Thank you for standing by. This is the conference operator. Good morning, and welcome to Quálitas' Third Quarter 2023 Earnings Results webcast. The conference will begin now. It is my pleasure to turn the call over to Santiago Monroy, Quálitas's IRO.
Good morning, and thank you for joining Quálitas' Third Quarter and First Nine Months 2023 Earnings Call. José Antonio Correa and Bernardo Risoul, our CEO and Deputy CEO, are joining us today. As a reminder, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's call. Let's turn it over to José Antonio Correa, our CEO, for his remarks.
Thank you, Santiago, and good morning, everyone. During the third quarter and throughout the year, our team and business model have shown Quálitas' capacity and vision to create value despite multiple headwinds and challenging environment. The pace of our underwriting business is remarkable, and that doesn't mean we are standing still. Next year, we will be a 30-year-old company, of which we have been leaders for the past 16 years, as we keep on focus on staying agile and flexible, while continue to provide best-in-class service and actively listening to our agents and policyholders in this very dynamic environment. In early September, we held our Analyst Day, where we look at our strategy and how we will ensure Quálitas continues being a winning company throughout creating value across the following stakeholders. First, I would say that we create value for our policyholders by strengthening our competitive advantages.
We are able to increase and provide the best value proposition in the market. We keep reaching record highs in shared units, 5.37 million by September end, while delivering excellence in service with year-to-date net promoter score of 88%. Additionally, we create value for our agents. The traditional distribution channel, mostly driven by them, has posted a 17.5% compounded annual growth rate from the past five years. This channel is supported by our more than 21,000 non-exclusive agents and represents 65% of year-to-date written premiums. During September, Quálitas Mexico was awarded for the fourth year in a row as La Aseguradora Ideal or 2023 Ideal Insurance Company, by a specialized magazine where agents are the voters.
Being recognized as the insurance company where our most important business partners prefer to work and make businesses with, it's not only an honorable distinctive, but also motivate us to keep on building our commitment to offer a differentiated product and create long-term relationships. Number three, we create value for our employees. By September end, we have 6,180 employees on the right payroll, from which 99% have a permanent labor contract. They have a career development plan to offer professional growth, and we are strengthening our onboarding programs to ensure everyone at Quálitas knows, shares, and lives our DNA, v ery important. We recently added a new corporate benefit to our many other Quálitas corporate remunerations, a retirement fund to which Quálitas adds a percentage of the amount saved by the employees. Four, we create value for our shareholders.
In the past 8 years, we have consistently distributed cash dividends. We have increased the liquidity of our stock, which currently trades around $8 million. Overall, the stock performance is sustained by profitable and consistent fundamentals, reflected in the strong financials delivered in the past years and during these first 9 months of the year. We have reached or surpassed our ROE of 20% in many years, building a strong capital position that allow us to continue investing to fuel growth while providing returns to our investors and also we create value for our community. In line with our sustainability strategy, we aim to be involved with our community through initiatives and concrete actions with a positive impact, not only in the society, but also in our business. Our ODQ model, for example, opens the possibility to provide access to insurance in remote locations.
The 337 ODQs have shown a 10% compounded annual growth rate in the past five years, and year to date, 26% top-line growth. We also have the Road Behavior Program, Conducta Vial Quálitas, looking to raise awareness of road safety issues among vehicle drivers, but also for other road users, such as cyclists and pedestrians. We are pleased with year-to-date top-line performance of our business, and while we recognize that cost pressures prevail, mainly explained by industry inflation and robberies, we have and will continue to take actions to have a profitable and sustainable business. We are certainly on the right path. And with that, I will now pass it over to Bernardo for a deep dive in our quarter and year-to-date performance. Bernardo, please.
Thank you, José Antonio, and good morning, everyone. Our quarterly results reflect a very strong top line, a positive underwriting, and a solid financial portfolio. Despite external factors continuing to pressure our claim costs, we're starting to see signs that we're reaching stabilization and expect to soon reach the desired inflection point. When we step back and look at the insurance auto industry in the world and in Mexico, we're pleased to see Quálitas standing out, being one of the very few companies to have a combined ratio below 100% despite all headwinds…. While we're happy, we're never satisfied, and we'll continue to work towards reaching our long-term target in the next quarters. Top-line growth for the quarter was up 29% and 26% in cumulative terms.
