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Qualitas Controladora, SAB De CV, reported strong financial results for the first quarter of 2025, significantly surpassing earnings expectations, though InvestingPro data indicates an overall weak financial health score of 1.03. The company posted an earnings per share (EPS) of $5.36, well above the forecasted $3.97. Revenue also slightly exceeded expectations, coming in at $17.36 billion against a forecast of $17.32 billion. In response, Qualitas’ stock surged 13.7% in the market, reflecting investor confidence in the company’s performance and future outlook.
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Key Takeaways
- Qualitas’ EPS of $5.36 exceeded the forecast by 35%.
- Revenue slightly surpassed expectations at $17.36 billion.
- Stock price increased by 13.7% following the earnings announcement.
- The company reported a 12% increase in written premiums for Q1 2025.
- Net income reached $2.1 billion, marking the second-highest in the company’s history.
Company Performance
Qualitas demonstrated robust performance in Q1 2025, with a notable 12% increase in written premiums. The company achieved a net income of $2.1 billion, making it the second-highest in its history. While the company faces challenges with weak gross profit margins according to InvestingPro analysis, it has maintained consistent dividend payments for nine consecutive years. The return on equity (ROE) over the past 12 months stood at an impressive 24.2%, showcasing the company’s strong profitability. In addition, the investment portfolio yielded a return on investment (ROI) of 10.8%, contributing to a 45% growth in comprehensive financial income for the quarter.
Financial Highlights
- Revenue: $17.36 billion, slightly above forecast
- EPS: $5.36, exceeding forecast by 35%
- Net income: $2.1 billion, second-highest in company history
- Written premiums: Up 12% year-over-year
- Solvency ratio: 362%
Earnings vs. Forecast
Qualitas’ Q1 2025 EPS of $5.36 significantly beat the expected $3.97, marking a 35% surprise. Revenue also slightly surpassed projections at $17.36 billion compared to the forecast of $17.32 billion. This performance reflects the company’s effective strategies and operational efficiencies, contributing to its robust financial outcomes.
Market Reaction
Following the earnings announcement, Qualitas’ stock price rose by 13.7%, closing at $209.78. This increase places the stock closer to its 52-week high of $227.83, indicating strong investor confidence. With a low beta of 0.09, the stock has historically shown limited correlation with market movements. The market’s positive response can be attributed to the company’s substantial earnings beat and strong financial metrics. According to InvestingPro’s Fair Value analysis, the stock currently appears to be trading at a premium to its intrinsic value.
Outlook & Guidance
Looking ahead, Qualitas expects top-line growth in the high single digits to low teens, driven by continued focus on service excellence and strategic expansions. Despite macroeconomic uncertainties, the company remains cautiously optimistic, anticipating GDP growth of 0.5-1%. A proposed dividend of $0.10 per share, representing a 78% payout, underscores the company’s commitment to returning value to shareholders.
Executive Commentary
CEO Jose Antonio Correa emphasized the company’s strategic adjustments, stating, "We are simply saying that all the adjustments that we did over the past couple of years have already taken place." CFO Roberto Araujo highlighted the company’s core strategy, noting, "Our strategy is rooted in excellence in service, which remains the cornerstone of our operations."
Risks and Challenges
- Macroeconomic uncertainties could impact growth projections.
- Potential tariff impacts on operations and profitability.
- Competitive pressures in the auto insurance market.
- Fluctuations in investment portfolio returns.
- Changes in regulatory environments affecting business operations.
Q&A
During the earnings call, analysts inquired about Qualitas’ pricing strategy and competitive landscape, seeking clarity on the company’s vertical integration progress and potential tariff impacts. Executives also addressed questions regarding the investment portfolio strategy, providing insights into future financial planning and risk management.
Full transcript - Qualitas Controladora, SAB De CV (Q) Qualitas Controladora, SAB De CV (Q)1 2025:
Conference Operator: Thank you for standing by. This is the conference operator. Good morning, and welcome to Qualitas’ First Quarter twenty twenty five Earnings Results Webcast. The conference will begin now. It is my pleasure to turn the call over to Andrea Gonzalez, Qualitas’ IR Manager.
Andrea Gonzalez, IR Manager, Qualitas: Good morning, and thank you for joining Qualitas’ first quarter twenty twenty five earnings call. I am Andrea Gonzalez, Qualita’s IR Manager. Our CEO and Chairman of the Board is joining us today, Jose Antonio Correa as well as our CFO, Roberto Araujo. As a reminder, information discussed on today’s call may include forward looking statements. These statements are based on management’s current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today’s call.
Qualitas and Air K undertakes no obligation to publicly update or revise any forward looking statements, whether because of new information, future events or otherwise. Let’s give it over to Jose Antonio, our CEO, for his remarks.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Thank you, Andrea. Good morning, everyone. It’s great to be with you all again. I would like to begin with a brief overview of the company’s performance and key achievements of the quarter. Qualitas posted a healthy start to 2025 with a premium growth of 12%, which by the way is in line with the anticipated normalization from the growth trend experienced in the last two years from the past two years.
Claim ratio came better than expected considering lower seasonal frequency during the quarter as well as a significant improvement in our heavy equipment ratio, proving the effectiveness of our risk prevention efforts resulting in an 88.2% combined ratio lower than our long term target. And furthermore, our investment portfolio posted a strong financial income despite interest rates at an easing cycle. According to the latest industry figures, Qualitas has reached a new record high in terms of market share with 34.1% of the total market and importantly, 47% in the heavy equipment segment, a noteworthy milestone for Qualitas despite not being part of our KPIs as we aim to be the best, not the largest nor targeting to a certain market share. Furthermore, our market share in terms of earned premium during 2024 was even higher at 35.8%. So we continue to be leaders not only in market share, but most importantly in terms of profitability.
