Línea Directa Aseguradora, S.A., Compañía de Seguros y Reaseguros ($LDA)

Good morning, everyone, and thank you for joining us today. Welcome to Línea Directa's First Quarter 2026 Results Conference Call. My name is Beatriz Izard, Head of Investor Relations. Joining me today is our CFO, Carlos Rodriguez Ugarte, who will lead this presentation. This will be followed by a Q&A session. With that, I will now turn the call over to Carlos.

Thank you very much, Beatriz, and good morning to everyone on the call. We are very pleased to report another excellent set of results. Please let me guide you through the financial highlights presented on the first slide of the deck. We delivered top line growth of 10.2%, nearly 2x the non-life market growth of 5.36%. This solid momentum was achieved while maintaining an excellent combined ratio at 91.7%. Our customer portfolio reached 3.8 million clients, adding 72,000 in the first quarter in 2026, representing a 9.9% quarter-on-quarter increase. Net income grew by 12.3% to EUR 23.4 million, reflecting a strong combination of growth and profitability. Return on equity stood at 22.5%, underscoring the efficiency of our business model. And finally, solvency ratio was very strong, reaching 190.6%. Now let's move on to a more detailed review of the quarterly results. As shown on Page 7, the message remains consistent with prior quarters, a strong top line growth of 10.2%, supported by high retention, reflecting increased customer loyalty and continued new customer acquisition. Technical result was up 20.1% to EUR 22.9 million. The combined ratio was very solid for the first quarter at 91.7% with an exceptional expense ratio. The financial result was affected by mark-to-market movements in equity mutual funds in a volatile market environment, although the overall impact was limited to less than EUR 1 million. And all of this resulted in a profit after taxes of EUR 23.4 million, up 12.3%. In terms of business volumes and customers, all lines of businesses reported significant growth by adding 72,000 new clients in the quarter. Motor and Health, together with the developing new business lines stood out during the period. Moving to Page 9. The combined ratio remained very solid. On the loss ratio side, results were influenced by a temporary increase in the windshield replacement frequency, reflecting the impact of poor road conditions following the first quarter storms. On the expense ratio, continued improvements were driven by greater scale and enhanced operating productivity, demonstrating disciplined efficiency rather than cost reduction. That said, some seasonality benefits this ratio in the first quarter, which should be taken into account when interpreting the performance. From 2026 to 2028, we will continue to invest in technology capabilities that will improve both operational efficiency and customer experience. The expense ratio remains a key source of competitive advantage and a central pillar of our operational strategy. Now I would like to move on to a more detailed breakdown by line of business. In Motor, the year delivered excellent results with premium increasing 10.6%. We outperformed the market by 3.2 percentage points. We added more than 60,000 clients in the quarter, reflecting continued growth momentum. The combined ratio improved by 0.5 point, well ahead of the latest industry figure of 99.3% in the last quarter of 2025. The Home line of business delivered a steady growth with premiums increasing by 2.6%. Performance in this segment remains exceptional with the combined ratio at 89.4% in the quarter, an improvement of 0.5 percentage points. Moving to Page 12. The Health line delivered a strong growth of 20.1%. The portfolio increased by 8.7% with particularly strong momentum in the more comprehensive coverage, which grew by 9.6%. From a technical perspective, performance improved significantly with the combined ratio down 9 percentage points year-on-year. Underwriting discipline remains strong and loss ratio continues to be well contained. Moving to the next page. Financial results declined by 7.2%, primarily reflecting mark-to-market movements in investment funds accounted for through the P&L. Excluding this market-related volatility, financial results will have increased by 3.4%. Turning to Page 14. The composition of the investment portfolio remained largely stable during the first quarter with the exception of a slight reduction in equity exposure. The portfolio, excluding cash, increased to EUR 1.2 billion, supported by continued business growth. Average portfolio return stood at 278 basis points, while the average reinvestment yield of the fixed income portfolio reached 258 basis points. Portfolio duration remains well balanced at 3.79 years. Turning to our solvency position. The solvency ratio remained very strong at 191% despite the negative impact from fair value movements in the available-for-sale portfolio during the quarter. In addition, higher average premiums on passive renewals provide support to the premium best estimate liability, complemented by the increase in the risk-free discounting curve during the period. Moving to the next page. The SCR is primarily driven by underwriting risk, which is almost fully offset by a reduction in market risk. This reduction reflects lower equity exposure and a decline in the regulatory symmetric adjustment. To conclude, first quarter results continue the momentum seen throughout the year 2025, delivering exceptional growth and strong profitability. As we progress through 2026, our focus remains on delivering future growth that is both profitable and efficiency driven. I will now hand the call over to Beatriz to begin the Q&A session.

