Good morning, everybody. My name is Beatriz Izard. I'm Head of Investor Relations at Línea Directa. We published our third quarter results earlier on this morning. I have here with me Carlos Rodríguez-Ugarte, our CFO, who will review our financial results and activity for the first nine months of the year. Without any further delay, I hand the conference call over to Carlos.
Thank you very much, Beatriz. Good morning to everyone, and welcome also from my side. We're going to start the nine-month presentation with slide five. Here, what we try to show is the results highlights. We are very pleased to deliver a strong performance during the first nine months of the year on high profitability metrics. Policyholders grew by 4.5% and premiums by 1.1%, the latter reflecting pressure on premiums in the motor line of business, both for new business and renewals, even if we have outperformed the market in terms of growth. Combined ratio was strong at 86.4% in a context of back to the normal frequency. As with regards to expense ratio, we are showing once again our commitment to efficiency. Net result stood at EUR 86.3 million and return on our equity at 34.1%. Solvency ratio for the first nine months of 2021 was 200%.
This figure is already taking into consideration the EUR 25.8 million dividend pay on October 7th, which represented to have a strong dividend payout. Moving on, slide seven to nine provide a brief update on the motor market. Mobility has increased to level prior to the pandemic, and therefore, we have seen an increase in frequency. As with regards to severity, the last two months show a downturn of the 2021 trend. Turning to page eight, we are still observing lower sales of new cars, mainly in the particular segments, which fell 11%. It is important to mention that the market share of Línea Directa on new cars is quite above its natural market share, and hence, it has had an impact on growth. Once the market turns around, it should benefit the company. Lesser sales of new car trigger the aging of the car park.
Two-thirds of insurance vehicles in Spain are more than 10 years old. This in turn translate into lower insurance coverage. What is recovering is the sale of second-hand vehicles. Nowadays, there is uncertainty about the car type of tomorrow. To conclude the overview of the motor insurance market, on slide 9, we show that while the car park keeps on growing, gross written premiums are down 0.9% on an accumulated basis. It is worthwhile to mention that the gross written premium fell by 2.6% for the third quarter standalone. As a consequence, average premiums are falling, reflecting more aggressive pricing for new and retained business. Turning to page number 10, home insurance continues with a different development. The purchase of home is picking up. Market as a whole is growing at a rate of almost 5%.
The market combined ratio dropped from 101 in the first quarter to 98.5% with the latest available data. The market was hardly hit by increased frequency and regular atmospheric events. For its part, health insurance retains a remarkable growth in premiums and policyholders in a context of increased 5.3%. Now I'll take you through the main figures for this quarter for Línea Directa. Although the comparison with 2020 figures is important, I think it's more relevant to compare our nine-month results with those of 2019, a more normalized year. Premiums were up 1.1%, reflecting a 4.5% increase of new clients, while price pressure continues in the motor market, as we just explained before. Technical result was strong, with a combined ratio of 86.4%.
As mentioned before, we have included September 2019 figures also as a reference, as the company posted in 2020 an extraordinary result due to the lockdown measures and as a consequence of the pandemic. Financial results were up 21%, reflects release gains on account of the issuer repurchasing our investment in an energy fund. Financial result will have dropped without this realized gain by 6.4%, adjusting for such effect. All things considered, profit after taxes stood at EUR 86.3 million, down 13.4% on 2020. If we compare this number with the result of 2019, the nine-month results in 2021 were up by 5.9%. Please turn to next slide, page 14, where you see the breakdown of the policyholders and gross written premiums by line of business. The portfolio as a whole increased by 4.5%, sustained by higher retention rates.
Premiums grew a modest 1.1% with the home and health line of businesses growing by more than 8% and 23% respectively. The motor line of business experienced a moderate decrease in premiums, yet outperforming the market on the back of an extremely competitive price environment. More specifically, if we turn to next page, the motor line of business decreased 0.7% in premiums in the first nine months of the year, yet slightly above the motor market as a whole, which decreased 0.9%. On a standalone basis, the third quarter for Línea Directa was flat in terms of growth, whereas the market dropped by 2.6%.
