Good afternoon, and welcome to MAPFRE's activity update for the first quarter of 2023. This is Leandra Clark, Deputy Head of Investor Relations. As usual, we have here with us Fernando Mata, the Group CFO, who will walk us through the main financial trends, as well as Felipe Navarro, Corporate Director of Capital Markets and Treasury. As a reminder, you can use the Ask a Question link at any point during the call, and we will open up the question and answer session at the end of the presentation. Let me turn the call over to Felipe, who will make some opening remarks.
Thank you, Leandra. good afternoon, everybody. Before handing the floor to Fernando, I would like to comment on the new reporting format. As of 1st January, the IFRS 9 and 17 accounting standards are in force and, as you may be aware, are applicable to MAPFRE as a listed insurance group on a consolidated basis. In order to comply with the new regulation, MAPFRE will report both half and full year's consolidated financial statements under these new standards within the legally stipulated calendar. MAPFRE subsidiaries will continue complying with the local requirements and the local GAAP, applicable in every jurisdiction. Therefore, for group management purposes, business performance analysis will be carried out under both standards. The activity update we released this morning has been prepared under local standards, adjusted for comparability and consistency purposes.
It is a reduced set of financial information which also includes a financial supplement with the detailed profit and loss by business unit and region, adapted to a new regional structure. This will be reported quarterly to help understand the most relevant business trends and events that could affect the group and its subsidiaries. This allows us to continue providing figures on a quarterly basis, very much in line with historical data. The main adjustments are outlined in the annex to the press release. This information would provide sufficient granularity, while at the same time streamlining our communication. The activity update and the financial supplement are available in the financial documentation center on our web, on our website. Regarding IFRS 17 and 9, this morning we also released some transition and balance sheet figures, as well as the main IFRS 9 impacts for the first quarter.
We will go into these figures in more detail during the call. Let me turn the call over to Fernando. Fernando, floor is yours.
Thank you, Leandra and Felipe, and thank you all for joining us. Let's take a look at the key highlights for the quarter. Premiums grew 19% and reached nearly EUR 7.8 billion in the first quarter. Revenue is also up 21% and stands at over EUR 9.18 billion. The net result reached EUR 128 million, down 17% due to the impact of the earthquake in Turkey, with an estimated net cost of EUR 77 million as well as the complex auto environment. Iberia grew above the market, both in non-life and life, with 31% premium growth supported by the life savings business, and continues to be the region with the highest volume within the group. Latam is the main contributor to earnings, with the net result taking up to EUR 94 million.
The reinsurance unit grew 7% and global risks 11%. Moving to the main lines of business, we would like to highlight the improved net result, which amounts to EUR 88 million. This amount comprise both direct insurance and also reinsurance, which is up 95%, benefiting from both good technical performance as well as strong financial income, especially coming from Latam. The non-life financial results is up 20% to EUR 150 million in a better market context. We are also happy to announce that MAPFRE will pay the final dividend against 2022 results on May 24th. I would like to go into some more detail regarding these main trends. The over 20% increase in revenue consolidated the trends from recent quarters and reflects both a relevant increase in business volume as well as an improvement in financial income.
Premiums grew 19.19% with no relevant impact from exchange rates. In fact, at constant rates, premiums are up 18%. This growth reflects general improvement in business with 10.3% in gross increase in non-life, and almost 60% increase in life, mainly due to the outstanding performance in both Spain and Brazil. Group combined ratio stands at 98.5%, up 0.4 percentage points. The volatility and dispersion from previous quarters marked by the economic scenario still remain. I will go over this in more detail later in the presentation. The earthquake in Turkey was the main relevant net CAT event impacting results.
