Linea Directa Aseguradora

Good morning, everyone, and welcome to our December 2024 results. I am Beatriz Izar, Head of Investor Relations here at Línea Directa. As usual, we'll first walk you through the slides, and then we'll be happy to take any questions you may have. Now, let me turn the call over to our CFO, Carlos Rodríguez Duarte.

Thanks a lot, Beatriz. Good morning and thank you for joining us. Before I kick off, there are a few things I would like to highlight. One is taking a more holistic view on how we are at Linea Directa. Almost four years have passed since the listing, and I would like to remember the context of what we have been through in these years. And I just wanted to take you through some of the macroeconomic headwinds we have experienced. One of them is inflationary environment. In Spain, It was very benign, unstable, and then overnight it skyrocketed. For any insurance operator, inflation is the worst enemy, especially when it comes suddenly and abrupt. This is something we have to tackle. In addition, we have seen geopolitical uncertainties, COVID, and even a war in Ukraine. Besides, the value chain was impacted globally. All things together, there has been a lot of uncertainty around us. At Linear y Directa, we had to manage all these contexts, but at the same time, and most importantly, we have kept working on the projects and initiatives that will take us into the future. So here we are. First, a leading brand, which is the company's largest asset. Our strong franchise is a key company asset and is crucial in driving company growth. Linea Directa is the number one insurance brand searching Google and leading in advertising awareness. We also come with a dynamic media strategy, ensuring an adequate ROE. We are committed to be the reference company in transparency, simplicity, and delivering always good prices. Priority for the next period is to further accelerate the customer experience to earn customer loyalty and drive financial impact. Second, as you can see, Linea Directa is not just the brand. We are committed to bring the direct model to excellence and moreover to bring digitalization wherever our clients prefer to interact with us in this way. 90% of our clients are already digital and they demand best-in-class digital assets. Efficiency and digitalization are an intrinsic part of the culture of Linea Directa. All this translates into an extraordinary expense ratio. We will continue to deliver. Two pillars sustain our ambition, growth and transformation. Our ambition must generate growth and resilient development in our insurance markets, expanding our product offering with less dependence on motor. and notable obtaining understanding returns on capital. We must deliver in productivity and reduction in administrative cost. We continue to make massive steps in digitalization. We have improved our pricing models alongside with continuous improvement in our risk selection. Our technological capabilities are constantly being optimized. We also intend to further leverage the data model to enable better decision-making in the company. I would like to stress our robust solvency and prudent investment portfolio. And finally, nothing of this will be possible without a strong corporate culture and people highly responsive to changing work environment, as recently demonstrated. To close this section, sustainability and ISE are embedded in our day-to-day operations, as shown by the continuous improvements in our commitments, marks, and ratios. Without further delay, I would like to move to section two on results. In page 12, you will find the usual snapshot. We are very happy to deliver an excellent set of results, which are very much in line with our guidance along the year. Business growth accelerated in the last quarter. Premiums grew by 4.8% and 8.6% for the 12th and fourth quarter, respectively. the portfolio of clients multiplied by 1.5 times as compared to the third quarter. Combined ratio was excellent and stood at 94.7% for the entire year and an excellent 92.6% in the quarter. Return on average equity rose to a more than remarkable 19.6%. And we are pleased to propose to the AGM a complementary dividend of 50 million euros. Solvency ratio maintains its strength at 185% considering for that. Let's turn to page number 13. Here I would like to highlight once again the acceleration in the top line. We expect this trend to continue in 2025. we had an excellent combined ratio with outstanding improvements in the claims ratio and very contained expenses. The evolution of the financial result was also remarkable, up 16% with higher income from the bond portfolio. All these led us to a profit after taxes of 64.2 million euros, which compares to the loss of 4.4 million euros over the same period of last year, a turnaround of more than 68 million euros. As with regard business volumes and clients, all line of businesses reported significant growth, both in premiums and policyholders. Growth speed up in the fourth quarter. Moving to page number 15, the progression of the combined ratio was remarkable, from 104.1% in 2023 to 94.7% for the 12 months of the year, down 9.4 percentage points. Loss ratio was the main driver of this important improvement, as the actions carried out had been earned in the income statement. The ongoing effort on administrative expenses also paid off with a progressive improvement. And we also achieve greater efficiency in customer acquisition. Now I would like to move to a more detailed explanation of my line of businesses. In motor, we further accelerate growth in the fourth quarter on the back of improved sales and retention. Premiums grew by 8.2% in the fourth quarter. The combined ratio stood at an excellent 94.8% and 93% in the quarter standalone. Also, the home line of business accelerated its growth in the fourth quarter. Clients multiplied by 2.5 times versus the third quarter, and premiums rose by 8% year on year. Combined ratio was extraordinary for the year and for the quarter, and it stood at 88.3% and 84.1% respectively. Moving to page number 18, in the health line of businesses, it has been a success to sell under Linea Directa brand and incorporate the health operations under the same company umbrella. We were also able to cross sell significantly to our portfolio. Health posted an outstanding growth of more than 17% in the fourth quarter, and the mix benefited from more comprehensive products. This growth was not at the expense of risk appetite. We have cemented our underwriting discipline and risk selection, and frequencies were lower than those of last year. Moving to page number 19, financial result was up 16.6%, driven mainly by higher income from the fixed income portfolio. As usual, we show the credited interest in a separate item. Remember that this reflects the financial unwinding of the claims provision for the prior years. The increase is explained as 2023 was a year of higher interest rates. As with regard to the investment portfolio, no major changes, only to mention corporate bonds have gained some weight in the portfolio as we were seeking for higher yields. The return of the portfolio stands at 325 basis points, and average reinvestment yield stood at 355 basis points for the year. Moving on to our solvency position, solvency margin stood at 185.4%, This is taking into consideration the proposal of a complementary dividend for an amount of 50 million euros. If this additional dividend is approved by the AGM, payout ratio will stand at 72% for the year. The breach of own funds basically show the positive contribution of earnings and the deduction of both, the 50 million dividend pay on December 19th and the proposal of the complementary dividend for another 50 million euros. Then SCR remains stable in the quarter. On the one hand, we recorded lower market risk on the back of reduced equity exposure and the decline of the symmetrical adjustment provided by the European regulator. On the other hand, non-life risk was steady with two opposite effects. As of year end, we updated the specific parameter. The USP improved due to lower volatility and improved combined ratios in the motor line of business. The increase of SCR due to increased business volume was more than offset by improve of USP. To conclude, December results were strong. The company was able to accelerate further client and revenue growth while improving considerable its combined ratios. As I commented at the beginning of my presentation, we had to tackle in the past with inflation and plenty of uncertainties. But most important of all, we didn't overlook projects that will take us into the future. Our customer-centric strategy and the capabilities to further accelerate growth and transformation have been built. I think the company is better prepared for 2025 and the following years. We have now a better company to succeed in our growth ambitions. I will now hand the call over to Beatriz to begin the Q&A session. Thank you.

