Qualitas Controladora SAB de CV

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Earnings Call Transcript 2021-Q1

[Operator]

Thank you for standing by. This is the conference operator. Good morning, and welcome to the Quálitas First Quarter of the Year Results Webcast. The conference will begin now. It is my pleasure to turn the call over to Mr. Santiago Monroy, Quálitas IRO.

[Santiago Monroy, executive]

Thank you for that. Good morning, everyone, and thank you for joining us in our first quarter 2021 earnings call. Joining us from Quálitas senior management are José Antonio Correa, our CEO; and Bernardo Risoul, our CFO, to provide an overview of the market and environment landscape, Quálitas' performance and financials, an update on our strategy and the traditional Q&A session.

Information discussed on today's webcast may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially from what is discussed here today, and the company cautions you not to place undue reliance on these forward-looking statements. Quálitas undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

And with that, I will turn the call to José Antonio Correa, our CEO.

[Jose Correa Etchegaray, executive]

Thank you, Santiago. Good morning, everyone, and thank you for joining us today. I hope everyone of you and your families remain safe and healthy. It has been over a year since the pandemic was declared in Mexico. It has been a tough journey for us all, and as I have said before, I recognize the commitment and great work of our people to provide uninterrupted best-in-class service to our agents and policyholders.

The strong results, including record market share and profitability in 2020, speak to the agility and flexibility to adapt and to overcome unexpected situations. While we are optimistic, we need to acknowledge that we are still living times of uncertainty in Mexico and other countries in which we operate, with the slow pace of vaccination and GDP recovery in Mexico that is expected to be in the 4% to 5% range for the year. But this is yet to be seen and most importantly, reflecting employment, disposable income, spending and consumer confidence.

Specifically for our industry, the positive trend growth over the past decade was halted last year. Based on AMIS data, car insurance premiums were down 8% in pesos during 2020, behind both market contraction and decrease on premiums. This trend, while improving, continued during the first quarter of the year, with new car sales down in double digits. The combination of high sector profitability in 2020, along with the contracting market, results in a highly competitive pricing environment across all sectors. On this front, we are being aggressive in defending our market position but disciplined. Quálitas has always sought to be the best value proposition for our agents and policyholders, which means being competitive, but not the cheapest.

We have decreased tariffs since last year, behind the reduction of claims due to the pandemic. Claims, however, are expected to increase as we continue to see mobility and claims going back to historic averages. We are being agile and diligent, seeking to renew our existing base of customers, while ensuring price decisions with technical data and mid-, long-term implications.

Before Bernardo walks you through our financial specifics, let me share that in this challenging environment, I am pleased to see our first quarter results within expected ranges, reiterating that 2020 is an atypical high comparable base. Our results reflect the strength of our business model and our capacity to create value despite the environment and market conditions.

Our financial strength and excess capital allow us to propose a MXN 1.6 billion dividend payment, MXN 4 per share and a MXN 1.2 billion share buyback fund. Together, we are returning close to MXN 3 billion to our shareholders, equivalent to a yield of over 6%. The latter took into consideration the recommendation from the insurance regulator in Mexico, that made for the banks and financial institutions of not distributing dividends nor establishing share buyback programs during 2020 and 2021 to secure solvency during these trying times. We believe our proposal is to maintain attractive returns to our shareholders while, at the same time, being prudent.

Now moving forward, we recognize the need to evolve and adapt to new market and environment conditions, and we will do so but always maintaining our DNA and business model, which has been a key element of our success. We will also stay the course on our 3-pillar strategy defined since last year, which focuses, first, on maintaining our indisputable leadership in the market; second, accelerating existing businesses through technological and product innovations; and third, exploring new engines of growth for the holding company.

We have mentioned our intent to start operations in the health and medical business line during this year, subject to the pending approval from regulators. This has taken us more time than we would have liked, which is COVID-related, obviously, but we are getting closer and expect to provide the specifics of this major step for Quálitas during the second half of the year.

We're also assessing new markets and potential M&A opportunities that could contribute to the mid-, long-term growth of Quálitas. We do not have a specific time line as it will also depend on the right opportunities to come and having the funds available to provide flexibility. We are allocating time and resources to this and for the first time, being intentional and structured about it and allocating capital for it.

In addition, I am confident about our ability to continue strengthening and growing our business while providing a strong ROE to our investors. We are making the right decisions for the mid-, long-term by staying true to our principles. Once again, we have proven Quálitas' business model resilience and our ability to create value while continuing playing to our strength and excelling in service, which is a never-ending journey.