The estimates, which are still subject to a full damage assessment, have a net impact of approximately EUR 77 million, mainly from MAPFRE RE, EUR 72 million, and to a lesser extent, the local insurance company with EUR 5 million. As a reminder, the most relevant CAT claim in 2022 was the drought in Brazil with a EUR 37 million net impact for the group in the first quarter. As I mentioned, the net result reached EUR 128 million due mainly to this impact. Regarding our investment portfolio, there was no relevant change in asset allocation during the quarter, nor were there any relevant impacts in the result or investment valuations as a consequence of the situation with certain financial institutions in the United States or Switzerland.
MAPFRE realized EUR 17 million in gains in the quarter after taxes on minorities, compared to EUR 21 million in 2022. Regarding the available-for-sale portfolio, EUR 259 million in unrealized gains net of taxes have been recorded in 2023, improving the capital position of the subsidiaries. The main variations come from Iberia with a EUR 92 million increase, followed by MAPFRE RE with EUR 57 million, and North America with EUR 53 million. Finally, there were no relevant changes in currency conversion differences in the quarter. Regarding non-life, premiums are up EUR 550 million in the first quarter with 12.6% in accident health, 10.6% growth in general P&C, and 7.1% in auto.
In the life business, premiums are up almost EUR 700 million, driven by the savings business in Spain. Life savings is up 137%, and life protection 19%, one nine. Here, you can see our main figures and ratios by business, unit, and region, as well as segment. First, on the bottom of the slide, you can see the group combined ratio by line. General P&C with a combined ratio of 87.3%, down 5.3 percentage points, has compensated the high loss experience that persists, still persist in the auto business. By the way, it has reached a combined ratio of around 106%, up 2.5 percentage points. Tariff increases and improved management in the auto line to compensate inflation will gradually translate into improvements in the ratio.
Accident and health shows a slight improvement in the combined ratio, reaching close to 102%, down 0.4 percentage points. The life protection combined ratio stands an outstanding 81.6%, down 1.3 percentage points. Let me give you some color on our main business units. Iberia is growing above the market, both in life and non-life. Premiums reach over EUR 3.3 billion, up 31%. The life business volume is 2.4x higher, reaching almost EUR 1.1 billion. Non-life premiums grew 7.3% and reflect the positive development of the accident and health business, +9%, General P&C up 7%, and auto up almost 5%. In order, tariffs continue to be gradually adapted to the inflationary context and based always on individual risk profiles.
The fleet reached 6.2 million insured vehicles with slight decline in the fleet in the first quarter, approximately 29,000 units down. This drop is fully related to risk selection measures, which led to a more than 5% increase in the average premium. The auto line had a combined ratio of 106.5%, up 6.8 percentage points, affected by the recovery of mobility to pre-pandemic levels, the high inflation scenario, and also finally the Baremo update. The improvement in the combined ratio expected during the year will be based on strict cost control, while tariffs on average are expected to increase significantly more than that. The financial result continues to improve in a more favorable environment with EUR 37.2 million gross contribution to the non-life result, which amounted to EUR 30 million in 2022.
Business in LATAM consolidates the strong trends of recent quarters with close to EUR 2.4 billion in premiums and a net result of almost EUR 94 million, the largest contributor to group earnings. Brazil, our main operation in LATAM, shows strong growth, and result increased four-fold thanks to improvements in both the technical and financial result. The key aspects I would like to mention are as follows. Premiums reached almost EUR 1.2 billion, up 22%, backed by the favorable development of the Brazilian real, up 3%. The improvement is due above all to the positive development of agro and life protection, which grew 44% and 28% respectively. The auto business grew 8%, and this line continues to quickly adapt tariffs to inflation.
The fleet reached almost 1.3 million insured vehicles with a slight reduction, 65,000 in the quarter, related again to risk selections measures. The combined ratio dropped to 81.6% due in part to a 15 percentage point improvement in auto after tariff increases, where the combined ratio stood in auto at under 107%. Additionally, the agro business improved thanks to a benign quarter after the losses in 2022. The life protection business also has a solid combined ratio, standing under 78%. The financial results also continues to contribute very positively. North America business volume are also up with relevant improvements in the auto combined ratio compared to the previous quarter. Premiums reach EUR 584 million, growing 8%, 4% in U.S. dollars.