However, as I have just explained, the portfolio recorded a solid growth with a highly competitive market environment, particularly in customer retention. On the technical front, combined ratio stood at a remarkable 84.7%, which is 5.4 points below the sector, with the latest available data as of June. Comparing like for like, meaning June with June, the company combined ratio was 6.4% points below the sector. This ratio of 84.7 represents an increase of four points against the same period of 2020. When we compare to a, let's say, normalized year, which is 2019, the ratio is down 1.5 points. Moving to home insurance. Premiums were up 8.4%, a growth rate that beats the market by 3.4 points. New business had a remarkable performance in the third quarter, too.
Combined ratio dropped by 3.1 percentage points and it stood at 19.3%, which is 8.3 percentage points below the market, with the latest available data as of June. Expenses dropped by more than EUR 1 million and translated into a lower expense ratio as business grows. On the negative side, frequency has been steadily increasing over the last couple of years. Zooming now into the health line of business, clients grew by 23.7% and premiums by almost 25%. We continue with a prudent subscription policy and a careful risk selection. Loss and expense ratio are steadily improving. Our overall combined ratio improved by 13.6 percentage points. Please, let's go to slide number 18, where we break down loss and expense ratio by line of businesses. Loss ratio had a notable performance across all line of businesses.
Motor loss ratio stood at 67%, despite the sharp increase in frequency, especially in the second part of the year. Home insurance has recurring impacts of weather events amounting to EUR 3.5 million. Loss ratio in home stood at 56.4%. In the health line of business, loss ratio was below the 100% mark for the first time since we launched this business. On expenses, the company continued with its policy of cost discipline, contention, and the use of technology. It is worthwhile to highlight the improvement of one points resulted in a solid combined ratio of 86.4%, displaying the company's strict ongoing discipline of underwriting and expenses. We move to the next slide, as you may recall from the second quarter result, we like to include a few years of data which basically show how the company is able to achieve solid technical measures over time.
Consolidated loss ratio stood at 65.9%, of which 0.5 points come from weather events. On the next slide, we elaborate on the expense ratio. I like to underpin the company has a recurring focus on cost control. Expense ratio in the third quarter is explained by lower acquisition and retention cost, higher staff expenses as a consequence of the listing, namely governing bodies and back-office people. Expense ratio was 20.5%, down 1 percentage points. Let's please now move to slide number 21. Financial result was up 21%, reflecting, as I explained before, realized gains on a energy fund that was repurchased by the issuer. Adjusting for this effect, financial result is 6.4% down. The fixed income portfolio reflects lower investment yields, yet equities and investment property had a remarkable performance. Let's go now to slide 22. The asset allocation has remained pretty much stable since last quarter.
We reported good returns from equity, properties, and corporate bonds. The overall return on the total portfolio stands at 2.85%. Moving on to slide number 23. What we display here is the excess of the book provision over best estimate for Línea Directa standalone. Surplus has remained stable at around EUR 60 million. We remind that 2020 and 2021 reveal atypical claim management patterns due to the pandemic. Specifically, some claims took more time to settle. Some treatments were delayed, and it was also more difficult to adjust personal injury claims not having access to patients and hospitals. We believe this year will end being fully normalized. Looking into our solvency position on slide 24, we remind that figures are for Línea Directa standalone. Capital requirement has grown only by EUR 1 million. Own funds have fallen by approximately EUR 4 million.
Other than earnings and the second dividend of the year, we have EUR 3 million less of unrealized gains in the portfolio. Other adjustments mainly reflect the increase in the best estimate of claims and premiums. Solvency measure remains very strong, and it stands at 200% after dividend payments. As always, I would like to close the presentation by very briefly going through our progress on a number of strategic initiatives. As of September 2021, 55% of customers have requested towing via the application, up five points as compared to June. Meanwhile, 47% and 33% of claims were opened digitally in motor and home respectively. The latter increasing by four points this quarter.