2024 full year industry statistics show that Qualitas Mexico with a combined ratio six thirty basis points better than the ratio of the top five companies and seven twenty basis points better than the total industry when excluding Qualitas. Before Roberto lies into our financial results, want to address some of the challenges we are currently facing, including market volatility and the ongoing worldwide tariff increased discussions. These issues will most likely have an impact on our industry. However, Qualitas is well positioned for ongoing healthy growth with a clear strategy and corporate plan to mitigate these risks and remain committed to delivering value to our stakeholders. We believe in our ability to adapt and thrive in this dynamic environment.
We have driven down this road before. By way of illustration during 02/2008, a year marked by a global decline in private consumption, Mexico’s GDP fell from 3.3% in 02/2007 to 1.3%. And despite this economic contraction, the insurance industry in Mexico posted a growth 3.7% and Qualitas Resilience stood out with an underwriting growth of 7.9% during this period. The insurance industry truly has an ability to maintain stability even in volatile environments, so I remark Qualitas’ capability to withstand economic downturns and uncertainty. Our three pillar strategy deployed a couple of years ago represents a clear opportunity for Qualitas to grow further and diversify our business in the mid and long term.
We strive to continue winning in our core businesses, Mexico to insurance, which continues to be the main driver of our growth, making it our foremost focus. Qualita senior management and I have been very busy this quarter, engaging in numerous meetings with over 1,600 agents across major Mexican cities. We firmly believe Mexico is our key growth engine and in these volatile times, is essential to continue strengthening our leadership position. We must never take this subsidiary for granted and always ensure it receives the attention and care it deserves. Additionally, we have a portfolio of businesses that share the responsibility of value creation.
On that regard, we celebrate multiple achievements such as: first, in Colombia, we have successfully begun underwriting auto insurance policies. This achievement marks it by vocal expansion into dynamic market, broadening our market presence by replicating Qualitas DNA in a regional footprint. Our vertical integration is more robust than prior years. Our technology company, which specializes in telematics, business intelligence and information technologies has begun to generate gradual efficiencies within our Mexican operations, particularly in our heavy equipment insured units. Additionally, the recent acquisition of a spare parts and glass distribution company is expected to further strengthen our operational capabilities aiming to reduce costs, improve response times and bring greater specialization to our claims handling processes.
It is important to note that this vertical integration is a gradual process and the benefits will materialize over time. And finally, Qualita is a good business with greater capabilities to provide excellence in service and to accelerate its growth. Although its size is still not relevant for the total holding company, underwriting from the first quarter of twenty twenty five was almost three times the amount of same period last year. We are on the right path to continue progressing in this segment. Notwithstanding, new car sales including light vehicles and heavy equipment had almost a flat growth of 1.2% during the first quarter of twenty twenty five.
As a point of reference, last year’s growth this time of the year stood at 12%, specifically heavy equipment vehicles over 3.5 tons decreased sales by 27.7%. We believe economic uncertainty has made business more cautious about investing in new heavy equipment, and the Mexican peso volatility has also increased costs for important machinery, further discouraging purchases. According to AMDA, the expectations for coming quarters in new car sales will continue to accelerate in line with the economic downturn and international volatility, possibly supply chain issues with ongoing tariff uncertainties and above all macro uncertainties. Despite this expected slowdown, we closed the quarter with 5,900,000 insured units with over 336,000 additional units versus same period of last year, equivalent to 6.6% unit growth, proving Qualitas Vision Center and Excellence in Service is our most unique competitive advantage to navigate through volatile times. While acknowledging the difficulties, are confident in Qualita’s ability to navigate these obstacles and continue to seek healthy growth.
Still, we are prudent and continue to believe that the top line growth for the full year will land at high single digits to low teens along with the expected ratios well within our target ranges. Therefore, I am pleased to report that our first quarter results proved that we have started the year on the right foot, reflecting the hard work and dedication of our team. While we are encouraged, we remain vigilant and aware of the macroeconomic volatility that 2025 may bring. We understand the challenges posed by the market fluctuations and other external factors, and we are prepared to navigate this uncertainty center on excellence in service and cost control as our long time success recipe. Consequently, our key priorities for 2025 include proactive approach in the areas within our control to mitigate these risks such as we will continue to focus on service, improving customer experience, decreasing claims repairment timings and striving to create value for our customers when they need us the most.
We will keep focusing on improving our satisfaction rates for all processes. And also we will also continue nurturing our future success by implementing the business opportunities currently in our hands, such as capitalizing our most recent company’s acquisition, seeking synergies with our existing vertical integrations as well as investing heavily in our newest business expansion in Colombia, while improving the productivity of our employees along with our ongoing cost saving measures as already mentioned. Our 2025 priorities also consider the turnaround of our U. S. Operation, getting back to profitable levels by next year as well as addressing timely and properly any value added tax inquiries from tax authorities working alongside with insurance industry and being close to the authorities and regulators looking forward to reaching a favorable resolution.
Our commitment to customer satisfaction and operational excellence positions us well to continue delivering value to our shareholders. We will continue to bid on our successes and face the future with confidence and resilience. And with that, let’s move on to the financial details and take a deeper dive into the quarter results. So Roberto, please go ahead.
Roberto Araujo, CFO, Qualitas: Thank you, Jose Antonio, and good morning, everyone. Qualitas has just hit the ground running in Q1 with solid top line growth in line with our expectations, a combined ratio significantly better than our target and a resilient investment portfolio. Going directly to our top line performance, written premiums were up 12% for the quarter. In the case of our Mexican operation, the traditional segment accounted for 67% of total written premiums growing at a rate of 8.7%. From this segment, individual business posted a growth of 21.4% and our fleet business decreased by 6.5, which is partially distorted by large multiyear accounts from last year, deviating the comparison base.
