Earnings Call: Q1 2023

May 30, 2023

Earnings release

Summary

Q1 profit was CLP34.9b, led by financial subsidiaries, while trailing 12-month profit reached CLP157.3b at 18% ROE. Healthcare revenue and activity grew, but RedSalud margins weakened and health-insurance outlook remained uncertain.

Okay. Hello, everyone, and thank you for joining us for ILC's first quarter 2023 results conference call. Before starting, I would like to invite everyone to download from our website a presentation prepared especially for this conference call. The purpose of this document is to go through the main events and achievements for the period, as well as to explain the context of financial figures for each of our businesses. This call will be divided in four blocks. First, we will review the ILC consolidated results for the first quarter of 2023. Then, we are going to analyze our subsidiaries' financial results and main highlights for the quarter. Afterwards, we will do an update regarding our financial position in order to close the call with a Q&A section. Now, if we turn to slide number 5, you see ILC's net income composition. As of March 2023, ILC recorded a profit of CLP 34.9 billion, primarily driven by the results of ILC's financial subsidiaries, especially AFP Habitat, AAISA, Confuturo, and Banco Internacional. Regarding AFP Habitat, it improved its operating results due to an increase in the average taxable income of its contributors. Which, along with a lower loss from the reserve results, generated a profit of CLP 26.2 billion. On the other hand, Administradora Americana de Inversiones, AAISA, reported a result of CLP 9.2 billion, primarily driven by the performance of Confuturo. Confuturo, for life annuities I mean, premiums for life annuities grew by 214% compared to the previous year as a result of a smaller difference in the offered rate compared to programmed withdrawal, along with the introduction of staggered life annuity as a new insurance alternative. On the other hand, the strong performance of its fixed income portfolio was offset by a lower result from foreign investment funds. Regarding Banco Internacional's operations, the growth in loans and advances, along with improved financial operations and reduced risk expenses, resulted in a profit of CLP 12.5 billion. In the healthcare sector, RedSalud has maintained a high level of demand for outpatient and inpatient services consistent with the previous years. Regarding the health insurance sector, after two years of significant negative results due to sustained cost growth, the freeze of base rates in 2020 and 2021, and the payment of extended parental leaves, RedSalud has achieved improved results. This improvement was mainly attributable to lower loss ratio and reduced costs related to medical leaves. Moving to slide number 6, we see that the company was able to generate consistent and stable earnings and ROE over time. This is an important accomplishment, as we were looking for consistent and stable returns over time, a goal that has been already achieved even under extreme situations such as the COVID-19 pandemic. As for the trailing year-end of March 2023, ILC reached CLP 157.3 billion and an ROE of 18%. Slide number 7 shows ILC profit breakdown. As of March 2023, last 12 months income, 42% came from our life insurance business, Confuturo, 25% from AFP Habitat, 18% from Banco Internacional, 10% from health sector, and 5% from AAISA. We are pursuing to reach an even more diversified business portfolio where pension, health, life insurance, and banking sector represent approximately 25% stake each. After this summary of ILC's net income performance, we'll review the main operational events and key financial figures of ILC subsidiaries. As shown in slide 9, AFP Habitat increased by 11.2% in the first quarter of 2023 compared to the same period in 2022, reaching 60.4 billion Chilean pesos. This increase was mainly explained by information associated with mandatory savings due to a 13.6% nominal increase in the average taxable income of Habitat's contributors compared to 1Q 2022. As of March 2023, this figure exceeded the industry average by 21.4%, and all of them offset the 2.8% quarter-on-quarter decrease in the average number of contributors. Regarding the non-operating results, the company reported a non-operating loss for the first quarter of 2023 of 3.3 billion Chilean pesos, compared to 20.3 billion Chilean pesos in the first quarter of 2022. The reduced loss ratio was mainly attributed to a lower loss from legal reserves, mainly driven by improved performance compared to the previous year by funds with higher exposure to equities. As a result, AFP Habitat consolidated profit recorded 26.2 billion Chilean pesos, compared to 12.3 billion Chilean pesos in the first quarter of 2022. Regarding AFP Habitat Perú, its revenues decreased by 2% quarter-on-quarter, mainly due to a decrease in managed assets resulting from pension plan withdrawals occurred during 2022, leading to a decrease of approximately $471 million. Regarding Colfondos, its revenues grew 70.8%, mainly due to a lower cost of the D&S insurance, with a decrease by 20 basis points compared to the first quarter of 2022. Legal reserves profitability for the first quarter of 2023 amounted to a profit of 41.8 Colombian pesos compared to a loss of 