Earning Results. Cuarto Trimestre 2009

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2 Mixed Results and Solid Profitability Management s Discussion & Analysis The brought about encouraging figures as well as challenging results at the operating level and a considerable investment income, which allowed for a healthy 28.1% growth in net income. Premiums written increased by 15.1%, driven by a notable 34.2% growth in the traditional business line. This growth was attributable to personal, not fleet, sales, and proved once more the strength of our service focus as well as the diversification of our sales portfolio vis-à-vis different market conditions. L&LAE deteriorated significantly during the quarter, by $295, amounting to $1,798 while the L&LAE ratio reached 81.5%. Of this $295 increase, $152 were due to theft and $26 were due to damages caused by two recent hurricanes. In addition during this quarter, we had more rains than during previous years, which resulted in a higher number of claims due to floods which cost $50. As mentioned in previous quarters, we have carefully analyzed the events of theft, since they vary significantly among different zones nationwide, and have continued designing and implementing preventive and corrective measures which will bear fruits in the medium to long term. We also believe, however, that given the social and legal nature of this phenomenon, which place it partially outside the Company s control, it will continue impacting its results in the medium term. Operating expenses, on the other hand, benefitted from an increase in policies fees, due to both a raise in fees and to the growth in personal sales. Since acquisition costs also remained low, growing by 3.3% during the quarter, the operating + acquisition cost ratio stood at 21.4%. With regard to our investment strategy, we attained a considerable annualized yield for the quarter, of 13.5%, which resulted from our significant exposure to government instruments indexed to inflation, as well as from investments in fixed rate long term bonds 2

3 and equities. This portfolio mix benefitted from the decline of rates in Mexico and the recovery in equity markets during September. Net income was benefitted by a reduction in the tax provision, due to deductible items resulting from the 2010 tax payments of the non ordinary item. As a result, net income amounted to a solid $138 for the quarter. 3

4 Mexico City, October 21 st, 2010 Financial Results 1, 2 Analysis 2,700 2,400 2,100 1,800 1,500 1, Premiums Written CAGR: 6.5% 2,374 1,966 2,045 2,062 3Q07 3Q08 3Q09 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 -67 NA Investment Income % Net Result % 1,600,000 1,400,000 1,200,000 Insured Vehicles CAGR: 8.0% 1,454,529 1,360,925 1,268,093 1,597,315 Cash Flow -91 NA Cash & Investments 3 6, % 12M EPS % 12M EPS before Non- Ordinary Items % 1,000,000 Operating Data 800, ,000 3Q07 3Q08 3Q09 Insured Vehicles 1,597, % Net Collection 2, % 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 4

5 Third Quarter 2010 Results Financial Figures Quarterly Cumulative 3Q09 Ch. % 9M10 9M09 Ch. % Results Premiums Written 2,374 2, % 6,936 6, % Net Premiums Written 2,228 1, % 6,581 5, % Premiums Earned 2,207 1, % 6,408 5, % Net Acquisition Cost % 1,290 1, % L&LAE Cost 1,798 1, % 4,821 4, % Underwriting Result % % Operating Expenses % % Operating Income NA % Integral Financing Result % % EBTDA % % Pre-tax Result % % Tax Provision % % Net Result % % Net Result before Non Ordinary Items % % Balance Sheet Figures Cash & Investments 3 6,120 5, % Total Assets 12,500 11, % Technical Reserves 8,609 8, % Stockholder s Equity 2,093 1, % 14,000 12,000 Assets CAGR: 15.2% 11,335 11,703 12,500 10,000 8,176 8,000 6,000 4,000 2,000-3Q07 3Q08 3Q09 5

6 Operating and Financial Ratios 4 Quarterly Cumulative 3Q09 Ch. % 9M10 9M09 Ch. % Cost Ratios Acquisition Ratio 17.9% 20.4% -257 bp 19.6% 21.0% -136 bp Operating Ratio 3.5% 3.6% -15 bp 2.9% 3.9% -105 bp Operating + Acquisition Ratio 21.4% 24.1% -272 bp 22.5% 24.9% -241 bp L&LAE Ratio 81.5% 77.1% 439 bp 75.2% 74.7% 57 bp Combined Ratio 102.8% 101.1% 167 bp 97.7% 99.6% -184 bp Solvency Ratios Reserves Coverage % Minimum Equity Requirement 1,732 1, % Solvency Margin % Solvency Margin Ratio 13.1% 20.2% -707 bp Profitability Ratios EBTDA Margin 8.7% 10.0% -128 bp 10.4% 6.5% 389 bp Net Margin 5.8% 5.2% 59 bp 6.3% 2.8% 348 bp ROE 12M 21.3% 10.9% 1,038 bp Profitability Ratios: Pre Non- Ordinary Items EBTDA Margin 8.7% 10.0% -128 bp 10.4% 8.4% 206 bp Net Margin 5.8% 5.2% 59 bp 6.3% 4.6% 165 bp ROE 12M 28.5% 16.9% 1,163 bp (4)Calculation of ratios is detailed in the glossary at the end of this document % 70.0% Cost ratios 101.7% 106.3% 102.6% 101.1% 102.8% 72.3% 74.5% 77.1% 82.0% 81.5% 40.0% 10.0% 29.4% 24.3% 28.2% 24.1% 21.4% 3Q06 3Q07 3Q08 3Q09 Acq. + Op. L&LAE Combined 6