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

Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, please press Start 5 on your telephone keypad. If you change your mind, please press Start 5 again. please ensure that your device is muted locally before proceeding with your question. Our first question comes from the line of Max Mission from GB Capital. Now your line is open.

Hi, good morning. Thank you very much for the presentation and taking our questions. I have three. The first one, is regarding outlook for motor congratulations on the improvement in the results but i was wondering what should we expect for 2025 if you could guide us for your expectations on growth in the number of clients average premiums and combined ratio that would be very helpful the second is on home portfolio what kind of normalized combined ratios should we expect going forward after the strong force quarter And then the last question is on financial income. It picked up quarter on quarter to 13 million excluding expenses. And I was wondering if this is a result of increase in the investment portfolio and should we assume it as a run rate for the next quarters? Thank you.

Muchas gracias, Max. Thank you very much, Max. Well, the first question, the outlook for motor. Well, I think the evolution of motor throughout the years has been very much in line with what we said at the beginning of the year. I mean, from less to more. And I think you should expect that evolution looking forward on 2025. In terms of volumes of clients, I mean, we have increased the gathering of clients in the third quarter. We have increased... the gathering of clients in the fourth quarter. And you should expect 2025 to be a year of even more gathering in terms of clients. So the outlook there, I think, is going to be quite good. We'll see what happens with the market. I mean, we need to see what's going to do the market in terms of pricing. And so all my expectation is that markets will keep on rising average premiums. In our case, average premiums, again, in an individual case by case, I mean, we will adjust average premiums accordingly to the risk premiums of the clients. So you should expect somewhere increases close to CPI increases. And then in terms of combined ratio, again, I mean, I always say the same thing. I mean, our intention is to keep on improving our combined ratio. I think the combined ratio in 2024 has been More than positive. I think it has been extraordinary, the comeback on the combined ratio. And we'll see what happens on 2025. But I expect improvement on that. Home insurance. Great year in home insurance. I mean, combined ratio in the neighborhood of 88%, which I think is... Very, very positive. I think the market as a whole is going to post a good combined ratio on the home business. But again, I mean, as we get a scale on the home business, you know, and the growth for the last quarter has been very, very strong in terms of 8% growth in gross return premium. that will help us on the combined ratio. So combined ratio should be in the neighborhood of low 90s. And in terms of the portfolio, I mean, the reason of the portfolio and the evolution of the portfolio is because we have taken advantage of the yields, especially on the corporate side of the fixed income portfolio. We also have a lot of liquidity to invest because the growth in volumes allow us to have much more volumes to invest. But we didn't change very much the mix of the investment portfolio, very oriented to fixed income instrument more than equity, equity more or less on the same grounds as last year, and the venture capital and so on very much in line with last year. I mean, the increase in the investment income is due more to more capacity to invest than to change in the business mix.

Thank you very much. Very clear.

The next question comes from Francisco Riquel from Alantra. Now your line is open.

