Good morning, and Welcome to Línea Directa's Conference Call to Discuss March 2022 Results. I am Beatriz Izard, Head of Investor Relations. As usual, we will first walk you through the slides, and then we will be happy to take any calls you may have. Now, let me turn the call over to our CFO, Carlos Rodriguez- Ugarte.
Thank you very much, Beatriz, and welcome from my side as well. We'll start with the highlights for the period in slide number five. Policyholders grew by 4% and premiums by 3.5%, displaying very solid growth across all segments, especially in Home insurance, which grew at double digit and is progressively gaining weight. Combined ratio remains strong at 89% in a context of increasing frequency and inflation. Net result stood at EUR 24.2 million and return on equity at 29.2%. The solvency ratio as of March 2022 was 195.1%. This number is already taking into account the EUR 21.8 million first interim dividend to be paid on June 8, with a payout of 90%.
Moving on, as slide seven provides an update on the Spanish Motor market, which is still displaying a very complex environment. New car sales continue to be impacted by the serious supply crisis that the car industry is enduring, which in turn affects the turnover of the Insurance business. Sector premiums are up 1% in the first quarter, and average premiums saw very limited signs of stabilization following the sharp decrease experienced since 2019. They increased by 1.1% year-on-year. Turning to slide eight. Home continues with a positive development. House sales continue to climb, up almost 33% year-on-year, and Home insurance sees further growth with revenues up 4%. Atmospheric events were quite relevant for the industry in 2021, and combined ratios climbed to almost 97% last year.
The first quarter, no major events took place. For its part, sanitary assistance continues to grow in premiums and policyholders. The market is growing at 7.2%. Health costs and hospital tariffs are also on the rise. However, the market seems to be passing the increase. Now I'll take you through the main figures for the year. In the context I just described, the company continues to grow together with robust profitability metrics. Premiums were up 3.5%, reflecting an increase of 4% in policyholders and premium growth across all lines of business. Technical margin decreased, explained by higher frequency and price pressure in the motor segment. Financial results reflect lower investment yields on the maturity of our fixed income portfolio.
All things considered led to a remarkable combined ratio of 89% and a profit after taxes of EUR 24.2 million, down 18% as compared to last year. Please note that the mobility of last year, first quarter, was still limited due to the COVID as opposed to this quarter. Please turn to next slide, page 12, where you see the breakdown of policyholder and gross written premiums by line of businesses. The portfolio increased by 4%, supported by an excellent retention ratios. Policyholders reached 3.39 million, with solid growth across all segments. Company premiums grew 3.5%. Despite the stiff competitive environment, the still competitive environment, motor managed to grow 1.7%. Home grew at 11%, which is triggering a steady increase in the overall weight.
More specifically, if we turn to next page, the Motor segment grew 0.7 percentage points above the market. Again, the portfolio recorded a solid growth in a still very competitive environment. Sorry. On the technical front, combined ratio stood at a noteworthy 88.3%. Expense ratio was excellent and stable, excluding one-off restructuring costs. The performance of claims was driven by an increasing frequency and insured risks. Severity was not relevant in the quarter as opposed to the previous one. Moving to next slide. Home had an excellent performance during the first three months of the year. Premiums grew at double-digit, up 11%, a growth rate that beats the market by almost three times.
Combined ratio stood at 92.4%, 5.9 percentage points below that at 2021, with remarkable performance in both the expense and loss ratio. In the latter, atmospheric events were mild in the quarter. Moving on to next slide. Health continues its path. Premiums grew by more than 14%. We continue with a prudent subscription policy and a careful risk selection. The expense ratio has been adjusted to take into account lower first quarter expenses deferral, and adjusted ratios fall to -3.2% and 2.1% in Q1 2021, and Q1 2022, and 2021 respectively. Please, let's move now to slide 16, where we break down management ratios by line of business. Loss ratio had a notable mark across all lines of business.
