Línea Directa Aseguradora, S.A., Compañía de Seguros y Reaseguros (LDA) Earnings Call Transcript & Summary

Welcome, everybody. My name is Mark Brewer, Investor Relations at Línea Directa. We published our fourth quarter results earlier this morning, and I have here with me our CFO, Carlos Rodriguez Ugarte to present this report. Let's start by reminding, we started to report under IFRS 17 figures in 2023. We've been reporting in parallel under IFRS 4 for a smooth transition. On this matter, there are certain key messages we would like to highlight. The profit and loss account changes format. Income from insurance service is equivalent to premiums earned. The discounting effect in claims reserves is accounted for in other comprehensive income. So we are reporting a combined ratio, which is undiscounted. This being said, please bear in mind that differences in calculations appear from IFRS 4 to IFRS 17, such as a statistical methodology in home versus a case-by-case reserve and the best estimate under IFRS 17 with many more parameters to which we calculate the risk adjustment. This is to underline that some upward or downward differences are taking place and will continue to take place. A reclassification of certain items move from expenses to claims and to nonassignable expenses. Regarding the investment result, realized gains from equity investments are accounted for in other comprehensive income. The mark-to-market of investment funds will add some volatility to the P&L, which before was accounted for in other comprehensive income. Also, we are presenting the unwinding of the discounting effect in the claims provisioned separately from the investment result for clarity purposes. Finally, IFRS 9 is not restated for 2022, adding an extra layer of complexity for comparison purposes. As always, the Investor Relations department is here to help you with the transition and a full reconciliation has been prepared. We are providing an Excel financial supplement, both in IFRS 4 and IFRS 17 and 9, and we'll try to make this transition as smooth as we can for you. Nevertheless, please let's recall that IFRS 17 and 9 doesn't have much impact in our accounts, and it does not change the way that we manage our business. With this introduction, over to you, Carlos.