Yes, good morning. Thank you for taking my questions. The first one is on the digital strategy that you mentioned in the presentation. If you can elaborate a bit more on the shift towards digital, how much of the sales are fully originated through digital channels Where do you want to reach and when? Or if the digital strategy is more towards improving efficiency or new business, you can please elaborate a bit more on this new strategy. And second question is on the combined ratio evolution. You mentioned that you plan to increase tariffs closer to inflation. So the question is, how do you plan to improve the combined ratio from the four quarter levels? You expect to improve the risk underwriting further. How can you reassure on this or in the expense ratio? Any efficiency measures that you can share with us? Thank you.

Thank you very much, Paco. Well, I think the second question is very much related as well with the first question. I mean, the improvement of the combined ratio. I suppose you are talking more on the motor business than as general speaking on the company. I think the combined ratio should be improved by improving our expense ratio more than increasing our risk profiling. I mean, the company is very comfortable. in terms of the risk profile that we have on the book. And I think it's not going to be something that will change. On the other hand, I think expense ratio should keep on improving. I think we have improved basically 100 basis points, the expense ratio throughout the last quarter. And I think we should keep on doing that. How? By being more efficient, by being more digital. and therefore lowering our expense ratio. Our digital proposition is not only the goal is to reduce our expenses, it's also to provide a much better customer experience. We really, in the company, are believers that digital propositions, alternative channels provide to our clients, they provide much better customer service to our clients, and they provide more opportunities of selling. As of today, 60% or more than 60% of the selling inquires by clients are throughout digital, even though still today, most of them are closed over the phone. And the idea is to close the loop. The idea is that clients begin their interaction with the company throughout our digital channels, and they close the loop through our digital channels. I mean, in terms of goals, We don't have goals in terms of number or volumes. What we have goals is in terms of focusing the company into that digital proposition, which I think is an opportunity since the market is lagging on those grounds. I mean, Linea Directa being almost always a digital company, we should go into those levels. I mean, what we have done is create specific teams with... employees from different areas that they can focus on maneuvering the company through our digital proposition, and that should pay off in 2025 and ongoing.

Thank you.

And one of the last things Beatriz was telling me, of course, On the combined ratio motor and on the combined ratio home insurance, we have to keep an eye on frequency. Frequency has been quite good throughout the year. Severity has also been quite good throughout the year. My expectation is that next year, nothing should change on those grounds. We'll see what happens with severity. Sometimes it's a matter of luck in some grounds, but frequency should be more or less stable, and that will help us also to keep on improving our combined ratio.

The next question comes from Carlos Peixoto from CaixaBank. Now your line is open.

Yes, hi, good morning. So a follow-up on combined ratio, if I may, on the motor business, which is basically, well, you mentioned that you expect combined ratio to improve during 2025. you're referring to improvements versus 2024 levels as a whole or regarding the fourth quarter on a standalone basis. So just to have the reference on the basis on which you'll be improving upon. And the second question, what I show you in shareholder remuneration, if you could give us some guidelines on how do you expect payouts to evolve or levels to be at going forward. Thank you very much.

When I'm talking about the combined ratio, I'm talking more on a yearly basis than on a quarterly basis. I mean, at the end, you have some sustainability in all these numbers. I mean, I think we close on 94.8 on combined ratio, IFRS 17, and the idea here is to improve that. Where we are going, I mean, I don't have a number to give you. Well, it's something that depends on many things. It depends on frequency, it depends on volumes, it depends on how the market evolves in terms of pricing. Again, I mean, the idea of the company is to keep on improving the combined ratio. I think there is room for that, especially on the expense ratio. I think we are not happy with that 20.1% in dispensation. We need to improve that. And the way to do it is through becoming much more efficient in all we do with clients. So again, that 95% that we closed this year should be improved in 2024. And in terms of payouts, shareholders, remuneration, and so on, Well, after one year that we didn't pay any dividends because we didn't make any money, I mean, we went back to black numbers, bottom line P&L. And what we explained to the market is that this was going to be a year where our board was going to be very prudent in terms of payout. At the end of the year, we decide to pay 30 million euros on 2024 results. And we have another complementary proposition to the AEM that would have 45 million euros, which means 72% payout. I think that is clear a message of the company that this is a company that thinks they go in the right way, should be a company with a high dividend payout. But I don't have a number because, as you know, we don't have a payout ratio, we have a solvency ratio, which, by the way, is in 185, which I think is a good number.

There are no further questions at this time. I will now hand back to Beatriz Aizar, Head of Investor Relations. Beatriz, now your line is open.

Thank you. Now we'll move to the questions received through the platform. The first question comes from Marisa Mazzo from GUE-CEGA-ESCO. She's asking, how much is the increase of baremo for 2025?

Hola, Marisa. Thank you very much for your question. Varemo increase, since pension increases are in 2.8%, the Varemo increase will be 2.8% for the new claims, bodily injury claims, and from the claims that are still on development. Having said that, in the last three, four years, I think the increase in the Varemo has been very close to 20%, so we are quite happy with this 2.8% increase.

Thank you. Thank you for all your questions. We have no further questions. And thank you very much, Carlos.

Thank you.

And as always, the investor relations team is here to help you if you have any further questions.

Thank you very much and drive carefully. Bye.