7 Investments &Cash Flow Initial Balance of cash & investments Quarterly Cumulative 3Q09 Var.% 9M10 9M09 Var.% 6,160 5, % 6,160 5, % Operating Cash Flow NA NA Investment Income % % Capital Expenditures % % Tax Provisions % % Capital Increase NA % Closing balance of cash & investments 6,120 5, % 6,120 5, % (5) Collection, casualties, payments, commissions, payroll, VAT and other operating items. 2,500 2,000 Net Collection CAGR: 4.8 % 2,027 2,020 1,938 2,336 1,500 1, Q07 3Q08 3Q09 Cash & Investments 7,000 6,000 5,000 4,000 CAGR: 14.5 % 5,867 5,930 4,082 6,120 3,000 2,000 3Q07 3Q08 3Q09 7

8 Financial Results Discussion & Analysis Figures stated in million pesos Premiums Written Sales grew by 15.1% driven by a solid growth of 50.8% in the individual policies segment, of the traditional business line. We feel very satisfied with the growth in this segment, since it confirms the public s preference for Q s products in a very competitive market, and proves the strength of our business model, based on service excellence. Fleet sales, also of the traditional business line, grew by 5.9%, driven by the underwriting of an important business at the close of the quarter Written Premium sales by segment % 36.8% 41.6% 63.2% 57.4% On the other hand, the financial institutions segment decreased by 9.2%, impacted by shorter terms on loans granted by financial institutions with which we maintain a commercial relation, as a result of more conservative credit underwriting rules % 21.1% 80.4% 78.9% Annual Multiannual 8

9 Consequently, insured vehicles have grown by 9.8% Insured Vehicles 3Q09 Var. % Automobiles 1,112,715 1,026, % Trucks 430, , % Subtotal 1,543,446 1,417, % Motorcycles and Tourists 53,869 37, % Insured Vehicles 1,597,315 1,454, % Premiums Ceded, Net Premiums Written and Reinsurance Premiums ceded decreased by 17.1% while net premiums written grew by 18.1%, as a result of the change in the reinsurance strategy. During we ceded 7.5% of premiums written, while in 3Q09 we ceded 10%. Premiums Earned In light of the growth of certain fleets at the end of the quarter, we registered an increase in the unearned premiums reserve; therefore, premiums earned only grew by 13.2%, less than the 18.1% growth in net premiums written. Acquisition Cost The acquisition cost ratio decreased by 257 bp reaching 17.9% during due to lower payments of UOF s to financial institutions, given the slowdown in sales in this segment. These savings were compensated with higher commissions paid to agents, because of the growth in the traditional business, and with a decrease in the commissions paid to reinsurers as a result of the strategy of ceding less premiums. L&LAE L&LAE registered an increase of 19.6%. This growth is higher than the one in premiums earned, so that the L&LAE ratio dropped from 77.1% in 3Q09 to 81.5% in this quarter. This decline is mainly due to the 26.4% growth in thefts, which had a negative effect of $152 in the expenses. The measures we are taking are mainly focused in the states of Mexico, Nuevo León, Chihuahua, Jalisco, Sinaloa and Tamaulipas, where the most important increases in thefts are registered. We believe that our business model is the appropriate one to face this new challenge, since our management s involvement and the detailed knowledge of each market is having a positive effect on some of the measures taken, as our recovery of automobiles stands at 25.3%, a higher figure than the 22.9% of the market, according to figures posted by AMIS (Mexican Association of Insurance Institutions). 9