Thank you very much, Mark. Good morning to everybody. I will go straight to Page #5. 2023 presented significant challenges, especially in the cost management due to the abrupt increase in inflation, which was transferred to the cost of claims in the profit and loss account. Given this context, our strategy was focused on cautious reserving, a strict pricing discipline and emphasize on efficiency to navigate inflationary pressures. In the second half of the year, we delivered a significant improvement in our margins. The profit before taxes for the fourth quarter stood at EUR 10.5 million, driven by a substantial reduction of 3.7 percentage points in the combined ratio. 2023 was a year to put margins before growth. Still, gross written premiums grew at a solid 2.8%. Policyholders, on the other hand, dropped by 4.2% alongside the hardening of subscription. Capital position remains robust at 180%. As usual, we provide, with our full year results, a summary of the insurance context. Turning to Page 7 on the Spanish Motor market. The year was defined by a strong inflation. CPI took a softer line as compared to 2022. Yet, on a cumulative basis, increased more than 12% in the last couple of years. This had a toll on personal injury and repair costs with a steep increase in the cost of claims. Turning to Page 8. Growth in the Motor segment gained momentum, mainly explained by raising average premiums carried out by the sector to cope with inflation and to a lower extent to the increase in the car park by 1.5%. Aging of the car park continues to rise and currently stands at 14.3 years of average. Let's go to Page #9. The Home segment is facing its own challenges. High financial costs and loss of household purchasing power resulted in the fall of housing transactions for the 11th consecutive month. The year was also marked by many storms as compared to last year. Inflation also had an effect. At the same time, business volumes continued to grow at a significant pace, on the back of an increase in average premiums in the sector to cope with inflation and, to a lower extent, increased penetration of home insurance. As with regard to the Spanish health market, it grew at a remarkable 6.6%. Similarly, turnover was supported by an increase in the sector average premiums given the rise of medical cost. Turning to Page 13. All business lines made a positive contribution with premiums up 2.8% and insurance revenue up 3.8%. Technical result shows signs of improvement, reflecting the underwriting, claims management and efficiency measures carried out during the year. The fourth quarter stand-alone reached a positive EUR 3.5 million. Technical result has its corresponding item in the combined ratio, which was below 100% in the fourth quarter, reaching 98.5% on a consolidated level. Here, I would like to highlight the quarter-on-quarter evolution. Since the second quarter, we were -- we reached a peak. The evolution of the third and fourth quarter has been downward. Remember, please, that the figures here presented are undiscounted. The focus on efficiency continues to be our road map, expense ratio falling 0.3 percentage points. Investment result was down 18.8%. Several nonrecurring items took place in 2022 that I will explain later on detail in Page 22. Excluding singular effects, both in 2022 and 2023, underlying investment result is up 19.8% on the back of fixed income higher reinvestment yields, remuneration of deposits and increased revenues of the hedging derivatives. Now we have a new item in the P&L account, credited interest. This is the financial unwinding on the prior year discounting of the provision for claims incurred. We are presenting this item separately from the financial result for clarity purposes. The unwinding was an expense of EUR 4.6 million for the full year. Let's move on to Page #14. Here, the message is that 2023 was a year to put margins before growth, both in motor and home insurance. Hardening subscription and risk selection had an impact on the policy count. Health, on the contrary, experienced both -- a very satisfactory growth both in clients and premium. Turning to Page 15. In motor insurance, the year presented notable challenges. Due to the sharp increase in the cost of claims, 2023 was not a year to subscribe at a loss, but supply rates at the current level of risk and prioritize our progress in margins. Rate actions continue to earn through our book and the combined ratio improved to 98.2% in the fourth quarter. Línea Directa combined ratio gradually improved, while the sector worsened. To compare on equal basis in local IFRS 4 accounting, our combined ratio improved 3 percentage points this quarter, while the sector worsened by 3.4 percentage points. Turning to Page 16. In the Home business, premiums grew 4% and insurance income grew 9.4% despite great actions also triggering some sliding effects on retention. Combined ratio was strong at 95.8% and 92.8% for the full year and fourth quarter, respectively. Heavy storms had an impact on the technical result. Claim-related atmospheric events added EUR 7.2 million or 5 points to the combined ratio as compared to EUR 2.1 million in 2022. Expenses as well, as we'll see later, continue to have an understanding trend. As with regard to the Health business, premiums and insurance income grew a solid 4.5% and 5.2%, respectively. We began to sell health insurance under the Línea Directa brand, reflecting the multiline strategy as we target greater efficiency in our operations. Frequency significantly dropped confirming the improvement in risk selection and underwriting. Loss rates improved by almost 12 percentage points. On the negative side, expense ratio showed the absence of the proportional reinsurance commission, which amounted for EUR 4.3 million in 2022. Excluding this effect, in 2022, expense ratio will have improved by another remarkable 12.6 percentage points. Full disclosure on combined loss and expense ratio by line of businesses is provided in Page 19. Please let's move now to Slide 18, where