Thank you for standing by. This is the conference operator. Good morning. Welcome to Quálitas's second 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 2nd quarter and 1st half 2023 earnings call. Jose 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 ono 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 Jose Antonio, our CEO, for his remarks.
Good morning, everyone. As we have been discussing for a while now, we continue to face several external factors impacting most industries worldwide, with insurance, in particular, auto insurance industry being no exception. In Quálitas, we have a clear understanding of these headwinds and their impact on our business. We have been taking actions to overcome them and return to our historical and objective margins. Looking at our first half performance, I can say this is still a work in progress, but the strong results in several front give us confidence that we are on the right track. Before diving into our financials, let me walk you through some of these factors and give you an update of the industry dynamics, while providing our view on their expected evolution towards the balance of this year. First, related to our top-line growth.
New car sales continue its positive trend, up 22% versus the first half last year, and almost closing the gap versus 2019 levels. Availability of new vehicles has ramped up during the year, although still not fully satisfying demand, as several brands have between three and six months of waiting time. This, we believe, are positive news. We expect the trend to continue throughout the year. There are two factors that may have an impact in this recovery. Current high interest rates levels, given that about 60% of new car sales in Mexico are done via credits and loans, buying a new car is now more expensive for our consumers. Congestion in many harbors and logistics issues are delaying new deliveries and hence inventories.
Still, the recovery of new car sales is clear and a benefit for us as well as for the whole industry. On the other hand, cost pressures prevail, mainly explained by industry inflation, higher frequency, and spare parts availability. Annualized inflation in Mexico has been stabilizing, closing at around 5% in June. Spare parts and labor inflation, which have a direct correlation on our loss cost, are still around 9%, which means that while easing versus last year, they are still high and putting pressure in our cost. In addition to the inflation, the auto industry is still facing challenges on spare parts availability. In many cases, it takes months to get them. This shortage of supply contributes to high prices.
Now, let me go back to the new auto sales, that there are interesting and relevant dynamic changes to which we are quickly adjusting and striving to always be the insurer of choice. To mention a few of them, four new brands have entered the market since 2019, and they now represent 7% of the market. Consumers are now opting for SUVs rather than compact cars, and as a reference, SUVs and pickups now represent 54% versus 40% of sales back in 2019. Clearly, this has an impact in our average premium cost. Also, electric and hybrid units demand continue to increase. According to the latest AMIA, the industry on sales figures, sales for these type of units have increased more than 30% during the year and currently represent 5% of total new car sales.
We continue in Quálitas to specialize our teams to maintain our leadership in the knowledge, insurance, and repair of this type of units. All of the above impacted the entire industry and Quálitas' underwriting and financial performance, in which Bernardo will provide more detail later. I am glad to share that as per AMIS reported figures of the 1st quarter 2023, Quálitas continues to lead the industry not only in premiums, but most importantly on profitability, while only one of the other top five competitors posting a positive underwriting result. This is very important. We have stated many times that we will always be true to our service and cost control pillars, aiming for a profitable operation while strengthening our leadership position in the market. External factors alone have created a complex environment for the entire industry for over two years now.
We have been adjusting our prices accordingly. We will continue to do so until we fully recover cost inflation. It is encouraging to me to see this as being also the intention of the broad market, as we have seen recently. Before I hand it over to Bernardo, let me really touch on the other key pillar of our financials, our portfolio. Banco de México has kept the benchmark policy rate at 11.25%. Our portfolio is very well positioned to give them benefits from current context, and together with the investment committee, we have increased the duration of our portfolio as well as a defined new approach with this position.... always seeking to maximize return on their conservative and responsible asset allocation and duration strategies.
To round it up, our second quarter results show quite as a strength to continue retaining and attracting new customers, but we recognize that getting our claims cost back to the desired range is taking a bit longer than expected. Actions have been taken, and I expect that the inflection point will happen in the next six to nine months as we fully materialize the benefit of the price and cost-saving implemented so far. In the meantime, financial income will play a bigger role in delivering our ROE, which we expect to be closer to our ongoing objective towards the end of this year. With this background, let me pass to Bernardo for a deep dive in our quarter and year-to-date performance. Bernardo, please.