The auto business grew 8%, same percentage. The fleet reached 1.4 million insured vehicles with slight reduction in 2023, approximately 17,000. The non-life combined ratio stands at 107.7%, affected by weather-related events in Massachusetts, where probably is unknown for you. What we call the Arctic Freeze, it was a cold wave in February, brought the lowest temperatures in 80 years, almost minus 25 degrees Celsius, which caused higher losses in the homeowners line with a net cost of EUR 13 million. Tariffs in homeowners will increase around 15% in May to match rate increases for catastrophic reinsurance coverage in primary rates.
The auto combined ratio stands at 105%, a significant improvement compared to the fourth quarter of 2022, 110%, supported by already implemented tariff increases. An additional 6.5% increase will start in May. All in all, we have now put through over 20% in tariff increases over the last 18 months. Finally, MAPFRE RE continues growing and contributing to group earnings. MAPFRE RE premiums grew 8%, reaching over EUR 2.2 billion. On a risk-adjusted basis, the catastrophic business rates are growing well above 20%. Please note that there is a change in treaties moving from proportional treaties to excess treaties.
As I already mentioned, the largest impact for MAPFRE RE was the earth, the earthquake in Turkey, amounted to a gross amount of EUR 102 million, with a net impact for the group of EUR 72 million. The financial results also grew with a EUR 21 million gross contribution to the non-life result, up over EUR 10 million. Now I will hand the floor to Felipe to discuss the IFRS impacts.
Thank you very much, Fernando. Regarding the impacts of the new IFRS standards, the 1st quarter of 2023, there have been no changes in methodology nor criteria with respect to the information published in our 2022 annual accounts, which you can consult on our website. Regarding the transition balance sheet, MAPFRE shareholders equity as of January 1st, 2022, under the new principles, reached EUR 8.3 billion, compared to the EUR 8.5 billion reported under the previous principles. The difference is primarily due to the negative impact of the non-financial risk adjustment is -EUR 0.3 billion, which is partially offset by the discounting reserves at present value. It's a positive impact of EUR 0.2 billion. Additionally, the CSM, contractual service margin, has been estimated at EUR 2.2 billion as of January 1st, 2022.
Regarding IFRS 9, the most important differences compared to the figures published in this document are net realized gains in the equity portfolio for the amount of EUR 22 million, and which are included in the result of the period, in line with the local GAAP, will be presented under IFRS standards in the heading Other Comprehensive Income, OCI. The increase in unrealized gains in the mutual funds portfolio for the amount of EUR 30 million after taxes, and which is included under local GAAP in OCI, will be recorded as a result for the period under the new IFRS standard. Other valuation adjustments would have a positive impact on the IFRS result for the amount of EUR 3 million. The remaining information related to IFRS 17 will be published according to the legally established calendar.
Fernando will now make some few closing remarks before we move on to the Q&A.
Thank you, Felipe. As you have already seen with the figures, released, this morning, once again, the high level of diversification of our business mix has allowed us to report a sustainable result while facing extraordinary challenges from inflation and net cat events during the quarter. Thank you again, you very much for your attention. I will now hand the floor over to Leandra to begin the Q&A.
Thank you, Fernando. As most of you are familiar with the process, just let me quickly remind you to use the Q&A tool on the bottom of your screen to submit your questions, although we've already received a few questions already, and we will try to answer them as time allows. The first question is coming from Paz Ojeda with regards to the earthquake. She asks, EUR 102 million for the earthquake is around 30% of your net cap budget, which seems high, considering the nine months left in the year. Do you plan to increase your protection?
Thank you, Paz. This is insurance business and you know your capacity and also your protection, but you never know the month or the time when the catastrophe event is gonna hit you. Unfortunately, it happened this year, the beginning of February. As you mentioned, this is between 1/3 and 1/4 of our net cap event budget. We're not gonna buy additional protection. We believe that we bought this, the right one figure. Unless spec that there is no other significant events, probably larger than this, in the remaining quarters. So far let's say that we are not happy, but we are in budget, within the budget of for 2023.
