Grupo de Inversiones Suramericana S.A. (GRUPOSURA) Earnings Call Transcript & Summary

Good morning. Welcome to the presentation of results for the first quarter 2021 for Grupo SURA. We have 2 items on the agenda. First, it's a prerecorded session in which we'll be presenting and explaining the results for the company. And the second is a question-and-answer session live where you will have questions and answers for you on the attendees. Gonzalo Perez, President of the company; Monica Guarin, Vice President of Human and Development; Ricardo Jaramillo, Vice President of Business and Finance Development; and Carlos Gonzalez, Manager of Investors and Capital Markets. And on the [indiscernible] we'll have Carlos Oquendo, Vice President of Corporate Finance from SURA Asset Management; and Juan Fernando Uribe, Vice President of Finance and Investments from Suramericana. Welcome, and thank you for connecting, and I'll give the floor to Gonzalo Perez.

Thank you, Andres. A very cordial welcome to all of those who work with us for delivering these results for the first quarter 2021 for Grupo SURA. We'd like to start by highlighting the strategy of the company. As we mentioned in previous occasions, 2020, the pandemic proved that the strategy for Grupo SURA is a strategy that was able to withhold these stress tests for such special years like 2020. In 2021, the first quarter, the strategy continues to demonstrate its strengths, and you will see that in this presentation of results. First about the strategic objectives. They are very clear for us, in which in addition to that, we're consistent on creating economic value for the shareholders and investors, and at the same time, creating harmonious value for society. We can say that during this first quarter, we're able to do that better than we expected compared to the results for the companies and for the group. We've managed higher economic value from -- higher than we had budgeted, but also we moved forward in the creation of harmonic value for society. We've been -- point three, we have less of fatality of lower than the rate in the country and around the world -- for the entire country. This is creating harmonious value for the company and for society, how we can create economic value and harmonic value for the society, providing health, and that is also creating competitiveness and productiveness. We also -- at SURA Asset Management, the increase of COP 1.9 billion in the group's -- has been very significant and is part of all that creation of our monetary value. But also, as you will see in companies such as AFP in Peru have a given out freely for people who didn't have coverage for survival and disability. We're getting that coverage so that they could continue to increase the savings with the company. These are very specific examples of creation of harmonious value, which we will continue to do every day. But we wanted to bring them here because it's -- this is when we're achieving these 2 strategic objectives that we have declared, creating economic value and social value. Both objectives together have to lead to sustainability. It is necessary to be sustainable in the medium and long term in any industry, in any society that is not possible if we don't have a very [ impressive ] development in each company where we are operating. And also very positive, the response to the creation of value for the people and for companies. They have some results and growth in revenue for companies. And we have some consolidated income of 13.7%. You know better than anyone that several times the rate of inflation, and that is positive. We saw that even before we saw the dynamics, we had to create lives to take care of jobs, and we did that and we increased that in this part of the support of our economic reactivation. But in addition, we had to [ surpass ] our value to our companies positively because that's when we needed the most for this industries. We've seen that the growth that we saw last time where we had last year revenues for the company was higher than the inflation even in spite of the pandemics, but that growth of 17 point -- 13.7% is an improvement. This is a real value for helping people who are members of the companies where in Grupo SURA has its investments to the extent that we have clients, consumers that are not aware and we can create some value for them. They can also continue to build sustainability for the company. Also, we've worked on operating efficiency, not as a management of expenses, but also improving our strategy, enabling that, creating -- people closer to the companies and the people, but also reducing the company's operating expenses. Thus, our expenses for these companies for the first quarter have been lower by 0.4%. That's very important because in spite of the increase in expenses for caring for COVID, and that's a very significant cover around expense to increase those rate of fatalities. That part of increased cost is in -- fine we increased our revenue by 13.4%. We are decreasing 0.4% of our expenses, always trying to get more efficient. We have to lower our operating expenses to be able to have much higher access to people in the companies and more productivity. And also highlight here that the results that Ricardo Jaramillo will explain in detail, there are COP 420,000 million that had been invested