When excluding these accounts, growth from fleet business had stand at 5%. On the other hand, financial institutions segment accounted for 27% of total written premiums with a solid 22% growth. During this first quarter, written premiums from our international subsidiaries represented 5.2% of the total holding company underwriting. The U. S.
Subsidiary continues its journey on reshaping the mix towards being profitable, resulting in premium diminishing by 25% for the quarter. We continue our exit strategy in the domestic market to focus on cross border and the national products. Our portfolio composition by March no longer has domestic underwriting, while cross border b national products representing 55% of our US portfolio, the remaining balance being the PPA business. As you know, the domestic market has presented a challenges landscape, particularly due to the complexities of long tail litigation processes. Despite these hurdles, Qualitas has consistently demonstrated a proven ability to deliver customized solution tailored to our client unique needs.
Our commitment to this strategic direction remains strong, and we believe it will ultimately lead to sustainable growth and improved financial performance. As reported, our LatAm subsidiaries were up 28.4% for the quarter, in line with our strategy and recognizing there is value to be created. We will continue to invest and accelerate. Growth in these subsidiaries underscores our ability to adapt to diverse market conditions and to capitalize on opportunities. For example, El Salvador subsidiary posted a quarterly underwriting growth of 75.6%.
Also, our Peruvian subsidiary posted a quarterly underwriting growth of 40%. As a matter of fact, during March, we acquired a new corporate office in Peru to further consolidate our team and expand our footprint. This strategic move will enhance our operational efficiency, foster collaboration and support our continued growth in the region. Our new Colombian subsidiary has successfully underwritten its first auto insurance policies. The auto industry in Colombia is experiencing robust growth with the national vehicle fleet reaching approximately 17,000,000 vehicles in 2023.
This growth is driven by an increasing number of vehicles on the road and rising awareness of the importance of insurance coverage. Additionally, Colombia’s middle class has expanded significantly with the share of the population classified as middle class more than doubling from 11.3 to 29.6% between 02/2001 and 02/2014. This favorable demographic shift is contributing to higher demand for auto insurance. We are confident that our strategic entry into this market will yield substantial benefit and align with our long term growth objectives. Including all subsidiaries, as Jose Antonio previously mentioned, we closed the quarter with almost 5,900,000 insured units, which represents a new record high for the company with over 157,000 additional units versus 2024 year end.
Back to our financials. Earned premiums were up 17.8% for the quarter, also in line with our expectations, reflecting a reserves constitution in line with a more stable top line growth base. During the first quarter, we constituted 1,900,000,000.0 reserves that represent almost 24% lower than the reserve constitution from same quarter of last year. As we have previously anticipated, earned premiums are growing at a faster pace than reaching premiums considering the stabilization on the top line growth, including the effects from multiyear policies. Being now able to capitalize accelerated growth from past periods as well as the benefits from lower claim costs.
As a reminder, the technical reserves constitution is based on approved regulatory models and speaks to the corresponding premiums growth. Moving now to our costs. The claims ratio positively stood at 59.7% for the quarter. This quarterly ratio posted a 4.3% improvement versus same quarter last year, exceeding our expectations. In Mexico, the loss ratio stood at 58.2% for the quarter, a noticeable four point decrease versus the same period a year ago, successfully maintaining our LELTS ratio below our desired unsustainable range of 62% to 65%.
It is important to highlight that the claim ratio has a seasonal effect throughout the year. Historically, the first half of the year has a lower frequency in claims with a lower impact from weather conditions, including the rainy season, extraordinary hurricanes, which are normally reflected in the second half, triggering claims upwards. Frequency of the quarter stood at 6.4%, a notable decrease compared to the previous quarter. Also, it is worth mentioning that our heavy equipment portfolio reflected a considerable improvement of almost more than five percentage points in claims ratio. Through our comprehensive risk prevention initiatives, cost discipline, and advanced data analysis, we have been diligently working with to improve our costs.
While we’re optimistic about the positive impact of this effort, it is important to understand that this is a work in progress and that this quarterly growth ratio was an extraordinary outcome from multiple variables that align positively for us. However, we take these results with caution as we need to yet to observe future performance of multiple variables. Throughout the first quarter and despite markets volatility, the Mexican peso appreciated 1.6%. FX volatility has led to many inquiries regarding the FX impact on our costs. As mentioned before, FX does not immediately distress our cost.
The correlation between currency peso performance and our cost is not linear. Prices for spare parts are determined mostly by supply and demand and the ongoing trade global discussions concise with our plan and anticipated pricing adjustments. However, our unique clarification model provides flexibility to change prices as necessary while ensuring we continue to deliver exceptional service. Consumers may not experience immediate impacts, but at the time of new renewals, we will conduct thorough case by case evaluations to determine whether adjustments in pricing, whether it’s upwards, neutral or downwards weren’t based on lost costs. Given the fierce competition landscape, we should expect to see quality tariffs going down, which will help us to continue winning under current market conditions.
Regarding thefts, in this quarter of the year, rubberies decreased by 3% for Qualitas and 5% for the industry. Remember that this is tax reflect our higher units growth versus the industry and our leading market share, especially in the heavy equipment where we have 47% market share and uninsured motorcycles, which have a lower insured value but high volume. Qualita’s recovery rate stands at 42%, hundred and thirty basis points above the rest of the industry. Moving to our acquisition ratio. It stands at 22.2% for the quarter, 86 basis points above the same quarter of 2024.