we explain and compare the difference between IFRS 17 and IFRS 4 combined ratio. As with regard to the loss ratio, the loss ratio is undiscounted. The discounting effect of the provision for claims incurred is accounted for in equity under other comprehensive income. Although an expense item in IFRS 17, we include expenses attributable to claims, staff, et cetera, into the loss ratio, consistent with the underlying concept of IFRS 4. Losses on onerous contracts are similar in nature to the provision for unexpired risks under IFRS 4. Health is considered an onerous contract and still with the improvement of the year, there is a reversal of EUR 1.4 million. The EUR 27,000 positive change in reinsurance default effect, although negligible, reflects the variation in the expected default of our reinsurance panel, which is minus AA average rate. As with regard to the expense ratio, investment management expenses and personnel linked to investment in expenses are now registered under the expense ratio. Under IFRS 4, these expenses were included in the financial result. Under local accounting and IFRS 4, the change in the provision for claims settlement agreement in Spain, where when the policyholder was innocent, was recorded under expenses. This is because the Spanish regulator considers these settlement agreements between company and not an obligation with the client. As such, they were registered separately under IFRS 17, they are reclassified in the loss ratio. In addition, the profit sharing of the Other segment, travel insurance to cardholders mainly is now included in the loss ratio. All in all, combined ratio under IFRS 17 stood at 104.1% versus 105.4% under IFRS 4, a difference of 1.4 percentage points. This is not to say that the gap will be maintained or that the gap could be narrow or wider. Some differences will always appear by how technical provisions are calculated. Here, the idea is to stick to the current accounting in force, IFRS 17 and 9 from now onwards, and explain the moment. Anyhow, you should keep in mind that IFRS 17 has a very little impact on the company's results. Let's go to Page #19. The reclassification of items between claims and expenses show a certain difference, yet overall combined ratio has no major differences and the trend to move in parallel. Turning to Page 20. Loss ratio continues to improve since the second quarter when the company reaches its peak. Motor reflects all the underwriting and claims management actions and risk adjusted earned premiums flow through the income statement. We continue to improve our underwriting efforts to try to ensure the business we are writing is classified and priced adequately. Home was affected by storms and water damage in 2023, as I mentioned before. Health show a remarkable improvement in claims incurred ,down 8.2%. Turning to Page 21. On expenses, the company firmly sticks to our road map. The global customer vision recently implemented allows us to be more commercially efficient. The strict control in overhead expenses resulted in a decrease of 6.7% in administrative expenses. Overall, the development was exceptional. Let's move to Page 22 on financial results. We are now providing very good disclosure on the investment result, which we think will be useful. Let's remember now we have the mark-to-market of investment funds in the P&L. Investment result reached EUR 34 million, down 18.8%. There were several nonrecurring items that needed to be described. 2022 include revenues from investment in economic interest groupings of EUR 4.8 million that did not occur in 2023. Also, 2022 included realized gains primarily in investment funds and currency gains as the U.S. dollar rallied of EUR 7.2 million and EUR 3.8 million, respectively. In 2023, the company sold an investment property generating a gain of EUR 1.4 million. Excluding these items and the mark-to-market of investment funds, which bring volatility to the P&L, investment results will have been up by 19.4%. The increase is explained by higher investment income from bonds, the remuneration of deposits and income from the financial swap. We are also providing the movements taking place in other comprehensive income. First, as usual, the mark-to-market of fixed income and equity investment. Second, the new item of realized gains or losses in equity instruments. On Slide 23, you can see the overall yield of the portfolio is up 2.96%, excluding net realized gains. Portfolio composition is pretty much stable with a strong weight on the bond portfolio. The overall duration of the fixed income portfolio is 3 years. Moving on to our solvency position. Solvency margin remains very solid and stable. As with regard eligible own funds, the company is now generating capital with its positive quarterly results. And we have the positive change in the market value of the available-for-sale portfolio, driven by lower interest rates in the quarter. The last column includes a lower discount curve, increasing the provision for claims and other items. For this part, SCR increased by EUR 7.3 million in the quarter, driven by market and underwriting risk, market risk due to the quarterly symmetric adjustment publicized by the European regulator, underwriting risk driven by the inclusion of 2023 in the temporal series of the specific pyramid, which added volatility and resulted in a higher factor. To conclude, we were responding with the termination to a complex scenario and believe we are adopting the appropriate measures and addressing profitability. Our strategy was focused on cautious reserving a strict pricing discipline and emphasize on efficiency to navigate inflationary pressures. We closed the year with an encouraging change of trend in our combined ratio and a positive second half results, something that we have been anticipating every quarterly results presentation throughout 2023. We are cautiously optimistic about 2024 and believe the transformation is underway. Thank you very much. I will now hand the call over to Mark to begin the Q&A session.