This unprecedented growth, well ahead of our initial expectations, reflect our ability to continue being attractive to agents and policyholders, while it also reflects pricing efforts, which account for approximately 50% of the top-line growth. On the latter, tariff increases on a point-to-point basis are up 24% during this year, with steeper increases taking place during the past 3 months, including a double-digit increase in late September. We understand that leading the way in pricing may have an impact on our premiums growth base in the following quarters, which we will try to mitigate by strengthening Quálitas' value proposition. The recent efforts on pricing should help us get to where we need to be. We will remain adjusting regularly and always by business sector sub-segment, towards reaching our 72 to 60-- or 62%-65% range.
Going back to the drivers of top-line growth, the balance comes from organic volume. By September, we have increased more than 550,000 insured units in the year. Just to give you some reference on what this means, we have never grown this number of units in a single year ever before. Worth to note, this boost in units is partially explained by the strong recovery in new car sales, which are up 25% year to date, and, finally surprise, surpassing pre-pandemic levels, being 2% above 2019. There are important shifts on car sizes and brands, market dynamics, and challenges to which we are agilely adapting to ensure we're always the insurer of choice. Now, moving to our international underwriting, quarterly written premiums are up 23% in local currency and up 8% year to date.
Latin America subsidiaries are accelerating and supporting growth with written premiums of 49% in local currency for the year. Central America's customer base has grown due to the closeness and flexibility we have with our agents of the region. Premiums acceleration has come together with a solid profits and a further expansion of our agents' network. We will soon inaugurate our tenth service office in Costa Rica. In Peru, we continue to be encouraged by how the business is evolving, attracting new agents, and Quálitas Perú has now been considered as one of the options for leading car dealership brands and financial institutions. Peru has a winning team and is led by Quálitas DNA to be on the path that we all want it.
We're making more investments on IT and expanding offices to ensure it continues to accelerate towards becoming the best options for the for the more than 5 million vehicles in the country. Finally, on our U.S. subsidiary, we're executing the previously shared turn-around strategy, and its premiums have slowed the pace according to the plan. Year to date, we saw an increase in our cross-border premiums of 21%, while we have a decrease in domestic premiums of 50% versus same period year ago. We will continue to fund and support the business. We recognize that prior year claims will take time to close, and therefore, we expect to be profitable in the next 2 years, with sequential bottom-line progress over the years.
Now, back to the holding company results, and following the sharp top-line performance, earned premiums were up 27% for the quarter and 22% year to date, standing at MXN 36 billion by September end. Earned growth pace is directly correlated to reserve behavior, when we constituted reserves for MXN 266 million during the quarter, and we have constituted over MXN 1.6 billion throughout the year. This compares to a release of reserves of MXN 92 million during the same nine months of 2022. Our reserves constitution is explained by the strong top-line momentum and the evolution in our loss ratio. Going into our cost, our loss ratio closed at 71.6% for the quarter and 71% year to date.
Despite not yet seeing that inflection point, we're getting there, as it is important to remember that Q3 has historically been a challenging quarter due to the rain and flood season. Thus, a direct comparison should not be taken as a conclusive. To illustrate those signs of improvement, this quarter loss ratio is slightly better than last quarter, despite the mentioned seasonality, in which Q3 has historically been around 4%, 12 points higher than the first half, at least during the past 5 years, excluding 2020, an atypical year. Additionally, in some line of business in Mexico, we have already reached inflection point, and on a rolling 12-month, which is how we look at the trailing trends, we have reached a stabilization.
I am not saying we're there, but certainly on the right path, as we all need to remember that our recent pricing actions will take time to fully reflect. We will continue to assess progress and take the needed actions that will allow us to get back to our ongoing target. Now, let me give you some color on the two main topics impacting our claim cost. First, inflation of spare parts and labor in the Mexico auto industry prevails, so it continues to stress our average cost per claim. Also, we have seen increases in mechanical repairs, painting, and labor costs. In addition to the mentioned pricing, we will rely on our scale and competitive advantages, such as our vertical integration, to release some pressures relative to the balance of the market.