Customers who interact digitally with the company already are up to more than 84% of the total portfolio. Finally, we are pleased to comment on the recent launching of Vivaz Safe & Go, the first pay-as-you-go insurance for personal mobility vehicles. The use of personal mobility vehicles has become increasingly popular in recent years. To give you some highlights, this product provides coverage for damage caused to third parties and personal injuries to driver with certain limits. The activation and deactivation are 100% digital, and likewise, claims handling are managed via smartphone. Insurance is paid per journey or throughout the whole year at the choice of the customer. We believe this product to be a revolutionary solution for sustainable and personal mobility, which once more aligned with our DNA of innovation and ESG principles. Thank you very much.
I will now hand the call over Beatriz to begin the Q&A session.
Thank you very much for this presentation, Carlos. First, we'll begin with the questions received from the conference call.
Thank you, if you would like to ask a question, please press star one on your telephone keypad now. If you wish to withdraw your question press star two. The first question comes from Francisco Riquel from Alantra. Please go ahead.
Yes, good morning. Thank you for taking my questions. I have two. First of all, on Motor, I want to ask on the average premium per policy. You mentioned that the sector is down 2.5% in these first nine months. I understand Línea Directa is more or less down four percentage points. If you can please explain the fall in absolute and relative terms. In particular, how much is mix, a bigger weight of standard products or tariffs? If you can update on the competitive dynamics over the last few months, if the price cuts were made at the beginning of the year, or if you are seeing renewed pressure in the renewals over the last few months. Overall, what can we expect in the next few quarters? A second question, wanted to ask about cost inflation in general.
What are you seeing for the main business lines? In Motor, if you are seeing any inflation in the car repair shops, auto parts, also in home, in health with hospitals, if you have yearly contracts with suppliers and if any cost inflation will be felt in 2022 or not, and any mitigate measures that you can apply. Thank you.
Well, thank you very much, [inaudible]. Very nice to talk to you. On the premium side, on the average premiums and the evolution of the market, I think what I try to explain is that the market has been lowering average premiums throughout the year. If you take a look at the market evolution on premium growth, you will see that as of June, I think was more on the neighborhood of -0.7% on premium growth. If you take the last quarter, the market dropped by 2.6%. In the case of Línea Directa, the evolution was much more positive. We closed the nine months with a -0.7% in premium growth. We defend our share quite well. The situation on the market, I think is still a lot of pressure on premiums. I think you should expect that will go on 2021, especially on the first quarter.
I expect that frequency, which by the end of September is very much in line with the frequency we had on 2019. I expect that on 2021, frequency will start to pick up, combined ratios will start to pick up, pressure on average premiums will start to slow down or even disappear. My perception is that still there is pressure on average premiums, we'll see that especially for the first quarter of 2022. Of course, the situation of the car manufacturing industry is also having an impact here. There is no selling of new cars. That has a lot of impact on the type of coverage that users buy. We are seeing that users are more in third parties coverage more than in fully coverage insurance.
As a summary for that, you should expect still pressure on average premiums for this year for sure, and probably for the first quarter of next year. Regarding cost inflation, well, that is really an issue. Cost inflation on the repair side of the car industry, on the car business has always been there. You have more or less, if you wish, a monopoly here in terms of cost, and we have all experienced that pressure in the past years. Looking forward, I think there's going to be more pressure on the repair cost of the business. That's going to happen for the entire market. In our case, how we manage that, and I think we have a competitive advantage there, is that we are able to redirect our clients on a 60% to our own repair shops, where we manage much better the cost.
If I were to say a number, whereas the market is growing the cost repair cost by 6% more or less, we are growing our cost repair shop cost by 2%. I think we have a competitive advantage there. Yes, you should expect pressure on the repair cost of the car business. On the health business, it's something that it already happened. It happened after the pandemic. If you take a look at the [Non- English word] and if you take a look at the cost of hospitals, after June 2020, cost started to increase. It's something that already happened, and now it's more or less stabilized because the cost increase happened on 2020, in the second part of 2020. Thank you.