Motor loss ratio stood at 7.2%, explained by frequency on the rise, a strong inflation, and a still very competitive environment. Average premiums in this segment remain under pressure. Home reflects mild atmospheric events this quarter. Expense ratio was 19.8, showing the strict ongoing control of expenses. As I mentioned earlier, health reflects expense deferral in the first quarter, which will normalize over the rest of the year. All things considered resulted in a solid combined ratio of 89%. If we move to the next slide, consolidated claims ratio up 3.3 percentage points was driven by the Motor line of business as I just explained. On the next slide, we elaborate on the expense ratio. Acquisition expenses reflect more efficiency in the acquisition of policies. Expense ratio stood at an excellent 19.8%.
The item other technical expenses include one of exceptional restructuring costs. Let's please now move to slide number 19. Rates are on the rise, yet reinvestment yields on the maturities don't exceed the yield on the fixed income, in the fixed income portfolio, hence the 2.8% decrease. Income from equities and investment property was up 8.3% and 0.6% respectively. Please, turn to slide number 20. The asset allocation has remained pretty much stable. We reported good returns from equities, properties, and corporate bonds. The overall return of the total portfolio, rolling 12, stands at 4.2%, 3.37% excluding net realized gains. Moving on to our solvency position. The company solvency margins stands at 195%.
The board approved yesterday an interim dividend from an amount of EUR 21.8 million to be paid on June 8, which is already considered in this ratio. Eligible own funds reflects 21 million of less unrealized gains on the available-for-sale portfolio because of the rising interest rates and high volatility of equities following the Russian invasion of Ukraine. Other adjustments includes a positive variation in the best estimate for premiums. This provision has a seasonal effect in the first quarter and will be increased in the second quarter. For SCRs, capital requirement decreased by EUR 14 million in the quarter. This is explained by lower exposure to equities and the symmetric adjustment dropping to 1.4%. It was 6.88% as of December 2021.
A decrease in the underwriting risk mainly driven by the final adjustment of the specific parameter, which now stands at 3.86 compared to 4.95 in December. No further changes are expected. I would like to close the presentation by very briefly going through the organizational changes recently undertaken by the company. Let's move to section number four. We are welcoming Patricia Ayuela as the new CEO of the company since February 17th. Patricia has been part of Línea Directa since 2003, and of its management team since 2008. She's already providing great impulse and direction to the company. One of the main organizational changes she's now implementing is a customer-centric strategy as opposed to a policyholder focus. Two distinct divisions are created to serve this purpose.
The commercial department, responsible for client acquisition in the motor and home line of business taken together. The client department, responsible for the management of clients in a broader sense. We are certain this will provide further growth opportunities and increasing customer satisfaction. Patricia will be having a relationship with the market, and I'm sure you will meet her in the medium future. Thank you very much. I will now hand the call over to Beatriz to begin the Q&A sessions.
Thank you very much for the presentation, Carlos. First, we'll begin with the questions received from the conference call.
If you would like to ask a question at this point, please press star followed by one on your telephone keypads. When preparing to ask a question, please ensure your phone is unmuted locally. Our first question comes from Maksym Mishyn from JB Capital Markets. Please, Maksym, your line is now open.
Hi, good morning. Thank you for the presentation and taking the questions. I have a couple on motor, if I may. The first one is on the repair costs. What dynamics are you observing, comparing to the fourth quarter 2021? How much have repair costs accelerated growth in the first quarter? How do you compare yourself to the competitors in the sector? The second question is on the one-off that you had in the expense ratio of Motor Insurance. Could you give a little bit more color? What are those costs and how much savings do you expect to achieve? The last one is on the frequency of claims. I was wondering what is your take on how high gasoline prices can impact mobility. Have you noticed any dependence there? Thank you.
Well, thank you very much. On the repair costs, I mean, we have some concern about inflation in this part, especially on the material part. It is true that on the first quarter the impact has been mild. I think for Línea Directa and for the sector, it will have an impact. Inflation doesn't turn around in a V form, and that will have an impact on the material cost for the entire sector. Having said that, I mean, keep in mind that the, you know, repair cost for Línea Directa as compared to the competition, I mean, we are much more efficient. On average, our repair cost is EUR 300 below that of the market. That is an advantage even more when the inflation rises.