Robberies in cumulative terms now represent 15% of our total claim cost, when in the same period of last year, they represented 13%. The latest OCRA available figures show thefts trend continues to increase throughout the year. Robberies for Quálitas year-to-date are up 9%, slightly higher than the industry average, given Quálitas has the largest volume of the market. Action towards addressing this include our unique pricing model and the strengthening of our theft prevention and recovery process. Our current recovery rate stands at 44%, which is almost five percentage points above the rest of the industry. Finally, the absolute incremental volume of insured units has a direct impact on our cost, as well as new challenges in response times and some bottlenecks in repair process, which we have been carefully and diligently assessing and addressing.
Acquisition, acquisition ratio stood at 21.9% for the quarter, and 22.7% year-to-date, in line with our historical ranges. Bonuses for agents are based on volume, but also based on the performance of their portfolio, striving to align all incentives according to our cost control strategy. Operating ratios stood at 3.5% for the quarter and 3.2% year-to-date. Despite increasing headcount to support growth, we have maintained strict control policies, thus, operating costs are growing less than premiums. Additionally, as we have mentioned before, this ratio is positively impacted by our third-party vertical subsidiary sales, reflected as an income in the operating line, which is up 42% versus the third quarter of the year ago, and 45% in cumulative terms.
Important to mention that operating expenses include the employees' profit sharing, which is directly related to the earnings of the company, which has a higher impact this quarterly. Despite the constitution of reserves throughout the year, we posted positive underwriting results of MXN 317 million for the quarter and MXN 693 million year-to-date. Quálitas' underwriting performance, according to AMIS, continues to lead the Mexican industry. All of the previously mentioned resulted in a combined ratio of 97% for the quarter and 96.9% year-to-date, which is a gradual improvement versus the second quarter of this year, although still not within our 92%-94% ongoing target. The different initiatives we have been working on during this year make us believe we will get to the desired target towards mid-2024.
Regarding the financial income performance, the third quarter delivered MXN 1 billion, reaching MXN 2.8 billion financial income year-to-date. ROI for the quarter stood at 9.7% and 9.2%, respectively. We continue to have a high exposure to fixed income, representing 90% of our portfolio. Duration stands at 1.6 years, with a 9.5% yield to maturity. Important to note that our fixed income portfolio is geographically distributed to comply with our international capital requirement, which implies different interest rates and returns. For reference, our Yield to Maturity for the Mexican portion of the portfolio, which accounts for 70%, it stands at 10.2%. Forward-looking, as we have mentioned earlier, we will continue to increase duration to a maximum of 2 years to benefit from current high interest rate environment.
Our equity portfolio continues to gradually transition from past top peaking strategy towards a new U.S. and global ETF-based strategy, as well as holding our FIBRAs in Mexico. Due to the shift in our investment strategy, seeking to maximize return under a more conservative strategy set by the investment committee, we have adjusted investment guidance, processes, and team members' profile. As such, our CIO position is currently vacant. Altogether, we posted a MXN 1 billion net income for the quarter and MXN 2.7 billion year-to-date, representing a 7.8% and 7.1% net margin, respectively. The quarterly performance represents more than 4 times the figures reported during the third quarter of 2022, recognizing a one-off in our comparable base and MXN 1 billion in cumulative terms versus year ago.
Regarding our financial ratios, our 12-month ROE stands at 16.8, reflecting our strong capital position as well. 12-month earnings per share stands at 8.2 MXN. Now, going into our regulatory capital requirement, by September end, it stands at MXN 4.4 billion, with a solvency margin of MXN 14.6 billion, equivalent to 434% solvency ratio. Our strong capital position reflects our ability to create value that José Antonio alluded to in his opening remarks. We've always had a diligent and prudent approach related to capital allocation, aiming to maximize its use while being prepared for any unplanned situation that could impact the industry or any opportunity that may come along for Quálitas. Our corporate development plan is based on three pillars. First, is strengthening our Mexican leadership.
Second, accelerating growth in our international and vertical subsidiaries, and third, new business opportunities. On the latter, we have identified 10 avenues of growth, which we expect to materialize in the next years. All of them within the insurance ecosystem, and in all cases, where Quálitas' unique DNA and strengths would be a match to deliver profitable growth with an ROE of 20% or above. From these 10 initiatives, 4 are already under execution. First, Quálitas Salud, second, the technology company recently acquired.... Third, our entry to Colombia, which we expect to materialize towards the first half of next year. And last, a potential acquisition that is being currently negotiated, seeking to strengthen our vertical integration. Let me briefly touch on Quálitas Salud, since in September, we celebrated its first year of operation. Business is progressing as expected, with 100% organic growth.
