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

Good morning to all of you, and thank you for joining us today. Welcome to Linea Directa's Full Year 2025 Results Conference Call. My name is Beatriz Izard, and I'm Head of Investor Relations. Presenting today will be our CFO, Carlos Rodriguez Ugarte. After the presentation, we will open the call for a Q&A session. I will now hand the floor over to Carlos.

Thank you very much, Beatriz, and good morning to all of you. 2025 has been an exceptional year for Linea Directa. Please let me guide you through the financial highlights presented on the first slide of the deck. Net income increased by 33.5%, reaching EUR 86 million. This strong result reflects a combination of growth and profitability. We delivered top line growth of 11.3%, an improvement of 2.1 percentage points in the combined ratio compared with last year, that is a combined ratio of 92.6%. Our customer portfolio increased by a superb 8.5%, reaching 3.73 million clients. We added more than 290,000 clients to our portfolio, making the highest annual growth in our history. Return on equity rose to 22.9%, underscoring the efficiency of our business model. Finally, the strong results and solid solvency position have led the Board to propose a complementary dividend of EUR 50 million to the upcoming AGM. After accounting for this dividend, the solvency ratio stands at 182.6%. Now if we move to the next slide, we consistently emphasize the importance of efficiency in our business model. It enables us to offer more competitive prices to our customers to operate with healthy combined ratios. And lastly, efficiency is a critical driver of service quality. The digitalization of service continued to deliver outstanding results with all indicators surpassing the levels achieved at the end of last year. This includes strong growth in digital roadside assistance requests, online claims submissions in both Motor and Home and the use of digital supplements. Another key KPI is the traffic generated through our app and website, which increased by 17%. Digital interactions now represent 2.7x more contacts than traditional telephone calls. The digital chat launched in 2024 has grown by 68% and AI now resolves more than 64% of incoming inquiries. Digital sales have grown exponentially, reaching 9% of all new business at the end of 2025. It is important to highlight that these sales are fully digital and complete without any human intervention. These results differ from digital origination, which represents more than 2/3 of our overall portfolio. Finally, 91% of our customers interact with us digitally at least once a year. This journey is also driven a broader transformation to unlock the full potential of our direct model. We continue to strengthen our multiproduct offering while keeping the customer firmly at the center, delivering quality, service, transparency and competitive pricing. Through simple, user-friendly and comprehensive new digital assets, we aim to make our customers' life easier and to reinforce Linea Directa as the brand people choose and want to stay with. Now let's move on to a more detailed review of the 2025 results. On Page 9, the message remains fully aligned with what we have been highlighting in previous quarters. We continue to deliver excellent top line growth complemented by strong retention levels. This performance reflects our increased customer loyalty and our ability to attract new clients to the brand. The combined ratio was very solid for the full year at 92.6% and exceptionally strong in the fourth quarter at 19.4%. Financial result was up 5.4% with higher income from the bond portfolio and the revaluation of investment funds. And all of this resulted in a profit after tax of EUR 85.7 million, an increase of 33.5% compared with 2024. In terms of business volumes and customers, all line of businesses reported significant growth with Motor standing out by adding more than 215,000 new clients during the year. Growth was solid across the board, and our newer products also expanded considerably. Moving to Page 11. The evolution of the combined ratio remains solid. The loss ratio improved by 1 point, supported by prudent risk underwriting. At the same time, we continue to enhance operational efficiency through digitalization leading to a further 1.1 point reduction in the expense ratio. We continue to invest in data and technology capabilities that enhance both efficiency and customer experience. We view the expense ratio as a key competitive advantage, and it remains a central focus of our operational strategy. Now I would like to move on to a more detailed breakdown by line of businesses. In Motor, the year delivered excellent results, with premiums increasing 11.8% year-on-year and 12% in the quarter. We outperformed the market by 3.5 percentage points. The combined ratio improved by 2 points, supported by a notable correction in the fourth quarter. The sector, however, deteriorated its combined ratio to 98.2%, 99.3 % on a stand-alone basis in the fourth quarter. For its part, the Home line of business delivered a steady growth with premiums increasing by 6.3%. In 2025, the line achieved an all-time high profitability, posting combined ratios below 90% in every quarter, including an exceptional 84% in the last quarter of the year. Moving to Page 14. The Health line delivered a strong growth of 14.7%. We continue to make steady progress in improving the product mix with specialists and comprehensive products now accounting for 67% of the business compared with 62% in December 2024. On the technical side, we saw a very strong improvement in the combined ratio, down 14.6 percentage points, bringing it closer to target levels. Underwriting remains prudent with claims frequency well contained. The loss ratio for the year was 79.6%, broadly in line with the sector average of 79.7%. The financial result increased by 5.4%, supported, as I mentioned before, by higher income from bonds and a positive mark-to-market performance of our investment funds. Regarding the investment portfolio, its composition remained largely stable throughout the year with the portfolio, excluding cash, increasing to EUR 1.2 billion, supported by business growth. Average return stood at 312 basis points, while the average investment yield of the fixed income portfolio reached 241 basis points. Portfolio duration is 3.86 years. On our solvency position, the solvency margin stood at EUR 183 million, taking into account the complementary dividend that the Board will propose to the upcoming AGM. Moving to the next page. The SCR is mainly driven by underwriting risk, which increased in line with business growth by market risk reflecting interest rate and spread movements. And finally, by the significant rise in the symmetrical adjustment during the year. To conclude, the 2025 results reflect exceptional growth and strong profitability. We entered 2026 from a very robust position, fully focused on driving future growth in a profitable and sustainable manner. I will now hand the call over to Beatriz to begin the Q&A session. Thank you very much.

