Earning Results 4Q10. Cuarto Trimestre 2009

Transcription

1 1

2 Facing a New Challenge Management s Discussion & Analysis Our business model is based on service quality as our best sales pitch. This was clearly demonstrated with the 13.2% growth of the fourth quarter, which was achieved in a competitive market and within an environment in which new automobile sales did not obtain the expected recovery. This growth, in turn, was supported by the sales of individual policies, which increased by 33.8% and already account for almost 40% of our total sales. During the, there was an increase in automobile theft to record highs. This significant challenge has driven us to devise innovative strategies to manage this situation in the best possible way. We implemented and revised continuously measures such as specific changes in tariffs of high risk vehicles and zones, new policies conditions and a new pricing system, in order to obtain results in the medium term. During the year, we also implemented a prudent expense policy, which showed in the operating + acquisition cost ratio, which decreased to 20.7% from 22.1%. With regard to the investment strategy, we continued with a conservative focus, which allowed us to obtain a 6.9% yield in an environment of increasing rates in the bond markets and high prices in the stock market. However, the 28.2% increase in the Integral Financing Result was not enough to offset the operating loss for the quarter, of $142. This resulted in a net loss for the period of $22. Management is aware of the challenges the Company faces and has set as its priority to obtain profitable results. 2

3 Mexico City, February 23, Financial Results 1, 2 Analysis Premiums Written 3,000 2,700 2,400 2,100 1,800 1,500 1, ,689 CAGR: 2.2% 2,874 2,539 2,205 4Q07 4Q08 4Q09 Highlights for the Quarter Amount Ch. % Premiums Written 2, % Net Premiums Written 2, % Premiums Earned 2, % Acquisition Cost % L&LAE Cost 1, % Operating Expenses % Operating Income -142 NA Integral Financing Result % Net Result % 1,600,000 1,400,000 Insured Vehicles CAGR: 5.6% 1,478,007 1,356,108 1,374,772 1,598,274 Cash & Investments 3 6, % 12M EPS % Operating Data 1,200,000 1,000,000 Insured Vehicles 1,598, % Net Collection 2, % 800, ,000 4Q07 4Q08 4Q09 1 Throughout this document, figures are stated in millions of pesos, except when stated differently. Figures may vary due to rounding effects; the variations expressed are with respect to the last period in The Company registered a $115 charge to earnings during the 2Q09 and a $287 charge to Net Result during the 4Q09, for an alleged fiscal contingency on outstanding value-added tax payments on claims settlements. To provide a better analysis in this document, we have presented this charge as a Non-Ordinary Item, while in the financial statements filed with our regulators, this charge was registered as an operating expense following the Financial Information Rules (NIF). 3 Cash & Investments = Securities and Derivatives Transactions + Overnight + Cash and Cash Equivalents 3

4 Fourth Quarter 2010 Results Financial Figures Quarterly Cumulative 4Q09 Ch. % 12M10 12M09 Ch. % Results Premiums Written 2,874 2, % 9,810 8, % Net Premiums Written 2,703 2, % 9,283 8, % Premiums Earned 2,314 2, % 8,723 7, % Net Acquisition Cost % 1,793 1, % L&LAE Cost 1,914 1, % 6,735 5, % Underwriting Result NA % Operating Expenses % % Operating Income NA NA Integral Financing Result % % EBTDA 8-61 NA % Pre-tax Result NA % Tax Provision NA % Net Result % % Net Result before Non Ordinary Items NA % Balance Sheet Figures Cash & Investments 3 6,250 6, % Total Assets 13,481 12, % Technical Reserves 9,076 8, % Stockholder s Equity 2,082 1, % 16,000 14,000 12,000 10,000 Assets CAGR: 13.3% 11,105 9,280 12,376 13,481 8,000 6,000 4,000 2,000-4Q07 4Q08 4Q09 4