The increase in the multiyear mix from 18% in Q1 twenty twenty four to 22% increases according to the current acquisition ratio as commissions paid to financial institutions are higher than what we pay to agents. Still, our acquisition ratio is in line with our expectations and our cost control indicators. Then our operating ratio for the quarter stood at 6.3% for the quarter. This ratio includes employee profit sharing provision 30.6% higher than the same period of last year. Given the positive performance of our company, we also had an increase in fees paid to service offices and corporate bonuses linked as well to the successful performance during the period aligning productivity and cost control efficiencies towards positive results of the company.
If we were to exclude employee profit sharing from this provision that by law must be incorporated into our operating expenses, the ratio would have stood at 4.8% for the quarter. All the above resulted in a remarkable combined ratio of 88.2% for the quarter, positively below our 92% to 94% target. The operating results for this quarter has surpassed our expectations, underscoring our robust underwriting discipline, proof of our entire team’s commitment to excellence in service and stringent cost control measures. Even during turbulent times, our company has proven to be resilient, well positioned to continue driving sustainable, healthy growth, and delivering value to our whole. Now moving to the financial side of our business.
Our comprehensive financial income grew 45% for the quarter. We continue to mainly invested in fixed income, representing 87% of our 51,000,000,000 total portfolio with an average duration of one point eight seven years and a 9.1 yield to maturity. In the case of our Mexican subsidiary, the yield to maturity stands at 10%. With the current portfolio composition for each 25 basis points that rates decreases, the impact on our portfolio valuation is around MXN 200,000,000 on an annual basis. The remaining of our portfolio allocated in equities remain resilient, although as you may be aware, after a strong rally late twenty twenty four, the S and P five hundred stumbled in the first quarter with a negative 4.6% return and uncertainty in the markets prevail, given geopolitical risks, trade tensions and fears of economic slowdown.
All our investments assets follow accounting guidelines classified as available for sale. So their performance, whether gains or losses, is considered on our balance sheet until they are realized. Our investment strategy has not had any relevant changes in 2025. We’re striving to bring fixed income duration around two years as reference rates remain in the mid to high single digits in Mexico, following the guidelines, advisory and strategy decided by our investment committee as part of our institutionalized corporate governance. We delivered a comprehensive financial income of EUR 1,500,000,000.0 during the quarter, $475,000,000 more than Q1 of last year.
Our investment portfolio reached a 10.8 ROI for the quarter. Unrealized gains for the period are in the magnitude of MXN 100,000,000, including the FX benefit. The unrealized losses in our equity portfolio was partially compensated by our fixed income assets, whereas current interest rates easing cycle have come attributed to increased evaluation translated on our balance sheet. When considering all positions as mark to market, ROI would have stand at 11.4% for the first quarter of the year. 23% of our portfolio is invested in U.
S. Dollars given our international presence. For every peso that the FX appreciates or depreciates, the estimated annual impact is around CLP 700,000,000, playing as a natural hedge for our FX depreciation. For the next quarters, we can expect a steady performance in our investment portfolio, in which our fixed income allocation plays in our favor when the equity markets undergo volatile times. Following the negative performance of the S and P five hundred in the first quarter of twenty twenty five, our investment portfolio allocation has proven to be resilient, mostly given our fixed income asset allocation proving stability and consistent returns.
The duration of our portfolio enhances our ability to weather market fluctuations. Now looking ahead, the financial markets in 2025 are expected to experience a mix of challenges but also opportunities. Despite the volatility in equity markets, the strategic focus on fixed income makes us believe that we’re balanced in our investment approach. First quarter twenty twenty five effective tax rate stood at 28% in line with historical levels. All in all, Qualitas posted a $2,100,000,000 net income for the quarter with an 11.4% net margin.
This absolute number is the second highest net income reported in by Qualitas in its history, just behind the second quarter of twenty twenty where the pandemic had a major positive effect on our claims cost. Our twelve month ROE stood at 24.2% with our long term target. Our outstanding performance delivered industry leading profitability. Our strategic execution has ensured earnings durability and capital efficiency positioning us well to navigate through volatile times. In the industry business, consistency and reliability are key.
Our steady approach ensures that we remain a resilient and dependable partner for the long term continuing to deliver exceptional value to our stakeholders. While service is and will always be our foremost priority, 2025 financial priorities will be centered around a, maintaining a steady pace in underwriting b, ensuring stability in our cost control measures, keeping our loss ratio within the target range and c, delivering a resilient investment income. Despite macroeconomic volatility, we are confident that this year will be positive for our company. Our strategy is rooted in excellence in service, which remains the cornerstone of our operations. By continuing to deliver exceptional value to our customers, we’re well positioned to navigate challenges, ensuring sustainable growth and success.
Our regulatory capital stood at COP 5,600,000,000.0 with a solvency margin of COP 14,600,000,000.0, equivalent to 362% solvency ratio. Recent capital allocation determines our twelve month earned premium to capital ratio at 2.4x. In terms of capital allocation, let me remind you of our general shareholders’ assembly proposals next week on April 29. First, a cash dividend payment of $0.01 0 per share is payable in two exhibitions, representing a 78% payout and in line with what we had anticipated to the market of being at the high end of our dividend policy range. This amount is 25% higher versus last year dividend amount.
We also proposed 800,000,000 new share buyback fund. It is worth mentioning that there is no news from the fiscal authority regarding the audit procedures and the VAT interpretation. This matter continues under assessment in the corresponding instances, and we have not received any conclusive or final resolution. Qualita’s position stands firm with the corresponding legal arguments to support the industry criteria, and thus we trust the authorities when we reach a reasonable resolution. As mentioned before, we will timely communicate any relevant progress to the market.