We're learning, we're adjusting, and we will continue to do so to adapt our product to the needs of clients and market. As we have always indicated, we do not expect that Quálitas Salud is going to move the needle in terms of growth nor profitability for the holding company in its first three or five years, but it will certainly do so in the long term. By September end, we have 59 service offices offering our product and more than 500 trained agents promoting it. The initiatives under executions will not be capital intensive at the beginning, but could be after a maturity process. We're being responsible and diligent at first, but will not be shy to accelerate once we have proven the potential and our right to win.
As part of our capital allocation, and as José Antonio mentioned before, we have consistently paid cash dividends to our shareholders. In this regard, on November 9th, we will be paying the second exhibit of the 2023 approved dividend of 2.5 MXN per share for a total 90% payout ratio and a 4.2% dividend yield in the year. As we have said in the past, we want to be very transparent regarding what management considers excess cash. We follow the ratio, earned premiums or investment over capital, with a 3x ratio objective by year-end. This implies that around $300 million are the real excess cash. We seek to have a balance between dividend payment, share buyback programs, and funding the existing and new business opportunities.
We will continue to pay dividends, likely on the high end of our policy for the next years, and we'll assess an extraordinary dividend payment as part of this excess cash if it were to make sense, always recognizing that this is a decision to be taken at the general assembly. To wrap it up, as we head to the last quarter of what has been a very strong year, we will focus on executing against the priorities and setting the base to make 2024 a year in which we deliver the trifecta, where top line momentum continues, although a more sustainable level, claim cost is back to our long-term target, and financial income continues to be a tailwind behind high interest rates and the way the portfolio has been shaped.
Excellence in service is an ongoing journey, a continuous process of listening to our agents and policyholders, and rapidly evolving to meet and anticipate their needs. We have built a solid business and strengthening Quálitas assets over the last years, maintaining our core DNA for the company's sustainability in the upcoming years. And with that said, we're more than happy to take your questions. Operator, please.
Thank you. We will now begin the question and answer session. To join the question queue, you may press the Raise Your Hand button on your screen, and we'll open the mic, or you can send it through the chat. To withdraw your question, please press the button again. We will pause for a moment as callers join the queue. Our first question comes from Ernesto Gabilondo. Please state your company name and then ask your question.
Hi, good morning, Ernesto Gabilondo from Bank of America. Good morning, José Antonio, Bernardo, and Santiago. Thanks for the opportunity, and congrats on the results. I have three questions on my side. The first one is on claims cost. So we saw this modest sequential improvement in the claims cost ratio. However, it continues to be above the historical area of 62%-65%. So when do you expect this ratio to return to the historical level? Do you think that will be the fourth quarter of next year? And if we can claim that, if it normalize again to the 65% level, if we can see that in every quarter of 2024. Then, my second question is on your securities portfolio. We continue to see improvements in the return and values of the portfolio.
However, when do you expect the yield to be closer to sector? And also related to this, can you remind us what is the impact in peso for every change of 100 basis points in the interest rate? And then, for my last question is on taxes. We have seen that the government is looking to attract more resources for taxes, especially at the end of the government. We have seen recently the tariff on the airports. So just, just wanted to hear from your side. I believe there's a litigation process from value-added taxes between the largest insurance companies and the Ministry of Finance. I think they are arguing that in tax coalition, the value added of third-party cost was not deductible, but all of the industry made it deductible.
So, just wanted to hear from what you have listened to this litigation that is happening in other insurance companies. If you have received a request of this from the Ministry of Finance, and how has been the live discussions between the government and the Insurance Association, the AMIS? And, well, also related to this, in case Quálitas was requested by the authority, I don't know if you have calculated any potential impact. Thank you.
Good morning, Ernesto. Thank you for your questions. Those are very good questions, the three of them. Let me take the first one, regarding the loss ratio, and when do we expect that to go to the target levels ongoing? Well, I would like just simply to tell you that the loss ratio has the impact of inflation, as you all know, the severity of claims and the robberies a nd clearly, you know, the average cost per claim are up this year, even above the 7% year to date, no? The number of claims has also increased in the third quarter versus the third quarter of last year.