Thank you, Carlos. Our line is now open for questions.

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

Two from my side. The first one is on the expense ratio of Motor, as you mentioned, it was exceptional. Can you please walk us through what drove the year-on-year decline? Do you expect it to decline further in the year? And also, you mentioned the seasonality impacting the combined ratio in the first quarter. Could you just give us a bit more color of this seasonality? And the second question is also on Motor and on pricing. Some surveys suggest that average premiums started to decline year-on-year in February. Can you kindly discuss pricing trends you see in the market competition? And what are your expectations in terms of pricing and growth for the remainder of the year?

Thank you very much, Maks. Well, the expense ratio of the Motor business is true that has been exceptional in the first quarter, I think it was in the neighborhood of 17% which should be like that throughout the entire year. I mean I do look for a target in that number, but I think it's too soon still to be in those levels. I mean digital -- our digital proposition is working very well. The number of clients that they interact with the company without human interaction is very high, almost 12% of the policies that we sign are fully online. But again, I mean, we have to look at the expense ratio on a yearly basis more than on a quarterly basis. My intention is that we have always said that the company is very focused on efficiency. But again, I think it's only 1 quarter, we'll see where we go. Having said that, I mean, we are very happy about that expense ratio, not only on the motor business, but also on the company as a whole that I think we posted a 19%, which is a very good number. In terms of the combined ratio, well, combined ratio was very good in all the businesses, that 91.4% that we have on the Motor business is very good. It is true that if you look at a little bit of the loss ratio, we have some windshield impacts because of the road situation in terms of -- after all the rains and so on. But very comfortable on the combined ratio, very comfortable on the loss ratio. I mean, the risk profile of our clients is very much in line with last year. I mean, so you should expect a strong combined ratio. Again, I mean, we have always said that we should be a company in the low 90s, and we are there. So happy about that. Regarding average premium, well, the market, I think it closed last year in the neighborhood of 6% increase. I expect that the market will keep on rising average premiums as a general strategy. I mean, at the beginning of the year, I was expecting in the neighborhood of 4%. We'll see what happens with all the -- all these geopolitical situations that we are having, and that has an impact also on inflation. So we monitor very much inflation. We monitor very much our average premiums. Just in case the situation in terms of inflation comes worse, probably we have to take action.

Our next question comes from Francisco Riquel from Alantra.

I wanted to start with a follow-up on expenses. If you can please share more details on this performance, for example, what's acquisition costs, marketing expenses versus overheads and IT spending. So what is driving the reduction in the expense ratio? Second question is also a follow-up on the average premium, which in Motor for you is growing less than 2%, so below inflation. We have recent memories from the Ukraine war and the impact in your company and in the sector of the spike in inflation that we might now see after the Iran war. So I wonder if you are planning to update the tariffs or to adapt to a higher inflation environment or you will continue to prioritize market share gains in the coming quarters?