Finally, to highlight that we continue adopting actions on ESG matters, such as reducing our greenhouse emissions, strengthening our corporate governance and improving the lives of the people in the communities in which we operate, while creating value to all our stakeholders. I would like to share some of these actions in future communications.

And with this introduction, let me pass it over to Bernardo for further details regarding the financial results. Bernardo, please?

[Bernardo Salas, executive]

Thank you, José Antonio, and good morning, everyone. Before I get into the results' specifics, let me share that as of this quarter, consolidated figures will now reflect our noninsurance businesses' sales and costs in the operating and loss costs. This is consistent to the nature of our insurance business and in compliance of accounting norms. For comparable purposes, adjustments have also been made on prior periods, and there is no effect on bottom line or profitability.

Having said that, and in the midst of what is still a very challenging environment, we closed our first quarter in line with our expected range. Starting off with our top line and expanding on what José Antonio mentioned, Mexico new car sales partially recovered in March, increasing 9% versus same month 2020, but still 12.7% below year ago in cumulative terms. We anticipate a sequential recovery, especially in the second quarter, due to a low comparable base, projecting that by year-end, new car sales will return to positive territory.

Going fully into our results, written premiums closed at MXN 9.7 billion, which represents a 1.2% increase versus first quarter of 2020. This top line performance was strong, considering the macroeconomic and competitive environment, the industry contraction as well as last year's high comparable base pre-COVID. For reference, this is our highest-ever first quarter in terms of written premiums, and our total number of insured units are at par to our record quarter, which happens to be JFM 2020. This is no small achievement.

Our traditional segment driven by our network of more than 16,000 agents was up 1.2%, and the financial institution channel was down 3.6%, consistent with trends of new car sales. We continue to support our clients with discounts in renewals and interest-free payment. We have just announced the continuation of some of these benefits throughout the balance of the year. In line with our strategy, international subsidiaries posted an accelerated growth of 25.6% versus same period year ago, and they now represent 7.6% of the company.

Within international markets, the U.S. and Peru led the growth, with the U.S. borderless product, which provides coverage on both sides of the border, growing 45%. Peru grew 46% and has moved from 0.9% market share, to over 3% in that -- in this last quarter in less than 2 years of operation. Costa Rica, to highlight as well, our market share surpassed 10% for the first time in our history. We are encouraged by these results as well as the engagement from agents and policyholders on these markets.

Our earned premiums closed at MXN 8.6 billion, which is a 9% decrease versus first quarter of 2020. These results reflect MXN 1 billion of premium reserves constitution related to more normalized mobility figures and the expected increase on claims. Both written and earned premiums are expected to reflect high volatility on quarterly indexes due to comparable periods and claims' erratic behavior during the pandemic. For reference, we should expect top line growth to be strong during the second quarter, but not necessarily for the full year. And we also anticipate that earned premiums will trace back written premiums as they did last quarter due to the composition of technical reserves behind normalization trends in our loss costs.

As always, we follow the technical actuarial model for research constitution, in which we have little to no room for discretionary decisions. In those cases or variables, where we have ranges, we tend to follow the more conservative approach, seeking to provide stability and avoid large fluctuations.

Our portfolio is composed of 76.8% of annual policies and 23.2% of multiannual policies, which compares to 78.6% and 21.4%, respectively, by the end of 2020. As we have mentioned before, being more skewed towards annual policies allow us to quickly adapt to market and macroeconomic changes, being able to adjust tariffs 3 to 4x a year.

Regarding our loss cost and ratio, we have reached the anticipated inflection point. According to public information from Apple, mobility trends are back to pre-pandemic levels and there was -- there has been a shift to less use of public transportation. Our loss cost marginally increased 2.4% versus same period a year ago. And number of claims is approaching historic averages, and we expect this trend to continue as we see vaccination progressing and economic reopening and recovery.

Our loss ratio stood at 59.3% or 662 basis points above same period year ago, but still lower than 2019 and historic averages. As we have repeatedly mentioned, 2020 was an atypical year and should not be considered as a reference. Therefore, for better understanding on comparability, we will be referencing prior periods as well as our ongoing expected range, which is 60% to 65%. When we see through those lenses -- sorry, when seen through those lenses, first quarter of 2020 loss ratio is positive and evolving as we anticipated.

Collateral effects of the pandemic will not always be negative. In our case, we will embrace changes are -- that came along and benefiting our stakeholders. As an example of this, we're keeping and boosting the implementation of the express adjustment tool, which implies lower costs. By the end of the first quarter, 21% of our claims were attended through this tool, that was basically inexistent pre-COVID.