Thank you, Jose Antonio. Good morning, everyone. Our first half results reflect anticipated peaking claims, a strong financial income, and an extraordinary top line. Not all of them are exactly where we would like them to be, they are on the right path. We're ahead of the industry, we continue to build the long term of the business while navigating through this cycle turmoil. Let me provide a more color on our performance. Written premiums are up 24% for the quarter and 25% for the year. This growth represents MXN 4.8 billion more in premiums than the first half of 2022, something unseen even on an annual basis for the past six years.
Growth was driven by tariff increases, which are up 12% during this year, that together with the increase in the sum insured and mixed, account for around 60% of this growth. The increase of 395,000 units contributed to the balance of the sensational top-line performance. We're just 29,000 units shy of reaching 5 million insured units in Mexico, while the total business is now at 5.2 million insured units. New car sales have recovered throughout the year, it is the traditional segment that has outstand, being up 33%, thanks to the effort of our commercial network, which has now more than 20.7 thousand agents being served through our 548 offices.
During the first six months of the year, 40% of our underwriting came from the traditional individual segment, 24% from fleets, and 29 from financial institutions. The rest come from our international subsidiaries. When compared to three years ago, our individual segment has increased eight percentile points. It is higher this higher exposure, something we welcome, as annual duration implies also faster impact when adjusting prices. Regarding our international operation, quarterly written premiums are up 4.5% in local currency and down 14.5% in MXN pesos. They are up 5.6% in local currency and down 13% year to date. This performance reflects the 12% MXN peso appreciation in the first six months of the year.
In line with our strategy, Latin America subsidiaries are accelerating growth and are up 58% year to date in local currency, while the U.S. subsidiary has centered on executing our previously shared strategy, focused on the cross-border product. Premiums for the U.S. business are expected to be down this year as planned. Since I am already talking about the U.S. operation, let me expand on where our two-year turnaround process is. During the first half of 2023, our binational product, which includes and is mainly cross-border, is up 15%, while domestic product is down 57%. The personal auto program, focused as well on Hispanic population, was recently launched and is off to a good start. We have regained traction by repositioning the benefits of Quálitas as the one company that covers both countries under one policy.
The organizational structure is set to better serve this niche market. We're encouraged by the potential we see, particularly as nearshoring is having a positive impact in Mexico. Just during the first half of the year, 10 global companies announced investments in Mexico to better serve the U.S., which implies higher flow of trucks and a confirmation of the nearshoring effect. Having said so, we are still digesting past year claims, mostly on domestic business, with some adverse developments still. We are expecting to have high loss ratios for this year, leading to a bottom, negative bottom line, although making significant progress versus last year. Moving back to Quálitas Controladora performance, earned premiums were up 18% for the quarter and 19% year-to-date, standing at MXN 11.7 billion by June end. Earned growth pace is directly correlated to reserves behavior.
We constituted reserve for around MXN 300 million this quarter. That compares to a MXN 330 million re-release during the second quarter of last year. This MXN 600 million delta affects quarterly results but will eventually be released. During the first six months of the year, we have constituted over MXN 1.3 billion, reflecting the loss ratio and the strong top-line performance. Going into our cost, inflationary and availability pressures mentioned by Jose Antonio continued to impact our loss ratio, which closed at 72% for the quarter and 71% for the year. To provide a better perspective, I will break claims cost into three main buckets: frequency, spare parts, and thefts. On frequency, we have seen a slight but consistent upward trend, closing first half at 14.2%, which compares to 13.5% versus same period year ago.
The reasons for frequency increase are not precise. We believe that higher number of motorcycles, coupled with new distractions, such as mobile phones and shortage of truck operators, are among the drivers. Not only has frequency increased. This quarter we are seeing higher severity, with unfortunate catastrophic accidents. During this quarter, catastrophic events, including floods and hailstorm, increased 87% versus same quarter a year ago. On claim costs, we're undergoing negotiations with dealers, workshop, and agencies. The strong Mexican peso and commodity stabilization that has reduced some pressure, but not yet fully reflected in lower prices, as supply continues to be well surpassed by demand. To overcome this situation, we're taking actions among several fronts, where our vertical integration becomes a more relevant pillar to get the right quality and better prices, providing us with a competitive advantage now and in the future.