Thank you, Carlos. We are now making with the questions received from the conference call.

[Operator Instructions] Our first question comes from the line of Maks Mishyn from JB Capital.

Two questions from me. The first is on Motor insurance. We observed a slowdown in average premium growth for the sector. Do you think this means companies are back to the levels of profitability they want to be? What do you expect for 2026 in terms of competition? And do you think you can keep the growth momentum into the next couple of years? The second question is on health insurance. It's surprised with the growth of new customers. I was wondering if you have changed something in your commercial approach. And do you see you think we can reach a breakeven soon in this segment?

Thank you very much, Maks. Well, I mean, if we look at the market in the Motor business, I mean the market is still, I think, adjusting its combined ratio. The last number that we have from the market is that on the last quarter, the combined ratio was close to 99%. So I think they still need to do some homework on the average premium. Average premium for the sector, I think, for the year was in the neighborhood of 6% increase. And my expectations looking forward is that next year, they should need to keep on increasing average premium to adjust the profitability of the portfolio. In Linea Directa, my expectation for this year is that we should keep on growing. Difficult to give you rates or numbers. But the idea is that we have an opportunity to grow, and I think the company should keep on growing. I mean, once we have a very competitive combined ratio. We have a very competitive business proposal to our clients. So I think you should expect growth for 2026. And regarding the Health business, I mean, more I think is evolution of many, many things that we have been doing throughout the years. I mean, we have focused very much on cross-selling the health business to our clients. We have focused very much on changing the portfolio mix of the products that we were selling, trying to sell products much more sticky. We keep on being very prudent on the underwriting. And I think all things together have put the Health business in the pipeline to break even. The question on when it's going to come to breakeven, it's difficult to say, but I think we are very close to it.

The next question comes from the line of Francisco Riquel from Alantra.

Yes. So my first question is about digital sales that you have increased to 9% of the total in '25. If you can comment on the loss experience with digital-only clients? And how does it compare to the group average? And my second question is on the expense ratio in Motor, which has fallen to 16% in '25 under IFRS 4. My question is how low can it go in '26 and over the medium term? And then related to all these digital issues, just a follow-up on the artificial intelligence that you have been mentioning during your presentation, your views you have commenting about the opportunities, but also about the potential threat if you see any?

Thank you very much, Paco. On the digital front, well, I think it's too soon to give a message on the behavior of our digital clients, pure digital clients. I think so far so good. I mean, in terms of profitability, in terms of risk profiling, they are very similar to the clients that they come to the telephone. So we are very happy about the evolution. I think it's too soon to give numbers on that. I mean we are talking about 9% of customers purely, purely digital with no human interaction that is in the neighborhood of 80,000, 90,000 clients. So I think it's too soon to give a profile of those clients. Some surprises from this approach is that the risk profile of this client was even better than some of the clients that we have in the portfolio, which is good. Other learnings that we have is that in terms of average premium is very similar to the telephone clients. So I think so far, so good. I mean, very positive on that. The second question was on the expense ratio. While the expense ratio is true that it has reached almost 16% in the Motor business, well, I mean, I tried to explain this through the call. I mean our focus on efficiency and our focus on being the most efficient company in terms of operational is there. It's always a target. And I think it's key for a company like Linea Directa, and I think it's key for the sector. I mean I think the winners in the sector in the short term or long term, sorry, will be those that they are most efficient, and that's the way we do it. Of course, the business model that we have, I mean, being direct, being digital and so on helps very much. So where I see the efficient expense ratio looking forward, I don't have a number, but if I were to improve my combined ratio probably will be more on the expense side of the combined ratio than on the loss ratio. That's how we see things. And finally, in terms of artificial intelligence, which is the million-dollar question nowadays. Well, I think it's an opportunity for Linea Directa. Clearly, I think using this technology in a direct business model as Linea Directa is clearly an opportunity. We are working on that. We want to be prudent on that as well. I mean, I think it's too soon to give numbers the evolution of artificial intelligence on the P&L of the company. But clearly, I think it's an opportunity for Linea Directa. We are using already artificial intelligence in chats, in the operation. But again, we are working on that. But what I want to be very clear is that I think it's adjust very well to the business proposal of Linea Directa being sold direct.

The next question comes from the line of David Barma from Bank of America.