So clearly, our loss ratio continues to be at levels that we see that we need to improve, as we have seen over the past quarter. And we are seeing, and I'm glad to see, that we have early signs of recovery. Now, I am optimistic that this is something that we have. We know the third quarter typically is a higher loss ratio due to seasonality, so we should be seeing some stabilization in here. Important to note, Ernesto, is that we have increased our pricing. Our pricing has a direct impact into how the loss ratio will behave. And considering that we have increased quite substantially our pricing over the past six to nine months, I would say, we should start seeing this specific factor.
So we believe that we should be in the technical range closer to 65% by the second to mid next year, you know? So by the second part, we should be there, you know? Clearly, we are at the same time as we are working and we have increased our prices, we continue to work on the cost front, including a number of initiatives that will help us also to get back to where we want. But I am encouraged at this point in time that we are now seeing, I hope that's the case, the inflection point for that to start reaching.
As the pricing, as I indicated earlier, as pricing starts kicking in, we should be seeing that point going back in the next quarters. Bernando, you want to go?
Yeah. I'll take your second question regarding our portfolio. And let me just mention that directionally, for every 25 basis points, we should expect that in the long run, certainly not an immediate effect, we could have a swing of MXN 100 million per year. Okay? Now, to your question on when do we expect ROI to be above CETES? This is a tough one, because while we are making important improvements, and this is truly seen in the results that we posted. The shift on CETES and ROI will depend on the behavior also on CETES, no? Today, we recognize that we are below, but eventually, CETES will turn the corner and our portfolio return will be above.
So I think rather than trying to anticipate when will that point happen, we will continue to increase duration. As we said, we're at 1.6. We're making important improvements relative to where we were a year ago, and the yield to maturity is also noting that. Now, just as a reference, last one, a year ago, our asset duration was 0.6. We're now at 1.6, and in path to get to 2 years. And our yield to maturity, it was 7.8%, and it's now 9.5% and improving, no? So then again, I think that gives you some better perspective on what to expect. Now, to the last part of your question, your third question, and perhaps I'll give you a longer answer to ensure I cover all aspects of it, no?
First, let me start by saying that Quálitas is a company that always sees compliance as a key strength. We seek to always meet and exceed the standards set by the several entities that regulate us as an insurance company, as a public company, no? On that regard, let me also state that we do not have any fiscal strategy. We pay our taxes as requested in time and form, no? And, to your specific question, it has been the case many years, we are being audited by IRS, with the in Mexico, in Spanish. We currently have three fiscal audits in progress, no? Now, in none of these audits, we have received any conclusive or final resolution, no? So this is still in process, and therefore, anything that we said would be speculative. Now we're-
Just let me add.
Yeah.
Now, with that, would you say, because as we are, as we are in the third hour today, that is no different than the past. We have always been having, as you are probably aware, what we have is that the tax years that are open are five years. So usually, and that's the case in the past, we have had the, you know, regular audits all the time. All the time I've been with Quálitas, I've been in a tax audit. So it's a regular, it's a regular thing that we are having. So these trends are the same, Bernardo. Please keep going.
Yeah, no, and I was just commenting that we are aware that this situation affecting the whole industry. We're managing the matter as a sector, and therefore, through our association, which is the AMIS. We remain confident that the matter will be properly managed and resolved by the authorities and the legal instances, no? It is evident that the new interpretation for the VAT accreditation in case of spare parts and also medical would have a significant impact in solvency margin for the whole industry. But as it continues to be a speculative, an open matter, we see no value on stating any figures.
Fair enough. Thank you very much, José Antonio and Bernardo.
Thank you. Our next question comes from Jitendra Singh from HSBC.
Hello. Hi, hi, this is Jitendra from HSBC. Congrats on the results. I have two very quick questions. One on your premium growth. So around 50% of the top line growth is driven by the tariff increase. Now, given that inflation has continued to come down, although automotive inflation has remained high, so I just want to understand, so what will be the magnitude impact on your tariff going forward? How do you expect premium growth for next year in terms of pricing and new sales growth? Second, I just wanted to understand, the impact of currency on your business.
