Qualitas Controladora SAB de CV

BMV:Q

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by. This is the conference operator. Good morning, and welcome to Quálitas second 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, Anastasia. Good morning, everyone, and thank you for joining us in our second quarter 2021 earnings call. Joining us from Quálitas' senior management are Jose Antonio Correa, our CEO; and Bernardo Risoul, our CFO, to walk you through our results, what to expect for the rest of the year and an update on our strategy. At the end, as always, we will leave some time for Q&A.

Information discussed on today's call may include forward-looking statements regarding Quálitas' results and prospects, which are subject to risks and uncertainty. Actual results may differ materially from what is discussed to you 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 Jose Antonio Correa, our CEO.

[Jose Correa Etchegaray, executive]

Thank you, Santiago. Good morning, everyone, and thank you for joining us today. We're happy to share our current second quarter results with the top line ahead of our estimates and the bottom line within the expected range. As we continue to see progress on vaccination, people back on the streets and travelling, our impact is normalizing, reaching pre COVID levels. We are quickly adapting to ensure we continue to provide excellence in service and the best value proposition. As a result, our agents and clients regardless with their [ preference ], all that while delivering a healthy and sustainable profitability.

As we have mentioned before, our results should not be compared against 2020 due to the very atypical effects of the pandemic, but rather to prior years and the industry overall. On the latter, despite the declining market and a competitive environment during the first half of the year, Quálitas has come out stronger.

For reference, in Q1, according to the latest industry figures, the Mexican car insurance market decreased 10%, with top competitors declining with double digits, while we were flat, resulting in a share gain of 3 percentage points versus the same period year ago.

Moreover, an independency of comparable years or the number of insured units is the highest ever, now reaching 4.4 million units, which given the challenging environment is worth celebrating.

As we head into the second half of the year, we will continue to invest and prioritize our discussed strategy, ensuring we adjust our operations accordingly to the claims increase as we are not expecting new lockdowns that would reverse the trend.

On the pricing topic, we are gradually and tactically increasing prices in the specific segments and regions. A couple of weeks ago, we adjusted about 7% of our prices in some of them. We acknowledge that increasing prices at a time where competition is aggressively seeking to recover growth is challenging, but it is also the responsible reaction looking for the bottom line sustainability of the business.

To mitigate potential top line pressure, we are further differentiating ourselves, leveraging our 27 years expertise towards a better service and technology to prevent accidents and deaths and improve customer experience. We also acknowledge capital optimization remains crucial to our -- to continuing the value creation path, and which Bernardo will elaborate later on. Our capital allocation strategy during the quarter has been focused on technology. Having the right data analysis to assess the performance of the company and to optimize future decisions. In this matter, we have upgraded most of the platforms shifting our operations and automation, we revamped our agent's website, and we are working on different improvements for our mobile application.

Quálitas financial strength as [indiscernible] our capital above regulatory requirements, continues to be close to all-time highs. Let me reinforce that I have -- as I have mentioned before, that we are actively looking for new opportunities that will create value to Quálitas and our shareholders in the long term. And this is consistent with our strategy and the combination of patience, vision and talented skills for it to be successful. I can assure you that we will not take rush decisions that could dilute our interest.

And finally, on this topic over the past decade, we have built a track record of providing returns to shareholders via share buybacks and dividends, and we plan to continue doing so.

I am confident about our ability to continue strengthening and growing our business, making the right decisions for the near and long term by staying true to our principles. We are actively pursuing ways to increase service excellence and efficiency, drive productivity and always looking to keep growing the company in a sustainable way. That has gotten us to this leadership position that we intend to maintain and widen in the future.

And with that, let me pass it on to Bernardo, which will provide further details regarding the quarterly financial results. Bernardo, please?

[Bernardo Salas, executive]

Thank you, Jose Antonio, and good morning, everyone. Going directly to our financial detail, top line was outstanding with a 28.4% increase versus year ago and a 10% increase versus 2019.