10 During third quarters, it is characteristic in the country to have the presence of hurricanes. In the we were impacted by two hurricanes: Alex and Karl. The estimated damages during the quarter were $26. At the end of the quarter, we estimate a recovery of $3 for this claim because of the catastrophic reinsurance we have hired, which we ll registered when we realize the collection. In addition during this quarter, we had more rains than during previous years, which resulted in a higher number of claims due to floods which cost $50. Operating Expenses Operating expenses registered an increase of 13.2%, which is lower than the one in net premiums written and kept the operating ratio at a healthy level, of 3.5%. During this quarter we were benefitted by an increase in policies fees, given the increase in such fee and the growth in sales in the individual segment. Operating Result As a result of an increase in the L&LAE, the operating result amounted to a loss of $67, a higher figure than the loss of $7 registered in 3Q09. Integral Financing Result The investment yield of 13.5% was the result of the strategy explained in the 2Q10 earnings report, which consisted in maintaining an exposure of 9% of our portfolio in long term fixed rate bonds, 30% in long term government instruments indexed to inflation (Udibonos) and 8% in equity. This portfolio benefitted from the decline of rates in Mexico and the recovery in equity markets during September. The Investments Committee has reviewed the strategy and our portfolio is comprised for a scenario with a moderate economic recovery, both in Mexico and in the U.S.A.; low rates and inflation; diminishing spreads in corporate bonds; and a stock market with opportunities in very select issuers. The premiums finance charge increased by 14.1%, in line with premiums written. 36% 36% 14% Government Quasi - Government Corporate Bonds Fx Stocks 8% 6% 10

11 Income before taxes Income before taxes amounted to $167, the same figure than the one registered in 3Q09. This was the result of the increase in L&LAE, offset by lower acquisition costs and operating expenses and by an increase in the investment income. Taxes Taxes showed a decrease of 50.2% as a result of savings due to deductibles items of past years. These items result from the payments realized at the end of 2Q10 and from the fiscal contingency that we set up in 2Q09 and 4Q09, but that we had not considered in our provision, in a conservative way, until we had final figures. Net Result The net result amounted to $138 as a result of the increase in investment income. Cash & Investments The cash and investments item amounted to $6,120, which represents $13.6 Cash / CPO. It is important to note that during this year, we have realized non recurring payments for $301 as a result of the fiscal contingency, which have been taken into account as part of the operating cash flow, in addition to a dividend of $

12 Cash & Investments / CPO Solvency Margin: The solvency margin for the amounted to $227 and the solvency margin ratio registered 13.1%. This slowdown was driven by the decrease in operating cash flow during the quarter, as a result of the last payments of the fiscal contingency which were set up in The minimum equity requirement, on the other hand, increased by 13.9% amounting to $1,

13 QUALITAS COMPAÑIA DE SEGUROS, S.A.B. DE C.V. Consolidated Balance Sheet as of September 30, Figures stated in Pesos Assets Investments 6,462,564,502 6,233,970,273 Securities and Derivatives Transactions 5,509,761,516 4,729,733,817 Securities 5,509,761,516 4,729,733,817 Government 1,511,757,319 2,480,729,605 Private Companies 3,601,107,273 2,123,097,218 Fixed Maturities 3,290,749,631 1,858,573,163 Equity 310,357, ,524,055 Foreign 118,380,142 35,202,226 Net Value 242,481,993 78,979,926 Interest Receivable 36,034,789 11,724,842 Overnight 542,553,086 1,131,404,987 Loans 19,682,609 20,020,711 Secured 15,032,637 15,594,499 Unsecured 3,649,972 3,426,212 Discounts and Re-discounts 4,000,000 4,000,000 (-) Allowance for Doubtful Accounts 3,000,000 3,000,000 Property 390,567, ,810,758 Real Estate 205,553, ,553,402 Net Value 215,008, ,545,554 (-) Depreciation 29,994,432 27,288,198 Reserve for Labor Obligations 32,217,373 24,449,731 Cash and Cash Equivalents 67,362,555 69,215,680 Cash and Banks 67,362,555 69,215,680 Debtors 4,971,717,642 4,546,084,974 Premiums 4,441,856,807 4,048,425,636 Agents and Adjusters 29,025,156 30,528,825 Accounts Receivable 141,752,815 96,332,900 Employee's loans 26,585,984 14,806,180 Other 353,332, ,005,967 (-) Allowance for Doubtful Accounts 20,835,308 19,014,534 Reinsurers and Re-Bonding Companies 171,083, ,353,375 Insurance and Bond Companies 55,196,725 82,251,957 Equity Participation of Reinsurers in Outstanding Claims 96,605, ,339,560 Equity Participation of Reinsurers in Unearned Premiums 15,064,685 29,231,381 Other Equity Participations 4,216,927 4,530,477 Other Assets 795,476, ,143,705 Furniture and Equipment 237,347, ,753,971 Miscellaneous 553,997, ,425,658 Amortizable Expenses 9,525,762 10,028,369 (-) Amortization 5,393,407 5,064,293 Total Assets 12,500,422,882 11,703,217,738 13

