Earnings call transcript: Linea Directa Q1 2025 shows strong growth

Linea Directa Aseguradora, a prominent player in the insurance sector with annual revenue of €1.08 billion, reported a robust financial performance for Q1 2025, with net income doubling to €20.8 million from €10.1 million in the same quarter last year. The stock, which has delivered an impressive 16.07% return year-to-date according to InvestingPro data, saw a slight decline of 1.12% during the trading session. The company’s shares are currently trading near their 52-week high, reflecting strong investor confidence.

Key Takeaways

• Net income doubled to €20.8 million, marking significant growth.
• The combined ratio improved to 92.3%, a 5 percentage point improvement year-on-year.
• The company expanded its portfolio by over 184,000 policies.
• Stock price decreased by 1.12% despite strong financial performance.

Company Performance

Linea Directa demonstrated a strong start to 2025, with a notable increase in net income and improvements across several financial metrics. The company’s return on average equity rose to 21.8%, and its solvency ratio increased to 187%. These results highlight the company’s operational efficiency and strategic focus on growth. InvestingPro analysis reveals the company maintains a healthy overall Financial Health Score of 2.84, though it faces challenges with gross profit margins of 8.34%. For deeper insights into Linea Directa’s financial health and additional ProTips, subscribers can access the comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 stocks.

Financial Highlights

• Revenue: Not specified in the earnings call summary
• Net income: €20.8 million, up from €10.1 million in Q1 2024
• Combined ratio: 92.3%, improved by 5 percentage points year-on-year
• Solvency ratio: 187%

Outlook & Guidance

Looking forward, Linea Directa aims for high single-digit growth throughout 2025, with plans to maintain its combined ratio in the low 90s. Trading at a P/E ratio of 21.11 and currently appearing slightly undervalued according to InvestingPro Fair Value analysis, the company continues to diversify its product offerings and expects further improvements in its expense ratio. With EBITDA of €89.83 million in the last twelve months, the company demonstrates solid operational performance despite challenging market conditions.

Executive Commentary

"We are very excited by the next few years. We have worked our way through and managed difficult times in the last few years," said Carlos Rodriguez Huarte, CFO. He emphasized the importance of efficiency, stating, "Efficiency is the name of the game for this business."

Risks and Challenges

• Regulatory changes in the motor insurance market could impact claim frequencies.
• The broader insurance market is adjusting average premiums, which may affect profitability.
• Macroeconomic pressures could pose challenges to growth targets.

Q&A

During the earnings call, analysts focused on the growth trajectory of the motor insurance segment and the company’s strategy for health insurance customers. They also inquired about the potential impacts of regulatory changes and customer acquisition strategies.

Overall, Linea Directa’s Q1 2025 results reflect a strong financial performance, though market reaction was mixed. The company remains focused on growth and operational efficiency as it navigates potential industry challenges.

Full transcript - Linea Directa Aseguradora SA Compania de Seguros y Reaseguros (LDA) Q1 2025:

Beatriz Thijar, Head of Investor Relations, Linea Erecta: Everyone, my name is Beatriz Thijar, Head of Investor Relations at Linea Erecta. We published our first quarter figures earlier on this morning, and I have here with me Carlos Rodriguez Huarte, our CFO. And with these words, over to you, Carlos.

Carlos Rodriguez Huarte, CFO, Linea Erecta: 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 number five. Business growth accelerate 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 3,500,000 policies.

Combined ratio was excellent and stood at 92.3%, down five percentage points from last year. Net income doubled that of first quarter twenty twenty four. Return on average equity rose to an excellent 21.8%. And finally, solvency increased to 187%. Moving to Page six.

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 these led us to a profit after taxes of €20,800,000 which compared to €10,100,000 over the same period of last year.

That is a two fold increase. As with regard 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, Specialist and Essential grew by 15.8%. Moving to Page eight. The progression of combined ratio was remarkable from 97.3% in the first quarter of twenty twenty four to 92.3% as of March 2025, down five 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, streamline the business in general as well as improve our digital setup. We consider the expense ratio to be a key competitive advantage. 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 twenty twenty four 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 benefit 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 three twenty four basis points. And average reinvestment yield stood at two ninety five basis points in the quarter.

Moving on to our solvency position. Solvency margin rose to 187%. Owned funds were mainly a function of operating earnings in the quarter. SCR increase was driven by market risk due to the increase in the 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 delivered 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 the Q and A session. Thank you.

Beatriz Thijar, Head of Investor Relations, Linea Erecta: Thank you for the presentation, Carlos. First, we’ll begin with the questions received from the conference call.

Conference Moderator: Ladies and gentlemen, we will now begin the Q and A session. Our first question comes from Francisco Rigel from Alantra. Please go ahead.

Francisco Rigel, Analyst, Alantra: Yes, hello. Can you hear me?

Carlos Rodriguez Huarte, CFO, Linea Erecta: We can, Taco.

Francisco Rigel, Analyst, Alantra: Yes. Hi. So thank you for taking my questions. So two technical questions first and then another one separate. So the first one, I wonder if there is any impact of 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, 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 to change to grow the business more with lower acquisition expenses? Thank you.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Thank you very much. Paco, on the first question. Well, I mean, are very confident that the combined ratio that we posted in the quarter, it is more or less stable. I mean, at the end, 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 years, 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 grounds of combined ratio and we should target that towards the end towards the year 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 thing and the good number of the company is that we have been able to grow very close to market. Market growth grew by 9.2 gross written premium, and we were in 9.1%.