Firstly, coming back on the combined ratio. So you published a combined ratio in Q4 that's the level that not so long ago, you were saying was too good to be true. So can you please give us some color on the quarterly performance? And to what extent weather and frequency might have supported Q4 and how you see that developing in '26, please? Secondly, on solvency, I was expecting the solvency ratio to be supported in the quarter by a reversal of some of the premium reserving done early in the year, but it doesn't seem to have come through. So can you comment on that, please? And whether it's something we should expect in coming quarters? And then lastly, on capital return, we've paid a little over 50% in '25. Going forward, how should we think about your dividend paying capacity considering that new business strain is likely to remain high in '26 as you were alluding to earlier?

Well, in terms of combined ratio, it is true that the combined ratio in the last quarter has been exceptional. I mean it has been very good. I think it has been on the 90s. Probably that has been driven by the expense ratio who has improved, as I explained before, but also because of the frequency in our business. I mean frequency was lower than in the third quarter, and that helped the combined ratio going to those 90s%. Where do I see the combined ratio of the company? I think we -- I mean, last year, I think we put a target of getting close to 94% by the end of the year. We've reached that. So we delivered the numbers, I would say. Looking forward, I'm not very much concerned about improving more my combined rates. I think my combined ratio in the neighborhood of 92s, 93s, it's a very good combined ratio. Again, if I were to improve my combined ratio, it would come from the expense ratio more than the loss ratio. But in the levels that we are nowadays in terms of 92%, 93%, I think the company feels very, very comfortable. Your second question was on solvency. Well, solvency is above 180%, which is very good. It is true that on the third quarter, we have this hike in the premium reserve. The problem is that we keep on growing very, very much. And when you grow very much your SCR amongst quite a capital, and that's the thing with the solvency ratio at the end of the year. Very comfortable if we are able to maintain that 180%, which is really the target of the company, always on those 180%. And then on the dividend payout, we don't have a payout policy. As you know, we have a solvency policy, which has been around 180% as far as we are there, then the Board will decide. But it is true that when you grow your revenue side by 11%, 12%, SCR demands quite a bit of capital, and that has some pressure on the dividend. I mean -- but I think we -- with this EUR 50 million complementary dividend, our payout is 56%, I think, which is quite high.

The next question comes from Carlos Peixoto from Caixa Bank.

Just a quick follow-up from my side. So just going back to the fourth quarter combined ratio. I was just wondering whether there was any release of provisions in the quarter. I'm not sure you answered to that before. Then the second part -- sorry, second question would actually be on premium growth. So for this year, how do you see evolving? Do you expect to see any sort of slowdown or actually an acceleration in the pace of growth? And also, I saw that the expectation for the [indiscernible] is a 2.7% increase. Do you expect to fully pass on that clients through prices? So basically, this will be the main points that I was looking for?

Well, I'm going to try to answer because I have some difficulties in understanding your questions. Regarding the combined ratio Carlos, no reserve releases. I mean the reserve releases that we put on the quarter are the ones the ones with -- on the managing on the claims. I mean we don't do reserve releases, voluntary reserve releases. I mean we manage the business and more or less it's the same. So nothing extraordinary on the combined ratio in the fourth quarter, even though it's a very good combined ratio. I mean it's business as usual. Regarding premiums, well, we don't have a target in what should be the growth for the premiums in 2026. Probably the only target that we have is trying to grow more than the market. I think we have reached that goal in 2025, and that should be the goal for next year growing more than the market. We are very confident in the opportunity that we have. We have put more than 200,000 new clients on the company, on the Motor business. We are looking at the market, and we still see that the market is having some trouble with the combined ratio. So I think there's an opportunity for Linea Directa, and we will take that opportunity.

The last question is from the line of August Marcan from UBS.

Just 2 for me. One, your Home combined ratios seem very strong throughout the whole of 2025. I was just wondering if we kind of normalize for weather and everything, what is your expected normalized level for that segment? And second, for the Motor you touched on it at the start of the call, I think. But if you could expand a bit further, how do you see pricing and inflation trends in Spain year-to-date in 2026 so far?

Thank you. Well, it is true that the Home combined ratio has been superb this year, I mean, in the low 90s, even below 90s, some quarters. It has also been very good for the market as a whole. So it's difficult to say where do I see the combined ratio home insurance looking forward. I think it should be in the neighborhood of 91%, 90%, something like that. I don't see the combined rate below 90s. I think it has been a very, very good year. It depends very much on atmospheric vents. I mean, for example, the first 2 months of the year has been terrible in terms of rains in Spain. So it depends so much on atmospheric events, the evolution of the combined ratio that it's very difficult to give you a target. Having said that, I mean, we are a company with very competitive combined ratios. The Home insurance should be a business with a very competitive combine ratio compared to the market. Maybe below 90s is too good to be true. And the second question on pricing and inflation. I think the market closed with our average increase of 6% premiums more or less, which I think 5% is increasing premiums and the other one is on new cars. I think the market will keep on rising average premiums above inflation. I think they should because they are very close to 100% combined ratio. In the case of Linea Directa, you should expect individual prices, you should expect always adjusting our average premiums to CPI increases more or less.

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

Thank you and thank you, Carlos, and thank you all for joining us today and for your questions. As always, the Investor Relations team is here to support you should you need any additional information.

Thank you very much. Have a nice day.