Thank you, Fernando. Carlos Peixoto from CaixaBank has an additional question regarding Turkey. He would like to know what is the total market loss that we are assuming in our estimates. He would like to know how, if this is split between the Turkish Earthquake Pool and other losses. Should we expect additional losses going forward?
Yeah. Thank you, Carlos. We're not presenting a disclosure by countries, not by operation. This is an activity report. Mainly, the losses for Emilia-Romagna, they're coming from Turkey and also from Italy, Verti Italia as well. The main loss contribution are coming from the earthquake, which was gross amount of over EUR 6 million, EUR 5 millions. The remaining loss contribution are coming from basically auto and also the inflation, hyperinflation adjustments. That's.
Yes, if I may, going to the point about this, the Turkish earthquake pool, I mean, MAPFRE is not participating in this pool. This is something that we already mentioned at the end of, in the results of the end of the year, and we announced, when we announced this event. What we can expect is the development of the claim. We think that we have estimated the right level of reserves, but we need to receive more information about the different losses in order to have a final estimation and a final settlement. It's going to take months. There will be an evolution during these months.
For Turkey, allow me. Yeah, for Turkey it won't be a negative development because the retention is fully-
Is fully
Fully.
Covered.
How you say? I mean,
We reached the level.
It's fully lost.
Thank you. The next question we've received is from Carlos Peixoto, regarding the current dividend policy and outlook.
We haven't mentioned any change in our dividend policy. Felipe.
No-
There is nothing has changed so far. As I told at the beginning of the presentation, this is insurance, and one quarter is not the just an example of the trend for the coming quarters. Fortunately, I mean, the MAPFRE has a pretty solid and robust financial operations. There is no change on the financial goals for the 2022-2024 3-year strategic plan. Let's assume that the all the financial goals are fully valid at this moment.
No. I would add that the same thing that we mentioned at the end of last year. There is a commitment on having a sustainable and a stable dividend for the shareholders. This is going to continue be happening. I mean, the next thing or the next move should be to continue moving and to continue guaranteeing this 50% payout. At least we think that the EUR 0.145 per share is still a commitment that we have, we will continue doing as much as we can in order to continue retributing the shareholders with the same with this level.
Great. Thank you. The next set of questions are regarding the Brazil business. Paz Ojeda from Banco Sabadell would like to have some more details on the contribution of the agribusiness in terms of premiums and combined ratio, and what we would consider a normalized level of combined ratio. She has a similar question for life protection regarding normalized combined ratios.
Yeah. Thank you, Pat. I mean, both combined ratios for life protection and also for agribusiness, they're extraordinarily low. Let's assume that both are in the next year after 2 catastrophic years, because the, for agribusiness was the drought in Brazil last year, and before that was the COVID, that impacted our life protection business. Let this is part of the recovery and we should assume that in coming years, we'll have a little bit higher combined ratio.
Thank you, Fernando.
Nothing to add.
Thank you, Fernando. I think we can move on now to the next set of questions regarding the motor business in Spain. Max from JB Capital would like to know how we are seeing our churn ratio. What was our experience of frequency for the first quarter? What type of hikes are we taking on our portfolio?
Well, let me elaborate a little bit longer regarding auto, particularly other two regions. First, we are now satisfied with the current performance auto business. Is non-profitable at the moment. We reacted, and we had to react again in coming quarters. Having said that, there is a wonderful evolution of business in Brazil and in the U.S. In previous presentation, I mentioned that the U.S. will be pretty challenging due to the regulatory restrictions. We mentioned a couple of figures that they show the contrary. First, in Brazil, it was a significant reduction in the combined ratio, almost 15 percentage points compared to first quarter 2022.