Our next question comes from Thomas Bateman at Berenberg. Please go ahead.
Hi. Good morning. Thanks for taking my questions. I've just got two questions. Firstly, on expenses, you're making really good progress there, down to 20.5% for nine months. Is there any more room for expense cutting here, and what's your longer-term, medium-term target for the group? Does that go down to 19% or so? There is 20% a bit of a floor for you. Just moving on to the loss ratio of motor, 69%, I guess, is not actually a bad result in comparison to the 2019 levels. It feels like driving levels were back up to normal for Q3. You've got lower pricing. Cost inflation is still there, but you're still achieving very good loss ratios. I don't know. What are we missing on the claims part that means that you're still able to hit that 69% level?
Hello. Thank you very much, Thomas. Very nice talking to you. On the expense ratio, we don't have a target. We don't have a target of getting below that 20% or 20.5%. I think it's something that is inherent within the company. We are very much focused on trying to be more efficient and more efficient year-on-year. Having an expense ratio of 17.7% on the car business, I think it's a great number that we posted. If you were to ask me, I think there's still room to grow there. We need to keep on applying technology. We need to keep on making our clients to become more digital. We have 85% of clients that they are digital, but we have 15% of clients that still use the phone, and they use other channels that they are much more expensive.
I think there is room there to improve. It's becoming increasingly difficult because as we shape the cost lines of the business. We don't have a target. The target that we have is to become the most efficient company in the insurance business, and I think we are very close to that. I think the entire organization is very much focused on that. The way to do that is applying technology, analyzing costs on a daily basis to try to write off costs that is not necessary. It is true that we have increased somewhat the personal expenses on the back office because of the listing of the company. Again, I think no targets.
We have this strategy of being the most efficient company because I always, and I think I already talked to you about this is a business based on efficiency, and it's something that we need to keep on improving. We are very happy with that 20.5%, and especially in the motor insurance business and in the home insurance business, which I think we improved very much our cost numbers. On the loss ratio, 2021 has been a weird year. On the first half of the year, frequencies, they were much better than on a normalized year. It is true that summertime, September, has not been very good in terms of frequency and in terms of severity. Looking forward, I think we are very close to a normalized situation. I think we are very close to 2019.
I should expect market start to apply that frequency or to show that frequency in higher combined ratios. Still today, the market is very comfortable with the combined ratio that they have, but I think that's going to change. I think the turnaround is going to be more on a V situation than on a U situation. That, for us, I think, is a competitive advantage. As the market keeps on growing in combined ratio, I think Línea Directa has an opportunity there to be much more competitive and to keep on gaining market share. Our combined ratio is still today quite good. I think it's 1.5 percentile points below 2019, and I think it will grow a little bit on 2022, getting more close to that 87%, something like that.
That's really helpful. Thank you. Just one follow -up question, just because you mentioned the new car sales, and that has an impact on the headline average premium numbers. If the average premiums are down 2.5%, how much do you think of that is attributed to lower new car sales?
That is difficult to calculate. What I think is that whenever in the market there are transaction of buying of selling cars or getting new cars, I think Línea Directa is a player there because it is when clients, they start to look around for pricing and quality of services, and they look for Línea Directa. For Línea Directa, any movement on the transaction of the buying or selling of cars, I think is good news for Línea Directa. Our market share of new car sales is way above the natural market share of Línea Directa.
It's almost double.
It's almost double.
It's almost 14%.
It has an impact. It has an impact on ours. It's very difficult to calculate how many premiums we have not been able to book because there is no new car sales. Really it's an impact because when someone buys a new car, one of the first things they do is they go to Línea Directa to ask for pricing. I hope this turns around. It's going to be difficult for the first half of the year. I don't think the car manufacturing industry will turn around until the second half of the year because of all these problems on semiconductors. Once it does, I think, again, it will be good for Línea Directa.