5 Operating and Financial Ratios 4 Quarterly Cumulative 4Q09 Ch. % 12M10 12M09 Ch. % Cost Ratios Acquisition Ratio 18.6% 20.4% -175 bp 19.3% 20.8% -148 bp Operating Ratio 2.1% 1.7% 37 bp 2.6% 3.1% -51 bp Operating + Acquisition Ratio 20.7% 22.1% -138 bp 21.9% 23.9% -199 bp L&LAE Ratio 82.7% 72.8% 988 bp 77.2% 74.2% 304 bp Combined Ratio 103.4% 94.9% 851 bp 99.1% 98.0% 106 bp Solvency Ratios Reserves Coverage % Minimum Equity Requirement 1,737 1, % Solvency Margin % Solvency Margin Ratio 19.6% 18.4% 113 bp Profitability Ratios EBTDA Margin 0.3% -2.4% 270 bp 7.5% 4.0% 349 bp Net Margin -0.8% -1.0% 27 bp 4.2% 1.7% 252 bp ROE 12M 21.2% 8.3% 1,287 bp Profitability Ratios: Pre Non- Ordinary Items EBTDA Margin 0.3% 8.9% -860 bp 7.5% 8.5% -106 bp Net Margin -0.8% 10.3% -1,103 bp 4.2% 6.3% -203 bp ROE 12M 18.2% 23.9% -567 bp (4)Calculation of ratios is detailed in the glossary at the end of this document % 70.0% Costs Ratios 99.2% 104.3% 104.4% 88.0% 78.0% 85.6% 94.9% 72.8% 103.4% 82.7% 40.0% 10.0% 26.4% 18.7% 11.2% 22.1% 20.7% 4Q06 4Q07 4Q08 4Q09 Acq. + Op. L&LAE Combined 5

6 2,500 2,000 Net Collection CAGR: 4.4 % 2,325 2,179 2,074 2,480 1,500 1, Q07 4Q08 4Q09 Cash & Investments 7,000 6,000 CAGR: 11.4 % 5,704 6,163 6,250 5,000 4,521 4,000 3,000 2,000 4Q07 4Q08 4Q09 6

7 Financial Results Discussion & Analysis Figures stated in millions of pesos Premiums Written As during all of 2010, the 13.2% growth in premiums written during the quarter was driven by the sale of individual policies within the traditional business segment. The 33.8% increase in sales through this channel shows the market s preference for our quality service. On the other hand, the renewal of some fleets policies during January 2011 explains the 9.1% decrease in this line of business during the quarter. In December we won the bidding for several toll roads segments, which we insured from 2011 onward. During we registered the premium for the first month of operation of these businesses for an amount of $64. During December 2010, the auto manufacturers with whom we work produced advertising campaigns with attractive promotions. This boosted new car sales and benefited our financial institutions business line, which grew by 7.2%. Segment Amount Ch. $ Ch. % Individual 1, % Fleet % Sum of Traditional 1, % Toll Roads % Financial Institutions % Subsidiaries 2 2 NA Total 2, % 7

8 % 12M Written Premium by Segment % 36.2% 63.1% 40.2% 59.0% 12M Written Premium by Period % 20.4% 80.4% Annual Multiannual 79.6% As a result of the above, insured vehicles amounted to 1'598, 274 units, which represents an 8.1% growth. 4Q09 Inc. % Automobiles 1,116,985 1,045, % Trucks 420, , % Sum 1,537,384 1,437, % Motorcycles and Tourists 60,890 40, % Insured Vehicles 1,598,274 1,478, % 8

9 Premiums Ceded, Net Premiums Written and Reinsurance Premiums ceded decreased by 17.6%, while net premiums written grew by 15.9% due to the change in the reinsurance strategy. As part of the risk strategy, during we ceded 7.5% of premiums written, while in 4Q09 this figure was 10%. Premiums Earned Earned premiums grew by 10.6%, a lower growth than the one registered in premiums ceded, since several policies that were issued during the began their life term in January Acquisition Cost The net acquisition cost grew by 6.0%. Commissions to agents and UOF payments registered a moderate growth when compared to sales growth. We attained savings in administrative expenses as the result of a prudent spending policy. Revenues from commissions on ceded reinsurance decreased, resulting from our new strategy of ceding fewer premiums to the reinsurer. This resulted in an acquisition cost rate of 18.6%, a 175 bp decrease when compared to the 20.4% registered in the 4Q09. L&LAE L&LAE increased by 25.7%. This growth is greater than the one in premiums earned, so that the L&LAE ratio worsened from 72.8% in the 4Q09, to 82.7% during this quarter. This decline is mainly due to the 39.5% increase in the number of thefts. Also, this deterioration has occurred nationwide and has affected the whole market. Given this environment, we have taken measures that we revise continuously and which impact will show in the medium term. Some of these measures are specific changes in tariffs of vehicles and zones with the greatest increases in theft, changes in the policies conditions and analysis by sales office. 9

