscernible] and [ geographies ] have had a decrease. We have a very well-behaved in this year, and all of this will enable us to work on greater growth.
I believe that going forward, therefore, the scenario will be somewhat more positive.
The next question is from the webcast platform from Pedro Gonzaga, Pacifico Resource (sic) [ Asset ] Management.
Congratulations for your results. And if we have a resumption in the sale of auto and if this still is low, can this compromise the scale of auto insurance? And can this have an impact on other types of insurance and services, such as credit cards where you use cross-selling?
Improve the sale of vehicles and the outlook for the automobile industry is not very good future. But as I mentioned previously, we look at the circulating fleet, 70% or 60% of the circulating fleet is not insured. And this, of course, represents a very relevant opportunity for us, and it will improve the flow of new vehicles. It's 2.5 million vehicles a year. So 70% of our fleet, 30 million is more relevant for us. We're looking for other initiatives to work with credit cards, for example. Well, in the case of credit cards, yes, of course, there has been a slight drop with the drop in auto insurance, but not to the point of compromising our expectations for the year.
We can also sell the credit cards regardless of the insurance. And we have just completed a strategy to offer and make available the contracting of credit cards without the auto.
When it comes to the other products, they can complement the insurance, especially rental -- car rentals. We see that the search for car rentals did not have a big impact in March, although we had 15 complemented dates.
So it will be complementary. These are my remarks therefore.
Our next question comes from Felipe Salomao from Citi Bank.
I have 2 questions. The first, if you could give us more color, more details on the impact of COVID-19 on the company in the month of April? If you have been impacted by the consequences of the lockdown? And well, and because of the drop in the sale of automobiles and much more, how does this compare with the normal months? My second question. Compared to other industry, what are you doing in terms of the pricing of products?
Of course, there are several impacts, a great deal of uncertainty. And there is a drop in the loss ratio. Perhaps could give you more room to reduce prices. But once the lockdown is over, the circulation of vehicles will increase again. And you do have to have an action for when the lockdown is over. And finally, you speak about the renewals which without a doubt will also have a reduction now very generally. Consumers will not be willing to spend any money. In this scenario will consider to be uncertain. So how are you going to tackle this scenario? And if you could give us more color on the price trends, that would be excellent.
Felipe, this is Roberto, and thank you for the question. I'm going to refer to the first part, giving you an overview on the impact on business as a whole.
Well, in fact, we perceived that there were impacts in the month of April in the case of the auto segment. During the first fortnight, we saw a reduction in the frequencies because of a reduction in mobility because of social distancing. But in the last fortnight of the months, there was an increase in mobility, not only of the frequency, but to a measurement of mobility through apps.
Most of our fleet are present users are app, and we have been able to proceed their mobility through the app. So we have those 2 movements in the month of April for the first 2 weeks and in the last 2 weeks, a very strong resumption in most of the capital cities allowing the frequency to return almost to a level of normalcy. But during the first fortnight, of course, the reduction was much greater. And this affects the loss ratio of the auto segment, of course. We have social isolation. This is not mandatory confinement, and it's different. And in the 2 portfolios in auto Porto Itau and Azul. In Azul, there was -- Azul has a greater prevalence in the outskirts of the city Porto and Itau and the cities. So the movements have been different, and there's a different exposure to mobility in the outskirts.
I think Azul has a higher loss ratio because of this effect. As Marcelo explained very positively. It has been a drop in a sale of vehicles. But this doesn't represent a large share of our business. It represents 10%. In terms of Health, I would like to highlight a loss ratio, our claims much lower than what we had estimated initially because of the hospitalization for coronavirus, much lower when we compare the hospitalizations of coronavirus.
Once again, well below our expectations and much lower than we have observed in other countries, and we compare ourselves with other insurers in the country. And of course, what is obvious is strong reduction in selective hospitalization because of the situation of hospitals and as a consequence of this therapy and exam. Most of this, of course, will be resumed once social isolation is over. And this will bring us a gain during this period that will be important for the yearly results. We still have not had a drop of revenues in Health. We work with corporate health. We don't have an individual portfolio. And I think this is a lot in that companies are going to cut their health plan. There may be an impact, but not a very expensive one in the second semester.
