Linea Directa Aseguradora

Good morning and welcome to Linea Directa's first quarter 2024 results. This is Beatriz Gizar, Head of Investor Relations. It's a pleasure to have here with me Carlos Rodríguez Huarte, Linea Directa's CFO. Let's start by reminding that we started to report under the new accounting standards IFRS 17 and 9 last year. Yet, in order to meet the different needs of analysts and investors, we are also providing in the Excel Financial Supplement local IFRS 4 figures in addition to IFRS 1709. We will continue to do so all around 2024 and even further should you need it. As always, the Investor Relations Department is here to help you with the transition and a full reconciliation has been included. Nonetheless, please recall that IFRS 1709 doesn't have much an impact on our accounts and does not change the way we manage our business. With this brief introduction, over to you, Carlos.

Thank you very much, Beatriz, and good morning to all of you, and thank you for joining us. I will go straight to page number five. 2024 has begun with the consolidation of profit and a change of trend, which we anticipated on the second half of 2023. Gross return premiums were up a solid 3%. By line of businesses, net insurance income, which is equivalent to the former net premiums earned under IFR's score, were up 3.1% in motor, 4.5% in home, and 7.9% in health. It is not worthy to mention the acceleration of growth in the health segment. Policyholders, on the other hand, dropped 4.5%, alongside the hardening of subscription for the most aggravated risk not updated in the first quarter of last year. Combined ratio dropped to 97.3%, 9.5 points better than the first three months of 2023 and also improving over the fourth quarter of 2023. Expense ratio keeps on improving due to our continuous efficiency roadmap based primarily on digitalization. Capital position remains very robust at 183%. Turning now to page number seven, insurance revenue were up 3.4%, with a solid contribution from all line of businesses. Technical profit stood at 6.3 million euros, confirming the positive trend and the success of the action plans in which we focus on insurance margins. Loss ratio dropped by 9.1 percentage points and expense ratio a further 0.4 points. Correspondingly, combined ratio dropped to 97.3%. Investment result was up 10%, mainly based on higher income from the fixed income portfolio. Credited interest, which is shown separately from investment result for clarity purposes, is the financial unwinding of the prior year discounting of the provision for claims incurred. The unwinding was an expense of 2.2 million euros for the first three months of the year. All things together, profit after tax stood at 10.1 million euros, as compared to the loss of 5.3 million euros over the same period of last year, a remarkable improvement of 15.4 million euros. Turning to page number 8, as usually, we break down premiums and policyholders by line of businesses. It is not worthy that the acceleration of growth in health, both in premiums and clients. On the negative side, hardening subscription and risk selection had an impact on policy count, especially on motor. Turning to page 9, in motor insurance, in the quarter, we made individual adjustments to the most aggravated risk in the portion of the portfolio not updated in the first quarter of last year. As we have seen, this had a toll on policy count. Combined ratio on the positive side had an improvement of 10.3 percentage points. This phenomenal positive evolution is the result of great actions that continue to earn through our book, the excellent management of claims and a strict control over dispensers. We can securely say we are back to technical profit, although not to the levels we would like to. Turning to page 10, in the home business, premiums were up 4.4%, despite great actions also triggering some sliding effect on retention. The company is very much focused on innovation and on its multi-product offering, with the launch of specific offerings to our clients, such as the Car Home Formula and the Carefree Home Policy. Combined ratio was strong at a 96.6. Several fire claims affected the loss ratio. The cost ratio continues to have an outstanding trend on the back of growing business volumes at the same time as expenses keep on declining. As with regard to the health business, premiums accelerate its growth to 8.7%. Combined ratio also had an outstanding performance, specifically on the expense ratio. And this is precisely the area we know we need to improve the most to reach our break-even goal. As I commented on previous calls, the integration of health under the Linear Direct Umbrella brand is generating efficiency in both marketing and operational sites. Full disclosure on combined loss and expense ratio by line of businesses is provided in page 23 and also in the Excel financial supplement. Please, let's move now to slide number 12. Loss ratio continues to improve and stood at 75.1, 9.1 percentage points down from last year, with motor leading the improvement with adjustments on the own damages frequency, subscription, and claims management actions. Further, home and health posted lower frequency, although we have seen some increases in the cost of claims. Turning to page number 13 on expenses, the company keeps on being completely focused on our efficiency roadmap. The development of expenses has been exceptional along with growing business volumes. The trend in both acquisition and administrative expenses remains excellent. Turning to page 14 on financial results, investment result was up 10%, mainly driven by higher income from the fixed income portfolio. Excluding realized gains and the mark-to-market of investment funds, which, as you know, adds volatility, the financial result will have grown by almost 27%. As usual, we are providing the credited interest in a separate line for clarity purposes. On slide 15, we disclosed the portfolio composition, the movements that flow directly through equity, and some other metrics. The message here is that the overall yield of the portfolio increased to 3.1%, excluding net realignance gains. The overall duration of the fixed income portfolio is 2.9 years. Moving on to our solvency position. Solvency margins remains very solid at 183%. As with regard to eligible own funds, we have positive contributions, earnings, the development of the portfolio, and finally the provision for premiums. For its part, SCR increased by 6 million euros in the quarter, driven by market risk. The increase in the symmetric adjustments posted by regulators and a greater exposure to equities explains the vast majority of SCR movement. To conclude, in 2023, the company implemented many actions needed to adjust our business to the complex macro and micro sectors. a scenario of the insurance sector. We knew, and we shared this with the investment community, the short-term negative impact on the company's financials. But we also knew that those actions were appropriate for the future well-being of the company in the medium-long term. Now, although the market environment is still quite complex, we have started to see the result of past actions with an encouraging and consolidated change of trend, yet still much is to be done. Thank you very much. And now I will hand the call to Beatriz to begin here.