Thank you very much, Paco. I mean on the expense ratio, it is true that the number is very good, but it's nothing different as what we have seen from the company in the many, many years. It is true that probably this quarter, we have a little bit less marketing expenditure. Our acquisition cost is historical lows nowadays. We have a little bit less on investment on media and so on. And then on IT, the evolution, I mean, you should expect the increase on expenses more than decreases. I mean we are in a very transformational process on the company. And what you should expect looking forward is that technology expenses will rise. Again, I mean, a little bit less of investment this quarter, but nothing I mean we manage marketing expenditure when we see an opportunity, when we increase our expenses, then we retrench a little bit. It's an evolution of the strategy of the company. But we haven't done anything just to have that 17% expense ratio. I mean you should expect the company to be below 20s for sure for the year, and that's going to happen. In terms of the inflation, I think we learned quite a bit, not only in but in the market of the impact of inflation in our business 2, 3 years ago. We monitor inflation evolution on a daily basis. We monitor what happens in Iran and all these places because it does have -- it will have an impact on inflation for sure, not on the short term, but in the medium term, it will come out with higher inflation. And in the case of Línea Directa, we tend to price policy by policy on an individual basis, and we will do so. I mean, at the end, we have always said that our intention is to be an efficient company with a very competitive combined ratio. And if the situation comes to a point that we need to do something on pricing, we will do so. I think so far, our average premium increase has been in the neighborhood of 2% more or less, both in the new book and in the portfolio. And again, if we need to do it because inflation comes wrong, we'll do it. What we do is on an individual basis. I mean, I remember when inflation was 8%, we had some clients that we didn't increase their average premiums. And we have some clients that we have increased average premiums above that. It depends very much on the risk premium.

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

Firstly, on solvency, the ratio is supported by some reversal of the premium reserving done, I guess, last year. The typically happens later in the year. So can you give us some context on your reserving level and what gives you the confidence to have released that in Q1? And then on capital return on the dividend, you've paid a little over 50% in 2025. Going forward, how should we think about your dividend paying capacity considering that new business strain will likely remain quite high in 2026? And linked to that, do you aim to move to a more structured time line for dividend announcements? And then lastly, on kind of AI threats and distribution. So with the improvement in AI and automation, the cost of operating omnichannel networks at your competitors is likely to go down materially in the future and perhaps close some of the expense gap you have with the market. How do you think about these changes in distribution? And can you give us some examples of things that Línea Directa is doing to ensure it stays ahead of the pack on this topic?

Well, thank you very much. Beginning with the last question, I think if there is any company that is going to be really, really a winner in terms of using artificial intelligence, I think that is Línea Directa. I mean it fits very well in our model. We don't have any legacy in terms of direct distribution. So I think it works very well for the company. We are already putting in place some strategies on artificial intelligence on the side of the -- claims side of the business, I mean, we are working very much on chats with artificial intelligence. We are working in all the claim management of the business is starting to work on the front side of the business, I think we have a lot of opportunities in unifying information and making the process at the telephone much more efficient, and that means much better expense ratio. And then, of course, on the pricing, there's always opportunities to gather more data and the way we analyze the data. So again, I mean, we are in the beginning of using artificial intelligence. But clearly, I think it's a big, big opportunity for Línea Directa because it fits very well with the business model that we have. In terms of dividends, well, it's true that last year, I think we paid in the neighborhood of 60%, 56% of dividends. I mean, again, our objective now is to grow as much as we can. That double-digit growth in the business is very good for Línea Directa, and we are continuing on that front. That means that the consumption in terms of capital requirements is higher and probably is much more difficult to be on the 90s in terms of dividend payout. Again, we are a company that have always had that spirit of being a dividend payer, and we will do so as far as we are able to maintain that 180% solvency ratio. And regarding the solvency ratio, no voluntary releases. That's clear. I mean it's basically the risk premium, the evolution of the risk premium that at the beginning of the year, it is a little bit better than on the last part of the year. And if you take out prior years, you will see that first quarter, second quarter, the performance of the risk premium, which at the end is your expected claim cost looking forward is a little bit better than on the third quarter and fourth quarter, and you have some adjustments on the third quarter, especially. So -- but again, I mean, we are in 190%. We have always said that we have to be in 180%, and that's the idea of the company. Sometimes it's a little bit better, sometimes a little bit worse.

Yes. David, I just would like to clarify that the premium reserve is a reserve looking forward. It's not something about releasing anything from prior years. This is a forward-looking provision and contains premiums minus losses and expenses. So it's encompassing the increase in average premiums for renewals, and this is what you have over there, but it has nothing to do. This is a forward-looking reserve. It's not backward looking.

Yes. Again, I mean, we are -- we have always said that we don't use our reserving to help the P&L. I mean we manage our reserve based on our claim costs and the runoff or releases on the reserves come because of the closing of claims. I mean that's clear.