On the robberies front, during the first quarter, the Mexican industry continued its positive trend and were down 20% for Quálitas. We also managed to recover 54% of stolen units, which represent 7 percentage points above the industry average and proved the effectiveness of our risk administration program, knowledge and experience. Acquisition and operational costs were in line with historical average. Significant in acquisition, our acquisition ratio stood at 23.2%, well aligned with our growth in terms of written premiums as we have not seen a total recovery of our underwriting through the financial institutions channel, which carries out a higher commission.

Moving on to operating ratio. It stood at 4.1% for the quarter, 166 basis points below same period year ago. The decrease is related to the employee profit sharing account, which is directly related to our net income and partially related to the accounting change in the consolidation of the noninsurance vertical subsidiary's financial information, which sales are now accounted under this item, so it benefited our operating costs for this quarter and comparison reasons. And we will continue to see this impact or effect as we grow them in the future.

Overall, our combined ratio stood at 86.6%, 5.8 percentage points above same period of last year, but still 50 basis points below 2019. The adjusted combined ratio, which meets the international standards, stood at 89.8%. This combined ratio stands below our 5-year average and expected range for the year of 89% to 94%. Our underwriting results stand at MXN 876 million, down 51.8% year-over-year due to the mentioned increase of technical reserves of MXN 1 billion and cost behavior, but in line with expected ranges and needs to deliver our ROE commitments.

Going onto our comprehensive financial income. For the first quarter, it reached MXN 531 million, significantly above last year's base, which was impacted by the collapse of the equity market in March. The cumulative return on investment stands at 5%, which is 100 basis points ahead of Mexico's reference rate and within our annual goal of being 100 to 150 basis points ahead of it.

As mentioned before, on an absolute basis, the decrease of reference rates will be a headwind for our financial income, for which we continue to gradually rebalance our portfolio composition towards variable income and asset diversification, but always in compliance with our internal investment policies and overall conservative approach. At quarter end, our investment portfolio was 85% fixed and 15% equity, which compares to a 90/10 ratio in 2019.

All together, our first quarter net income was MXN 1 billion, down 25.4% versus year ago, but still higher than the average of the past 5 years. Our organizational, commercial and financial strength resulted in a 30% (sic) [ 37% ] return on equity, which, as José Antonio mentioned, is above both our 20% to 25% objective and the industry average. Important to mention is that as we move along the year, we expect our ROE to average toward our objective range, both as a result of the business performance and a higher capital base.

Regarding our cumulative financial ratios, 12 months' earnings per share stands at MXN 15.6. That compares to the MXN 13.2 by the end of the first quarter a year ago. Our net margin stands at 11.1% for the quarter. Price to earnings stands at 7.2, well below other public insurances, and book value stands at 2.4.

Now moving to capital requirements and the consolidated solvency margin. At the end of the month, our solvency margin was 662%, 5-point -- sorry, MXN 4.5 billion above where we were same period year ago. The allocation of capital considers 4 main buckets, all of which we have discussed: first, to secure business operations by complying not only with the MXN 2.8 billion of capital requirements, but also within -- with our internal policy of having 50% buffer to manage business changes and volatility. While taking this into consideration, our surplus stands at MXN 14.6 billion.

Second, we are funding our 3-pillar business strategy to continue on the winning path. We want to stay ahead on technology and innovation. We want to unleash the potential of our internal -- international and noninsurance companies, and we will continue to seek new opportunities. This trifecta of having capital, the team and the vision is unique and makes us feel excited about what we can accomplish by flawlessly executing against this strategy.

We're also giving back to shareholders. We have built a history of paying dividends and we plan to continue doing so. As mentioned by José Antonio, we are proposing to our general shareholders a dividend payment and a new share buyback program of the fiscal 2021. This, together, represents around 6% of yield and 130% increase in cash returns to our shareholders. We're also proposing the cancellation of 7 million shares that were previously repurchased by the company. With this cancellation, the numbers of shares outstanding will be 406 million shares.

Regarding our corporate governance structure, which will also be discussed at the general assembly, we continue to strengthen it. Upon their approval, our Board of Directors will remain with the same related members as a year ago and one additional independent Board member. In line with our ESG commitment, we will adopt new business practices -- new best practices, seeking a diverse Board from a gender, age and background perspective. We're taking numerous and relevant actions across environmental and social matters as well.