14 QUALITAS COMPAÑIA DE SEGUROS, S.A.B. DE C.V. Consolidated Balance Sheet as of September 30, Figures stated in Pesos Liabilities Underwriting Reserves 8,608,880,007 8,052,927,731 Unearned Premiums 6,271,787,712 5,937,236,934 Casualities 6,271,787,712 5,937,236,934 Contractual Obligations 2,312,963,651 2,072,256,741 For Claims and Maturities 2,168,690,412 1,964,394,604 For Incurred and Non-Reported Claims 76,548,383 67,219,489 For Dividends on Policies 8,542,554 8,412,990 For Premiums in Deposit 59,182,302 32,229,658 Preventive Reserve 24,128,644 43,434,056 Catastrophic Risks 24,128,644 43,434,056 Reserve for Labor Obligations 56,256,448 41,924,125 Creditors 509,391, ,610,458 Agents and Adjusters 266,277, ,953,227 Funds for Losses Management 1,382,963 6,100,113 Creditors for bonds accountability - - Miscellaneous 241,731, ,557,118 Reinsurers and Re-Bonding Companies 174,101, ,730,528 Insurance and Bond Companies 174,101, ,730,528 Other Liabilities 1,058,966, ,703,492 Income Tax Provisions 227,688, ,449,247 Other Obligations 663,924, ,661,752 Deferred Credits 167,354, ,592,493 - Total Liabilities 10,407,596,113 9,874,896,334 Stockholder's Equity Capital Stock 342,958, ,956,574 Capital Stock 342,958, ,956,574 Reserves 431,920, ,018,618 Legal 143,770,546 94,868,754 Other 288,149, ,149,864 Valuation Surplus 71,818,944 35,312,981 Subsidiaries - 2,638,479 - Retained Earnings 746,378, ,558,611 Net Income for the Year 436,467, ,617,324 Excess (insufficiency) in Capital Restatement 65,597,647 65,597,647 Minority Interest 323, ,649 Total Stockholder's Equity 2,092,826,769 1,828,321,404 Total Liabilities and Stockholder's Equity 12,500,422,882 11,703,217,738 14

15 QUALITAS COMPAÑÍA DE SEGUROS, S.A.B. DE C.V. Consolidated Income Statement (Cifras Expresadas en Pesos Constantes) Premiums 3Q09 Written 2,373,852,289 2,061,933,808 (-) Ceded 145,532, ,483,000 Net premiums written 2,228,319,988 1,886,450,808 (-) Net increase in unearned premiums 20,932,613-64,394,407 Net premiums earned 2,207,387,375 1,950,845,215 (-) Net Acquisition Cost 398,116, ,474,794 Agents' commissions 149,957, ,326,506 Agent's additional compensation 39,939,767 36,745,426 Commissions on acquired reinsurance - - (-) Comissions on ceded reinsurance 37,443,567 46,882,346 Excess loss coverage 1,920,645 2,600,965 Other 243,741, ,684,243 (-) Net Losses and loss adjustment expenses and other contractual liabilities 1,798,304,944 1,503,618,324 Losses and other contractual liabilities 1,798,353,030 1,502,720,427 Losses on non-proportional reinsurance - 48, ,897 Claims - Underwriting income (loss) 10,966,356 61,752,097 (-) Net increase in other underwriting reserves - Gross (income) loss 10,966,356 61,752,097 (-) Net operating expenses 77,661,319 68,608,914 Administrative and Operating expenses 37,344,965 29,064,542 Employees' compensation and benefits 1,637,724 1,486,518 Depreciation and Amortization 38,678,630 38,057,854 Operating income (loss) - 66,694,963-6,856,817 Integral Financing Result 234,123, ,243,212 Investments 96,637,222 59,386,748 Sale of investments - 3,680,157 11,269,954 Non-realized gain (loss) on investments 100,464,421 59,991,912 Premiums finance charge 32,660,341 28,636,313 Underwriting of debt securities - Financial reinsurance - Other 4,063,950 1,763,920 Foreign Exchange 3,977,792 13,194,365 (-) Non-Ordinary Items - Income (loss) before taxes and employee's profit sharing 167,428, ,386,395 (-) Provision for income taxes 29,919,991 60,037,522 Income (Loss) before Discontinued Operations 137,508, ,348,873 Net income (loss) 137,508, ,348,873 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 Net 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 an 18.6% share as of June After 16 years in operation, it has over 1.6 million insured vehicles and 143 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: Third Quarter 2010 Earnings Results Conference Call To be held on: Friday October 29, 2010 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, November 1st,