Means that the, we've done the things that we had to do, in both, I mean, in reduction of expense and also increase of tariffs. In the U.S., where we are, we were a little bit reluctant regarding increase of rates. As I mentioned, the accumulator, exceed, 20% in 18 months, and it give us a lot of hope, I mean, for the coming quarters. Back to Spain, we thought that, it was a sort of a flattening trends, for the first quarter. What happened is it was a big bump in the first quarter. We had to assume and understand that the first quarter in every year is the period in which we update agreements with providers.
In this particular year, we also were impacted by the Baremo update and also the inflation that is still persist. All in all, it was a significant increase in the combined ratio that couldn't be neutralized with the increase of rates because it takes longer the way that we feed the P&L with this increase of premiums. Let's say that our view is that the coming quarter will be better because the total cost will be pretty stable, while the earned premiums should go up. That's the general view. Regarding churn ratio, right?
Mm-hmm.
Pretty stable, we will focus on portfolio protection, as I mentioned. The number of units showed are a clear view that we're doing well. There is only a reduction in conversion for new business, that has been provoked by MAPFRE because we have less appetite for growing shopping from the market. Regarding frequency, we've seen a slight increase in frequency in the first quarter. The mobility is practically... It's a little bit lower than pre-pandemic, but compared to previous quarter, we've seen particularly in big cities an increase in frequency. What was the last question? I didn't get it.
tariff hikes. I mean, how much...
Tariff, hikes. Well, Felipe, finally we're happy. You can elaborate on the average premium, which is a good news. I mean...
I think that what for the first time, we can see in the figures what we've been telling you in the last quarters. We are seeing how the increase in the volume of premiums of motor business is on the 4-point something %, on the high side of the force. We see how the new business or the new cars in the market are shy of 1%. What we are seeing is, and that in general, I think that we can see our average premium going around higher than 5%.
This is what we have seen and what has been posted in the numbers until now. We are going to continue this trend and making any effort that is needed in order to go ahead of inflation in 2023, which is our commitment and what is going to be shown in Spain. I won't mention what is happening in other markets like the U.S. or Brazil, because, I mean, I think that we have proven that this strategy was already bearing their fruits. I think that is, those are good signs of the change in the trend that we may see in the following quarters.
We mentioned as well in the past that the trend of, lowering, coverages still remain, right, Felipe?
Mm-hmm. Yes.
Particularly in new business, MAPFRE has no appetite to get a full cover new business, and so, and also because of the crisis and also increase in prices. Most of the policyholder that are shopping around, the drivers, they're moving to lower products with lower coverage, right? Basic TPL and leaving full cover. In the end, this is affecting also the average premium as well. Risk base is comparable. I mean, the 5% increase should be even higher, right?
Yes. That's right. That's right.
Thank you, Felipe. Thank you, Fernando. Max from JB Capital is asking on the motor combined ratio for Spain in Q1. We commented in the presentation that in Iberia, it was 106.5%. We also received two questions from Farquhar at Autonomous and Thomas Bateman in Berenberg regarding the impact of the retrospective element of the Baremo on the Iberia motor combined ratio for Q1 and what's our outlook for coming quarters.
General speaking, the 2% increase in the combined ratio that we announced last year, I mean, it's fully booked during the first quarter. We had to understand that the increase of cost, they go directly to the loss ratio, while the increase in tariff for 2023 accident year, they will feed the P&L throughout the year. Regarding previous accident years, so far we haven't seen any adverse loss development in 2023. Anyway, there is still a significant number of open claims that has to be assessed, so we better wait to have at least half the year in order to conclude on the 2020 through 2022 loss development of reserves. That's my view.
Yeah. I think that there, I think that we need to bear in mind the different impacts that are affecting the combined ratio in motor business in Spain. First is the Baremo that I think that Fernando Mata already commented and then gave some detail on it. Second is the new agreements with different providers that is affecting as well. I mean, we announced the agreement with panel beaters and garages on increase on the hour rate of 4%. There was an increase as well on the paint, which was announced as well, and it's at 7%. As on average, we are the spare parts are increasing around 10%.