If you could, please quantify the impact of currency appreciation on your business, maybe, in terms of cost or premium, or maybe—I mean, during the quarter, what was the percentage of costs related to claims were dollarized? Thank you.
Thank you, Jitendra. Let me take the first one regarding the top line growth and the pricing, the first part. Clearly, we are elated by the fact of what we have brought this quarter and for the year. Mind you, that a lot of it is coming from the increase in the car sales increases for this calendar year. Clearly, we have... I would like to go back, you know, one step back, to understand that we have increased, that we decreased our pricing back in 2020, when the pandemic hit. So it has taken some time to recover. That's why there are, you could say, substantial price and tariff increases, no?
Also, it is important to note that cars have increased their value, so the insured amounts are also high. That's why we have been doing that. Now, going forward, what we can expect, I mean, it will depend on how car sales are. We have early indications that they are gonna be in the probably mid-teens, but it's gonna be, I mean, in the mid-single digits. I have the say for the year. Certainly, I expect to see a better forecast by the industry in the next couple of months. So it will depend on that. And regarding pricing, clearly, we will continue being clear to increase our pricing to be able to recoup prices and inflation.
And we're doing that in a very, I would say soft, but in a planned manner, so we do not exacerbate our current base of customers. So all that said, it will depend on how inflation hits. And as I mentioned in my previous intervention, we are also taking steps to reduce costs in several fronts in the company. So that's what we are gonna have. So next, I think, regarding pricing, we will continue to take as required, because we need to go back to the levels of the 70, well, the 62%-65%, in terms of claims index, and that's what we are gonna be doing.
You will hear from us of that more once we know what happens in the industry, as well as with the inflation figures.
Mm-hmm. And just to address your second question regarding currency appreciation. Year to date, we have been impacted just because of the restrengthening of the peso in around $80 million for our PNL. Now, there's also around 160 in the balance sheet, reflected in the capital, but, the PNL is 80 million MXN. Now, we don't speculate on currency. Now, we recognize that a lot of the spare parts are priced in dollars, while we pay them in peso, they're indexed. However, that wasn't the case when we saw the peso strengthen. In no case did we see spare parts going down in pricing, and therefore, we believe that even if the peso, loses some ground, and gets back to 18.50 or 19, 19 peso, we shouldn't expect that to immediately impact costs, no?
We have always priced based on claim cost index. That's what we see. And eventually, if that were to be the case, that we see once again, impact behind currency fluctuations, we will adjust accordingly. But just to make sure, and 100% clear, we do not hedge, we don't speculate, and therefore we adjust according to reality and not on the forecast. Thank you.
Thank you.
Thanks. Our next question comes from Andrés Soto from Santander.
Good morning to all, to all. Thank you for your presentation. Congratulations on the results, and I have three questions. Let me ask first one, and then I will get back and ask number two and number three, which are more related. So the first question that I have is, there is an interesting comment that you guys made regarding the U.S. subsidiary. You mentioned an increase of 20% in the cross-border business year-over-year. When I look at the crossing of trucks between the U.S. and Mexico, the numbers are staggering. Just for the month of August, we see double the number of trucks crossing the border.
Obviously, this doesn't mean that there are double the number of trucks, but definitely this should be a tailwind for the business that you conduct. Can you please comment on what are the dynamics that you are seeing, and specifically in terms of competition, and if you see this as one area of growth, as the nearshoring team is taking shape in Mexico?
Andrés, good morning, and thank you for your question. Let me take the U.S. subsidiary first, no? Yes, we've seen an increasing number of trucks. It is estimated, there's uncertainty, but we estimate that on a daily basis, there are 20,000 trucks crossing the U.S.-Mexico border. So the potential is out. Now, based on the market share numbers that we have in AMIS, we have in Mexico around 43% of the trucks for heavy equipment market share. However, when they cross the border, we have less than 30%. No, actually, we believe more is in the 20%-25%. So there's a lot of upside. Now, there are three companies, one of them being Qualitas, who serve the cross-border. For many years, we did not serve this market properly, so it's gonna be a journey.
It will take some time to get those customers back to Quálitas. So the growth that we're seeing is on the right direction, but we believe there's a lot of upside as we, again, we get back to those customers, we offer a value proposition that is attractive to them, and we regain their trust. And also, we're encouraged, but yet we see that the upside is far from where we are today.