about the volume for COVID, even because of really rate of accidents or because of the higher rate of vaccinations. There is an impact of COP 420,000 million for the first quarter, basically in Suramericana. And that is very significant because the resilience of these companies last year, we had about 1.4. This year, it's COP 420,000 million. And the results we are going to show even for Suramericana, for the entire group, and these impacts that we feel are impacts for these industries, but it also gives us harmonious growth and increase our creation of value, which is even higher than we expected. This leads us to have profit, higher net profit, which is higher than last year. This is a transition year, but we've had a third wave in some of the countries, including Colombia, we have significant shares in COVID. We've continued along the path of recovery that we mentioned earlier. Lastly, the topic of value generation in [ December ] of 2020 for Grupo SURA, we talked about repurchasing shares as application of efficient use of capital. And try to regulate very appropriately during this year, January and February, by the superintendents -- financial superintendents of Colombia and that helped start with this program to repurchase shares, and we will mention that later. And then amortization that they -- during the quarter from SURA Asset Management is COP 335,000 million. Also speaks not only of the process of recovery, but also about the soundness of the company. Last year, while we were in COVID, we have COP 450,000 million less than that more than 250,000 in each company in Suramericana and SURA Asset Management. But in this case, SURA Asset Management has reduced its debt by COP 335,000 million in consolidated management. So we'll continue to follow that path that we are looking for deleveraging our financial expenses. And also qualitative important growth for contributions to foundation, SURA foundation. And this recognition to SURA foundation, the third largest in social investment in the country makes us very proud. Fundación SURA belongs to all of you. It's joining 50 and the [ OECD ] making this recognition. I wanted to finish my comments with -- I need to add some of the facts that we're living in several Latin American countries, social, political and simply try to point out 2 or 3 actions that we are starting from Grupo SURA. First, to generate a constructive dialogue, obviously, rejection of violence. Being part of the construction of this democratic society, we will be supporting all ways of conversation or dialogue to reach agreements that would allow society to grow harmoniously that is part of our objectives. This is an ongoing dialogue that we have to carry out as corporate citizens. We have to enable it, and we've been working at it even before the protest. Obviously because of reason of being the company, we are a company that listens. And now, we need sustainability in the long term. We require that for developing the company. And that long-term dialogues are done with the society and with the Grupo SURA and the companies we have, where we have investments, we enable these dialogues, these conversations in a positive way. How? Together, we can build society. How to talk about all political reforms and political moments that we're living in the regions, Peru and Chile, Mexico, El Salvador. And what we will be seeing in Colombia very soon in terms of elections, how do we make a constructive proposals, which will help the economic development of companies as a driver, proven driver of economic growth for countries. Today, they require, and you know better than anybody all investments need to do that harmoniously, altogether, not only with the environment recovering this environmental issue that we have forgotten for. And we have all the alarms going on right now. We can also reduce informality properly, and we have corporate [ means ] to respecting every one of you as the shareholders and deep respect for society, how we communicate with the society and how to create economic value. These are harmonious values, and we cannot think about working independently. All these economic and social events, our idea is to enable them to build to society and continue to move forward. And all the companies where we are and where we have investments, it has to be an enabler for humans for social growth that we have mentioned, that also gives rise to economic value. This is an introduction to the dial-in the presentation by Ricardo Jaramillo. Can you tell us about the results of the company during the first quarter. And we are fulfilling our strategy. We're strengthening it. We are having good revenue in all the companies, and that means that we have the support of the companies, and this will give us sustainability, and we're also seeing economic value creation for each one with profits that are better than we expected. And in addition, we should also be enablers as citizens, corporate citizens that we are in these social dialogues so that they can get out of better companies, better people. Very special welcome greeting to all of you, and I leave you with Ricardo Jaramillo to give us more details about the statements of results for the companies and Grupo SURA. And later on, obviously, we are willing to listen and reply to all your questions and concerns. Thank you, everyone.