In terms of Life, we -- although we do have a specific clause for pandemic in our coverage, we have opted to give coverage. And at the present, number of claims and deaths in our Life portfolio is also much lower than what we had estimated because of this impact. So everything is under control, and we have had no significant impact in our revenues.
Perhaps the most impacted business is the lease insurance, and this had a lower revenue, of course, because there are no longer people leasing buildings during social distancing. And this should have an impact in the second quarter and unemployment has led to a higher frequency of communication of claims for the same reason because of unemployment and economic crisis.
And we believe that the lease for the rental segment will be the most impacted one in the company. I'll give the floor to Marcelo to speak about pricing.
We have already spoken about this. We are carrying our assessment and some aspects favor us. We have a critical mass throughout Brazil that enabled us to have very detailed information on displacement profile of driver and age per site. Outlook, if it is downturn based on income bracket and age bracket.
So we have important information on pricing. We do believe and we're remodeling our pricing to mirror this, not only for this period and for the scenario, of course, this can change according to the evolution of the curve in the country. But during these 2 or 3 months, we're working with May and June and then we believe that there will be a certain return to a normalcy. "The question is, what is normalcy after the quarantine?" We may have a significant change in behavior as we see in the air companies. How many people are going to go to another clinic and the city to hold the meeting after the quarantine because this will have an impact on the risk exposure and price. And this could change one way or another. We're thinking of a different level of change, we're assessing this. And it is important to say that the company because of this analytics sophistication because of the size of its portfolio and the monitoring of its fleet, we'll be able to all of this with a very good competitive edge.
Since you asked about pricing question, we have very sophisticated models implemented in the company, and we tend to look not only into the rear-view view, but also through the window cleaner. We bid ourselves, not only on indicators of the insurance company, but also on outside indicators of other companies that apply to our risk. And I think this gives us a good competitive edge because of the size of our portfolio because of the mobility apps that we have and trackers that are of our property. And of course, this gives us a significant competitive advantage.
The next question comes from the webcast platform, [indiscernible] Suarez, [ Data search Pacifica].
And congratulations for your results. There's a question on the performance of the financial investments. Was the loss due to the amount of the investment or a loss with derivatives?
Thank you for the question. No, the loss was due to our shares that are downwards strategically. It wasn't a loss with derivatives. And you can see that at the end of the last quarter of '19, this portfolio represent a 4% of the resources that we invest. And in the last quarter and this first quarter that ended in March, the level was 9%, and this portfolio is basically made up of share.
The next question comes from Thomas [indiscernible] [ BTG Bank ].
In truth, I would like to ask about the financing lines from the credit cards. You do not have any additional provisions for this. When we look at the large banks, of course, they have a different portfolio mix, but the bank created high provisions, especially Itaú and Bradesco Bank. What are you going to do in terms of provisions in the case of default in the coming quarters? We believe that the default or nonpayment levels will begin to increase in the next 4 quarters, considering that the market is offering a great period to its clients when it comes to some installments. So what are you going to do? Are you going to anticipate the PDP?
Well, in our case, specifically, we have a portfolio. As you mentioned in your question, it's somewhat different. We already operate with a population that has a vehicle, not the majority has vehicles and those that have vehicles, not all have insurance and not all have premium insurance, which is an important segmentation.
While in terms of nonpayment, of course, we will have an increase. We have been through other crisis, not at this level, perhaps. We run our models. We see the results in former crisis. And this is what we're doing presently to see how much we should put in additionally in provisions. We will probably have these additional provisions, but always keeping in mind the different characteristics of our portfolio vis-à-vis the market.
The next question is from Eduardo Nishio from Banco Plural.
On Page #6, when you we speak about conciliation and you're speaking about the financial part, where there is a drop of 15%. It's almost half of your profit that comes from this financial business. So what is that you're losing here or in terms of the results?
This is Celso. Nishio, now this result is on Page 12, and it refers to Financial Businesses and Services. Well, Marco went through the slide very quickly to explain this.
In these businesses, we have a result for this quarter that was very good in force of capitalization. We had a sale what we call Porto [indiscernible] as well as a sales of the monitored alarms portfolio and where you see the BRL 126 million that includes Financial Businesses and Services.