10 78,876 67,655 59,865 53,210 47,213 46,400 46,734 47,545 45,261 44,091 45, Automobile Thefts to Insurance Companies Source: AMIS Recoveries from our reinsurers decreased as a result of ceding fewer premiums to the reinsurer. We had an increase in claims from other insurance companies, due to the close of the fiscal year and to a new compensation system between insurance companies. Operating Expenses Operating expenses grew by 37.5%, resulting in an operating ratio of 2.1%. Even though this growth is meaningful, it is the result of a very low 2009 base, since during that period we recovered premiums deposited but not allocated to a policy, so that we consider that the current level of the ratio is appropriate. During this quarter, we undertook some adjustments to the depreciation of satellite recovery devises so that we registered $2 in depreciation and amortization, which represented a decrease of 93.0% in this item. Operating Result As a result of a significant increase in the L&LAE, the operating loss amounted to $142, a figure that contrasts with the $69 revenue registered in the 4Q09. Integral Financing Result Even though the financial markets showed significant volatility at year-end, we attained an investment yield of 6.9% during the quarter, maintaining the same conservative investment strategy that we followed throughout the year. The premiums finance charge grew by 7.4% and the others item resulted benefited from the interests of loans granted to agents. 10

11 33% 40% 8% Government Quasi - Government Corporate Bonds Fx Stocks 6% 13% Taxes Taxes for the period amounted to $5. It is worth mentioning that during the 4Q09 this item was benefited by the deferred income tax from non ordinary items. Net Result The net loss amounted to $22, as a result of the increase in L&LAE. Cash & Investments The cash and investments item amounted to $6,250, which represents $13.9 Cash / CPO. It is worth noting that during 2010, we realized non recurring payments for $301 to pay off the fiscal contingency balances, in addition to a dividend of $180. Cash & Investments / CPO

12 Solvency Margin: The solvency margin at the end of the amounted to $340, and the solvency margin ratio registered 19.6%, which is greater than the 4Q09 figure, of 18.4%. The minimum equity requirement, on the other hand, increased by 12.1% to reach $1,737. Notes to the financial analysis: 1. According to the request of the auditors, payroll expenditures of our subsidiaries were reclassified from the Administrative and Operating Expenses account, to the Employees Compensation and Benefits account for presentation purposes. The Major Account Net Operating Expenses remains unchanged, as do the results of the Income Statement. 2. To follow the guidelines presented by the Mexican Association of Insurance Institutions (AMIS), the Operating Ratio is calculated by dividing the Net Operating Expenses by the Premiums Written. Formerly, it was divided by the Net Premiums Written. The effect on the rate is less than one percentage point. 12

13 QUALITAS COMPAÑIA DE SEGUROS, S.A.B. DE C.V. Consolidated Balance Sheet as of December 31, 2010 Figures Stated in Mexican Pesos Assets Investments 6,336,673,873 6,450,287,966 Securities and Derivatives Transactions 5,745,514,113 5,849,450,575 Securities 5,745,514,113 5,849,450,575 Government 1,965,532,895 3,170,726,529 Private Companies 3,405,019,317 2,455,076,642 Fixed Maturities 3,118,731,403 2,141,154,038 Equity 286,287, ,922,604 Foreign 103,341, ,690,205 Net Value 251,603,854 80,436,813 Interest Receivable 20,016,445 17,520,386 Overnight 135,951, ,684,839 Loans 30,390,748 19,426,872 Secured 16,099,192 14,947,665 Unsecured 3,708,223 3,479,207 Discounts and Re-discounts 13,583,333 4,000,000 (-) Allowance for Doubtful Accounts 3,000,000 3,000,000 Property 424,817, ,725,680 Real Estate 212,330, ,553,402 Net Value 243,255, ,008,321 (-) Depreciation 30,769,544 27,836,043 Reserve for Labor Obligations 33,211,853 25,799,938 Cash and Cash Equivalents 368,495, ,024,920 Cash and Banks 368,495, ,024,920 Debtors 5,431,008,416 4,798,532,975 Premiums 4,920,121,931 4,304,937,973 Agents and Adjusters 25,319,716 27,944,550 Accounts Receivable 147,735, ,201,518 Employee's loans 26,428,915 25,945,773 Other 365,497, ,721,363 (-) Allowance for Doubtful Accounts 54,095,825 21,218,202 Reinsurers and Re-Bonding Companies 578,437, ,838,049 Insurance and Bond Companies 54,027,654 93,707,841 Equity Participation of Reinsurers in Outstanding Claims 104,733, ,934,460 Equity Participation of Reinsurers in Unearned Premiums 415,907,320 33,578,061 Other Equity Participations 3,768,806 3,617,687 Other Assets 732,808, ,737,657 Furniture and Equipment 235,620, ,341,339 Miscellaneous 493,156, ,468,229 Amortizable Expenses 9,507,158 8,074,661 (-) Amortization 5,475,685 5,146,572 Total Assets 13,480,636,032 12,376,221,505 13