Thank you very much for the presentation, Carlos. First, we'll begin with the questions received from the conference call.

Thank you. Ladies and gentlemen, we will now begin the Q&A session. If you'd like to ask a question, please press star 5 on your telephone keypad. If you change your mind, please press star 5 again. Please ensure that your device is unmuted locally before proceeding with your question. And our first question comes from the line of Max Missing from JB Capital. Please go ahead.

Hello, good morning. Thank you very much for the presentation and taking our questions. I have two. The first one is on the evolution of the customer portfolio. Motor has declined in the first quarter, and I was wondering if you expect more declines in the coming quarters, and what should we expect for the whole year? And given that the pace of reduction in the number of customers has reduced, can we conclude that you're being less aggressive with increases in premiums for renovations? And then the second question is on the combined ratio. Assuming we have no major shocks in the market, what kind of evolution for combined ratio do you expect for 2024? And if you could share some color in your thoughts for 2025, that would be very helpful.

Thank you. Muchas gracias, Max. Well, in terms of customer evolution, it is true that if you take a look at the first quarter and you compare that to last year, I mean, we have lost throughout the year over 140,000 clients. I mean, we knew that trend that we'd keep on the first quarter. I mean, although we lost... fewer clients than before. But given the fact that we needed to update pricing to the portfolio of clients on the first quarter, remember that looking forward throughout the year, I think you should expect an improvement here. I mean, we are not happy about losing clients. We are happy about defending the market, but not losing clients. So towards the year, especially on the second half of the year, you should expect an improvement on that. Have we been more relaxed on pricing adjustments? I might say no. I mean, if you take a look at the price adjustments of the portfolio and on the new business, we have maintained more or less the same strategy as we did last year. I mean, looking forward. Once the entire portfolio has been updated, you know, well, we will see how we adjust pricing looking forward. I mean, still CPI is there. CPI is in the name of 3%, 2.5%, and we have to take that into consideration. And in terms of the combined ratio, I think the combined ratio for the first quarter has been superb. I mean, even better than we expected. It's not only a matter of the premiums, but it's also a matter of the management of costs. I think claim cost has been managed quite, quite well. And average cost per repair has improved quite a lot since the second part of last year. What we should expect on 2024? Well, I said that our first goal was to try to reach a 94% level on combined ratio. We'll see what happens throughout the year. Probably you shouldn't expect that on an entire year, but in some isolated or standalone quarters, you should expect that. And 2024, well, that's the million-dollar question, but I think we should be shooting for those levels of 94, 95 for an entire year.

Thank you very much.

Our next question comes from the line of Thomas Bateman from Beringer. Please go ahead.

Hi, good morning. Thank you very much for the presentation and the excellent results. Could you just give us a little bit more colour on the claims trends in Q1, both on frequency and severity? I think you talk about the easing of benefit-cost inflation and something on damage guarantee. Can you just give us a little bit more colour around those movements? That would be really helpful. And on health, I guess the number is still a little bit volatile. What kind of guidance can you give us for this business over the next couple of years? Thank you.