Of course, I think it's gonna have an impact on the entire year, although it is true that on the first quarter yet we haven't seen that much impact. On the second question, which is the restructuring cost, I mean, this is normally when you do an organizational changes, I mean, and as I explained over my presentation, you know, we create different departments, you know, client oriented, which I think is gonna be very good in the commercial side of the business. You have to do some investments there.
I mean, to give you a number is very difficult, but my perception is that if we were not to have those expenses in the first quarter, our expense ratio was very much in line with the one posted on December 2021. The price on gas, of course, if it remains and is maintained at the levels that we are seeing, probably will have an impact on the frequency, a positive impact. I mean, when the gas prices go up, you know, normally mobility by cars is lower and people use more public transportation, so it will have a positive impact in frequency. It's very difficult to quantify that.
Of course, that will happen if gas prices keep on the same track.
Thank you very much.
Thank you. Our next question comes from Francisco Riquel from Alantra. Please, Francisco, your line is now open.
Yes. Hello. Good morning. Thank you for taking my questions. I would like to, you know, focus also on costs. General, if you can please elaborate more, the claims costs are up 7%, excluding what you call atmospherics. Policy count is increasing by 4% and there is an increase in the frequency. Meaning that there is very limited cost inflation embedded in this first quarter, I understand. If you can please elaborate a bit more, on how much is the frequency, the severity, what type of cost inflation are you seeing, any mitigating measures, and what shall we expect for the full year? You mentioned before that you are expecting a catch-up in the inflation costs, in the P&L in the coming quarters.
Mm-hmm.
I may stop here if you want and you can answer.
No, go ahead.
And then I-
Go ahead, Paco. Go ahead.
Also, in terms of OpEx, is down 2%. If you can break down the evolution between the marketing expenses and other cost lines. It seems to me that you are spending less on marketing and acquisition costs, and I wonder if you feel that the growth in policies will be sustainable if you spend less. Also, the one-off costs that you mentioned before in Motor, I wonder if it is a one-off or whether these are new investments which will remain there in the cost base for the coming quarters as well. Just the last question, if you can please explain the difference between the growth in the gross and the net premiums, and how do you expect this gap to evolve during the year?
Thank you.
Okay. Thank you, Paco. Very nice talking to you. It is true that as I explained before, I mean the impact of inflation on the loss ratio is still mild. I mean, it has increased. It increased every year, you know, regardless of the inflation situation. It is true that first quarter was not that bad. I mean, if you take a look at the loss ratio, basically the increase in the loss ratio was more linked to an increase in frequency more than the increase in severity. Indeed, severity in the first quarter has been quite good as compared to the last quarter of 2021, where really the company have an impact on severity.
We are happy on getting normalizing in the severity side of the loss ratio. The increase is because of the increase of frequency of exposure of cars and still inflation had a very little impact. You have to take into account also that the contracts that we have with our repair suppliers, you know, many times are not linked to inflation because they are long-term contracts, especially, for example, for the paint supplier, which is a very important cost on the repair side.
Having said that, I mean, even though Línea Directa buys directly from supplier as compared to our competitors, that they pay the repair shops and all that, looking forward, if inflation remains at the levels that we are seeing, that of course we don't expect inflation to be on those levels by the end of the year, it will have a negative impact on the loss ratio. It will increase the cost. Difficult to quantify that. I mean, of course, mitigating tools that we are using is we are renegotiating with our suppliers. Again, many of our suppliers, they don't have a one-year contract. They have more than a one-year contract, so that mitigates a little bit the impact.
Again, I mean, it's gonna be negative for the loss ratio if we keep on maintaining this inflation, you know? Then, the second question you were asking was?
Regarding expenses.