Our last question comes from Carlos Peixoto from Caixa Banco BPI.

So just a follow-up on the combined ratio for the group. So basically, in the previous call, if I remember, you had mentioned between 93% to 93% -- sorry, 92% to 93% guidance for the full year. The first quarter came already below those levels. you had an exceptionally good quarter in the expense side, but also there was some one-off on the loss ratio side. So I was just wondering whether you see this as too early to lower the guidance that you had given before or indeed, you can beat the 92%, 93% ratio guidance that you had mentioned? And then the second question would be regarding the insurance -- health insurance, sorry. Basically, you see -- when do you expect to reach technical breakeven on this segment?

Thank you, Carlos. I mean, regarding the combined ratio, I maintain what I said at the end of last year. I mean, we should be a company in those levels of 93s, 94s. First quarter numbers are very good. I mean there's a lot of year to come, but I feel very comfortable that the company is doing the right thing in terms of risk profiling and in terms of expense management. And if we keep on doing that and gathering clients with good profile, gathering clients with a price accordingly to the risk and managing our digital proposition, evolving our digital proposition that will put the combined ratio in the levels that I said in the past. So I'm very confident on that. And then in terms of the health business, Well, first of all, I think the health business is performing very, very well. I mean it is true that it's still a loss-making business, but the evolution of the business in terms of loss ratio, in terms of number of clients, in terms of growth in the upper lines is very, very good. I think we are very close to breakeven. I cannot put a date there, but I think we are doing the right things in all the levels of the business, in all the aspects of the business. And I think it's very short term to make that breakeven.

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

Thank you. We have also received questions through the platform. We have some questions coming from Will Hardcastle from UBS. Okay. So the first one is how sustainable is your lower expense ratio this quarter?

Well, looking forward, medium, long term, it should be better than the number we posted in this quarter. Again, I mean, the company is embracing a digital transformation, trying to move towards less human interactions in the management of our clients. And that if we do the homework that we need to do, we will put that expense ratio even better than that. It is true that on the first quarter at 17% in motor or 19% in the company is very good. I mean, but we feel that the company needs to keep on improving the expense ratio looking forward.

The second question is whether you can give us an idea of how your fixed income reinvestment yield has changed quarter-on-quarter? And how sensitive is your P&L to a 50 basis points rise in fixed income yields?

Well, on the last part of the question, I think it's much more affected our unrealized gains on the portfolio and the impact on the P&L. The reinvestment that we have this year is not very high. So it won't have a lot of impact. And in terms of the evolution of the yields, I think we -- last quarter, we were in [ 280 ], something like [ 280 ] plus, and we are almost in [ 280 ]. There is not that very negative evolution nor a positive evolution. Keep in mind that our book is very prudent. I mean 80% of our book are fixed income instruments, of which around 50% of that is government. We tend to sit on the investment and rely on coupons and dividends. I mean we don't do a lot of trading. So you should expect very much in line with what we have seen in this quarter in that neighborhood of [ 280 ]. We are trying to decrease a little bit the duration. I mean we are in below [ 4%.] We used to be in [ 4% ] by the end of last year, but very, very prudent investment phases and very stable throughout the year.

And the last question from Will is, I saw that a large mutual competitor recently raised its targeted combined ratio in order to be more competitive. Have you already seen this in action? What is your response to combat this?

Well, from Línea Directa point of view, I mean, your combined ratio has to be competitive through the expense ratio. We feel very comfortable in our loss ratio. Even if the loss ratio deteriorates a little bit more, we can manage that with a much better expense ratio. So the idea of the company is not to deteriorate the combined ratio in favor of growth, volume growth or retention of clients. We have been able with a combined ratio in the neighborhood of 92% to grow more than 60,000 clients in our Motor business to being able to retain our portfolio very, very well with a churn rate very close to 14% on the book. So I don't think you need to deteriorate your combined ratio to grow. I think you need to manage your combined ratio in terms of efficiency to be able to provide a very competitive price to clients while maintaining the combined ratio.

So thank you. Thank you, Carlos, and thank you all for joining us today and for your questions. As always, the Investor Relations team remains available should you require any additional information.

Thank you very much.