1.5 million Colombian pesos in the first quarter of 2022. Slide 10 and 11 show Confuturo's performance. This entity registered 13 million Chilean pesos profit for the first quarter of 2023, in comparison to 37 million Chilean pesos for the same period last year, as shown in slide 10. Regarding the annuity market, the difference between the offered programmed withdrawals and the annuity rate decreased by 53 basis points. It is also important to mention that as of September 2022, the staggered annuity was incorporated as a new pension modality. As a result, the number of people choosing annuity increased by 78% compared to the previous year, while market premiums increased by 65%. Regarding Confuturo, during the first quarter of 2023, net written premiums totaled 235 billion Chilean pesos in the first quarter of 2023, 183% higher than 1Q 2022. This was mainly due to higher premiums for life annuities, as well as D&S insurance. As shown in slide 11, excluding individual saving accounts, Confuturo showed a lower performance from its investment portfolio. Investment results decreased 19% quarter-on-quarter, mainly due to a lower performance in foreign investment funds, partially offset by lower results from fixed income and real estate investments. Now, if we turn to slide 12, we will see Banco Internacional operating performance. As of March 2023, Banco Internacional's commercial loans grew 20.1% compared to March 2022, exceeding the industry average of 77.1%. This resulted in a market share of 1.1 and 2.0 in total loans and commercial loans, respectively. Banco Internacional reported gross operating income of 31.6 million Chilean pesos, 18% higher than the same period of the previous year, mainly explained by loan growth and higher treasury income. In addition, loan loss provision decreased by CLP 4.1 billion compared to the same period of the previous year. This decrease was mainly attributed to improved payment behavior in the commercial loan, as well as the recovery of previously written-off loans. Moving on to slide number 13. In terms of its bottom line, loan growth, higher treasury income, and lower risk provisions led to a CLP 12.5 billion profit during the period, compared with the CLP 8 billion gain for the same period of 2022. As of March 2023, Banco Internacional had achieved an ROE of 20.1%, with an annualized net income of CLP 52 million. Moving on to slide number 14. RedSalud's revenue reached CLP 159 billion in the first quarter of 2023, representing a 10.3% increase compared to the same quarter of the previous year. This growth was mainly driven by higher demand for outpatient and inpatient services. In the outpatient segment, the number of medical consultation, imaging procedures, and laboratory tests increased by 12%, 14%, and 10% respectively. In the inpatient segment, the number of surgical interventions grew by 4.4% quarter-on-quarter. However, with a lower complexity mix. Despite the increased activity, higher personal expenses, primarily due to consumer price index and the increase in the complexity of services demanded, have put pressure on the margin. As a result, RedSalud's EBITDA reached CLP 14.3 billion with an EBITDA margin of 9%, compared to the CLP 18.2 billion with an EBITDA margin of 12.6% in the first quarter of 2022. As a result of the above factors, partially offset by a lower indexation losses as a result of inflation for the period and its effect on the US-denominated financial debt, RedSalud reported profit of CLP 1,879 million for the first quarter of 2023, in comparison to CLP 3.2 billion for the same quarter of the previous year. Regarding the health insurance sector, on slide number 13, after two years of significant negative results due to sustained cost growth, the freeze of base rates in 2020 and 2021, and the payment of extended maternal leaves, the mandatory health insurance has achieved improved results. This improvement was mainly attributed to lower loss ratio and reduced costs related to medical leaves. Cost of sales was CLP 472.7 million for the first quarter of 2023, up 7.2% over the same period in the previous year. This rise was mainly explained by a 38% increase in the total cost of inpatient services and an 8% increase in the outpatient services, partially offset by an 18% decrease in the cost of medical leaves. The number of cost per coverage for inpatient service grew by 40%, while the number of services provided in this category decreased by 1.4%. The average cost of patient services increased by 10%, together with a 2.1% decrease in the number of services provided. As for medical leave, the average subsidy increased by 30.3%, while the number of authorized leaves decreased by 27.6%, primarily due to a lower number of leaves related to mental health disorders and COVID-19-related issues. As a result, RedSalud's loss ratio this quarter reached 87.1%, down 1,360 basis points compared to the same period of the previous year. Regarding Vida Cámara, as shown in slide number 16, Vida Cámara's contribution margin from supplemental health and life insurance for the first quarter of 2023 reached CLP 2.7 billion, increasing CLP 425 million compared to the same period of the previous year. Income from premiums up 19%, mainly driven by inflation during the period and growing beneficiaries. On the other hand, costs rose