I don't have that feeling, Paco, that we are cutting on marketing expenses. I think more or less we are on the same levels on marketing investment. I mean, of course, for the year. I mean, for the year, our budget is very much in line with what we spent the other years. I think what we are doing is we are cutting costs in other areas. I mean, what our digital approach to the business is allowing us to reduce, you know, the number of calls on customer service and not on the selling part of the business, because on the selling part and retention part of the business, we like the phone and we still use the phone.
It is true that our cost on external call centers, and they provide customer service to our clients. I mean, the number of calls are dropping and that means, you know, savings on the expenses. What we have the approach in the company is to analyze basically on a monthly basis evolution of expenses of the company and try to be very efficient. If I were to say, you know, we have an approach of being very involved in our marketing effort, it's the way we create brand awareness and we attract clients. You shouldn't expect for the year a decrease on the marketing expenses. The third one is the growth, the difference between gross and net.
Well, basically, it's the timing on the entrance of the policy. I mean, we don't sign policies, all the policies of the company on January first. I mean, we do that along the year and of course you have to decrease the gross premium by the provision for unearned premium. Basically, it's that. I mean, it's something that all the insurance companies do the same thing. You only can put on the P&L the premium already earned.
Good morning, Paco. I think that we are coming.
Good morning.
from a more flattish figure, particularly motor in the fourth quarter of last year. Now as the gross written premiums are growing, usually net premiums earned they are lagging behind in terms of growth.
Mm-hmm.
Sorry. If I may. Yes, I understand the difference between gross and net premiums. Is the growth in both lines, the gap in the growth, why this year is different?
Because last year premiums that were going down and had the impact of the previous year. I mean, you have to take a look not only on the year basis. You have to take a look on the previous years. When the previous year your gross premium was increasing, it makes a difference between the earned premium and the gross premium.
Thank you.
Thank you. As a reminder, to ask any further question, please press star followed by one on your telephone keypads now. No, sorry. The next question comes from Thomas Bateman from Berenberg. Please, Thomas, your line is now open.
Hi. Good morning, everybody, and congratulations on the results. It feels much more solid this quarter. Could you just give us a little bit more color on the solvency position and in particular, the changes in reserving? That means there's a higher view of reserving buffer there. Also, can you just give a little bit of color on motor pricing? It's obviously picked up a little bit. Has there been any changes in maybe competitor behavior that you could call out? Finally, just on the new strategic focuses of Patricia Ayuela, where should we expect to see these kind of changes coming through in the numbers? Is it higher growth? Is it lower expenses? I don't know. Maybe you can just a bit more color on those four strategic goals, that'd be really helpful.
Thank you.
Hello, Tom. Very nice talking to you. On the first question regarding reserving. Well, last year, by the end of the year, the solvency ratio was kind of affected by the change of the statistical methodology for calculating provisions that we have by the end of the year approved by the regulator. I think this year, this quarter, I mean, we have seen a much less impact because things are, they get to become stabilized, you know. I think that is something that was a one-off on the last quarter of the year and we didn't have that impact on this year, you know.
The solvency ratio, it had a negative impact this year because of the situation of the investment portfolio and the situation of the market. Basically the reserving impact was on the last quarter of 2021, and we didn't have this quarter. Additionally, I mean, we have two positive impacts this quarter, which was a Symmetric Adjustment that EIOPA requires for this portfolio, was more close to 2% up this quarter, whereas last quarter was in the neighborhood of 7%. That is because what EIOPA tries to do is to protect volatility and when the market is in an upward trend, normally the Symmetric Adjustment is higher.
I mean, so that had a positive impact on this quarter. Finally, you know, the specific parameter that we use in other guarantees in the Motor line of business also benefit a little bit, you know, this quarter, the solvency ratio, you know, and that's gonna be stable, you know, looking forward to next quarter. Again, I mean, we always have said that we will be glad to have a solvency ratio above 180%. We are 195%. Probably, next quarter will be more in the neighborhood of 180%, 192% than 185%, but I think it's gonna be stabilized, you know.