Those impacts, including. With that, including the increase on the use of the car and the frequency, because we are now seeing how the use of the car is going closer to the levels of 2019, are affecting this combined ratio. There's some one-off effects that we are going to see, which is going related to the Baremo, and probably with the first impact of this wave of increases, that will be offset at the moment that we are going to earn the premiums that are being increased to offset those effects. That is going to take some quarters.
I mean, our view is more optimistic at this moment.
Yeah. if I can add.
Yes, of course.
Felipe. As we mentioned, I mean, the group is fully committed to fix automobile line of business, and the only way is that the average premium growth has to exceed our increase in the structural cost.
Of course.
...Felipe mentioned. Means that the, if the structural costs are, I don't know, between, in a range between 5% and 6%, the average premium will grow much higher in that figure. This is a commitment that MAPFRE made. That is the only way to fix automobile in Spain. We've done it in Brazil. We've done it in the U.S. This is the only way ahead.
Correct.
Great. Thank you. The next questions, we're going to move away for a little bit from Iberia onto the reinsurance business. Thomas Bateman has a question regarding non-life reinsurance premium growth. 10% is okay, but lower than last year. Have there been any changes in the business mix, proportional versus non-proportional, and could you comment on this or quantify it?
Yes. I mentioned on risk-based, risk basis, comparison, particularly catastrophic, rates are growing well about 20%, due to the change from proportional treaties to excess of loss treaties. Both, percentage of growth, they don't go parallel. In terms of the risk appetite, we're growing well about 20% on premiums.
No, just to add what's what. This is what we mentioned at the meeting that we had in London and the end of the year results, the first quarter, sorry, the end of the year results. We are seeing a change from proportional to non-proportional business. That is, that was going to be, and we announced that that was going to reduce the increase on premium of MAPFRE RE, and that we would have a single digit increase probably on the high side of the single digit. We are still posting over 11% on MAPFRE RE. Those are the figures that we should look forward.
As we said as well, that will probably bring us a different kind of claims with a lower frequency of claims and probably with more profitability in this line of business. We are going to see it in the following quarters.
We have another question on reinsurance from Thomas Bateman. I think one part we had already answered regarding the participation in the TCI pool, which Felipe mentions we're not participating in. The second question is regarding the level of uncertainty embedded in our current EUR 77 million estimate given the high inflation in Turkey.
Yeah. Back to the first question, we only cover a commercial business.
Yeah.
Only property. That's pretty clear. We already mentioned in London. Let's say that the EUR 77 million is the best estimate we have currently. That's, as we mentioned at the AGM, because it was the right moment to announce that it was over EUR 50 million. There is still a lot of things to do, particularly in the site there, because we only have, let's say, overall assessment on some of the losses, and that we had to wait a little bit longer in order to have a more accurate estimation of the cat losses. What I can give you is just the split between the reported claims that accounts for 45% approximately of this amount, while the remaining 55% is considered IBNR.
That's basically the only thing we can tell now.
Thank you, Fernando. Thomas Bateman from Berenberg has another question regarding our cash outlook for 2023, and if we're expecting any one-off items.
We're expecting positive one-offs in 2023. First is the arbitrage from CaixaBank, which is expected for the 2Q. Sorry, we didn't tell anything at the speech. It's, it's a little bit delayed, but hopefully it will be the final decision at the end of beginning of June. Second, we able to activate again another sources of income, we did in the past as well, particularly capital gains. The market is quite positive now. Also we activate the sale of real estate, 3 main real estate units. Probably we'll get some capital gains in the 2H of the year. We keep in the same trend following years. Those are non-strategic units that they're putting in the market.
Being opportunistic because those units are very well priced at the current situation. If any, other than CAT events, one-offs will be positive for in terms of cash flows.
