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

Good morning, everyone. My name is Beatriz Izard, Head of Investor Relations at Línea Directa. We published our first quarter figures earlier on this morning. And I have here with me, Carlos Rodriguez Ugarte, our CFO. And with these words, over to you, Carlos.

Thanks a lot, Beatriz, and good morning to everybody on the call. We are very pleased to deliver an excellent set of results for the first quarter. I would like to start by talking about the key figures on Page #5. Business growth accelerated to an increase of 9.5% with Motor at 9.1%, Home at 8% and Health at 14.4%. The portfolio grew more than 184,000 policies to 3.5 million policies. Combined ratio was excellent and stood at 92.3%, down 5 percentage points from last year. Net income doubled that of first quarter 2024. Return on average equity rose to an excellent 21.8%. And finally, solvency increased to 187%. Moving to Page #6. Here, I would like to highlight, once again, the acceleration in the top line, driven by the motor line of business. We expect this high single-digit growth to continue throughout the year, together with sound retention levels. We posted an excellent combined ratio with outstanding improvement in the claims ratio and very contained expenses. The evolution of the financial result was also remarkable, up 10.6% with higher income from the bond portfolio. And all this led us to a profit after taxes of EUR 20.8 million, which compared to EUR 10.1 million over the same period of last year. That is a twofold increase. As with regard to business volumes and clients, all line of businesses reported significant growth, both in premiums and policyholders. Customer retention improved very significantly. In Health, our core products; complete; specialists and essential grew by 15.8%. Moving to Page #8. The progression of combined ratio was remarkable from 97.3% in the first quarter of 2024 to 92.3% as of March 2025, down 5 percentage points. Loss ratio was the main driver, down 3.8 points as the actions carried out have been earned into the income statement. Expense ratio is supported by tight cost control. We do run a very efficient business, characterized by a low expense ratio and low distribution cost. And we are continuously working towards automatic processing and streamline the business in general as well as improve our digital setup. We consider the expense ratio to be a key competitive advantage. Now I would like to move to a more detailed explanation by line of business. In Motor, we further accelerated growth in the first quarter with premiums up 9.1% on the back of improved sales and retention. The combined ratio stood at an excellent 91.9%, down 4.6 percentage points as compared to the first quarter of 2024 and down 1.1 percentage points as compared to the fourth quarter of last year. Also, the home business posted significant growth with premiums up 8% in the first quarter. Despite the March rainfalls, the two first months of the year had an excellent claim behavior. So the Home combined ratio was exceptional at 89.9%. Moving to Page #11. Health posted growth of 14.4%. These figures have also benefited from more comprehensive products. This growth was not at the expense of risk appetite, where we keep a very cautious stance. Moving to Page #12. The financial result was up 10.6%, driven mainly by higher income from the fixed income portfolio and the mark-to-market of the mutual fund portfolio. As usual, we show the credited interest in a separate item. Remember that this reflects the financial unwinding of the claim provision for the prior year. The decrease is explained by the lower financial discounting in 2024 as compared to 2023. As with regard to the investment portfolio, government bonds gained weight in the quarter, taking advantage of a higher yield window of opportunity and also of a higher duration. The return of the portfolio stands at 324 basis points, an average reinvestment yield stood at 295 basis points in the quarter. Moving on to our solvency position. Solvency margin rose to 187%. Own funds were mainly a function of operating earnings in the quarter. SCR increase was driven by market risk due to the increase in this symmetrical adjustment provided by EIOPA and interest rate risk. Underwriting risk grew on the back of business growth. To conclude, March results were strong. We deliver a very solid set of numbers. We are really excited by the next few years. We have worked our way through and managed difficult times in the last few years. Starting 2025, we are delivering, we think, great customer outcomes and great growth in premiums and in profits. Having said that, we keep on working for the company's long-term benefit rather than a poorly short-term approach. I will now hand the call over to Beatriz to begin Q&A session.

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. [Operator Instructions] Our first question comes from Francisco Riquel from Alantra.

Yes, can you hear me?

We can, Paco.

So 2 technical questions first and then another one separate. So first one, I wonder if there is any impact of the Easter calendar in Motor combined ratio this first quarter at all or not if you think this impact will reverse in the second quarter? Or if you think you could sustain the motor combined ratio in the low 90s? And then the other technical is, I mean, gross premiums in Motor are up 9%, but net premium are up just half of it, 4.5%. So I wonder if you can explain this gap in the quarter and how this gap should evolve during the year? And then my separate question is the acquisition expense ratio, which is down 1.5 percentage points year-on-year. if you can please explain how -- what have you changed to grow the business more with lower acquisition expenses?