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

[Operator Instructions] The first question comes from Maks Mishyn from JB Capital.

I have 3. The first one is on client portfolio in motor insurance. It decreased by almost 5% year-on-year. And I was wondering if this is related to higher churn or whether you are less aggressive in capturing new customers, what kind of evolution for customer portfolio you expect for 2024? The second one is on average premiums in motor. What kind of increases are you currently implementing? And how much of an unearned premium reserve you currently have on your balance sheet? And finally, on health, there was a notable increase in the number of customers in the fourth quarter. And I was just wondering if you could explain the cause. Was it related to the change in brand name? And what are your expectations for 2024?

Thank you very much, Maks. Well, in terms of client portfolio, it is true that we have lost in the neighborhood of 145,000 clients, mainly in the motor insurance and in the home insurance, but very much focused on the motor insurance. And clearly, this has been the result of the strategy of the company in terms of raising average premiums to the portfolio. I mean, keeping in mind that the increase in average premiums and also answering your second question has been in the neighborhood of 9%, both in the new business and also in the portfolio. And of course, that had an impact on the -- on losing clients from competition, which was lagging a little bit an increase in average premiums. Looking forward, well, if you take a look at the third -- the fourth quarter versus the third quarter, the number of clients that we have lost have decreased. So that clearly gives a sense of what's happening in the market, which are raising average premiums by 5.1% on the last quarter, whereas in the third quarter, the market was raising average premiums by only 4%. Looking 2024 in terms of clients, as well, on the first part of the year -- first quarter of the year, we will keep on raising average premiums because our strategy of raising average premium last year began probably in the second quarter. But as looking at the entire year, our intention is not to lose clients. Our intention is to gather clients in the portfolio as the year goes on. In terms of -- on the health, I think was the third question because I also answered the second question on the average premium. In terms of the health, well, I think it helps. I mean, having the health business under the same brand, it really helped clients to link much more the health business to Línea Directa. I think it also helped in our selling force, which are able to sell 3 different products under the same brand. And also the fourth quarter is also triggered by the fact that insurance on the health business normally really the selling effort is done on the fourth quarter. I think on a yearly basis, we have increased almost by 8,000 clients the portfolio. Looking forward in 2024, our aim is that 2024 is going to be a very sound and very good year for health given the fact that now our selling force is able to sell this product under the same brand.

The next question comes from Freya Kong from Bank of America.

Firstly, Carlos, you mentioned that your combined ratio improved in Q4 while the sector deteriorated. I just want to understand if you're attributing this to more conservative loss picks on your end in Q4 versus early in the year, i.e., have you changed your reserving prudence throughout the year? Or are you seeing a genuine improvement in the backdrop? I'm just trying to understand the difference here. And secondly, just trying to square the 9% average rate increases with the current inflation backdrop, what combined ratio are you actually writing that today? I think previously, you said something along the lines of 95% to 96%. And then third, if we could get some more color on the change in the SCR for non-life underwriting. You mentioned an increase in the specific parameter. Is this -- should we view this as a true-up for incorporating 2023 and therefore, shouldn't be repeated in the coming quarters?

Well, in terms of the combined ratio and evolution of the company as compared to the market, I think it's something that we explained throughout the year. I think Línea Directa was among the first companies to start introducing average premium in the market, whereas the market, especially for the first half of the year, was still being very aggressive on pricing, whereas Línea Directa was on the other way. I mean, we were raising average premiums throughout the second, third quarter and fourth quarter. I also explained that we thought that 2023 in the last part, was going to be very hard for the market, and that's what happened. The market started to increase average premiums on the third quarter by 4% on the fourth quarter by 5%, and that had an impact, of course, on the evolution of the markets. For Línea Directa, earned premium, which comes from the gross written premium of the year, I mean, it starts to show numbers on the P&L in the last part of the year. And in terms of the loss ratio for Línea Directa, the frequency was very good in the fourth quarter, I might say, especially on the bodily injury frequency and on the materials frequency, and that helps to boost a little bit our combined ratio in a better number. Again, I think it's a combination of the strategy of raising average premiums that is starting to reflect on the earned premium of the company, together with the management of our claims side of the business with good news on the frequency side of the business. It's not a matter of reserving. Our reserving has been always the same. I mean, we have -- as you know, we use a statistical methodology, which puts our risk margin in 85% percentile, and we closed the year with that risk margin on 85% percentile. In terms of the -- at what combined ratio we are guiding clients as of today, surely, it's kind of difficult to give you an average number, but surely, it's below 100%, and it's more on the levels that we want to be in terms of 95%. And in terms of SCR, the symmetric adjustment that is important adjustment posted by the European regulator to mitigate -- well, to cope with the volatility of the equity market. That number on September was minus 1.7%, whereas in -- whereas in December, that number was positive 1.4%. That had an impact on the SCR of the equities of more or less EUR 3 million, EUR 4 million. And then the adjustment, the specific parameter is basically -- we use a specific parameter for other guarantees and that is adjusted at the end of the year, including 2023 evolution of claims side that really had a hit on the SCR of the business, but it's a one-off hit. I mean throughout the year 2024, we will stick to that number. So we will have no impact or a minor impact looking forward in 2024. It's an adjustment that you have to do -- you are required to do by regulators at the end of the year.