Perfect. Thank you, Bernardo. My second question is regarding the 10 strategic initiatives. You already have 4 clearly identified. Can you give us some color about what are the other 6 initiatives that you are considering for Quálitas growth?
Yeah, and then, we have the business sectors, no? There is not a M&A process or a due diligence currently. This is more a five-year out, no? And the whole corporate development program was developed together with some board members, with management, and it's something that will give us a line of sight when opportunities come. And what we also wanna make sure with this is that the investor community knows that there's still a pipeline already identified that will continue to build on Quálitas' growth potential, always seeking to build on our strengths and always seeking to have an ROE of 20%.
So at this point, I'd rather not, not share those details, in the spirit of making sure we continue to be focused on the four already executed, and we share details on the other as they come to light.
Look, let me add to what Bernardo said, is that when we developed this plan, Andrés, what we wanted it was to increase, as we are seeing, or having ways really to be able to have a continuous growth around the 20, I mean, around the 10% growth in terms of the top line growth. That was very important for us when we decided to do this plan about two or three years ago. So we are in no rush. We need to do that. The execution that we're having, I believe, is strong. We are executing on that, and we are currently in the process of having some due diligence, some companies.
So that's something that we will continue to do with no rushes, to ensure that we maintain our long-term growth for the company in the future.
Perfect. Thank you, José Antonio. Related to that point, you also made an interesting comment regarding capital allocation. You mentioned some of the strategic initiatives that you have in mind will not require capital in the first stage, but as they progress and you identify the potential, probably that's when you are going to do some capital allocation there. So my question is regarding these $300 million that you have identified as the excess capital. Besides the four initiatives that already have a very specific capital requirement in the next couple of years, do you think Quálitas should keep sort of a rainy day fund or some capital set aside for the additional initiatives that may come down the road?
Or, on the contrary, you believe that the profitability outlook for the company allows you to very quickly replenish this base and have the excess capital required for any additional commitments that the other initiatives may require?
So this is always a good topic, no? Capital allocation. We've been talking in the past. We will always be very diligent and nimble on making the decisions that are right for the business, no? We do not have exact line of sight when our these projects, such as Quálitas El Salvador, Quálitas Colombia, will get to that tipping point in which we will require to invest more aggressively to be able to capitalize the momentum, n o? So I think that is something that we're expecting to see in the next three to five years, and we should therefore be ready to have those funds to address this.
Now, just to make sure that I also touch on the one initiative that is currently in M&A process, that will require somewhere in the $30 million-$35 million, no? So that will come at below the, as a use of those $300 million.
Yeah, we have talked in the past that we would receive around $50 million, no? And clearly, clearly, we are assessing all these situations. We have had in the past a couple of potential acquisitions that by some reason, you know, some related pricing, that in the end we didn't reach price. So we are very, very careful on how we deal with our excess cash. And certainly we will consider in the future, returning. That's something that we need to discuss with the board and the general assembly, going forward. But it is too early to tell, but we would be very, very responsible in the use of the excess cash to ensure our long-term targets.
And also, as we have been mentioning, we like being a company that pays dividends, that have a liquidity on our share, that is moving in the right path, no? And therefore we will continue to fund the share repurchase program. Now, moving forward, as I alluded on my remarks, we should expect dividend to continue being something that you see coming through, likely on the high end of the dividend policy, no? Which is 40%-90%, so likely on the high end. And to the question that you have been also mentioning several times, will an extraordinary dividend make sense? I think we will be at them addressing that as management, likely in the next 18-24 months.
If it makes sense, we're more than happy to give that money back to our shareholders, knowing that we will have also a sufficient capital to fund business. Thank you.
Thank you so much, and congratulations again on the results.
Thanks, Andrés. We have a follow-up question from Jitendra Singh. You may now open your mic. Jitendra, you can now unmute yourself if you have a follow-up question.
Sorry, sorry. No, I don't have any question.
Oh, okay. We'll lower your hand then. Once again, if you have a question, press the Raise Hand button or send it through the chat. Our next question comes from Anand Bhavnani. Please state your company name and then ask your question.