On motor pricing, I mean, we still don't have last numbers of the sector as of March. I mean, we were thinking that maybe yesterday they were going to be publicized, but they didn't. My perception, looking at my retention rate, looking at the evolution of the gross premium is that still the sector is very competitive in terms of pricing, but I think that pressure on pricing is becoming more mild than in the past. Again, many times we have talked, I expect, you know, a changing cycle looking forward this year. I'm happy about the evolution of the gross premium. I see some of our competitors sending messages that they are gonna rise pricing.
In our case, as you know, we do this on an individual basis. We don't have a general strategy of raising prices. My perception is that somewhat average premiums are becoming more stabilized than in the past. Then on the last question regarding our new CEO. Well, I think one of the good things having Patricia Ayuela CEO is that she knows very well the company. I mean, she's been with the company many years. She's been in the management team for so many years, and she's been in the back and in the front, managing the back and the front. She knows the entire business all around.
I think Patricia is very eager, you know, to keep or increase the growth of the company, and that is something that she has communicated to the entire management team. You should expect that the company is going to grow and grow even faster than it has been growing in the past. Of course, the second main objective here is to keep on making the company more and more digital, and that means that the expense ratio should keep on improving. Again, I mean, Patricia thinks that this is a business very based on efficiency and that efficiency has to come through you know digitalization. The main objectives of our new CEO is growth.
You know, increase the growth of the company as well as keeping the company as one of the most efficient companies in the sector.
That's really great to hear, particularly on the growth and the expenses. I just wanna come back to the reserving one more time. I know that you said there was a -1 -off in Q4, but it seems like there's a kind of a EUR 12 million+ this quarter. But there's been some, I guess, quite material moves over the last few quarters. I'm just trying to understand why, where that + EUR 12 million has come from.
I guess you refer to the best estimate on premiums. That is a seasonal impact.
Yeah.
If you take because of the evolution of the rolling of our premiums. If you take a look at the first. I mean, I can send you the first quarter of last year because probably you don't have that because we were not listed. It's always a positive impact that happens on the first quarter of the year. It's an impact that will not be on the second quarter and become more stable. It's an impact of the seasonal evolution of the premiums of the company. Those 12 years, that is a positive gap on the first quarter. We all have that on the second quarter.
It doesn't mean that we'll have negative impact, but we won't have the positive impact that always happen on the first quarter because the P&L of the company and the commercial activity of the company is much higher on the second half of the year than on the first half of the year.
Okay. This should normalize throughout the year. Okay. Thanks so much for your help. Really gives up.
Thank you. Our next question comes from the line of Phil Ross from Mediobanca. Please, Phil, your line is now open.
Hi there. Good morning. First question on motor. I think you mentioned severity was not relevant to this quarter as opposed to other quarters. If you could just expand on the reasons why that is, please, or is it just a, sort of, a COVID normalization type thing? Second question, again on motor. In the past, you've highlighted the trend of customers choosing third-party cover over comprehensive covers. Just wondering if that trend is still noticeable or is it leveling off a little bit now? The third question, I guess more generally. You saw customers interacting with you more or buying insurance more digitally and online during COVID, and partly because they were forced to do so. Can you tell us whether these trends are continuing in Q1, or is it too early to say at this stage? Thank you.
Well, the loss ratio is very similar to a normalized year. I mean, I think mobility after Christmas came back to normal. I mean, frequency is picking up and that's gonna be normalized for the entire year, I think. Nowadays people are going back to the offices. People are using the car. Of course, maybe, you know, the gas cost will have a positive impact. Again, in Spain, everything is back to normal and frequencies should, you know, I mean, they are already in the first quarter being very normalized.
You should expect that, unless something happens, you know, we are back on track as a normalized year and frequencies are already in line with a normalized year, and I shouldn't expect, you know, a positive impact on that. I mean, looking forward, I think frequencies will be very normalized. The second question was on the type of insurance that people are taking. It is true that, you know, the crisis on the car industry had an impact on the new car sales. Of course, people when they buy new cars, they tend to buy, you know, fully comprehensive insurance, as compared to second use or used cars where people buy third parties. The situation is still very similar.