Among several strategy, it is the enhancement of our remote and digital Tele-Express adjustment tool. 28% of total claims during the first half were attended through this tool. Remote claim officers have a three to one productivity, so this percentage translates into a more than MXN 100 million in savings while improving service experience. Managing costs cannot and will not come at the expense of service, and given the supply chain, this location is still causing some spare part delays. We are providing two claims handling options for policyholders. First, the traditional repair process through the workshop and agencies, recognizing the longer repair times in some cases, or as well, the option to obtain a payment for the claim cost.
On the third item, affecting cost, for the first half of the year, robbery represented almost 15% of total cost, in comparison to the 13% of the same period last year. Due to mix and increase in the value some insured units, the average cost per theft is up 38%. While we continue to recover almost six percentile points above the rest of the industry, we're taking actions to benefit our cost, such as to better leverage technological tool, strengthening efforts in preventing and avoiding theft, and improving our recovery effectiveness together with different providers and authorities. All of these actions strive to mitigate claim cost evolution and not rely only on pricing, which is certainly carrying most of the weight. We have been adjusting our tariffs gradually, but consistently over more than two years now, and doing so more aggressively recently.
Just as a reference, in late April, our auto tariffs increased high single digit, and in June, we did the same with heavy equipment. On fleets, which are priced on historic claim results, we are also taking important decisions to ensure premiums are sufficient to cover current risk and cost. Given the nature of the business, the pricing effects are gradual and take one entire year for each adjustment to fully reflect on our PNL. We will continue to adjust until we reach our target claim of 62%-65%. Before I move on to other ratios, let me just share one very important piece of news on the competitive landscape, which speaks to the challenging of managing heavy equipment.
During the past two weeks, sorry, during the past weeks, two insurance companies, among which there is a one top three and another top 10 in the truck segment, stated their intention to exit that market. This represents 10% market share and close to MXN 4.3 billion of opportunities, but most importantly, it recognizes the need to be responsible on tariffs, diligent on the operation, and tireless on the efforts of risk prevention, where Quálitas will double down. Acquisition costs stood at 22.6% for the quarter and 23.1% year to date. The quarterly decrease of 48 basis points come behind a stronger growth in our traditional and individual segment, despite new car sales performance that correlate to the financial institutions channel that have a higher acquisition cost.
On the operating ratio, it stood at 3.3% for the quarter, 93 basis points below the same period year ago. Year to date, operating ratio closed at 3%. This ratio is within our expected and objective range, benefited from the endless commitment to cost control, as well as two other factors. One, the income that comes from the underwriting fee, where we charge a fixed amount for insurance premiums. That, by the way, is a common practice in the industry. Second, our third-party vertical subsidiary sales reflected as an income, which is up 42% versus second quarter of last year. All of the above resulted in a combined ratio of 97.7 for the quarter and 96.8 for the first half, being north of our 90%-94% ongoing target.
I have already expanded on the actions being taken, and we're working towards making sequential improvements in the next quarter to get back on track. Now, regarding financial institution performance, second quarter delivered MXN 860 million, reaching MXN 1.8 billion during the first half of the year. This is 2.7 x and 2.2 x that each of the respective period year ago. ROI for the quarter stood at nine and 8.1 and 9% year to date. Although our investment strategy hasn't changed and we're still well positioned to benefit from the current environment, our portfolio performance is not as static, and that explains a lower absolute amount than in the first quarter. Let me elaborate.
First, the size of our portable, or our portfolio decreased around MXN 300 million versus 1st quarter due to the dividend payment that was done in the 1st half and a higher claim paid. Our portfolio is also distributed geographically to support our international operation. 13% is allocated outside Mexico, with different interest rate levels and returns. Our portfolio was impacted by the appreciation of the peso, resulting in a MXN 62 million impact in our PNL and a MXN 191 million in our balance sheet. Important to mention is that we do not speculate in currencies. Let me repeat, we do not speculate in currencies. We're basically matched to asset liability and the needs of the business.
Also, as part of our fixed income strategy, we have around a quarter of the portfolio on real rates, that is, that are instruments linked to inflation performance. They are called Udibonos in Spanish. While these rates are very attractive at the highest in decade, in some cases locking at 5.3%, when inflation is lower, such as this quarter, yield will also follow. This impacted in 90 basis points over quarterly ROI or around MXN 70 million. All in, our portfolio has a 1.5 year duration and 9.3 yield to maturity. We will continue to increase the duration of our portfolio, having set, internally set two year as our ceiling.