The next question comes from Carlos Peixoto from CaixaBank.

A couple of questions from my side as well. The first one would actually be a follow-up on what you're discussing before. Just to make sure that I understood correctly. You mentioned you expect the combined ratio in the motor business to be below 100% this year, around the 95% level. Did I understand that correctly? Then a second question would be on the health insurance. Particularly, when you look at the IFRS for accounting, we see a significant increase in the combined ratio in the health business in the fourth quarter versus the third quarter. So there on your evolution, I understand that it relates to the -- sorry, to the accounting premium criteria that you were describing before, but reinsurance -- well, I forgot now the expression for it basically, it has 2 with that the quarter-on-quarter evolution, I was wondering what -- is it a function of the increase in clients that we saw in the quarter? Or how should we think about what explains it? And basically, how should we think about the evolution into 2024 as well?

Thank you, Carlos, I had some difficulties hearing your questions, but I think I got them. In terms of the combined ratio, looking forward, I mean, we have always said that Línea Directa should be a company that, of course, our combined ratio should be below 100%, and probably below or in the neighborhood of 95% at the beginning. I mean, we are still thinking that this is a business very much based on efficiency, and that has to have an impact on the combined ratio. Looking forward for 2024, one thing is gathering clients, new clients on those combined ratios and other thing is having the entire combined ratio of the organization on those levels. My perception is looking forward to 2024 is that you will keep -- we will keep improving our combined ratio onwards, especially in the second part of the year, and probably we will have some stand-alone quarters that the combined ratio should be in that neighborhood of 95%, 94%. Although, throughout the year, I think it's going to be difficult to be on those levels on a yearly basis. And then on the health insurance business, which I understand you were asking about the difference between the combined ratio, well, you have to keep in mind that -- I mean, the health business in terms of combined ratio performance has been quite good. First, in terms of clients, we have been able to gather clients, almost 8,000 clients with good pricing, we have increased prices also in this business. Keeping in mind that the medical cost has increased by almost -- in the market by 8%, whereas for Línea Directa has increased in the neighborhood by 4%, 5%. Our claim cost, I think, is very, very healthy, I must say. I mean, our frequency is way below what we expected on our average cost as well. So no problems in the loss ratio. The loss ratio performance has been quite good. And then on the expense ratio, as I tried to explain, we have a one-off impact, which is the fees that we get for our proportional reinsurance that we have with the third parties. As any proportional insurance program, the evolution of the fee income for the company goes up year-on-year. I mean, it begins with high fee income from the reinsurance, and that goes down every year-on-year. This year, the impact -- the negative impact because of less fees from the insurance has been almost EUR 5 million. If we were to take out this impact or to isolate this impact, I mean, the combined reason for the business was much better by the end of the year than prior years, clearly. It's a matter of EUR 5 million of impact on the fee.

The growth in clients in health for the last quarter.