Finally, on capital allocations, we're taking a more conservative approach as we did last year. Volatility and uncertainty remains. The competition environment is tougher, and we also consider the recommendation from the Mexican insurance and banking regulator to not distribute dividends nor fund share repurchase programs.

But going back to the short and midterm, as we have previously mentioned, we acknowledge the challenging environment will continue, so we keep our #1 priority to maintain our customers and retain our client portfolio. To do this, we will continue to have a close relation with the agents and policyholders and being very agile, while adapting products and strategies to new market dynamics.

Second, we are reinforcing and looking to enlarge our competitive advantages in the market, specifically in the Fleets segment. We rely on technology as the best ally in risk prevention, with devices providing information to know driving behaviors, prevent an accident and facilitate the recovery of units in case of theft. But technology and innovation is everywhere, and we closely follow latest global trends in the industry to assess relevancy, feasibility and readiness for the market in which we play and design test pilot models to learn and then expand.

Third, we're restructuring some of our operational processes through healthy initiatives looking to cut down unnecessary costs and to make them faster, improving the service. We're increasing the monitoring of strategic levels while increasing revenue. Finally, we continue exploring new business opportunities. As mentioned by José Antonio on his initial remarks, while there are still a few government approvals pending for our new medical insurance line, we're moving forward, confident that we will underwrite our first policy before the end of the year.

To wrap it up, the business continues to be strong. We are proud of how everyone at Quálitas has embraced this challenging pandemic period. And as committed last year, we are coming out stronger. Our results, our consumer engaged -- customer engagements, our tools, the clarity in our priority is at its highest. Quálitas is well positioned to better meet and exceed the needs of our agents, policyholders and shareholders. We will manage what could be a volatile short to midterm, consistent with the strategy we have outlined, and we are confident of a bright future for us, for everyone.

And with that said, acknowledging as well a detailed report was issued yesterday, I close my remarks and hand it over to the operator to take your questions.

[Operator]

[Operator Instructions] The first question comes from Carlos Alcaraz from Apalache.

[Carlos Alcaraz, analyst]

And my question is, given the recovery in car sales in March compared to the first 2 months of the year, how do you expect with writing to behave during the rest of the year?

[Jose Correa Etchegaray, executive]

Thank you, Carlos, for your question. Well, let me tell you that retaining our client finance and ensuring units have been -- that will continue to be our top priorities. We have expanded renewal discounts and we have the interest-free monthly payments with that. Now having said that, we know that the car business -- I have seen several estimates of how we can see the increase in sales for this year of new car units, and let me tell you that this varies a lot because some of the associations say that's going to be in the high single digits, but I see, talking individually to carmakers, they are closer to 0.

Now having said that, we know that our business correlates importantly with GDP performance, obviously, so we expect that also to help. And in the end, we are aiming to have in a positive territory in the future. Now let me tell you one thing. We are -- we continue opening office services. Last year, we opened 30 -- 32. Of the Q*s this year, we started with the new of the Q*s for the first quarter, and that is despite the challenging environment that we are living in. So we expect to continue this pace of growth during the year, which will expand our network, and clearly, we'll be closer to our agents and policyholders. So that's really the way in which we are seeing this slow comeback of the economy for 2021.

[Operator]

The next question comes from Ernesto Gabilondo from Bank of America Merrill Lynch.

[Ernesto María Gabilondo Márquez, analyst]

My question is we should think 2021 as a transition year, especially considering that we start to see an increase in the car's mobility and that, at some point, it would imply higher claims costs. Considering that the first quarter tends to have the best seasonality for claims costs and that the rainy season, the hurricanes, tend to happen through the rest of the year, how should we think for the claims costs and the combined ratio in the next quarters?

[Bernardo Salas, executive]

Thank you, Ernesto. I wouldn't call it a transition year. I would call it, I think, a year in which we will have to overcome uncertainty and erratic behaviors to a comparable basis. I think as we expected, we're seeing this inflection point on claims or number of claims. They are sequentially, since last year, approaching the same level of pre-COVID. And what we're doing is to make sure we have our priorities and we stay focused on what José Antonio mentioned.

We do believe that in the next quarters, we're going to see claims going back up. We do anticipate our claim ratio to continue on that, growing or increasing past, and by the year-end, we should be in the mentioned range between 60% and 65% on average for the year. This is important to highlight. This would continue to be in the design model that we work against.