This is a non-recurring revenue of approximately BRL 30 million of this total amount. That is why you'll see this lead during the quarter. During the year, this will not be material. But for the quarter, it seems to be highly material. It will not be important for the entire year. 2 events there for the profit of Porto [ indiscernible ] vis-à-vis the year 2019 and the sale of the monitored alarms.
Now jointly, this leads to a resulting result in losses of smaller companies, companies that have great losses in the last quarter. And we have almost come to a breakeven in these companies. And this also helps us in the of results in the first quarter of BRL 63 million to BRL 126 million in the first quarter of 2020. This is on Page 12 of the presentation.
And a follow-up in the loss ratio, if you could break down the month of March for the auto segment with the COVID-19?
Ricardo -- Nishio, -- in the quarter was 56.3% in the month of March. It was approximately 55% for the auto segment. The last 10 days, it was somewhat lower. But if we consider the quarter, it doesn't significantly impact the quarter in terms of auto because of the size of the auto portfolio. We had a minor reduction, but as we work with informed loss ratios, we're still accounting for these loss ratios of previous date.
So for the quarter, it was not significant. The greater impact for the reduction of loss ratios and also something we will only see in April and May. For the quarter, there was an impact, and we don't have an exact figure. It's very difficult to separate what is and what does not resolve from the COVID impact. The daily averages are 1 percentage point for the month of March, not for the quarter. Reduction of 1.5% for March, perhaps because of the loss of frequency in the auto segment in March.
I think I can estimate that it will be 0.5% for the quarter. We will see a greater drop now in the second quarter. In the first quarter, it's immaterial, this impact of COVID in the auto portfolio.
The next question is from Guilherme from JP Morgan.
We have 2 questions, very quick one a follow-up on your Credit Card business. In some countries, there's a discussion of provisioning, and there has been a drop in the Credit Card balance due to a lack of demand by the population. What is happening with your balance in credit cards? And what is happening with the provisioning? Have you seen a significant increase or decrease in credit cards use?
Secondly, in terms of capital allocation, you were able to maintain a very comfortable position. And it seems that you have changed your strategy in your location strategy.
This is Marcos, and I would like to refer to the invoicing of credit cards. And I think you're referring to the use of credit cards day after day. The trough was of almost 38%, 35%, and it is now coming back to normal. But of course, there was a drop in invoicing. When it comes to the sales, the month of March includes a surge for credit cards. It was a second best month for the quarter basically. So theoretically, as there is a penetration of the sale of the credit cards along with insurance, not a mass penetration. We believe that we will continue increasing the penetration to guarantee the number of sales that we expect for this channel. And we expect to open up sales in other channels and strengthen this during this period. Thank you, Guilherme, for the question.
When it comes to our capital surplus, our risk appetite policies have a model that guarantees us from some crisis. We have never imagined a world pandemic, of course. But in other types of crisis, economic or political crisis, we have always had a capital policy. We entered the crisis soundly with an excess of solvency with free cash, reserve cash to be able to abstain several types of crisis, including a liquidity crisis. We came into the crisis well, and we're going to be leaving this crisis well in terms of capital.
We have a policy for dividend payout. And this year, we have maintained an average of 50%. This was approved in the Assembly. We have only a part of this, 22% of the dividend to pay until December 20. As everybody knows, at that time, the capital is obvious. So we have maintained somewhat more capital until December, until the pandemic is over to have a greater negotiation capacity to roll over our debt. We're being more conservative in maintaining our liquidity. In December, therefore, we will pay about 22% and pay out 50% in dividends this year. There is no proposal to pay additional dividends to do nothing has been foreseen for obvious liquidity reasons.
In terms of M&A, Brazil was very costly as a country. Now with this crisis, some opportunities may arise, and we're very attentive to these opportunities. Our M&A area is keeping its eyes open, and we're willing to work with businesses that will have synergy with us as long as the price is attractive. And I believe that now we will be able to do good business, and we will be willing to do this business, if we believe that we will have synergy with our present businesses.
The next question is from Giovanna Rosa from Bank of America.