As a reminder, we do not disclose formal guidance or targets, but rather some expectations for the year. Thus, we maintain top line growth expectations at high single digits to the low mid teens with earned premiums growing ahead. The loss ratio is expected to be with our target range of 62% to 65%. The acquisition ratio and operating ratio should continue within its historical levels, leading to a combined ratio within our objective range between 92% to 94%. I’m pleased to share that our results have exceeded our expectations.
This achievement is a testament to our team’s dedication and strategic initiative. However, it is important to remain prudent as we navigate the complexities of the current global landscape. The ongoing tariff discussions and market volatility require us to remain focused and stay vigilant in our approach. As we move forward, our commitment to operational excellence and customer satisfaction remains unwavering under a disciplined cost control. This strategic focus of our Qualitas DNA will ensure that we remain resilient and responsive to the evolving needs of our customers and the broader market.
Thank you for your continued support and confidence on our company. Together, we will navigate these challenging times and seize the opportunities that lie ahead. And now, operator, please open the line for questions. Thank you.
Conference Operator: Thank you. We will now begin the question and answer session. To join the question queue, you may press the raise your hand button located at the bottom of your screen, and we will open the mic for you. Or you can also send it through the chat. To withdraw any questions, please press these buttons once again.
We will now pause for a moment as callers join the queue. Our first question comes from Caio Prato at UBS.
Caio Prato, Analyst, UBS: Hi, everyone. Good morning. Congrats on the results, and thanks for the opportunity to ask questions. I have two on my side, please. First, in terms of prices, if you can talk a little bit about the pricing environment on the auto segment nowadays, how this has evolved since the February and how it stands nowadays.
I think Roberto touched bases briefly about potentially cutting price. Just would like to clarify this. And if you can discuss a little bit, what you are seeing in in the competitive landscape. And moreover, do you see this increase in tariffs which can impact your costs at the same time that you are cutting price? Just would like to understand the strategy of the company going forward and if you can remember us the potential impacts out of these tariffs.
And then I will follow-up with second question.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Thanks, Caio. Let me take this one. Let me tell you that the competitive landscape in Mexico is really heavy. I mean, it is it is has always been and will continue to be. But let me let me address, your question indicating that, we price to target certain levels of of claims ratio and, to get the profitability.
Having said that, let me tell you that, and it is important to note, that in the latest industry figures, we have a, you know, a record high market share of 34.1%. And, a we have also when you consider all when you consider the whole insurance industry in Mexico, we are now the fourth the fourth company when all lines are considered. And it is important to know that because we are not focusing specifically on market share or on growth. We are focusing on making sure that we are profitable and making sure that we have a long term, our long term targets of ROE, which are between 2025%. And as you know, and as we have been reported, it’s 24%.
So yes, in price, we are having a current good momentum as we increase prices substantially over the past couple of years. And as such, our claims ratio has now under control actually because of the momentum we are below our long term targets. So what has done is that in pricing and the competitive on the price of our competitors continue to be under pricing quality as we have just announced at the beginning of this month a small reduction in prices in Mexico, but considering that we are aligned to reach the profitability goals that we have. So it is important to know this part to really understand that pricing will continue to be. And we can feel that a little bit more in the heavy equipment area in which we have a number of companies that are underpricing also.
So we are we are making the right approach to remain profitable while adjusting our prices down. No? So that was your first question. The first the second one was the Chinese spare parts.
Andrea Gonzalez, IR Manager, Qualitas: And the tariff.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Oh, well, the tariff the tariff is a is a good question, and I don’t know who can answer that question. And let me decide why. The name of the game, now this year is uncertainty. No? As you know and we have seen over the past literally this month, one day there are tariffs and the next day there are no tariffs.
And the following day there are tariffs at the refund level. So in the end, we are all just seeing how we are gonna deal with that. I think that they they will have impact if they if they they they can take, you know, like, in terms of our vertical subsidiary FLAC, we have around a significant part that is coming from Asia. However, we have a good bargaining power and, whatever increase in in tariffs, I mean, in the spare part cost, will be, over time. So the name of the game as in the past crisis that we have had in Mexico, I mean, this is a global one and we don’t know how it would evolve, but, it the important part for us is to remain flexible and agile.
And that’s something that we have all we have always done over the past of the past years. So all in all, we feel confident that we are gonna be able to weather this this this scenario successfully. And as as we have said and as Roberto indicated, we have been we are the most profitable company in Mexico in terms of but that’s what we will continue to handle along those lines. I’m I’m not sure if that answers your questions, Caio.
Caio Prato, Analyst, UBS: Perfect. This is really clear. And if I may just a quick follow-up here on other topic in terms of the vertical integration that you mentioned during the presentation. If you can give us a little bit of update about this process, so the inputs from the latest acquisition on the spare pads and paint that you did recently? And how was the performance of Flex this quarter?
Because we are seeing this lower level of loss ratio. So just wondering to understand if this is much more related to the pricing policies that we had in the past or if this is also reflecting part of this vertical integration at this point already. And if so, if this loss ratio, of course, is some volatility, but would be a lower loss ratio structural going forward or not there yet? Thank you.
Roberto Araujo, CFO, Qualitas: So let me let me address these two questions, Caio. Thanks for joining us this morning. On on on the status on FLEX, we continue our journey making FLEX as cost effective as possible. Let’s keep in mind that we are maximizing the new ERP implementation. And as you are very well aware, ERP implementation takes time to stabilize, and we’re still in this process.
Our value proposition from a vertical integration and division hasn’t changed. It’s enhancing its potential and and driving a competitive advantage into the market. So we’re we’re on the right path. Now when you look at our acquisition on on Roto, that actually is gonna be complementing the flex in vertical integration company. So that that actually is gonna take time.