Altogether, we posted a MXN 746 million net income for the quarter and MXN 1.6 billion for the first half, representing a 6.2% and 6.8% net margin, respectively. The quarterly performance represent a 14% growth versus the same period last year and an 18% growth year to date. Regarding our financial ratio, our 12-month ROE stands at 13.1%, reflecting our strong capital position as well. 12-month earnings per share stands at MXN 6.2 pesos. Going out into our regulatory capital requirement, by June end, it stands at MXN 4.3 billion, with a solvency margin of MXN 13.8 billion pesos, equivalent to four hundred and sixty-sixteen solvency ratio. Capital requirement also increased during the growth, given the growing loss ratio and reflecting the mentioned challenge.
Our corporate development strategy has progressed as expected, and we have one due diligence process still under assessment. Our excess capital remains strong. We are investing against the defined priorities while strengthening the organization in people and technology. We will continue to be disciplined and choiceful to provide sustainable results for our shareholders. In anticipation of what has been a widely asked question regarding a potential extraordinary dividend, that discussion will happen in due time. What I can say is that we acknowledge cash and excess capital belongs to our shareholders, and while we're not in a rush, we're open to assess it. To wrap it up, our commitment to you remains unchanged. The right actions are in place, and Quálitas' DNA backs our ability to create value despite challenges and circumstances.
We will continue evolving and adapting to achieve an inflection point, which is still expected during the second half, whilst providing service experience to our policyholders and agents day after day, quarter after quarter, for decades to come. With that said, we are more than happy to take your questions.
Thank you. We will now begin the question and answer session. To join this question queue, you may press the Raise Your Hand button located on your screen, and we'll open the mic for you, or you can send it through the chat. To withdraw your question, please press the button once 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, Jose Antonio and Bernardo, thanks for taking my call. My first question is on your claims costs. We have seen inflation is starting to go down, just wondering when do you expect that will translate into lower claims costs? How should we think about the costs in the second half of the year? We usually have seasonality, and the claims costs tend to be higher during the second half of the year. As you have mentioned, you have taken some measures. Inflation is again going down. Can we expect lower claims costs in the second half, although still above historical average?
Maybe we are going into historical levels within the next two, six to nine months? Thank you.
Ernesto, good morning, thank you for your question as always. I think we're all aware that inflation is releasing some of the pressure. In the industry, the auto industry, that is yet to be seen, no? As we referred in our opening remarks, some of them were starting to see the benefits, the appreciation of the Mexican peso, considering most of the auto parts come from abroad, should start releasing that pressure. There is an important matter here in this equation, which is availability. What we have seen is there's continues to be a shortage of spare parts, that is the one factor that is mostly influencing currently the price more than inflation. We are very diligent to pricing.
As I included, we have been taking sequential price increases, and most important, in the second quarter, we took a double-digit increase, which is yet to see the benefits, no? The combination of pricing and what we do expect to see an inflation point in cost during this second half, is what will take us back to what is 62%-65% claim cost target. We expect to reach that during the late second half of the year. Okay? That is not gonna change the claim cost for the year, which we have been measuring will be above and closer to the 68%-70% for the year. We are setting the basis for a very strong 2024 when it comes to claim cost.
Obviously, the top-line performance is coming up with a greater in inertia since last year, closing at 25% this year, something exceptional and unseen. I do believe the combination of stronger top line and the actions on the claim cost management is setting the base for a very strong recovery for the business as we see the end of this year and beginning of 2024.
Let me add to what Bernardo is saying, Ernesto. Thank you for having the call today. Let me tell you that inflation in Mexico has been going down, at least the reported headline inflation in general. However, the one that affects our cost, that is higher between two and four points, so that will continue to be the case. As Bernardo indicated, we have taken the price, the prices that we need to take. It will take between probably three to six months to start seeing the reflection of the price, overall.
We are confident that we are taking the right, and we're making the right moves to ensure that we see the inflation point, in the times that Bernardo indicated at this time.
Okay, for now, thank you very much. Just a couple of more questions. One is on your investment portfolio. We noticed it continued to perform a yield below Cetes, and I believe this is because your new passive investment strategy has forced you to sell several equity positions. I just wanted to understand if you have already clean up all the past equities portfolio, or this is something that's still maybe for another quarter? When do you expect the yield of the investment portfolio to be in line with Cetes? Then my last question is on your ROE. Just if you continue to see the ROE of the year at between 18%-20%, and when do you see it in the long term? Thank you.