We’re coming on the last quarter standalone 2024 in 8%, in the third quarter close to 5%. And I think that’s a positive evolution more than looking on the average premiums. The beauty of Linea Directa is that we manage clients on an individual basis. We don’t neutralize 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 that 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 that expense ratio. I think we improved the expense ratio by more 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 month. And of course, that in terms of acquisition cost lowers the average cost per client of acquisition.

Francisco Rigel, Analyst, Alantra: Okay. Thank you.

Conference Moderator: The next question comes from Max Mission from JB Capital. Please go ahead.

Max Mission, Analyst, JB Capital: Hi, good morning. Thanks very much for the presentation and taking our questions. I have two. 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? Thank you.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Well, in terms of the what we are doing in the growth of new customers, I think we grew in the first quarter standalone in Motor Club very close to 50,000 clients, 50,000 clients. Well, we are, of course, trying to manage market situation as well. I mean, I have to keep in mind that the market is in a situation where I think they are doing the homework that we did two 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. I think the combination of that makes that our portfolio keeps on increasing. In terms of the second question?

Beatriz Thijar, Head of Investor Relations, Linea Erecta: 200,000 gold that Patrikia was stating in the AGM, how is the split that we between Motor and other lines of business?

Carlos Rodriguez Huarte, CFO, Linea Erecta: 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 and 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 if we are going to be 75% motor or 25% home and other businesses. I think the study of the company, as Patricio said in the AGM is launching different products every year.

Now we have gone into these retail insurance and you should expect that the company keep on launching different products. Having a goal of how much our motor business should wait, we don’t have that. But again, it comes from ’83 percent two years ago, 81% last year and 75% this year. So that’s I think that’s the trend you should focus. The third question?

Beatriz Thijar, Head of Investor Relations, Linea Erecta: The question regards, yeah, the new acceptable alcohol levels in Spain and whether they are going to lower our frequencies.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Well, everything that makes the drivers be more cautious and everything that helps be 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 deteriorated our risk profile in order to increase clients.

We are on the same grounds. Our loss ratio is in 75%, I think, 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 Lina Directa being the company with a more cautious risk profiling will be the most benefit on that.

Max Mission, Analyst, JB Capital: Thank you very much.

Conference Moderator: The next question comes from Carlos Peixoto from Caixabank BPI. Please go ahead.

Carlos Peixoto, Analyst, Caixabank BPI: Yes. Hi, good morning. Thank you for taking my questions. The just a couple of questions from my side as well. So on motor insurance, we don’t need to give 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 base that you expect that conversions to these more sustainable levels to take place? Thank you very much.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Thank you, Carlos. 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 is stand alone, eight percent first quarter of this year, ’9 point ’1 percent. 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 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, it’s going be a little bit worse than ours. But we should be in that low 90s. If it’s 89%, great.

If it’s low 90s, I think it’s a good business. Remember that we were coming a couple of years ago from ’96

Carlos Peixoto, Analyst, Caixabank BPI: Thank you.

Conference Moderator: The next question comes from Juan Pablo Lopez Cobo from Santander. Please go ahead.

Max Mission, Analyst, JB Capital: Yes, thank you. Good morning. Congratulations for the results. I got two questions. First one is a follow-up on the customer acquisitions.

I don’t know if you could give us a bit more more detail on this higher, retention rate that you mentioned just to to see, if the gross customer acquisition increase or or what are the merits in in gross customer or retention rate? So that’s the the first one. Related to this, I don’t know if you could also give us some more color on on theoretical combined ratio, if that’s possible on these new customers or the margins that you expected 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 if that’s clear. So that that would be useful to to understand a bit better all this customer acquisition growth, going on. And lastly, in expenses, you did a a great job. I don’t know if you got any target on this one or you think you are close to the bone? Thank you.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Thank you, Juan Peral. Thank you very much. In terms of customer acquisition, well, I mean, the level of investment on marketing is very much in line with every year. Some years is a little bit more, it’s a little bit less. But in terms of our 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 cost, has evolved quite well since fourth quarter of twenty twenty four. 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 trying 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 I 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 have that clear in the culture of the company. Again, we are not a company that we have an expense strategy.

We have 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 on improving that.

Conference Moderator: The last question comes from Max Mission from JB Capital. Please go ahead.

Max Mission, Analyst, JB Capital: Thanks very much. 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’re making? Thanks very much.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Two questions in the same call, Max. I’m going to charge you for this one. No, well, I thought just playing that on the call on the presentation. I think we need to look at the health business in our perspective. Two years ago or one point years ago, we decided to change the brand that we were using.

We integrate the health insurance under Linea Director. Second of all, and at the same time, we decide 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 it at the beginning, and 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 in clients will keep on improving. I think it’s a short term issue more than a long term objective of the company.

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

Beatriz Thijar, Head of Investor Relations, Linea Erecta: 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.

Carlos Rodriguez Huarte, CFO, Linea Erecta: Thank you. Thank you very much. Have a nice day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.