Okay. Nothing to add. I mean, I think that, as you already mentioned, several times, I mean, MAPFRE is able to find other sources of income when needed. I mean, they will probably continue moving on feeding the profit and loss as we did in the past.
Great. Thank you. We're going to move on to a next set of questions regarding strategy and dividends. Carlos Peixoto from CaixaBank is asking what is our guidance for ROE for 2023.
Sorry to say that, Carlos, we're not publishing any guidance. What I can say is there is no any evidence that any of the financial growth we already published are currently at risk. Means it is a reaffirmation of the current financial targets. That's all.
Carlos also had some questions regarding M&A and what businesses and geographies are we looking to expand in? What criteria do we use when assessing operations? Do we use risk on invested capital? What market shares are we looking for? Potential solvency impacts. A lot of questions, I guess. One.
The question is, there is nothing on the table, as we already said at the... but in London. I have to say that the group is fully focused and committed on fixing auto, and that's our main target. There is no distraction from M&A. There is no any potential improvement or in adding new business to the current auto situation in Spain. We'll focus in fixing our current portfolio. That's all.
Thank you. The next question is also from Carlos Peixoto from CaixaBank , asking about what we should expect from the implementation of IFRS 17 and nine regarding solvency ratios.
We cannot give you a full assessment on the solvency ratios. What we know is that there will be certain lines of business that are usually moving through the standard way that are going to move to other ways as the burial business. We don't expect that there will be any major changes in the combined ratios on the... with implementation of IFRS 17.
In the Solvency II position.
In the Solvency II position. The Solvency II position is not going to be affected.
Not going to be affected, right.
No, no.
We have. Maybe we can move on to Brazil. Moving on to the Brazil business. Max from JB Capital has a question regarding how the churn ratio in motor in Brazil is performing compared to our other markets.
Let's say there is a significant reduction in the number of units, 60,000 down in this quarter. Let's say that the portfolio remains stable for those drivers, policyholders, that we want to stay in our portfolio. For other group of corridors that they're particularly buses and trucks, as we mentioned before, that there were performing extraordinarily bad, and we got rid of them. Let's say that we focus on portfolio retention for those for the best drivers. That's all. The churn ratio for this particular portfolio is pretty stable.
Mm-hmm.
I guess the follow-up question from Carlos on that would be, how do you see Brazil's combined ratio evolving?
Well, it's a very dynamic economic, Carlos. Frankly, I didn't expect such a significant drop in the auto combined ratio. It shows that the flexibility of our operation. And also the market adaptation to the new tariffs. It is something that we're not gonna see in Spain, and where there is a, let's say, a slow reaction to the current inflation problem and completely different in Brazil. Future, nobody knows. I mean, we're pretty sure that we're doing what we had to do. Focus on profitability growth and particularly in the bancassurance channel, which is the our main profitable is the more profitable business currently in Brazil.
Great. I think we're going to move on to North America. Andrew Sinclair from Bank of America Merrill Lynch would like to know how long we think it will take to file sufficient rate increases to get the combined ratio back to under 100%.
Well, let's say, thank you, Andrew. This is a difficult question because there are different consensus regarding the core CPI for the U.S. Assuming that we are able to keep, I mean, a reasonable level of inflation with the current increase of rates will be enough, let's say, to hit probably at the end of this year a 100% combined ratio. It doesn't mean that the average for 2023 will be lower than a 100 or a 100, at least to hit a 100. We concern as well with increase of the reinsurance-based protection cost and we got the approval of a 15% increase for homeowners.
In the end, we should assume that the second half of the year is not going to be easy, and recently has been published by two giants entities, significant losses in the first quarter. We guess that we better position that those entities, but in any case it not going to be easy. Let's say that MAPFRE is better prepared, and the outlook is much better than the one I told you at the beginning of last year.
I think that the situation gives us a lot of hope that with the, with the tariff increase that we already passed and and the level of of premium increase that we already announced, it's it seems that we are moving in the right direction. The first data that we have in the first quarter on the combined ratio is heading into the, into the right direction.