I'll take the first one regarding the portfolio. I think it's not surprising to see our ROE, ROI still below Cetes, just because of the curve and accelerated increase of rates that happened, no? We have had always a fixed amount, and even if, when we decreased the duration last year, we were at 0.6-year duration, we held some positions with a lower fixed. I think it's a sequential progress of our portfolio. Yield to maturity has consistently been increasing quarter after quarter. As we said, we're now at 9.3, lower than that Cetes. There're 2 components to this. One, remember that when I said 9.3, that is the combined of the portfolio, which includes over $300 million outside Mexico, and that is not related to Cetes. There's 1 mix factor.
When you exclude and you only focus on Mexico, that is closer to the 10% yield to maturity, that is much more closer. We turn the corner on interest rates, Cetes start going down, our portfolio duration will still benefit, no? I think it's an expected difference when we are now currently below Cetes, no? We will continue to be. As the interest rate evolve, we will turn the corner, we'll see our portfolio above that interest rate, we expect that to happen in 2024, no? I think that's an important piece because as we manage the portfolio, this particular piece has nothing to do with equities. Let me go to equities. As you know, we went less aggressive on equities.
We went down to equities positions to close below 9%, last quarter. We're now retaking some equities position. It's now on 9.5%. What's gonna happen is it's also gonna continue to go up, but in a different way, no? I believe last quarter, we expanded our changing strategy for portfolio investments. We're no longer gonna go stock picking. We're moving into ETFs, which will provide less volatility.... We're doing that also sequentially. It is not that we went and sold every single position that is being happened, and that is being transitioned in last quarter. You could expect that our equity exposure will increase in the next quarter, with an endpoint between 15% and 20% of the portfolio.
With that said, I'm hoping that I addressed the investment piece.
Let me just add to what Bernardo indicated. A couple of comments. This quarter, we increased our position in inflation-protected instruments. It's important to note that, Ernesto, as we believe, personally, believe inflation is gonna take more time to really go down. People are very opposed to that. We do know that the second quarter in Mexico, generally speaking, inflation has the behavior like it has had, and it has some impact into our results for the second quarter, no? I think that will help us going forward. The second comment is regarding the ETS. We have changed that. It is very important to know that we are not taking any speculation on that one, and the ETS are gonna take.
With that, we are having a long-term view, no? The long-term view that we are having with ETS is gonna help clearly our portfolio long term, and that's why we are doing that, no? That's the question.
On the ROE, what we see towards the end of the year will continue to be slightly lower than 20%. I'd like to ask, I'd like to aspire that 18%-20%, I think that's still reasonable. What's more important is, we do stand for the 20% or higher than 20% in the long run, no? That hasn't changed, and not expected to change in the near future. Now, just bear in mind that a higher capital on the denominator has the pull between 2%-3% on our ROE. Okay?
Perfect. Thank you very much.
Thank you. Our next question comes from Rodrigo Ortega. Please state your company name and then ask your question.
Hello, guys, this is Rodrigo Ortega from BBVA. Thank you for taking my question. Just a quick one. Bernardo, Jose Antonio, you mentioned that there are a couple of competitors leaving out the heavy equipment landscape. Are you guys planning on buying them off, buying their current operations, or is this... I mean, is there any strategy more specific regarding taking this opportunity to grow?
Thank you, Rodrigo. Let me take this one. The heavy equipment is very interesting, Rodrigo, this is a difficult business, and for that, you need to be an expert to do that. One of the things that we value in Quálitas is the expertise for this type of thing. For us, let me tell you that a couple of years back, we were thinking that some of our competitors didn't know what they were getting into. We thought that this was going to happen. This has started to happen, and that simply is at least confirmation that you need to be good at having this difficult business, which we are experts on, no?
Now, having said that, as you know, we have one of the big quarters in terms of market share for this heavy equipment. What we are doing now is that the companies that have announced that it's not they are not selling their portfolio. They are gonna be exiting, and they are stop on the line. It's gonna be a gradual situation that is gonna happen. We know and we believe that we are better positioned to take the exit dive, but it's gonna be, it's gonna be gradual. Now, the good thing about this is that this will become some sanity into the pricing part.