So as we anticipated, we cannot compare only to 2020, not even 2019, which was a year in which we had several tailwinds and a combined ratio of around 85%, but also considering what we work against in order to provide sustainable results to shareholders, competitive tariffs to our agents and policyholders. And that would be with a combined ratio between 90% to 95%, and so that we will always be referencing the evolution against not only prior years but where do we stand against the ongoing model.

That ongoing model is also the base to adjust tariffs. We have talked before that we adjust tariffs between 3 and 4x a year. That allow us to have a huge flexibility to see where the cycle is moving, and we correct or adjust accordingly. So I think it's important in a nutshell to anticipate claims going up as we see the recovery of those mobility and claim ratio. We will continue to move on that direction. But we are well aware of the trends, and we have tools to adjust when we see the necessary timing to adjust.

[Jose Correa Etchegaray, executive]

I would add, Ernesto, to what Bernardo said, that this is not only happening to us, but it happens clearly to the whole industry. So again, we will continue to be leading the industry whenever we need to make the tariff adjustment that Bernardo mentioned.

[Operator]

[Operator Instructions] The next question comes from MartÃn Lara from Miranda Global Research.

[Martín Lara, analyst]

I have 2 questions. The first one is how do you see the acquisition and operating ratios during the next few quarters? And the second one is what was the driver behind the strong performance in the individual segments?

[Bernardo Salas, executive]

Let me start off, MartÃn, good morning, with the acquisition and operating ratios. We have not made any structural changes to our commissions. So acquisition ratio will result as a mix effect from the existing businesses. There are a few bonuses that will depend on performance and that may have some variations. But other from that, we expect that acquisition ratio should range in the 22% -- 21% to 23%, which has been in line with the historic averages.

Now when it comes to operating expenses, we are very -- being very diligent on making sure we take out any nonvalue-added costs. I think that is within the DNA of Quálitas. But we're pushing the boundaries a little bit more. We want to be cautious on cost control. We're taking measures as well, not major headcount reduction, but yes, we continue to be on a hiring freeze mode. We're looking for operation automization and things that will allow us to not jeopardize service but be more efficient. So with that said, excluding the EPS, which is [Foreign Language] in Spanish, the profit sharing, we should be in an operating cost between 4% and 5%.

[Jose Correa Etchegaray, executive]

Regarding the individual side, we will continue to be very, very prudent on this one, MartÃn. And we are not doing anything other than we really think that spending, for instance, the message is interested or not. That's something that is required somewhat by the market as competition is there. But clearly being one of the healthiest sectors in total and the most predictable ones, we will continue to, in a prudent way, support the individual parts. We believe this will continue to be going well for Quálitas in the coming quarters for the year.

[Martín Lara, analyst]

Okay. And what can you tell us about the Fleets sector because you have an 8% decline there?

[Jose Correa Etchegaray, executive]

Well, clearly, this is an interesting question, and that's something that happens. As you know, last year, the market contracted 8%, so the pie was smaller and everyone wants that. I think that from the top 5 companies, 3 of them are decreasing double digits in a big way. So there is a significant competition in this area. Clearly, the reduction in claims made that the combined index was lower. So they all want a share of that.

So what we are doing there is that we are taking the right moves to retain customers. And we have some customers that have been long-term, but competition by 3 or 4 of those insurance companies are really pushing the margins down. But we are reacting in a way that we maintain profitable businesses and we maintain our customer base. So we will continue to doing that. Obviously, what is going to happen here is that, at some point in time, the tide turns, we will have to increase at the market, also the prices because clearly, last year, as Bernardo indicated, it had been clearly a very, very atypical year.

[Operator]

The next question comes from Eduardo Miller from Miranda Global Research.

[Eduardo Miller, analyst]

My question is towards foreign subsidiaries. I would like to give a follow-up on my M&A question last quarter. Have you foreseen any opportunities in LatAm and in which countries?

[Bernardo Salas, executive]

Thank you. We are encouraged by the performance of our international subsidiaries. We see great potential, not only because of the engagement we have had with agents and the markets, but also because of our low share -- current low shares. I mean if you look at the share, we crossed the 10% milestone in Costa Rica just this quarter. But we're still below -- we're low single digits. So we see that reapplicating the Quálitas successful model in Mexico would allow us to be in the 15% to 20% market share in the next few years. That is what we aim towards.

I think Peru is a great example of what we have learned across the several expansions we have had over the years. In Peru, we landed and already made many progresses, such as tools, replicate tools, engagement with agents, so we hear their needs, tailormaking some products. And the result of this had been not only that we're profitable in Peru on year 1 and 2, but we're also seeing a growth in shares that is well ahead of the market. As I mentioned, we're above 3% and that is very encouraging.