14 QUALITAS COMPAÑIA DE SEGUROS, S.A.B. DE C.V. Consolidated Balance Sheet as of December 31, Figures stated in Mexican Pesos Liabilities Underwriting Reserves 9,075,832,370 8,267,633,543 Unearned Premiums 6,671,813,755 6,195,253,786 Casualities 6,671,813,755 6,195,253,786 Contractual Obligations 2,401,676,959 2,048,251,113 For Claims and Maturities 2,255,154,711 1,934,179,663 For Incurred and Non-Reported Claims 81,865,918 71,825,734 For Dividends on Policies 7,366,674 7,343,699 For Premiums in Deposit 57,289,656 34,902,017 Preventive Reserve 2,341,656 24,128,644 Catastrophic Risks 2,341,656 24,128,644 Reserve for Labor Obligations 61,549,171 47,614,817 Creditors 621,523, ,584,253 Agents and Adjusters 303,586, ,009,663 Funds for Losses Management 1,267, ,361 Miscellaneous 316,669, ,031,229 Reinsurers and Re-Bonding Companies 590,641, ,393,329 Insurance and Bond Companies 590,641, ,393,329 Other Liabilities 1,048,936,526 1,271,686,768 Provisions for employee profit sharing 4,272,587 3,929,390 Income Tax Provisions 128,292, ,842,671 Other Obligations 729,588, ,338,873 Deferred Credits 186,782, ,575,834 - Total Liabilities 11,398,483,045 10,539,912,710 Stockholder's Equity Capital Stock 342,958, ,956,574 Capital Stock 342,958, ,956,574 Reserves 431,920, ,848,225 Legal 143,770, ,698,361 Other 288,149, ,149,864 Valuation Surplus 100,595,081 71,818,944 Subsidiaries - 2,638,479-2,638,479 Retained Earnings 723,823, ,729,004 Net Income for the Year 414,878, ,721,841 Excess (insufficiency) in Capital Restatement 65,597,647 65,597,647 Minority Interest 5,017, ,039 Total Stockholder's Equity 2,082,152,987 1,836,308,795 Total Liabilities and Stockholder's Equity 13,480,636,032 12,376,221,505 14

15 QUALITAS COMPAÑÍA DE SEGUROS, S.A.B. DE C.V. CONSOLIDATED INCOME STATEMENT (Figures Stated in Mexican Pesos) Premiums Written 2,874,079,378 2,539,398,557 (-) Ceded 171,450, ,156,601 Net premiums written 2,702,628,793 2,331,241,956 4Q09 (-) Net increase in unearned premiums 388,342, ,354,403 Net premiums earned 2,314,285,948 2,091,887,553 (-) Net Acquisition Cost 503,197, ,895,901 Agents' commissions 185,867, ,281,455 Agent's additional compensation 25,192,788 24,866,979 (-) Comissions on ceded reinsurance 34,921,823 55,494,489 Excess loss coverage 1,857,735 1,956,475 Other 325,201, ,285,481 (-) Net Losses and loss adjustment expenses and other contractual liabilities 1,913,570,646 1,522,923,579 Losses and other contractual liabilities 1,913,357,939 1,522,999,589 Losses on non-proportional reinsurance 212,707-76,010 Claims - - Underwriting income (loss) - 102,482,415 94,068,073 (-) Net increase in other underwriting reserves - 21,786,988-19,180,122 Catastrophic Risk Reserve - 21,786,988-19,180,122 Gross (income) loss - 80,695, ,248,195 (-) Net operating expenses 60,847,225 44,257,667 Administrative and Operating expenses - 57,952, ,992,178 Employees' compensation and benefits 116,063, ,424,407 Depreciation and Amortization 2,736,308 38,825,438 Operating income (loss) - 141,542,652 68,990,528 Integral Financing Result 146,856, ,663,426 Investments 95,709,396 97,183,879 Sale of investments 5,800,564 4,511,120 Non-realized gain (loss) on investments 2,319,929 1,210,017 Premiums finance charge 34,911,409 32,510,595 Other 8,249,557 4,248,568 Foreign Exchange - 134,232-22,000,753 (-) Non-Ordinary Items 286,909,346 Income (loss) before taxes and employee's profit sharing 5,313, ,255,392 (-) Provision for income taxes 26,902,555-81,044,945 Share in associated companies income (P.R.S.) - 6,685,036 Income (Loss) before Discontinued Operations - 21,588,584-25,895,483 Net income (loss) - 21,588,584-25,895,483 15