Thank you very much, Thomas. In terms of the claim side of the business, especially on the motor business, I think the quarter was very, very good. I mean, frequency was very much in line as we expected. Probably a little bit worse on the own damage frequency because clients who leave the company, they decide to fix the entire car, so frequency was not very good there. But, of course, the weight of this guarantee on top of the entire guarantee is lower, so Frequency performance was very good. Severity was very good, better than we expected, even though in Spain, in general terms, we have seen that accidents have increased quite a bit. For Linea Directa, severity, I think, was better than we expected. And then average cost, which was really, really what was driving our claims costs throughout 2023. I think we did a very good exercise in terms of managing costs, and the increase in average cost per reclaimed was very much flat as compared to last year. In terms of health, I mean, health, we decided last year to take a different approach, integrating the health brand into Linear Directa. I think that really started to pay off. We didn't see still the beauty, the entire beauty of that, but we should expect that to see alongside 2020. expense ratio really went down, benefiting from the signages from the rest of the business. And in terms of growth, I think the first quarter gross return premium growth was better than the market. And you should expect that evolution to keep on going. We'll see what happens on the second part of the year. That, as you know, 60% of the volumes, they come from September to December. But as of today, We are very positive for the trend on health. We are shooting for that break-even. As I said on the call, it is mandatory that we manage expenses, you know, because the rest of the numbers of the health business are going well. Growth is going well. Frequency is performing quite well. Cost of claims is below average of the market. So all indicators are very positive. And, well, we have to wait until the second part of the year, but evolution is very, very much positive.

Thanks very much, Carlos. Our next question comes from the line of Carlos Pichotto from Cashabank BPI. Please go ahead.

Hi, good morning. Just actually a quick question on payout policy. So now that you're back to profits, How should we think a bit about it going forward? And basically, do you expect to resume the trend of quarterly dividend repayment already with profits at these levels? Or should we expect that to take place only once net profit becomes a bit higher on a quarterly basis? Just to have a bit of a color on that. Thank you very much.

Thank you, Carlos. Well, I wasn't expecting this question. I'm a little bit surprised. So in terms of dividends, well, I think taking a look at Linear Direct, I think this is a company with an objective of providing dividends to our shareholders. It's something that happened throughout the years since we were listed. I think we were in a 90% payout. So that's the intention of the company is still to be a company with a high distribution of dividends. But we also think we have to do an exercise of being cautious, you know, and try to consolidate, you know, the good numbers we posted on the first quarter. And I think the board in those grounds, I mean, what is expected is that consolidation to take out throughout the year. And once we see that consolidation comes in, the company probably, if the board considers, probably will go back to a dividend payout throughout the year. I think retribution for shareholders, it has to be looked on a yearly basis more than a quarterly basis. And I think as of today, coming from a 2023 year with losses, I think is very prudent and cautious on the board side, you know, to consolidate incomes and then decide to pay dividends.

There are no further questions from the conference call at this time. I will now hand back to Patricia Sarf, Head of Investor Relations.

Thank you. We will now switch to the questions received through the platform. We just have one question from Paco Riquel. He's asking whether you can give guidance for the combined ratio in MOTO for the full year 2024. Are you accruing in first quarter your best guess for the year, or do you expect the combined ratio to improve in coming quarters as you continue to reprice the portfolio with higher tariffs?

Thank you very much, Paco. I think the combined ratio that we posted on the first quarter results is excellent. I mean, coming from where we were last year and especially looking at the average combined ratio of the market, I think we outperformed probably the market. I think we did our homework last year prior to the market, and the market now is hardening its combined ratio, so I'm very positive on that. Looking forward throughout the year, I think the combined ratio will be very positive throughout the year. I cannot give you a number because I don't have the numbers calculated, but I think claim costs will keep on providing good news for the company. Earned premiums will keep on providing good news for the company, and I expect at least in some standalone quarters to be in the neighborhood of 94%. Is that going to be the end of year combined ratio? I don't know. But I think the evolution that we had in the first quarter is something that we will keep or even improve throughout the year.

Thank you. There are no further questions. So thank you very much, Carlos. And thank you all for taking the time to connect. As always, the Investor Relations Department is here to help you should you have any further questions.

Thank you very much.