I also have 2 questions. The first question is a follow-up of Thomas' question. Perhaps you could share with us how your initial formation behaves this semester? And if the provision will increase with the increase of nonpayment going forward? You talk about the results of other businesses. How do you expect that a contribution to the results will evolve during the year?
Giovanna, this is Marcos. If you could confirm your first question, I don't think I understood it correctly, referring to nonpayment or defaults.
How was the initial formation? How did nonpayment behave in this first quarter? And how will provisions evolve because of this going forward?
Well, in the first quarter, our nonpayment or NPL had a behavior that was better compared to the first quarter in 2019. We ended the first quarter in a good position. Now considering this scenario that is within our expectation, we were increasing our vehicle financing portfolio as well as the use of credit cards. And of course, this was a benefit. We have a sensitivity in our collections that I would like to detail considering the concern there is about this topic. We have a collection that is done in-house within Porto Seguro until 80 days of delay in the special curve. We haven't accounted for this.
Now in this scenario, where several clients after reinforce their collection structure, they have to higher call centers, if they don't have a good home office then they may face difficulties. In our case, we do have that first fund in the company with a certain means of increasing this concept. Several calls have decreased our other operations, and this is what we are doing. We are preparing several operational activities besides a new provisioning that we believe will be necessary to be able to have a greater coverage for this period. And in terms of our expectations, we are reinforcing our collection strategies and policies and the provisioning, a complementary provisioning.
I don't know this was clear for you.
No, that was very clear.
The second question, and this is Roberto. Giovanna, you want us to speak about the impact of the frequencies and claims due to the social isolation and in the loss ratio of the company as a whole?
Marcelo previously explained that we imagine that we will have a relative impact on our loss ratio in the last months of the year. Notwithstanding this, this reduction in frequency during social isolation will be significant on our results. To make it very clear and as Marcelo mentioned, we expect a positive loss ratio this year compared to what we will feel as a whole. Now the impact of the social isolation should know the effect of any increase in frequency when we resume our activities. We will see this not only in auto insurance, but also in residential and corporate insurance and in health insurance.
We have the impact of elective surgeries that I mentioned. So our rating is positive, and there will be a reduction of the loss ratio during the year. There will be a negative impact on revenues, of course. And when we have to do or we enhance our operational efficiency, whatever we do will be ever more important. We have an agenda to reduce our managed and operational expenses. Normally, this will be done during the year. Other reduction of revenues will have an impact on administrative and operational expenses. And we will have this in the second quarter and in the second semester.
But as of all, the effect will be positive because of the significant loss ratio reduction during social isolation. The only exception would be the rental insurance for buildings, for example, which I already mentioned.
Could you comment on the contribution of the Financial and Service Businesses to the results throughout the year, if you could?
Giovanna, this is Marcos Loução, and I will try to refer to the financial businesses and impact on the company. As Marcelo said, we have a good results in our insurance business. When it comes to financial businesses, everything depended on our Credit Card and vehicle portfolio. We do have uncertainty in terms of the demand. This is important uncertainty and the impact on nonpayment. We do not know what will happen when resumption comes, what will happen with unemployment.
What we are attempting to do here is to complement our offers. If a client, for example, needs to sell a vehicle to get capitalized, we can lease one of our vehicles. It can become part of the Consortium and acquire financing. We're thinking about these complementary activities, and we are seeing how to offer this to the clients. We believe that the demand will -- credit will increase somewhat, working capital for companies that render services for us directly. Now when it comes to the use of credit cards, there has been an inversion, nothing that represents a sudden drop.
Now we know that Credit Card has been saved by the food industry, there has been a lesser demand for fuel, for example. But there has been a significant increase in the e-commerce demand. So we continue to have some uncertainty, which means we can't give you an answer in terms of the complementarity of financial businesses and our company's results.
Thank You. Thank you very much.
The question-and-answer session ends here, we would like to return the floor to the company for their closing remarks.
Once again, I would like to thank all of you for your participation in our conference call. Please, if you have any exceptional doubts, contact our IR team through the website or speak directly with our IR team. Thank you very much.
The conference call ends here. We would like to thank all of you for your participation, and we wish you a good afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]