That's great. Thanks again, and congratulations on the good progress.
Currently, we have no further questions on the audio call, so we will hand over for the written questions.
Thank you. Now we continue with the questions received from the webcast. Our first question comes from Carlos Peixoto from CaixaBank. He's asking whether you could elaborate on the realization gains in this quarter. What are they related with?
Hello, Carlos. It's very easy. Keep in mind that we are a company that we don't do any trading on the investment portfolio. Basically, we hold maturity our fixed income positions, and basically, we rely on the dividends of our equity portion of the portfolio. What happened basically is that we had an investment on an energy fund, a renewable energy fund, and the issuer decided to repurchase that. We didn't have a chance. Basically, they repurchased our shares. That investment has been very good. I think the return on that investment was net 2.1x our investment. We are very happy, but it's something that it came to us and we had to do it. It's not something that we promote. It's basically that the issuer basically repurchased that position. Besides that, we don't have any trading on the portfolio.
That's the only realized gain that we did.
If we exclude that realized gains, the year will be in line with the previous quarter, around 2%.
Even though that the financial results of the company for the first nine months were very good, if you take out that issue, I think that we were down 6.4%. Again, investment portfolios on the insurance business, they are not going to be providers of very good news looking forward. Hopefully, interest rates are picking up a little bit, and we will see that looking forward. Still today, no good news on the investment returns.
The next question comes as well from Carlos Peixoto. What are your expectations on premium evolution in motor and home?
Well, I think I already explained that. I think, still, you should expect pressure on average premiums for this year for sure, probably for the first quarter of the next year. I think combined ratios will start to pick up. Then we will see the market slow down on the competition on average premium or even getting flat. You shouldn't expect that until the second part of 2022, because today, still combined ratios are very good as compared to a normalized year. On the home insurance business, I think it's a different ball game. I think there's pressure upwards on premiums because of all the atmospherics and so on. I don't see any pressure downward on the average premiums. I think more pressure upwards. I think you will see next year average premiums going up.
What are your expectations on the combined ratio in motor and home lines of business again?
In the motor line of business, our expectations for Línea Directa is best in class, as we always do. Our expectation for the market is sooner or later, the market will go back to that 95%, 96% that they have as an average. Again, that is an opportunity for Línea Directa. On the home insurance business, we should keep on improving the combined ratio because we need to improve our expense ratio. Our expense ratio, I think we posted at 33% coming from a 34%. I think there's still room there, and it should improve. What is important about the combined ratio of Línea Directa is that we are in the 90s and the market is on the 98s, so we have a competitive advantage also there.
Finally, with this pricing pressure in the motor segment, whether the market is expected to behave in a rational manner as combined ratio increases.
Línea Directa is going to behave on a rational manner. That is for sure. Because we are being very prudent on our pricing and we are very prudent on our underwriting. We'll see what happen with the market. Still today, the market is very comfortable on the level of combined ratios, marketwise. We'll see what happen. At the end, this is a business, at least for Línea Directa, is a business to make money, and we are in those grounds. Our technical margin is on the neighborhood of 15%, whereas the market is below 10%. We are seeing some pressure downward on pricing, which we don't understand. At the end, when we sell our insurance policies, we sell them looking not only for the first year but also for the ongoing years. So, for us, it's very important to make money on this business.
For sure, rational, it will be in Línea Directa. The rest is something you need to ask them.
Thank you, Carlos. The next question comes from Guilherme Neves from Invest Gestão . He's asking whether you see the pricing pressure on auto business as structural due to aging of auto park.
The aging of auto park has an impact there, of course, because at the end, having a car park in Spain of 13.2, 13.4 years, of course, people tend to go more to third-party coverage, which lowers the average premium. No, I think more than structural, I think it's a matter of the evolution of the combined ratio, as I explained before. Keep in mind that prior to the pandemic situation, the market was in 95, 96. Even people were in 99 and even 100, and they feel comfortable. Again, I think when combined ratios turn around, people will start to look at pricing, and pricing, at least the downward trend will stop.