We know that this acquisition and and integration takes times as well. So the all these benefits will go across the different quarters, so you would not see directly into one to one. But let me just give you maybe a a couple of example of of some of the integrations that we’re looking as to how the windshields opportunities could be and how we can integrate it, whether it’s an import or in terms of logistic efficiencies. Some of those are being talked and discussed and how we are able to integrate those cost efficiencies into Qualitas. Hope that answers your question.
Caio Prato, Analyst, UBS: Okay. Thanks. That’s clear, Roberto. Thank you very much.
Conference Operator: Thank you. Our next question comes from Pablo Ordonez at GBM. Barbara, I believe you are on mute. Could you give that microphone a try? Alright.
We no longer have Pablo on the queue. Next up, we have Shitendra Singh at HSBC.
Shitendra Singh, Analyst, HSBC: Hi. Good morning, everyone. Thank you for taking my questions, and congrats for the results. So I have two quick questions. First, just to follow-up on the top line growth.
You mentioned you will relook at the pricing adjustment on case by case, and tariffs are likely to go down. Now given the current GDP expectations for this year, I mean, macro uncertainties, do you see downside risk to your top line growth guidance for this year if GDP expectations move down further? That’s one. Second, I just wanted to check on your solvency ratio. It declined to 362% in 1Q versus 04/2021, I guess, in the fourth quarter.
Was it primarily due to the dividend payments from subsidiaries to holding or other factors from securities? Could you clarify on that? And third, if I may, just wanted to check on the operate, operating ratio, which was again higher during the quarter. Was it was it again due to a higher profit profit sharing? Or does it include any FX impact?
What are your expectations for the full year? Thank
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: you, Jitendra. Let me take the first one, and Roberto will take the second one. Let’s go back to the top line growth. No, we have not changed our guidance. We continue to be accordingly.
What has changed is really that the past couple of years, we’ve had really an outstanding growth, but it was related to many factors that we have discussed in the past. Let me tell you that these levels that we have in the top line is much more aligned to the long term growth of the sector for the past, let’s take it for the past ten years or so. So we are simply saying that all the adjustments that we did over the past couple of years have already taken place. We have profitability where we we wanted to have to be. And as such, we are now and considering the competitive landscape, we see that this top line growth is now closer to the historical average.
So, no, the the 12% that we grew last quarter is in line with what we expect, so there are no changes there. No? It is important to note that, yes, despite the fact that the Mexican Association of Alto Distributors has forecasted a essentially a flat growth versus last year, We continue to to to think that we are gonna be growing along these the lines that we have indicated, the top single digits and the low teens. And, you know, the first quarter is simply the one reflecting this this this 12% that we are we are saying. No?
Also important to note is the earned premiums are gonna be a little bit higher coming out from the growth of that we had last year. So so the top line, we have not changed our forecast, we’ll remain that and moving towards the long term targets that we have been in the past for the insurance sector in Mexico. Go ahead, Roberto, with the second question.
Roberto Araujo, CFO, Qualitas: Thank you. Thanks, Yitindra. Good morning. Thanks for joining us. Regarding your question on on solvency margin, yes, you’re absolutely right.
We did see a decline from 401% to 362%, and it’s driven by what you actually mentioned. It’s based on the dividend provision from the subsidiaries to the to the holding. And and maybe just elaborate a little bit on that. As I mentioned, next week, we will be holding our general shareholders meeting. We are proposing a payment dividend of 4,000,000,000 pesos.
For doing that, we part of that, we need to provide a dividend from Qualitas Mexico to Qualitas Controlladora. And by doing so, is normally what happens every q one. So this this decline happened also previous year in q one twenty twenty four in our solvency margin. And given that this amount now is committed and booked as a liability, then the the total assets from Qualitas is is being decreased for its capacity to to offer on these reserves, which is by result decreases the the solvency capacity. So this is just a a a phasing process.
We saw it last year, and as we evolve through the year, we’ll continue, obviously, depending on our net result generation, we’ll get back on track on on on the same margins, which, by the way, despite this decline in our solvency, our solvency remains exceptionally strong and really underscores the the solid foundation of our business. So this strength from our capital position really will enable us to to seize opportunities, as I mentioned, and and confidently navigate through through these volatile times. So thank you, Trita, for the question.
Shitendra Singh, Analyst, HSBC: Thank you. And lastly, maybe on the operating ratio because we were expecting it to normal to come to normalized level from this year, right?
Roberto Araujo, CFO, Qualitas: Thank you, Yutriya, for the operating question. So you’re mentioning the 6.3 operating index, it did see an increase versus our target. Now let’s also keep in mind that when we exclude the the earnings profit sharing, that actually goes back to to 4.8%. That’s worth 1.5. I think it’s important to highlight a couple of other items that I mentioned in my remarks as well.
There is the variable portion of of this performance, how it works and and how our principle from the from Qualitra’s perspective is when you look at the the reduction of of the loss ratio and the improvement, that actually helps on being more profitable for the company. That is also the service office fees that we put as an incentive to to to our offices. And that’s a good combination of the more productive you are, yes, in terms of load ratio starts going down, but the the the the operating ratio goes slightly up. So all in all, when you see the combined ratio, you will see that the the the combined start is keeps on being stable. The other piece when you look at the operating expenses is that we are, as I mentioned as well, we are investing in other subsidiaries.
For example, when you look at Colombia, those are expenses that are being invested and that certainly we’re still not getting to to a the the ratio in that particular since we’re we’re just kicking it off and initiating operations. And the same goes with Peru. So so these factors over time will start stabilizing. We’re still committed to the 3%, four % operating ratio for the year. And again, let’s keep in mind that our claims ratio is not going to be we don’t expect to keep at these levels.