Thank you, Gonzalo, a special greeting to all of you. As Gonzalo mentioned, I have to present the results for the first quarter of 2021. We see signs of recovery after the crisis, but we want to be very careful, and we have challenges ahead of us. Let's go to Page 6. Page 6, it shows you the stated -- our consolidated statement of results for Grupo SURA. The company reached operation COP 5.5 billion. This represents a growth of 13.7% and compared to 2020. And 2020, during the first quarter, we didn't have a pandemic, and there are some different ways of comparing it. And when we look at these operating revenue, [indiscernible] insurance business, the premiums issued grew at 7.1%. The graph shows on the right-hand side, the positive trend we've had over the past several years, first quarter of '19 and 2020 and 2021. I also want to show you the revenue for commissions, which a business from the asset management with a growth of 9.3% compared to the previous year, also we see positive growth over the past several years. Another 2 drivers of revenues that we think are very important to point out, and we'll see in detail, our revenue from investments and participation method, which had a significant contribution during the first quarter of the last year, both from investments and from participation have recovered COP 621,000 million. Let's look at operating expenses. Gonzalo mentioned it in the introduction, first, the expenses were COP 5 billion with a growth of 6.3%. And that's important first, the retained payments. We'll see the details when we'll see how that -- when we talk about Suramericana. And operating expenses right now are [ 343 -- 43% ]. This is this across all the companies we've seen this consolidated, more efficiency in controlling expenses. So this gives us an operating profit of COP 500,000 million for the quarter. As you can see in the graph on the right-hand side, this is intermediate between what we had for the first quarter in 2019, in the first quarter of 2020. This shows what we're seeing. We're seeing an average level of profit. In terms of tax, as we also see a significant increase. This is mainly due to deferred taxes related to better revenue from investments to COP 120,000 million, and Gonzalo said that in the presentation, too. Let's go to Page 7. Page 7, we'll go into details about the participating method, which is the revenue will come from our associates and our investments. And there's a significant recovery from both accounts. So in the participation method, by March 2021, was COP 239,000 million compared to March last year was COP 95,000 million. You see that each associate had contributed, [ a part ] of the variation, COP 144,000 million. The graph shows the quarterly trend. The quarter for 2019 had positive growth on an average of around COP 340,000 million per quarter. Here, we had to COP 239,000 million in the quarter. We're still not at the prepandemic levels, but we are moving along that way. We have investments from investments. As the quarterly graph shows, we're much better than the first quarter of 2020. There's a figure for -- very much driven by Suramericana, and SURA has significant improvement. Also, we don't have the average levels yet. This quarter, we're having an average COP 296,000 million. Let's go to Page 8. We have the contribution from the various investments, how the net profit for the Grupo SURA behaves. Suramericana showed the loss during the quarter. This is mainly related to the pandemic. It's that comparable to March 2020, which -- when we didn't have a pandemic, we'll see that in more detail later, the significant recovery of SURA AM, both the participation methods and also in the case of Grupo SURA, there are some accounts that we'll see that in next graph that have helped increase the profits. We have a clear illustration of how Suramericana is being -- is affecting the results due to the pandemic. SURA AM net positive of the COP 246,000 million, they include our of profits. The net participation is COP 71,000 million. And the associated accounts in Grupo SURA have significant increases from the foreign exchange. We had an impact, obviously. We have the entire debt which is covered the debt in dollars is covered. And we have a positive COP 72 million. Expenses for interest in deteriorating the profits due to the temporary debt that we had to pay the $300 million bond before in May this year, which is this week. We had a debt of 1 million in August. We had that -- anticipated that. This leaves us with COP 211,000 million for the first quarter. Let's now go to Page 10, where we will see details about Suramericana, point out to significant growth more in premiums, which is being sustained during the last quarter and expense control, both mitigated partially the impact of largely due to COVID. The premiums issued grew by 13.3% during the first quarter. This is a positive growth because in health and life and in general insurance, we see a little seasonality and because we're having specific compared to in the previous quarter in 2020. But we have the same better growth in previous 2 quarters. And that's -- the second point is the retained loss. This is in -- 14.1%. The total company's losses was 17 -- 67% to 70%, and we see how the expenses associated to COVID-19 went from COP 117 million. We'll see how that is distributed in the different segments. This is having an impact on the technical results. Technical results were COP 433,000 million. But as we saw in the previous graph, it went from 14.1% to 10.9% of the premiums issued is 320 basis points. And this decreases the administrative expenses. We improved that in 70 basis points. And that decrease is our losses in -- now look at the investment -- revenue from investments. This is a better rate of interest and lower inflation in Colombia. This is due to the contribution from life in Colombia. And the expense and interest about 28.5% less, a lower rate of interest. And some payments that we've made in the company decreases our interest. And a net loss of COP 11,000 million, we will see in the next few [indiscernible]. Let's now go to Page 11. And on Page 11, we see profits for Suramericana from the various segments. And you should see segments, live, general and health had decent profits. And also, the corporate segment, what obviously said earlier, we have some interest, lows -- higher cost on taxes, which would affect our future dividends in the company. On Page 11, the evolution of the -- for the quarter, how we see the -- and the company is coming from line profits. They're very much in line with the loss of last year. We didn't have as many losses associated to COVID. We had good economy. It was more closed. We had less losses in the general insurance. And we had a number of -- large number of cases and fatalities in the third quarter. And the fourth quarter also the loss was COP 21,000 million, little recovery in the first quarter of 2021. It's a very logical development of losses related to pandemics. Let's go to Page 12, look at the life segment. The net profit of the period is go back into the positive. The first graph, how the premiums issued grew 5.9%, retains was 7.1%, mainly driven by life -- group life, the growth of 10.4; individual life, 9.5; and 12 is individual life is 12.9. The loss were [ COP 2,220,000 million ] due to COVID losses. I want to point out a good behavior of the occupational risk. We had an increase in the loss. We -- obviously that loss in the first. The segment has a positive growth again. You see the value you saw due to the pandemic, and you see that the quarter, a growth of 2%. As I said that the losses are reducing below the -- what we had in the previous year. The lower left graph, commissions and expenses as a percentage of premiums issued, and we had improvements in both indicators, but because of the mix of channels and an effort to control expenses. The right-hand side, we see a decrease of 12.8% revenue from investment associated to the life portfolio we have and net profits for the segment, COP 48,000 million. But the important thing here is the 2 previous quarters, obviously, were negative. In this quarter, it is positive. Let's go to Page 13. The general insurance, we have improvement, although we had lower sales of autos in the sector that impacts the losses of automobile insurances. We had an increase of 13.7%. And the current look -- local currency growth of 7.8% growth of 19.3% for business solutions in Chile and in Mexico. We also see losses -- some stability. And in the upper right-hand corner, you see constant control expenses. Combined ratio is 108%. But we must be clear that in life in Panama and in Mexico, those businesses are under the companies of general insurance, so they have a loss of close to COP 35,000 million, which if we exclude that from the general, we have a combined ratio of 105%. And the profits would be positive for the segment also. We've had some impact of investments in the sector, but improved compared to the previous quarter. And these profits, still can be in negative, but it has the impact of COVID especially in Mexico and Panama. Let's then go Page 14. Let's go to the health sector, several important points. It has a very important growth in premiums. You can see that in the first graph. Premiums were COP 1.7 million with a growth of 27%, mostly supported by the bank at EPS SURA has 4.3 billion members. We have increase of 40,000 more members. And we see at the lower right hand graph, we see that the losses are due to COVID, COP 41,000 million is 90.9%. Obviously, expense control is very much related to efficiency and scale as I showed earlier, the members. This segment had a profit of COP 1,000 million, which we believe is very positive during this pandemic. And we want to highlight some things. We have 156,000 test only during the first quarter. As Gonzalo said, we already reached close to 400,000 people vaccinated in any 1,000 vaccination points, with about 25,000 vaccinations a day. We have 1/3 of the fatalities in Colombia. And the growth of the complementary plan is growing at close to 29%, with 9,000 -- almost 10,000 members -- new members. And this is a segment -- this business close brought in about COP 40,000 million in premiums. This segment have held after the pandemic is over, will be a very -- a business for the company that will be very, very strong. Let's now look at the results for SURA Asset Management, Page 16. Let's point out that the acceleration in the growth of revenue. The revenue from commissions, COP 621,000 million, 7.5%. That growth is supported by stable growth of the savings for retirement and growth for voluntary business also [ grow up ] in 2020, were affected by the -- beginning of the pandemic. We had a difference of [ COP 220,000 million ] revenue just because of the capitalization. This repeats what we have said, the control of expenses and improvement in efficiency while profits of COP 270,000 million negative. This is important to point out that if we exclude the -- that business administration business, our profit, was [ COP 215,000 million ], and growth of [ 28.9% ] compared to the previous year in the first quarter. The lower graph shows the different areas, investments in SURA and savings for retirement had an impact moved us from the negative to the positive. The financial results had a decrease of [ COP 84,000 million ], mainly associated to the difference of it, exchange that we had during the first quarter in the previous year, which was positive in the case of what we had a cash in Chile in dollars, and it doesn't have the same impact now. Page 17, to talk about the savings for retirement. We want to point out there is an increase in the commissions, mainly driven by Chile and Mexico. The AUMs were COP 480,000 million, a growth of 5% and a growth of 15%, even with the -- also from the event from Chile and Peru. This is reflected in the available commissions, had a total growth of 4.6%. And when we look at this, separate from the revenue that we've seen, there's [indiscernible] for AUMs and we grow that 4.9% -- and inflows of 4.9%. Also important to point out what we've said earlier, an effort to control expenses. Administrative expenses are going down, and that means 270 basis points in the total expenses versus commission revenue. Let's look at the business of investments of SURA Asset Management. We have a second quarter with positive profit. First, the AUM had COP 73.6 million. And increase was 27% compared to the previous quarter. And very much important from what Gonzalo was saying, is a net load, the net flow? The net flow during the quarter, we had a net flow of COP 1.9 million. This is 6.7x the net flow that we had in the first quarter of 2020. And when we look at the year, with all the 4 quarters, is a net flow of COP 5.4 billion with a growth inclusive of 13.5%. Also important and that goes to 69% of the additional asset had or increased during the quarter. Now on the lower part of the page, we see the revenue from the commissions, they grew 30.1%, down COP 94,000 million. I want to emphasize the lower part of the graph, which we see a decrease in growth trend in expenses as a percentage of revenue. And we see a positive trend in the profits for this segment. We have 2 quarters with positive investment management, which is in the voluntary business for the company. This is the end of the presentation for the statements of results of the companies. And now let's open the question-and-answer session. Thank you for your attention.