A lot of what happens when our competitors enter in the past two-three years into the heavy equipment, they were doing it with pricing. We knew that that was not going to be good, no. That has already been the case. The good news is that the fact that the market is becoming to sanity will also help to improve, actually to correct the pricing, that's it, no. Let me tell you, I've seen several examples in the case of Quálitas, where even some fleets go to competitors because they charge less, only to come back to Quálitas between two, three, or four months, go back for the service that we are, no.
The short answer for you is, no, there is not gonna be a portfolio sale of those, and it's gonna be a gradual situation.
Thank you very much. That was very clear.
Thank you. Our next question comes from Anand Bhavnani. Please state your company name and then ask your question.
Yeah, Anand from White Oak . Thank you for the opportunity. 3 questions from my end.
First is, if you can give us, loss ratios by segment. The retail, the trucking business, and, the institutional business.
Anand, good morning. We don't necessarily break down the loss ratio by segment. We obviously have it, no? I'll give you some color. Right now, they're all basically struggling at the same rates, you know. I think fleets was a little bit behind and taking some action, and that already turned the corner. The one that takes a little bit more time is financial segments, you know? Given that what we write there, it's for multi-years. As I included in my remarks, as we have higher exposure to annual premiums, the highest they've been at least in 70 years, it gives us the flexibility to adjust before. I think just, we're all taking actions in the three parts, fleets, individual, and financial institutions for new cars.
I think the first one to turn the corner has been fleets, which has stabilized.
Let me add to what Bernardo said, that usually the individual segment tend to be a better one and a more stable one. There are less swings in the indexes, generally speaking. We are moving in the right direction from that regard.
Just to wrap it up, obviously, we summarize at a very high level. When we come to execution and being the one specialized company in the market, we break it down by CPO and then by segment, subset. Also we have motorcycle, we have pickups, we have SUVs, we have a traditional car, we have buses. The pricing effort is a very diligent and very detailed one, you know. When you hear us talking, we keep it at a very high level, summarized, but the pricing actions and analysis goes very to the detail as no one else is doing at the maximum. Thank you. By the way, we're aiming for the same margins across all segments, so we're not expecting to subsidize one segment with the other.
Got it. Got it. You spoke about two players with combined market share of 10% exiting the fleet business. Do we have timeline by what time they are planning to exit, and has the sale already been announced, or is it just the intention to exit?
They announced this on July 1st. They did not go public with that. They announced it to the market through their agents. That happened on July 1st, both of them, no. As we mentioned, and also Antonio expanded quite a bit on that, yes, they account for 10% market share, and we're not doing anything crazy to get to that market. It's gonna be gradual, and as they renew, Quálitas will be there to offer a good value proposition, although we anticipate it's not gonna be at the same price they got it last year.
Let me repeat that the benefit of that is really that it will become some sanity into the giants in this part of the market.
Okay. If I heard correctly, this business, they are exiting by stopping issuance of policy. They are not selling this business, right?
Yeah. They are not going to do more underwriting those, and that's why the way they are.
Yeah.
Obviously, the portfolio that they have, probably we don't know it's going to remain or not, but it's likely that it is gradually gonna go down.
It's not fleet necessary, it's heavy equipment. In most of the cases, fleet-related, no, but it's heavy equipment.
Okay. Lastly, from the perspective of our market share gains, this 10%, which is up for grabs, should we expect over the next three, four years, our market share to be, let's say, 34%, 35%? Maybe we get 3%, 4% of this. Would that be a right expectation in three, four years' time?
I think it's a fair expectation. Obviously, we will try to be the insurer of choice for these customers that no longer have those options. Market share has never been our goal. No. I think it's a fair expectation that we may get some of that account if the pricing is right, and they're aiming for value, not necessarily just the cheapest. I think, we will see that in the next quarter. We're starting to see. I think in one-two years, let's see how other players react as well to this 10% market share, which will be up for grabs, as you said.
Thank you. Our next question comes from Andres Soto. Please state your company name and then ask your question.
Good morning, Jose Antonio and Bernardo. Thank you for the presentation. This is Andres Soto from Santander. My first question is regarding competitive dynamics. It is clear that your competitors are struggling. It's quite impressive, the number that you share regarding the underwriting results being positive just for one of them. When I look at your market share, I see that your market share this quarter was at 30%. You had reported 32% last year. I'm not sure if that 32% referred to the end of last year or an average for last year. That will probably the first question.