We expect that the seasonality effect for the second quarter will gain claims upwards. Therefore, the operating ratio will go down as well. So with that, hopefully, this answers your question.
Shitendra Singh, Analyst, HSBC: Very helpful. Thank you.
Conference Operator: You very much. We were able to get Pablo Vanez back on the queue from GBM. So, Pablo, please go right ahead.
Pablo Ordonez, Analyst, GBM: Yes. Hi. Good morning, Jose Antonio, Roberto Andrea. Thanks for taking my question. First of all, congratulations on the on the outstanding results.
Roberto, Jose Antonio, I would like to understand better if you mentioned that this loss loss ratio is not something that we should expect ahead. But can you give us more details in terms of are you seeing anything that could be more structural? For instance, the the improvement in frequency to 6.6% is not that different from the previous year. What should we expect ahead in terms of frequency? And also in terms of the heavy equipment, you mentioned that there was an improvement of five points.
Do you think that this is related all to the investments that you have made Is this something more structural? And also, can you remind us the participation of cable equipment into the consolidated reaching premium, please?
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Okay. Thank you, Pablo. I’m going to let Roberto take one, but let me give you some some perspective. Clearly, the year is gonna be really uncertain as we all know. I mean, the the world is in a situation where things are there is a lot of uncertainty.
And as such and there is there’s there’s the the first the first time. The second one is the seasonality. Remember that the first quarter is always a lower level historically for for for Qualitas. So those are things that we have done. Obviously, the efforts that we have done regarding regarding cost control have have something to do with that.
Now you talk about structurally, but, in the end, we are pricing to make sure that we are reach the ongoing levels on in terms of of claims ratio. So while we might be, below for some time, it will depend based on the uncertainty and based on the seasonality. So that’s why we are not saying that we are gonna be structurally going down in terms of the the the the loss the the the, yeah, loss ratio or claims ratio. But, Roberto, please
Roberto Araujo, CFO, Qualitas: Yeah. Thanks. Thanks, Pablo, and thanks, San Antonio. Yeah. Maybe just to reinforce a couple of messages.
Yes. We we do see I mentioned the the pricing reduction, but as we highlighted, it goes in a case by case basis when we do the renewals. And our long term target is to be within our 92 to 90 four. Therefore, we will be adjusting price in our combined ratio. So we will be adjusting pricing accordingly, function of our loss ratio for each of our customers.
That that is a very important piece because we our objective is not to be at these certain levels. And we do expect in the in the second half of the year so that claims will go upwards. As we said, pricing will most likely be adjusted. Obviously, we need to take into account the rainy and the hurricane season for the second part of the year. There is uncertainty of the volatility of what is gonna happen in terms of GDP consumption and some of the potential for the following for the remaining of the year.
So that’s why we our message is we we need to be diligent. We need to be cautious. We we’re not out out of the woods. We we we need to be very diligent on looking into every single business opportunity because our competitors certainly are looking after this important business, and we we need to be competitive. When when you look at also some of the drivers for frequency and severity, as you highlighted, we’ve been implementing a couple of good risk prevention initiatives, and that has been helping us to be much more effective, particularly on the heavy equipment.
We see we saw a very important decline in this quarter, and and that is also driven in in in terms of our heavy equipment fleets. So we’re we’re we’re we feel optimistic, but, certainly, it’s still we need to look at how all these variables are playing into the next quarters. But we we we feel very pleased on on the results so far. And, again, it’s it’s it’s time to be cautious and to be diligent of following on to ensure that we don’t lose track of our long term term of both the claim ratio, but also the combined ratio overall as a company.
Pablo Ordonez, Analyst, GBM: Thanks a lot, Roberto and Jose Antonio. If I may make a second question. In the top line, you mentioned the consolidated figures post a very strong growth of 12%. But for instance, individuals are growing at at 20%, financial institutions at at 20%, and and there seems to be some disconnection between this and the and the and the sales of of in Mexico that are growing at single digit levels. You mentioned in your press release that we should also take into account Chinese cars, which are not fully reflected in the AMDA figure.
Can give you give us an idea within Qualitas, how much of your retail premium is coming from from Chinese cars and also anything that that you’re seeing here, please?
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Well, we don’t have a, you know, a detail of the Chinese cars for for this for the for the call right now. So, we know that for the total market in Mexico, what is not reported is around two percentage points. So instead of growing 1.2 as as they have reported, you need to add a couple of points. So it should be around 3% or 4% the total the total market. No?
And regarding the fact that it’s not growing, frankly, Pablo, let me tell you that and it has been done during the remarks, that we, commented earlier, we continued our first and foremost priority continues to be the excellence in service. So we have seen that the growth that we are having, which usually is ahead is is ahead of the market, is related to the fact that we we really we really take actions. And all the variables that we measure and let me tell you, all the the the volumes that we measure in terms of customer experience all have improved in the first quarter of the year. So that’s the reason why despite the fact that there is a slowdown in the sales of new cars, we remain confident of our ability. And as I mentioned earlier, we are simply moving to around the long term, growth of of of the auto insurance business in the last ten years or so.
So so that that’s why we say that. But I I don’t know if you want to add something, Roberto.
Roberto Araujo, CFO, Qualitas: Yeah. I think I I think it’s, you you covered it. It’s it’s the the top line growth, yes, it’s still higher than the the average of new cars. However, when you look at the what we grew in 2024, it’s certainly seen this acceleration over time, and we will continue to see this in in the following quarter. That’s why our our expectations is to be in the the high single digits, low teens.
So that that hasn’t changed. And the mix, it’s also dependent on how much of that it goes case by case and focusing on service to really make a difference versus our competitors.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: I don’t know if that answered your question, Pablo.