Well, clients growth in the last quarter is -- I mean, really the bulk of the business of the health business comes in the last quarter of the year. I think around 50% of the client evolution or the client growth comes on the last part of the year because in Spain, health insurance contracts are normally renewed on January. So basically, all the selling is done in the fourth quarter. Are we happy with the numbers in terms of growth in clients? Well, I think we need more. We need a little bit more. That is one of the reasons why we decided to change the brand and incorporate the health business into Línea Directa brand in order to be much more able in our cross-selling effort with our portfolio of clients. I think looking forward for 2024, my expectation is that the growth of clients on the health business will be much more than in 2023. I think bringing together the health insurance under Línea Directa branding and given our selling force, the capability to cross-sell this business, I think it's going to have a very good impact on the health business. Having said that, I mean, as you know, our technical result on the health insurance is already positive, which is good. Cost-wise, especially on the expense ratio, you should expect good improvements because it's going to be benefiting from selling under the same brand. So all things together, I think 2024 is going to be a very positive year for the health business.

The last question comes from Thomas Bateman from Berenberg.

I was hoping just to get a little bit more clarity on the underlying loss ratio for the Motor business, and I suppose 3 things. One, has there been any adjustment for Baremo in Q4? So what was the tailwind from reserve releases in Q4? Maybe you're saying that you benefited from the reserving position being particularly strong in the middle of the year, and you expected to release it by Q4. So just wondering what that tailwind was in Q4. And finally, how much would you estimate that -- you alluded to a low frequency in Q4. How much was that a tailwind also? The second question is just on, could you remind us what the requirements are to restart dividends? And clearly, solvency ratio is in a good place, but I was just wondering, is there like a more material level of earnings that you expect to get to? And finally, just on the Home combined ratio. I appreciate there's a small improvement versus last quarter, but it's still relatively high compared to, I guess, long-term expectations. So could you just give us a bit of a guide in terms of what you expect long term for the Home business?

Thank you very much, Thomas. Starting from the last one, home insurance business. I think the performance in the last quarter in terms of combined ratio was very good. I might say that December month was excellent with a combined ratio below 90%, but home insurance is clearly affected by the atmospheric events, and 2023 has not been a very good year. I think on the presentation, we posted a number of storms that we have in Spain that were 18 as compared to 8 last year as compared to 9 the prior year. So it really had an impact, especially on July, and especially in October, where weather conditions was not very good. On the other hand, I think the expense ratio performed quite well and it's keeping on improvement. I think we closed it with an expense ratio below 30%, which is something very differential as compared to the market. Going forward, and looking to next year, we still think that we need volumes in the home insurance business. I think all the alliances that we are having, especially the ones that we have signed with Movistar Prosegur where we will serve clients and we will sell our home insurance to the clients and so on, that will give us some growth capabilities on the gross written premium. Then on the expense ratio, we will keep on improving our expense ratio, of course, as scale also starts to grow. And then on the claims side of the business, I think the million-dollar question here is how weather conditions will apply in 2024? Of course, in our budget, we always estimate an important amount for the atmospheric event, but it depends very much on the performance. Having said that, clearly, it's a business that is a profit-making business. It's a business that it should be in those neighborhood of 95%, 96% combined ratio. And of course, it's much better than the market. And in terms on the motor insurance, I mean, in terms of releases or no releases, I mean, I think the performance of the home motor insurance is not that much on releases. I think it's a combination of many things. First, of course, average cost of repair has gone down as compared to the first part of the year, even though it has increased the average cost per repair is nothing similar at the beginning of the year. So that has helped quite a bit. Frequency has also performed quite well. I mean, frequency was more or less in line with 2019, but it is true that in the first half of the year, we had some problems with own damage frequency, which increased by 200 basis points, and that has gone down in the last part of the year. The own damage frequency is the frequency that we have when clients leave the company to go to another company. At the beginning of the year, that frequency was not very good, and it performed quite better in the last part of the year. And the third component on the good evolution of the combined ratio is that throughout the year and given the situation on CPI, we have increased our opening provisions for claims. And when you open -- you have an increase in opening provisions, you have the negative hit immediately. But then, of course, as you manage those claims throughout the year, especially on the material and own damage side, I mean, you start to have some releases on those provisions. And that really what's happened that during the beginning of the year, we increased quite a bit our opening provisions of all claims -- of all new claims and that has a very negative impact on the first part of the year and some positive impact on the last part of the year as you close some of those claims.

Dividends.