Yeah. Anand from White Oak Capital. Two questions, but before that, congratulations on the strong growth and good ROE. And my two questions are: First is on the acquisition. So you have indicated that we have done an acquisition. Can you give us how much did we spend on this acquisition in U.S. million dollars? And what is the current revenue and profitability of the company?
Anand, I apologize to interrupt. You're breaking up, so we cannot understand your question. Maybe if you can write it on the chat, I will read it and then answer to you, because you're breaking up. Thank you, Anand.
Hello?
You can try to speak again, Anand, or you can leave us your question on the Q&A box. Thank you all for being connected today. We will hold on for a couple of minutes to see if we can get those questions through the Q&A; otherwise, we can conclude the-
Am I audible?
All right, Anand, we're not getting through. So, our next question comes from Tejkiran Kannaluri. Please state your company name and then ask your question.
Hi, this is Tejkiran from White Oak Capital. I have two questions. One is around the interplay between, you know, the investment income and our combined ratios. So the 62%-65% loss ratio and 90%-94% combined ratio target, I think we've been holding on for some time, when the outlook for investment income was different. Is there any chance that in a higher for longer environment, when we expect investment income to be higher, that we adjust the combined ratio targets a little higher, so more of the profits might come through from the investment income? That's question number one. Question number two, I'll repeat,
Hello?
Sorry, Tejkiran, we lost your audio.
Okay, so, should I repeat my question?
Yeah.
I think we got most of it.
Yeah, please.
Okay, sure. My question is around the interplay between combined ratio and investment income. To be brief, is there any chance that in a higher for longer environment, because the outlook for investment income is higher, the combined ratio target of 92%-94% could be revised upward because we might, you know, get more income from investment. So is there any chance of this target in the long term being revised in a higher for longer environment? And number 2, I got Anand's question, so I can repeat that. So, but, maybe I can do that after the first question.
All right. So, in Quálitas, we've always seen ROE on the 20% as something that both the underwriting and investment portfolio should contribute to. No? I would tell you in an ideal world, it should be half and half. We know it always takes turns. If you look at the past five years, it was the underwriting, the one that really pushed and delivered the ROE. If you look at this year, it has been the investment income playing a bigger role in ROEs. No? Now, even if we see investment income continue to contribute, and we get, as we will get, to the combined ratio of 92%-95% target, we will not mix. No, I think that has been something that has worked in favor on the long-term profitability of the company.
I've been talking to some of you saying that 99.9% of everyone who works at Quálitas will only be rewarded based on underwriting profitability. Therefore, we always strive to minimize costs to improve value creation on premiums, but not at the expense of looking at the financial income. No? I think that was something important to highlight, as we will continue to expect that financial income plays a big role and attainment in the next two years.
That's very helpful. Thank you. So, here I'm repeating my colleague, Anand's question. So, the acquisition that you had mentioned that was done this quarter, could you provide us more details around that? Could you help us understand the size of this acquisition in, you know, dollar terms? And, would you be able to give us some metrics on what size the company is in terms of revenue, profits, and could you help us with some numbers around the acquisition?
Thank you. Since it's an open negotiation, I would just keep it sharing that this is a vertical integration play, something that will strengthen our ability to continue to provide Quálitas and the market better customer service, you know? And in terms of size, I would say below $50 million, and we expect to have and give you better visibility in the next three months.
Sure. Thank you very much.
Thank you. We have no more questions, so that concludes our question and answer session. If you do have... Oh, sorry, hang on, we're getting a question through the Q&A now. Santiago, please do let me know if you want me to read it out, or you guys can handle it as well.
Thank you, Abby. Good morning, and congrats on your third quarter results. Here's my question: Given your guidance on looking for an earned premiums over equity ratio of 3%, what should we expect in terms of your divident policy for next year?
I think it was already addressed by José Antonio on the panel.
Just to clarify, it's not 3%, it's just 3 times.
No. So I think we-
I would, I will add that, we will comply with our investment policy as, as we had passed, in the recent past. We will continue to abide by the platforms.
Thank you so much. At this time, we don't have time for any further questions, but if you do have a question, feel free to reach out to the IR department from Quálitas. They will gladly discuss it with you at a further time. Thank you, and this concludes today's conference call. Thank you for participating, and have a pleasant day.