Pablo Ordonez, Analyst, GBM: Yes. Very helpful. Thanks a lot, Jose Antonio and Roberto.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Okay.
Conference Operator: Thank you. We have time for one last question today. We’re gonna take Ernesto Abilondo. And anyone who’s still in the queue, the IR team will be reaching out. Thanks for the wait.
Ernesto Abilondo, Analyst: Thank you, Andrea. Sorry about my voice. Hi. Good morning, Jose Antonio and Roberto. Congrats in your results.
My first question will be a follow-up on the top line growth. So considering the economic deceleration in The U. S, expectations for modest recession in Mexico, How should we think about the premium growth in Mexico? I understand that you are keeping your guidance, but what would be the macro assumptions that you are considering for Mexico’s GDP growth, inflation and interest rates? And my second question is a follow-up on your claims ratio.
We noticed it already came below your guidance range, although acknowledging the seasonality in the business during the first half. But considering the potential impact on tariffs in auto parts, how should we think about the evolution of the claims ratio? You have mentioned it could be between your guidance range between 62%, sixty five %. However, considering the potential risk, should we be more about the mid to high end of this range? And then for my last question will be related on your financial results.
We also saw very strong financial results and this is despite the interest rates are trending down and the negative impact in the ETFs. So excluding the valuation that goes into your comprehensive income, what should be the variables we should consider in the financial resort in the p and l? So I don’t know if you have any sensitivity because it seems that even that we are having lower rates, you’re still having a positive impact in the P and L. So I don’t know if there’s a sensitivity that for every change of 100 basis points in the interest rate, what could be the positive impact in the P and L? Thank you.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Ernesto, thank you for being here, and please get well soon. But let me I’ll take the first
Shitendra Singh, Analyst, HSBC: one
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: when you say the macro environment, certainly, you know, the analysts say that the GDP in Mexico probably will grow between 00.5% depending on how the tariffs situation evolves. No? And now having said that, historically, the sector has grown up. First of all, this is an anti cyclical sector, and I think we have discussed this before. And, when things go bad, people tend to, to take care of their possessions.
So they they they take care of their assets. No? So, historically, if you see at the last, ten years or so, the the growth has been around between 1011%, for the past ten years on average. So so so we are saying that there’s no reason why it should be like that, and the first quarter is is is is is part of that. No?
So I think that the macro the macro environment and the other thing is that, as I said earlier, we will remain very, very flexible and agile, and we will continue to push service. And and let me tell you that that has a major impact. So so that’s why I’m saying that despite how is the macro environment going and by the way, you can see that the peso has strengthened, you know, And it’s now below below 20, so that that should also help. No? But that’s why we say that we will remain with this with our guidance in terms of the top line growth.
So I I think that being between the the high, high single digits and low teens, it continues to be good, and the first quarter is right on in the middle. So so so that’s, that’s we said that before the start of the quarter. Now we are just confirming the fact. As a matter of fact, we were thinking that that would happen, in the second quarter of twenty twenty four, but it was somehow delayed to to this year. No?
So that that would be the answer for the top line. Roberto, do you want to take the other two?
Roberto Araujo, CFO, Qualitas: Yes. So on on on claims ratio, you’re right. I think there is a seasonality effect. And, obviously, the GDP and the growth interest rates and and the consumption factors, the macro assumptions will certainly play in in how the remaining of 2025 will play, and that’s why we we remain cautious on our claim ratio. We still think that we will be within our range of 52 to 65.
Thirdly, within that range, we will be delivering on our on our objectives. And and regarding your third point in in terms of financial resort, your your point is is right on. We delivered a comprehensive financial income well well above the the interest rates in the market of 1,500,000,000.0, reaching a 10.8 ROI. And, really, our strategy hasn’t changed. Our strategy continues to be anchored on our fixed income.
So in in in which we have 87% of our total portfolio. So the what what happened is the unrealized losses on our equity portfolio were partially compensated by our fixed income. And for the next quarters, we can expect an an aesthetic performance. And this is this is a result of the the strategy then in in a fixed income allocation, which is playing in our favor, particularly when the equity markets, it’s going under volatile times. So our investment portfolio, it’s been proven to be quite resilient.
And and and given our current duration of 1.9, and we’re we’re thriving to to be at two, particularly on our fixed income, that that would certainly help us through 2025 and 2026 to speak and see some steady performance. Hope that answers your questions, Ernesto.
Ernesto Abilondo, Analyst: Yes. Thank you. Just a follow-up in this financial result. So I don’t know how how what are your expectations for the interest rate by the end of this year and next year? And considering that the trend is to the downward, is there any sensitivity given that you’re having a duration of your portfolio of two years, any sensitivity to think about this to be steady or even to be higher under lower rates?
Roberto Araujo, CFO, Qualitas: Thank you, Ernesto. Yes, we do expect some reductions. I mean, obviously, it’s hard to tell how much since every day is is is changing, and and we we’re living through a very turbulent times and volatile. But for every 25%, as as we’ve been mentioning, of any sensitivity, we would expect a a 200,000,000 around 200,000,000 pesos variation on on our portfolio. So that that would play on on on our steady performance for for the remaining of the year.
Hope that helps.
Ernesto Abilondo, Analyst: Yes. Excellent. So it’s 25 basis points. We will have a a 20 hundred million variation, a positive one. Right?
Roberto Araujo, CFO, Qualitas: 200,000,000 pesos.
Ernesto Abilondo, Analyst: And and positive. Correct? Yes. Perfect. Okay.
Thank you, Roberto.
Jose Antonio Correa, CEO and Chairman of the Board, Qualitas: Thank you.
Conference Operator: You, everyone. This concludes today’s conference call. Thank you for participating, and have a pleasant day.
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