Thank you. Now you will start the question-and-answer session. We'll start by receiving the questions from the section area in Spanish. All those who are in English, go ask your questions. [Operator Instructions] We have a question from Nicolas Riva, Bank of America.

Two short questions. Tuesday is the due date for the $300 million bond. And confirm, we don't need to issue a new bond right now because that was covered with the bond issued last year in Colombian pesos. The second question is the results from the quarter, the loss due to bank's exchange are very high, very high compared to the previous quarters. You say that you reduced your exposure due to the -- exchange last year and the first quarter this year. I wanted to confirm, are you cover for the coupon and for the... [Technical Difficulty]

We cannot hear the conference room microphones -- closed. Just a moment. You can also use your phone if you like to and connected. We apologize with the sound of our microphone. It was not muted, but I don't know, we've had problems with the conference call. Nicolas, let me answer your 2 questions. The first is about the bond that you mentioned. It's -- the $300 million a month paid today. The resources -- we funded it with the investment we did in August. The resources are in New York bank account. And the company has completely organized the cash flow since August last year. The second question, which is the hedging of the coverage, we obviously have the bond of $300 million already covered. That's part of -- covered with the 50 coverage operations. And the other bond that you said, it's definitely covered and most of the coupons were covered of something like 97% of the coupons are covered. So we have different types of structures that gives a little exposure, not completely -- not 100%, but the coupons and the principle is [ 9% and 10% ] covered. That is the answer to your question. Additional questions?

Two questions. One, can you expand the information about the impact of the process in Colombia in terms of losses? And the second one is cash flows, the estimate that you give us last week, has that changed? And understand how Grupo SURA is funding the repurchase of shares, which already started? Do you have any estimates for this year? Give me more information about this, please?

Yes, Katherine. For the first question, I'll give the floor to Juan Fernando Uribe, who can tell us what it means so far in terms of the losses due to the protest in Colombia, then I'll answer the second question for you.

So far, we have 132,000 losses reported we have a reserve for almost COP 12,000 million. It's still too early to see the adjustments or the final losses from this claims. Mainly those claims are almost 80% from the [indiscernible]; 4% from [indiscernible], and the rest from the [ category ] area and the rest of the country. It's also important to remember that our coverage for this type of risk is an optional coverage in property and damage policies. Most of our insureds have it, but we also have that it is also passed on to our reinsurers. Our retained loss is about COP 1,000 million. This will continue to evolve, and we will update that so far. That's so far the information that we have. Thank you very much.

Andres Soto from Santander. [Technical Difficulty]

Once again, we apologize. We had problems with the sound in the meeting room. How far did you get -- when I spoke about the cash flow? You didn't hear anything about the cash flow? Let me answer about the cash flow. This wasn't structured in the -- structured parties hasn't changed. The idea is a decrease in our revenue from dividends close to 25%. The dividends were COP 151,000 million. We've defined the interest payable. We have dividends to be paid. Also, we've defined the expenses for the holding and associated taxes for the holding company. There is a remainder that is then used for decreasing debt or repurchasing shares. The idea is to decrease the debt, but enough capacity to buy back some shares. This transaction mechanism according to restrictions, it's important to point out that the amounts that we can repurchase are relatively small. We don't have anything defined for this year. We've been operating for about a month. We've closed to COP 6,500 million, but it's also important to point out that, that cash flow that we see today. We have a number of initiatives where we look for opportunities to accelerate the deleveraging or to increase our -- retain of those investments and other types of investments. So it's important to point out that the repurchase is not going to increase our debt. This is the new balance to decrease or to continue decreasing our leverage. Thank you very much. Are there any further questions?