Thank you. Next question comes from Philip Ross, from Mediobanca. He's asking, when do you expect new car sales to return to something that looks like normal, or maybe the new normal? Given that this is the main source of growth for motor, does it cause any concerns?
Well, it's difficult to give you a date. I'm not an expert on the car manufacturing business. What I have read or what everybody's talking is that the situation is going to last at least until mid-2022. It depends very much on this semiconductor issue, which I'm really not an expert. It seems that factories that they were developing these semiconductors, now they are in another business. Car manufacturers, which as far as I know, what they are trying to do is develop their own factories of these semiconductors, so they don't have to rely on third parties. That's going to take time. I think this issue is going to last a couple of months, or even seven months. It's difficult to give you an answer. Of course, we are concerned.
For us, again, new car sales is a source of income for the company, but it's very little that we can do.
Thank you. The final question comes from Mario Ropero from Bestinver. Please explain the performance of premiums of health during the third quarter. Could you please explain the jump in combined ratio in motor, and whether you think that this is the new normal?
In motor, it's not the new normal. I think you should expect frequencies keep on growing and the combined ratio will rise a little bit. We are getting to normal. We are getting to normal. Again, July, August, and September, very much in line with 2019, which I use as a reference. We are getting there. In our case, I think you should expect the expense ratio keep on improving. It's getting to normal. On the health insurance in the market as a whole, I think average premiums are going up. At the end, I explained it before, they start to go up by mid-June 2020, and that is a tendency in the market. In our case, we have a positive gap in terms of average premiums with clients. I think our average premium is in the neighborhood of EUR 100 below that of the market.
Pressure upwards, yes, it's on the market. What we are doing on the health insurance business is being very cautious on the underwriting, very careful. As you can see, our loss ratio has improved quite a bit. It's below the 100%. Of course, working on the expense ratio, even though we are in an investment process right now in this business. Yes, health insurance average premiums are going up, and in the case of Línea Directa, they are going up a little bit, but we maintain that positive gap with the market.
Thank you. Mario is also asking, please explain the good performance of financial income in the third quarter, and expectations going forward.
Financial income, I tried to explain before. Basically, the good performance, which I think we posted 21% improvement on 2020, was basically done by an extraordinary income in one position that we have. We held a position on an energy fund that the issuer decided to repurchase. We didn't have any chance to retain that position. The realized gains in that position was very, very good. I think it was 2.1x our investments. If you take out that extraordinary income, I think the result was EUR 6.4 down. Looking forward, well, we are not very bullish on the investment return of the investment portfolio. Not for Línea Directa, not for the market. Our return as of September was 2.8%. I think if you take out that extraordinary, we are more in the neighborhood of 2.2%, 2.10%. Happy if I'm able to have a flat comparison next quarter.
It's very difficult, and it's very difficult for the market. The good thing for Línea Directa is that we are much less reliable on financial income than our competitors. We are a company that we sell insurance, and we don't do any trading on the portfolio. We don't use the portfolio to make extraordinary income. Basically, we live on deals and we live on dividends.
Thank you. Finally, Mario is asking, please explain on plans for Tier 1 issuance.
Well, I didn't understand the question. Any plans for issuing?
For issuing. I believe he means any Tier 1 or Tier 2 capital.
Not for the moment. It's not something that we have in the roadmap. We are happy with the capital structure of the company. Of course, there is room for improvement there, but it's not something that rings a bell nowadays. We'll see in the medium term. I think capital requirements for the year has been more or less stable, especially in the second half of the year. I think capital requirements secured by EUR 1 million, and our own funds, they were EUR 4 million lower than the previous. No intentions today of issuing any Tier 1, any Tier 2. Of course, again, it's something that we always value, but as of today, we are very comfortable on the capital structure of the company.
Thank you, Carlos. Okay, it seems that there are no further questions. This concludes our meeting. Thank you very much for your time. Bye.
Thank you. Have a nice weekend.