16 Glossary of Terms and Definitions: Acquisition Cost: Includes commissions and compensations paid to agents and the fees paid to Financial Institutions for the sale of our policies (UOF). Acquisition Ratio: Results from dividing the Acquisition Cost by Net Premiums Written. CAGR: Compound Annual Growth Rate = [(End of Period Figure / Beginning of Period Figure) ^ (1/ Number of periods)] Cash & Investments: Securities and Derivatives Transactions + Overnight + Cash and Cash Equivalents Combined Ratio: In the insurance industry, the combined ratio is used as a general performance measure. It results from the addition of the Acquisition, Operating, and L&LAE Ratios. EBTDA: Earnings before Taxes, Depreciation and Amortization. It differs from EBITDA in that, in EBTDA, the Investment Income is not subtracted, since it is part of the operation of insurance companies. Financial Institutions: Institutions that belong to both Financial Groups as well as to the major automakers in the industry, responsible for credit sales of new automobiles. L&LAE: Loss and Loss Adjustment Expenses: Includes the costs incurred in the payment of claims: valuation experts, adjusters, claim s coordinators, and repair costs. L&LAE Ratio: Results from dividing the L&LAE by Net Premiums Earned period. Minimum Equity Requirement: Is the minimum equity level that an insurance company should maintain, according to the authorities' requirements. In Mexico, in the automobile insurance industry, it is approximately calculated as the 16

17 16.4% of the premiums written in the last 12 months or the 25.1% of the net L&LAE for the last 36 months, that which results higher. Multi-annual Policies: Policies with a term greater than 13 months. They are typically issued for the automobiles sold on credit. Net Premiums Earned: Portion of premiums written that is registered as income as time goes by. Net Premiums Written: Equal to premiums written less the part yielded to reinsurance. Operating Expenses: Includes expenses incurred in by the Company in its regular operations. Operating Ratio: Results from dividing Operating Expenses by Premiums Written. Policies Fees: Administrative fee charged when the policy is issued and recorded as an income in operating expenses. Premium Debtor: Records the portion of sold policies which will be paid in installments. Premiums finance charge: Financial penalty imposed to policyholders that choose to pay their policy s premium in installments. Premiums Written: Premiums corresponding to policies underwritten. Solvency Margin: Results from subtracting the Minimum Equity Requirement and the Underwriting Reserves, from the sum of Securities and Cash and Banks. Solvency Margin Ratio: Results from dividing the Solvency Margin by the Minimum Equity Requirement. UOF: Use of Facilities: Fees paid to the Financial Institutions for the sale of our insurance policies. 17

18 Quálitas is an insurance company, specialized in auto insurance, which occupies the first place in the Mexican market with a 19.6% share as of September After 16 years in operation, it has 1.6 million insured vehicles and 150 offices nationwide. Quálitas business model focuses on excellence in service and low costs. Except for the historic information herein provided, statements included in this document regarding the Company s business outlook and anticipated financial and operating results or regarding the Company s growth potential, constitute forward-looking statements based solely on management s expectations regarding the economic and business conditions in Mexico, country where Quálitas operates CONTACTS: Alejandro Meléndez González Investments & Investor Relations Officer amelendez@qualitas.com.mx T: +52 (55) Thalía Bustos Islas Investor Relations Coordinator tbustos@qualitas.com.mx T: +52 (55)

19 Earnings Results Conference Call Quálitas Compañía de Seguros, S.A.B. de C.V. invites you to participate in our: Fourth Quarter 2010 Earnings Results Conference Call To be held on: Friday February 25, 2011 at 9:00 A.M. Mexico City Time (10:00 A.M. EST) Hosted by: Wilfrido Castillo Sánchez Mejorada, CFO Alejandro Meléndez, IRO To participate, please dial Toll free: (866) or (857) Five minutes prior to the call. Confirmation Code: To dial in from Mexico, please dial: Toll free: 001 (866) or 001 (857) Five minutes prior to the call. Confirmation Code: Playback: The call will be available on our website on Monday, February 28,