So we believe we have found a good recipe for expansion, and we are assessing new markets. I would like to disclose those markets at this point, but they would be all in Latin America, and none of them will be Brazil. So I think you can narrow it down based on that. And the reason why I'm being open is because Brazil can be very attractive in terms of size, but I think it's a different ballgame and where our model could be not necessarily graphically straightforward.

One question that came through the Internet. What is the impact -- from [ Juan Ponce ]. What is the impact from the recently passed outsourcing deal on your business?

It's a great question because we are living through this. And I'm happy to report that not because we knew that it was coming, but rather because we always like to do what is right. And when we did this law passing, I think the whole industry is going to have to restructure a little bit on many of the Mexican corporations. But in the case of Quálitas, part of being socially responsible for us was that we include 100% of the employees. Part of their subsidiary core -- as part of the core, they're not outsourced. That means they're employees that are hired by the same company that yields the profit.

And therefore, we have seen, over the past years, our earnings profit sharing -- sorry, employee profit sharing or PTU so high, and that is kind of what makes this incentive follow the motivation of the employees as well. So to the specific questions, we are not anticipating any major impact to our company. We are following closely how this situation evolves. But different to what you may hear from other companies, for us, we'll be close to neutral.

[Jose Correa Etchegaray, executive]

Let me add to what Bernardo mentioned because this means some of the things that we have been doing in Quálitas. A little over 6 years ago, we bit the bullet on this one, and we decided to move the change. So frankly, we were ahead of the market by more than 6 years on this one. So the impact is not going to be anything. Actually, what we have seen in the past quarters and as we have reported, the PTU, the employee profit sharing that we have has been good and has been given a lot, which, by the way, it has been very well-appreciated by our employees. So let me put it this way. We are ahead of the market by more than 6 years.

[Bernardo Salas, executive]

Thank you. Next question as well coming from the Internet, [ Daniel Clary ]. You mentioned you want to increase the share of equities in the business portfolio. It is now about 50% of the investment portfolio. Do you have medium-term target and the percent of equity that you want to aspire?

I would say we are being intentional. We are seeking for opportunities, both the investment team led by [ Alejandro Desanto ] and the Investment Committee are looking to make the right moves. As nothing that we do in the company would like to be erratic nor volatile, so we take more a balanced, sequential shift, and as a result of that, we've moved from close to 12%, 11% last year, now to the 15%.

We have some internal limits. That internal limit should be close to the 20%. From a regulatory standpoint, we could go all the way to 35%. So I would say, without giving you a specific number, we might see this trend continue, especially if the economic expectations are that equities should continue to go on the moving path towards the positive, and therefore, I would say somewhere between 15% and 20% should be what you can expect.

The next question is come from Oliver, Fiera Capital. How should we think about the change in -- on your premium reserve line in the following quarters as claims rise, in the MXN 1 billion from Q1, the quarterly run rate effect, or should we -- or should it fall? How then should we grow in earned premiums compared to written premiums?

[Jose Correa Etchegaray, executive]

Okay. Let me try to answer that one a bit. And let me tell you that, clearly, the research creation and the constitution of reserves, that's something that is defined by pretty much a nondiscretionary actuarial model. And clearly, that's based on how we underwrite what is the portfolio composition in the annual versus multiannual policies and clearly about what is the behavior of historical claims and some of the projections.

So having said that, let me tell you that, no, the answer -- the short answer is probably it's going to be at a slower pace than what we had in the first quarter on that. However, the actuarial model really is something that does not provide much discretion. Also, let me tell you that the discretion that we had for 2020, we were on the conservative side. So even though we could have released more returns in 2020, we clearly knew that the tide was going to change, so we decided to go with the most conservative approach on that one. So that's what I would share with you guys.

[Bernardo Salas, executive]

And just to add on that one, I think the spread between the growth of written premiums and earned premiums of this quarter was close to 10%, to a point. I mean whereas written premiums grew 1.2%, earned premiums were down 9%. I think that delta should sequentially narrow, but there's still going to be a trade between the growth of written premiums this year and earned premiums. And I think that would be in line with what José Antonio mentioned. But I think that 10%, to a point, delta should be narrowing down more towards the range of 4% to 5%.

Operator, I think we have no more questions, or those that we had were already answered. So I think we will wrap it up for today, and I appreciate everyone joining.

[Jose Correa Etchegaray, executive]

Thank you for everyone joining us today.

[Operator]

[Operator Instructions] This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.