Understand, within your segments, where you see the more aggressive competition, and if you expect these to change any time soon?
Thank you, Andres, for joining the conference today. Let me tell you that there is some cyclicity or some seasonality on this thing of the market share. As Bernardo indicated, just a few minutes ago, we are not targeting market share, and it is very, very important for all of you to understand. We have always said that we are gonna have service and that the excellence in service, that it is our key pillar in Quálitas. As long as we do that, we will see the market share moving. We are not targeting for market share, and that's very important, no? The dynamics between sectors, I mean, it varies. I mean, it depends.
I mean, you know that with the sales of new cars increased 22% for the first half of the year, it will depend on that, no? We continue to be in the low 40s and mid-40s in terms of the heavy equipment, and the most important one are really fleets, the ones that are moving more. Because in fleets, there was a huge competition, right, in the last two or three years, because some of the entrants wanted to grab a share of the market. Now, they are exiting simply because it is not a easy business to do. The dynamics are that, but we are not targeting for share.
We are targeting for growth and profitable growth, which is why we have one of the best financial performances in the industry in Mexico.
Understood. My second question is related to the health insurance business. I we saw some reserves being built already in your balance sheet. I would like to understand how the business is progressing in terms of underwriting and what are any preliminary results that you can share with us?
Andres, just on your first question, I think our share target for this year will be the same as last year and same of next year, which is as high as it can be, as long as it's profit, you know? We have never had a number, and I don't think that we will ever set a number as far. Now, just on the second question on health, I think, as we said, it's an entry into a new market. Our intention on the first year was to learn and adjust, and we're doing so. Now, our product, QContigo, it's not only a product that is different, but it's also different to the ones that in the market, it's different to what our agents have had in the past. There's a learning process.
Through this learning, we've also have recognized that having collective also, so for companies, was something that they wanted, you know? That's something that we have assessed, we have adjusted. We're now offering this, and I would say things are working as we planned them. There's not a major, neither highlight to be shared on positive nor on the negative. It's an ongoing process.
It is a very small business, Andres. It is a very small business now. We had anticipated that over the next two or three years, it's gonna be small, as we are not the experts in that segment. We are learning. We're making sure that we have the right product. We are focusing on the, you know, the level CC plus for the population. This will take some time, and so far, it does not have a significant, nor it will have in the next couple of years, for Quálitas' overall results.
Perfect. Thank you. Finally, if I may, can you please repeat what are your expectations for loss ratio and ROE for the full year 2023? The line was breaking up when you were making that comment.
We did not disclose a specific number, but we said, and that has been consistent in the past, is, we will be ahead of the 62%-65% range for the year. We're expecting more to be in the 68%-70%, but the last quarter should yield some good reference as an indicator on what we will see in 2024, and that should be closer to the high end of our own point, 62%-65% range. For ROE, we remain on the slightly lower than the 20%, like in the 18%-20% for the end of year.
Perfect. Thank you, Bernardo and Jose Antonio.
Thank you. Our next question... Oh, actually, that hand was dropped, so I'm gonna pass the mic over to Santiago Monroy, who will be taking the Q&A box questions.
Thank you, Daniela. We'll start with the written questions. The first one comes from Javier Eguiluz, from Bolsa Gestión. Hi, thanks for taking my question. How much more will you need to raise prices to recover previous profitability levels, and when do you feel this could take place? Muchas gracias.
Thank you, Javier. Let me tell you that this is a dynamic process that we are having, clearly, and this is related to the cycle of the industry. If you look back to the last 14 years or so, there have been a couple of cycles. This is the third one in which the claims level and the combined index is at the highest. It is a matter of the cycle now. Having said that, we have already priced what we believe it's gonna be the one that is okay. It is something, and as Bernardo indicated earlier, we have many, many categories to look.
We have to been doing that over the past, what, over the last year, last 12 months at least. We will see the benefits of the latest increases in the next three to six months, and we expect that we are gonna be seeing that very well, you know? I believe also Bernardo mentioned that we are gonna be at the beginning of next year, by the end of this year and the beginning of 2024, we are gonna be in what we expect to be, as you said, to recover our profitability next, no? From the operating side.