by 21.4%, mainly associated with increased patient coverage and higher claims in the life insurance. All the above resulted in a 200 basis point increase in the quarterly loss ratio compared to the previous year. During the quarter, the supplemental group of the insurance industry reached $4.5 million in premiums, 5.1% higher than the first quarter of 2022. Vida Cámara achieved 11% market share, ranking fourth in the industry in terms of premiums. As of the end of March 2023, Vida Cámara had close to 400,000 beneficiaries, 5.1% higher compared to March 2022. Sales and SG&A during the first quarter of 2023 increased by 20% compared to the first quarter of 2022, reaching CLP 2.9 billion. This was mainly due to higher personal expenses associated with the CPI effects. Accordingly, Vida Cámara reported a quarterly profit of CLP 678 million for the first quarter of 2023, compared to CLP 934 million achieved in the same period of 2022. Now, in order to conclude our first quarter results conference call, please turn to slide number 19. Finally, with respect to our ILC debt amortization structure, after the issuance of $300 million in international debt in February 2022, the company has repaid a portion of its local and foreign debt. Today, it has taken out seven currency swaps for up to $202 million, and has managed its cash position through investments in instruments that help us to reduce financial costs and maintain ample liquidity to meet future obligations. This concludes today's presentation. We will now open the floor up for questions. If you have any question, you can send us a message on there and we can Hey, so I just checked the website and apparently there was a problem uploading the presentation, which we'll be Yeah solving after the meeting. Just to answer the questions regarding that. I'm sorry for the inconvenience. Okay. There's a question regarding administrative expenses in RedSalud. Administrative expenses in RedSalud grew close to 30% quarter-on-quarter, mainly due to a CPI inflation during the period that is very attached with the workers in the hospital. Also, there's an impairment of some receivable accounts. This is not something to worry about. It's something related to FONASA, the public insurer, that sometimes takes some time to pay, but it's not something, as I said before, to worry about. We expect this increase of SG&A to tone following what is trending in the year. Just to complement on what Gustavo just said, around half of the increase in SG&A as a proportion of revenue was due to personal expenses, and the other half was due to impairment. This compares with a higher duration of impairment in the first quarter in 2022 due to an extraordinary payment from the public services, the hospitals, due to emergency law. That is part also of the explanation in the increase compared to the first quarter in 2020. There's another question regarding the mandatory health insurance business. I sum up all the questions in one answer. Currently, what we can say is there are two bills in the Congress aiming to address the ruling, one sent by the government, another supported by a group of senators. The discussion is starting in parliament, so we cannot anticipate whether it will have an impact on our operation or not. Further details of this topic is on our risk analysis, which you can find in our MD&A in the risk factors analysis section. A question regarding the profits of Consalud. They are normal occurring profit in the subsidiaries. Regarding the health insurance sectors, after two years of significant negative results due to sustained cost growth, the freeze of base rates in 2020 and 2021, and the payment of extended parental leaves, health insurance sectors has achieved better results. This improvement was mainly attributed to higher inflation for the period, as you may know, the contracts are inflation-related, and a lower loss ratio and reduced costs mainly related to medical leaves. It is too soon to tell that this will be obtained, because together with, as I mentioned, it is an important increase in the inflation cost. I cannot anticipate if these improved results will maintain during the year. There is a question regarding RedSalud also, Gustavo, that maybe we can address. Okay. How the health insurance has impacted RedSalud operations as of the figures at March 2023. Accounts receivable are in a healthy state, in a business as usual state. We have also been seeing a sustained participation of FONASA in the revenues mix. Around 45% of RedSalud revenues come from the public insurance. This is good news because it has been a trend that started with COVID-19 and has been sustained and is almost permanent in the revenue mix of RedSalud. Also with healthy accounts receivable from FONASA as of March 2023. This is how we have seen as of today an impact in RedSalud operations in the current context. I do not know, Gustavo, you want to complement with something? Thank you, Rosario. Well, I see there are no further questions. With this, we conclude. This is everything for today. Thank you all for attending this conference call. It is important to remember that we are always open to answer any further questions. Just feel free to contact our IR team. Have a nice day, and we hope you and your families remain healthy. Goodbye, and see you next quarter.