I mean, the breakdown is very similar to last year because the situation in the car industry is very similar. Again, I mean, the evolution is that people are buying more third parties than fully comprehensive. Not different than on the fourth quarter or even on the third quarter of 2021. The situation is the same if you compare the car sales, the new car sales as compared to last year or even as compared to 2020, which is still are lower than that. You can imagine that the situation is very similar, you know.
The third question was on digital trends. Well, you know, one of the things that we have done during COVID is taking into account that many people they were jumping for the first time on the digital market is we work very much on customer experience. I mean, because we knew that people jumping for the first time into the digital, if they were happy with their experience, they will remain on the experience. I think we are very happy on that because we have a lot of clients that try for the first time the digital approach, and they remain on that, and the situation is still on the same grounds.
I mean, we work on customer experience and the evolution of the digital market in Spain or the direct market in Spain is growing, which means that people are using more and more the digital platforms more than the person. So happy on that. What we try to do is, you know, that the customer experience for the first time for a client is positive is good because if our client is happy the first time, it will remain digital.
Great. Thank you for the responses.
Thank you. We currently have no further questions on the phone lines. I hand over back for the webcast questions.
Okay. Thank you. Now we continue with the questions received from the webcast. First question comes from Carlos Peixoto from CaixaBank. He's asking whether you could elaborate on your expectation on the combined ratio evolution in motor business during the year.
The combined ratio, I think, as compared to last year in the motor business grew by 3.5%. I think, again, frequencies are starting to keep up. Severity for us was very good on the first quarter. My expectations is that a combined ratio for the motor industry will increase during the year, and that is gonna happen for Línea Directa, and my perception is gonna happen for the entire market. Again, at the end, our gap compared to the market is quite good and we will remain that positive gap. You should expect the combined ratio of the motor insurance slightly increase during the year.
Thank you. Next question comes from Patrick Li from Santander. You commented a few times on the extraordinary expenses seen in Q1. I believe that could be around EUR 1 million. Can you comment on the nature of this? Is this related to the regulatory changes? Could there be further changes in the remainder of the year? Thanks.
Hello, Patrick. Well, the good thing is that it's a one-off. You know, when you have expenses, when you talk about expenses, the good thing is that you have additional expenses. It is good that they will be a one-off. No regulatory relation. I mean, we don't have any additional regulatory requirements in terms of expenses. There are more expenses of reorganizing the company. I mean, as I explained in my previous presentation, you know, we have decided to change a little bit the organizational structure of the company, trying to focus more on customer-centric than on policies. Keep in mind that we are a company that we were born back in 1995 by selling only one type of insurance.
Even though we do a very good job on cross-selling, both in the home and the health insurance business, we were very much focused on policies. I think our new CEO you know has decided, and I think it's very positive you know to change a little bit the structure of the company towards customer-centric. Those expenses, extraordinary expenses, are linked to that. I mean, you shouldn't expect more expenses or more extraordinary expenses on those grounds looking forward during the year. Again, no regulatory requirements there.
Thank you. Next question comes from Close Brothers Asset Management, from Alejandro Velez. You've mentioned retention rate a couple of times. Could you give us an indication of whether retention is improving above levels disclosed in the IPO? Thank you.
Well, it's not that much that retention levels are increasing. I mean, our retention levels on the motor insurance especially is very close to 90%. What I try to explain is that the cost of retention is lower than we have seen in previous years, and I think that is a positive impact on the company. It's very difficult to keep on increasing the retention of clients when the retention is well above that of the market and very close to 90%. What it is very good is that we are seeing that the spends of retaining client is decreasing. Probably that means that also average premiums on the market are more stable than before.
Thank you. Thank you, Carlos. Thanks. Seems that there are no further questions. This concludes our meeting. Thank you very much for your time. Bye.
Bye. Thank you very much.