Thank you very much, Paco, on the first question. Well, I mean, we are very confident that the combined ratio that we posted in the quarter, it is more or less stable. I mean, at the end, of course, first quarter in terms of claim cost has been quite good, especially on the frequency side of the business, more than on the severity. So maybe there is something there. But looking forward towards the year, I think the company will be on low 90s in terms of combined ratio. We'll see what happens throughout the year. But I think the objective of the company is being in those rounds of combined ratio, and we should target that towards the end -- towards the end of the year. We'll see what happens with frequency. We'll see what happens with severity. But again, I mean, we should be in those numbers. In terms of growth in the gross written premium versus average premium rise, I mean that is the way -- we don't look the numbers in that way. I mean we adjust average premiums on an individual basis to our portfolio and to our new clients gathering. I mean I think the good team and a good number of the companies that we have been able to grow very close to market. Market grew by 9.2% gross written premium, and we were in 9.1%. We were coming on the last quarter stand-alone 2024 in 8% in the third quarter and close to 5%. And I think that's a positive evolution more than looking at the average premiums. The beauty of Línea Directa is that we manage clients on an individual basis. We don't mutualize prices, and I think that is clearly shown on the growth of the gross written premium. And as I said in the call, throughout my presentation, I think we should be able to maintain those levels of growth. And in terms of acquisition expenses, well, I think it's a matter of also doing things more focused on our digital proposition to clients. I mean, as you know, we look at the expense ratio of the company as a whole, we think we need to keep on improving direct expense ratio. I think we improved the expense ratio by more than 100 basis points as compared to the last quarter. Well, on the acquisition side of the business is that, again, we are fostering and promoting very much the digital proposition to our clients. The gathering of clients throughout our digital proposition is increasing month after manner, of course, that in terms of acquisition costs lowers the average cost per client of acquisition.

The next question comes from Maks Mishyn from JB Capital.

I have 2. So the first one is on growth in new customers, it has accelerated notably. And I was wondering if you could explain us what you are doing differently to capture new customers. And then within the [ 200,000 ] growth target advanced by your CEO, how much should come in motor? And ideally, what kind of split between full coverage and third-party coverage, are you aiming at? And then the second question is on recent changes that will be potentially introduced by Spanish government. I was just wondering if they lowered the threshold for the acceptable alcohol levels? Do you think this can create a short- to medium-term tailwind to your profitability because of lower frequencies?

Well, in terms of the -- what we are doing in the growth of new customers, I think we grew in the first quarter stand-alone in Motor, very close to 50,000 clients -- 50,000 clients. Well, we are, of course, trying to manage the market situation as well. I mean you have to keep in mind that the market is in a situation where I think they are doing the homework that we did 2 years ago in terms of average premiums, in terms of managing their portfolio. And I think the company is taking advantage of that. I think we do have a competitive advantage clearly in terms of combined ratio, and we are trying to use that in order to gather clients. But don't forget, I mean, the combination of the portfolio is gathering clients, but the bulk of this is the managing of the portfolio. And I think we did a big, big, big effort in the first quarter in terms of retention. Our retention has improved quite a lot as compared to first quarter of last year. And I think the combination of that makes that our portfolio keeps on increasing. In terms of -- the second question...

200,000 goal that Patricia was staying in AGM as a goal, how is the split that we between motor and other lines of business.

Well, I don't know. I don't know if we have a split goal here in terms of motor and other businesses. I think our -- the weight of motor in the P&L nowadays is more close to 76%, than 81% that was by the end of the year. And I think that is a number to focus, I mean, more than we are going to be 75% motor or 25% home and other businesses. I think the strategy of the company, as Patricia said, in the AGM is launching different products every year. Now we have gone into this retail insurance, and you should expect that the company keep on launching different products. Having a goal of how much our motor business would weight, we don't have that. But again, it comes from 83% 2 years ago, 81% last year and 75% this year. So that's -- I think that's the trend you should focus -- and the third question?

The third question regards the new acceptable alcohol levels in Spain and whether they are going to lower our frequencies.

Well, everything that makes the drivers be more cautious and everything that helps being more disciplined in terms of driving helps frequency. So again, if the norm becomes more strict, probably we will see some frequency going down. We are very, very happy with the frequency of our portfolio. I think the risk profile of our portfolio is very sound. I mean, we haven't decreased our -- or deteriorate our risk profile in order to increase our clients. We are on the same ground. Loss ratio is in 75%, I think, which is which is a great number. So everything that comes on top of that is good for us. So if the government decides to do that, probably the frequency of the sector will help and probably Línea Directa, being the company with a more cautious risk profiling, will be the most benefit on that.

The next question comes from Carlos Peixoto from CaixaBank BPI.

On the -- just a couple of questions on my side as well. So on motor insurance, I was wondering if you could give us some color on your expectations for premium growth for the year as a whole, whether this 9% growth in gross premiums is something we could see throughout the year? Should this accelerate or decelerate? And then on the home insurance, combined ratio has been -- well, picked up a bit versus the first quarter, but it's still at relatively low levels. You mentioned it in the presentation. I was wondering what levels you see is more sustainable towards the medium-term? And what would be the pace that you expect that conversion to these more sustainable levels to take place?