Oh, dividend policy. Well, we have always said the same thing. We are a company that our dividend policy is very much linked to our solvency position. Our solvency is 180%, and on those grounds, once we are able to make a positive P&L number, the Board will decide whether to pay or not. But again, we have always been a company with a high dividend payout whenever we make money. My perception is that will be the case looking forward, of course, depending on the Board approval.

And can I just follow up on a couple of things there. Sorry, can you just give us a little bit of clarity on the Baremo, Were there any adjustments to Baremo in Q4? And then secondly, I think you said that the average costs have fallen throughout the course of the year versus the start of the year. Are you just saying there's lower inflation than there was or the cost has actually fallen on a nominal basis? And then finally, can you just remind us of the difference between IFRS 4 and IFRS 17 for Home? I guess I'm looking at the IFRS 4 number, which is 98.9% in Q4 for Home. So I'm just trying to understand what's so different because I think you're saying the discount is below the line, but there's quite a big difference there between the IFRS 4 and 17.

You were asking -- last question was on IFRS 4, 17 in the Home business. Well, basically -- I mean, IFRS 17 for Línea Directa really, really has a very small impact. I mean, on the Home business itself, when you go to IFRS 17, you have to use a statistical methodology to calculate the provision. On the IFRS 4, you go case by case because we don't have a proof on statistical methodology. If we do want a number, basically, the number, I think, was a difference -- a positive difference of EUR 3 million, calculating from statistical methodology towards case by case in IFRS 4. And the other question was...

If there are any impacts in Q4 for Baremo?

Well, no, I mean, we apply Baremo on the fourth quarter with the increase of the prior year. And for the first quarter of the year, I mean, the Baremo will be increased by 3.8%, I think, and that's for the entire year. That is set on November for 2024 and that applies to all the companies. And the Baremo increase for 2024 will be 3.8% as compared to 8.1% in 2023.

Asking about average costs throughout the year if they have come down.

Well, they have come down. I mean, especially on the repair side of the business. I mean, we have some moments throughout the year, where the increase in the average cost per repair was very high, 6%, 6-plus percent. And in the last part of the year, that increase has gone down by -- to a level of 3% approximately. So yes, it has been an improvement. No more questions. So let's go to the...

The next question comes from Freya Kong from Bank of America.

Just on frequency, how much of this in Q4 do you think was a one-off? Or do you think it's a persistent benefit that you're now getting because clients have left you? And then secondly, just a quick one on the atmospheric impact in Home in Q4, if you could share that, please?

Well, it is true that frequency has been benefiting from the loss of clients. I mean, when you lose when you lose 140,000 clients, I mean, of course, you have less exposure and then you have less frequency. And of course, we have been -- when we start our strategy of raising average premiums, of course, as we don't do increases -- general increases, we try to go client by client, while normally, the higher increases has been to the clients with a higher risk premium and those are the clients losing the company. So in terms of frequency, probably they are the worst clients in the portfolio. So it really had a positive impact by the end of the year. Looking forward, well, my expectation is that frequency will behave very much in line with 2023. In 2024, we see our own damage frequency is improving. That will give us a positive impact on 2024. But again, I think also the claim cost of the business has been impacted more positively in the second part of the year because in the first part of the year, we did an effort of increasing our operating provisions. And again, when you increase operating provisions, you have the cost immediately on the P&L and the possible releases when you close the claims by the end of the year. And the other question was on?

Atmospheric events. They added EUR 7.2 million throughout the year, which equates to 5 percentage points to the combined ratio in the health business.

And that compares to EUR 2 million on 2022. So the difference has been EUR 5 million of negative impact on the combined ratio.

There are no further questions to the conference.

Thank you. We will now proceed with the questions received through the webcast. There's only one question from Francisco Riquel. The question is, can you provide guidance on the combined ratio expected in Q1 2024?

Yes, it's going to be much better than the combined ratio of Q1 in 2023.

There are no further questions. So thank you very much, Carlos, for your presentation. As always, the Investor Relations department is here to help if you have any further questions.

Thank you very much, and have a nice day.