Thank you, Felipe. Thank you, Fernando. We have a few follow-up questions regarding the Iberia business, motor in particular. Max from JB Capital would like to clarify if the 5% increase in average premium in Spain is on new production or the entire portfolio.
This is for the entire portfolio.
The entire portfolio, Max.
Exactly. Farquhar Murray wanted to clarify if our intention to get ahead of inflation, if our intention is to get ahead of inflation for 2023, will that allow us also to catch up with inflation from 2022?
Yes. That's Farquhar. That's what I said, that the increases in average premium for the remaining part of the year will be significantly higher than our structural cost in order to catch up with current and past inflation. The target is to hit 100 as well combined ratio in the second part of the year.
Mm-hmm.
We have another question, from Paz Ojeda in Banco Sabadell, regarding the combined ratio for health. At 101%, that seems high. Could you comment on this evolution, please?
It's, I mean, the combined ratio on the health business is quite affected by the evolution during the year. Usually first quarter and last quarter of the years are worse on claims basis. The rest of the year has a better performance. For us, looking at 101% at the first quarter is still not concerning. We will hope that there will more positive development on the following quarters.
She also asks what measures could be taken to improve it.
I mean, there is very few room for additional reduction of expenses. It will depends on the inflation or, let's say, the CPI for health services, which is pretty high. Paz, you know it. We had to catch up with this inflation. Let's say that if the inflation remains, we can conclude that the health business, particularly in Spain, is a little bit underpriced. The only way to move forward is further increases in rates. That's my view.
Thank you, Fernando. Carlos Peixoto from CaixaBank also has a question regarding the life business. What's your view on the future of margins?
Let's say that the, as we mentioned, we see both margins or both combined ratio, automobile and life, converging into more sustainable rates, in order to converge as well with the sustainable 96 combined ratio for MAPFRE. Currently life protection and also general P&C as well are pretty low, and they should increase, and automobile should go down, no doubt about it. Fortunately, I mean, we mentioned dispersion between line of business. Last year we said that the better combined ratio and the worst, it was 18.8 difference. Currently at the first quarter it is 19.9. This is widening rather than narrowing, but in the future has to be narrowed, no doubt. Right, Felipe?
Just to mention on the life savings that we are right now issuing a lot of policies in the life business in Spain, we are doing it on a profit basis. Those products are profitable. They have not the same margin as the risk.
The life protection premiums, as you can imagine. We are in a good level of profit margin on these products. We hope that we will continue issuing these levels during the rest of the year.
Thank you, Felipe. Thank you, Fernando. Think we have one question left, regarding Turkey again and MAPFRE SIGORTA's performance. Andrew Sinclair from Bank of America, comments that the MAPFRE SIGORTA result looks quite strong, even including these Turkey earthquake losses. Were there any one-offs positives in this result?
Thank you, Andrew. It was a negligible positive release of the Hurricane Fiona from 2022, but it was a small amount. Nothing relevant to report.
Thank you. There seem to be no more questions. Before we go, we would like to mention just a few upcoming events. We will be holding a virtual group meeting on Friday, May 12th. An invitation with details will be sent out soon. We will also be on road show in Madrid on the 10th and the 11th, and in Paris on the 17th, and in Geneva the 25th. Please contact the IR team if you're interested in attending any of these events. All the documents released today are available on our website, including the activity report, this presentation, the financial supplement, the dividend announcement, and the Market Consistent Embedded Value for 2022. We have also prepared a guide which gives an overview of our methodology and approach to IFRS 17 and 9.
You can contact the investor relations team if you have any further questions or need help finding this documentation. Thank you for your time today.
Thank you, everybody, again for your presence. For those that living in Madrid, my best wishes for this, coming, long weekend. Thank you, and Felipe?
Thank you. Thank you very much for everything. I will be in touch in the following weeks. Thank you.
Bye-bye.