Well, on the motor, first of all, I would like to take a look back. I mean, on the evolution of the motor gross written premium growth. I mean, we are coming from a third quarter of a growth of 4.5%, I think, something like that. Third quarter -- fourth quarter standalone, 8%; first quarter of this year, 9.1%. I think that is the number, really. I mean, the evolution of the company, now very much in line with market growth. Remember, market is increasing average premiums by more than 7%, and we are there in a 9.1% growth. I think we need to maintain these levels of growth. I mean when I did the presentation, I explained that our intention is to be in a high single digit, and that's the intention of the company throughout the year 2025. In terms of home, it is true that the combined ratio has been very good. It is true that March rainfalls, they were high, but the two first months of the year, they were very good. I remember in the call on the 2024 set of results, I said that the 88% that we posted was very good and probably it was very difficult to maintain. We did that, however, in the first quarter. But again, I mean, this is a business that should be in the low 90s. We are in '89. We are very happy. We'll see what happens sector wise. I think sector wise is going to be a little bit worse than ours. But we should be in that low 90s, it's 89%, great, it is low 90s. I think it's a good business. Remember that we were coming a couple of years ago from 96%.

Thank you. The next question comes from Juan Pablo Lopez Cobo from Santander.

Congratulations for the results. I got 2 questions. First one is a follow-up on the customer acquisitions. If you could give us a bit more detail on this higher retention rate, that you mentioned, just to see if the gross customer acquisition increase or where are the merits in gross customer retention rate? So that's the first one. Related to this, I don't know if you could also give us some more color on theoretical combined ratio, if that's possible on these new customers, or the margins that you expect to make on them? I know this is tricky. And lastly, if these new customers, if they can explain part of the lower claims as we saw in the past, probably they reported claims in the former insurance company and they are coming, let's say, a bit cleaner here, at least at the beginning. I don't know if that's clear. So that will be useful to understand a bit better all this customer acquisition growth going on. And lastly, in expenses, you did a great job. I don't know if you got any target on this one or you think you are close to the bone?

In terms of our customer acquisition, well, I mean, the level of investment in marketing is very much in line with every year. Some years it's a little bit more, it's a little bit less. But in terms of customer acquisition cost, I think we don't have any changes in -- important changes. That means that we have not increased the customer gathering because we are spending much more on customer acquisition. Indeed, there is the digital channel, which is less costly in terms of customer acquisition costs has evolved quite well since fourth quarter of 2024. And the number of clients that we are gathering in that channel is much better than it used to be. So I would say that it's not a matter of spending more. It's a matter of doing things in a different way and try to promote other channels. In terms of combined ratio looking forward. Well, again, I mean, we have -- we are a company that we feel very comfortable in low 90s. I'm talking about motor insurance business, but generally, as a whole on the company because Motor still is a driver of the combined ratio of the company. We posted a very, very good number -- the most important thing is that we posted a number which compares to a market which is still lagging a little bit in combined ratio. And I think we have improved our competitive advantage over the sector and that is key to linearity in terms of growth. And the third question that you have was on expenses. No, we don't have a target. The target that we have on expenses every year is that improve the prior quarter or the prior year. I think I always said that efficiency is the name of the game for this business. And we'll have that clear in the culture of the company. Again, we are not a company that we have an expense strategy. We have an efficiency culture in the company, and you should expect the company keep on improving that expense ratio. Sometimes in a quarter, it will be more difficult than another because you have some sustainability issues. But again, no objective. The only objective is to keep improving that.

The last question comes from Maks Mishyn from JB Capital.

Just a follow-up. One quick question on health insurance. I mean, you've lost 5,000 customers, and I was wondering if it's just a one-off or it's related to some changes in the strategy you are making?

Two questions in the same call, Maks, I'm going to charge you for this one. No. Well, I tried to explain that on the call on the presentation. I think we I think we need to look at the health business in a perspective. Two years ago or 1.5 years ago, we decided to change the brand that we were using. We integrate the health insurance under Línea Directa. Second of all, and at the same time, we decided to integrate the business within the rest of the business within the rest of the portfolio to try to do cross-selling. And the third thing that we have done is try to go to a more mix -- a different mix of products. I mean we try to foster more complete products to our clients. More difficult to sell those products. I must say, at the beginning, especially because our call center people, they need to learn and they need to evolve the selling capabilities. But at the end, with higher margins, and that's the short-term effect that we have. We lost a little bit of products that were more easy to sell, less profitability such as dental and things like that, and we were into more comprehensive products. I think looking forward, you should expect that the evolution of clients will keep on improving. I think it's a short-term issue more than a long-term objective of the company.

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

Thank you. I believe we have no further questions through the platform. So thanks a lot for joining us today and for your questions. As always, the Investor Relations team is here to help you if you have any further queries. And thank you very much, Carlos.

Thank you. Thank you very much all. Have a nice day.