Thank you, Jose Antonio. We'll go with the second question from David Simon. David Simon, could you please discuss your view of the direct-to-consumer channel? What do you think needs to happen for this to become a more compelling channels for the individual segment in Mexico? How might Quálitas position you to align the organization? Thanks.
Thank you, David. I think we alluded that Quálitas is an omni-channel, no. We certainly prefer our agent channel, which has been the one reason where Quálitas has found a better way to reach consumers. We have offered for many years direct channel that it currently represents around 3% of the business. We believe this is not something related to Quálitas reassurance actions, but more in the an embedded tradition and the way Latin America, and including Mexico, has seek its insurance. We look at agents as a way to provide advice and also as a reference, we don't fall into the trap of pricing.
I think it's a changing behaviors, may take decades, and, as a proof of that is over the past five years that we have had this direct consumer channel, it still represents a very marginal piece of our business.
Let me add to that one, that, we in Quálitas, we are not selecting the way in which we distribute our products. We offer all channels to make sure that our consumers pick the one that best suits their needs, no? As Bernardo said, this is more of a idiosyncratic, if you will, way in which the market works. Again, we offer all possibilities to our potential customers, so we are not forcing anything onto them.
We'll go. Thank you, Jose Antonio. We'll go with the next question from Inigo Vera, from Jefferies. How do you see your operating margins, minus operating profit to earn premiums over the next 12 months? Thank you.
Inigo, it's still gonna be low. No, I think it's in the low, low single digits. It will sequentially continues to improve. I think we currently stand at 2.5%. We do expect that to partially increase in the next quarter, but it's not gonna be above that mid single digit, no?
Thank you very much. I think we have time for one extra, one more question. It's anonymous. With more than two questions that I would like to, I would like to like and be thankful for group addressed within Q&A. If negotiations with suppliers have been already taking place, when it could be fair to expect this to have a positive effect on the performance of claim cost? Could you please develop further about performance within Bedwell and the U.S. divisions, and how a larger share of electric vehicles within insured units could affect the operation of the business and characteristics of insurance terms and conditions?
Okay, let me take the first one about the positive effect of suppliers. This is really something that we have been working on. Clearly, we work with all manufacturers, all car manufacturers, so all of them, and they have different ways to manage. Clearly, what we have been doing is we are closer, as the largest car insurer in Mexico, we, they listen, so to speak. They, this year, they have increased costs despite the fact that the dollar or the peso has appreciated, no? We talked to them, and they told us that they do that for the whole country.
Because of our size and the way we manage, we are able to get very better conditions for that. It is difficult to say, as we have, you know, dozens and dozens of manufacturers we work with, but with the largest ones, we are having good progress on this one.
Obviously, the effect on claim cost will be gradual as I have indicated earlier.
I'll take the next two questions. First, on the international perspective, as I mentioned, what is Latin America countries, El Salvador, Costa Rica, and Peru, they're doing very well. They grew over 50% in local currency. We're gaining share. We're making the business profitable. Just as a reference, Costa Rica for the first time reached 15% market share, and all of them are growing in insurer units over 25%. I think it's, they're in good shape, they're extended rating, and we're very happy with the progress. In the U.S., it's a turnaround story. They're down 22% for the quarter.
You know, when you see the mix, it's exactly as we would have hoped, no work plans. The domestic products are down 57%, so we're selling less than half of what it used to have, while the cross-border is up 15%. I think that is the way we expect the business to continue evolving as we seek for going back to the roots, having a cross-border or binational point of difference, and that's where we have a right to win and a competitive advantage. Just very quickly on the last point, how would a larger share of electric vehicles with the ensuring units could affect operation? I think it's a reality that we will continue to see hybrid and electric vehicles, taking a bigger percentage of the new car sales.
We are learning, you know, we are positioning Quálitas to be the insurer of choice. We do not have a different goal in terms of profitability for electric vehicles than we would have for the balance. As I said, it's a learning process. Even our auto shops and dealers are learning how to read any damage for the car. I think Quálitas will once again prove that we have the scale and the right people.
Thank you. That's all the time we have for questions today. However, if we couldn't get around to answering your question at this time, please contact Quálitas' IR department, who will gladly discuss these with you. This concludes today's conference call. Thank you for participating, and have a pleasant day.