Cumulatively speaking, we are 13% above same period of both 2019 and '20. The top line performance has been boosted by the traditional segment, which is up 11.5% versus same period 2020. This growth was driven by the intentional efforts targeting individual policyholders, which are up 28%. Such efforts include, among other things, interest-free payments that has been extended for the balance of the year. We highlight as well the 66% growth on financial institutions, following the trend of the industry recovery and comparing against a low base. Our international operation continues to be an engine of growth, up 31% in the quarter and 23% year-to-date. Combined, they now represent 10% of the holding company for the first time in our history.

To highlight, Peru reached 6% of market share, well above what we had estimated when we entered the market 3 years ago and has now expanded with 2 new offices, replicating the unique commercial model that we have in Mexico. Our earned premiums grew 4.5% in the quarter, but it's still 2.5% below year-to-date as a result of the reserve substitutions reflecting the mobility, recovery and the key metrics evolution. Historically, we have seen some seasonality within quarters. Specifically, Q1 and Q4 are usually the ones where we constitute higher reserves, whereas in the second quarter and third quarter, we are seeing some releases as we are this year.

Going to our costs, starting with our loss cost and ratio. According to Apple, the mobility trends are back to pre-pandemic levels, and there has been a shift to the less use of public transportation and an increase in private transportation. This is reflected on the number of claims, which are 60% above the second quarter of last year and in line with those of 2018. The number of received calls during the quarter was up 53% versus last year.

As a result of this, loss ratio stood at 64.2% for the quarter and 61.8% cumulative. This is from the high end of our ongoing technical range of 60% to 65%. Important to remember that within this ratio, since first quarter 2021, we include our vertical subsidiaries costs. As these businesses continue to grow, they will continue to impact our loss ratio without any correlation with the claims of our insurance business.

As Jose Antonio mentioned, this expected inflection point, which happened slightly earlier than we thought at the beginning of the year, triggered the decision to increase prices, which were effective beginning in July. Being true to our pricing discipline means that increases were not broad based, but rather calculated based on our 3 vector model. The composition of our claims cost has evolved over the past couple of years, with the positive trend in robberies, combination of market and our internal program focused on risk prevention and recovery.

By the end of the first half 2021, 56% of our loss cost was related to material damages, 25% to civil liabilities and 30% come from robberies. The rest comes from medical expenses and some other [ metrics ].

Our acquisition and operational costs were in line with historic average. Acquisition costs -- acquisition ratio stood at 23.7% when aligned with our growth in terms of written premiums. And operating ratio stood at 4.5% for the quarter, 557 points below the same period a year ago.

Overall, our combined ratio stood at 92.4%, while it is up almost 50 basis points above same period last year and 3.9 percentage points above the same period of 2019. It is still in line with the past 5-year target. And most importantly, we see the business ongoing target of 90% to 94%. The adjusted combined ratio, which means the international standards, stood at 93%.

The cumulative return on investment stands at MXN 504 million for the quarter or 5.9%. For the first half of the year, our ROI stands at 5.5%, which is 125 basis points ahead of the Mexico reference rate objective and we've seen our annual goal of 100 to 150 basis points ahead of it.

As we had indicated, in the low interest rate environment, we have diversified our portfolio. And while still conservative, with most of it in fixed income, we closed the quarter with 15% on equity, which compares to 10% back in 2019.

Further expanding on the portfolio management, which now stands at MXN 34 billion, we're expecting to see rates downward trend to revert, with sequential increases as at 0.25 point that we saw in late June, reaching now 4.25%, which is still very low relative to 8.25% of 2019. This is a key component on our ability to deliver on profit and ROE expectations. Thus, we are thoroughly looking on how to maximize its return.

Altogether, our second quarter net income was MXN 976 million. As mentioned before, to assess the bottom line performance, we should not compare against 2020, but rather prior years, would leave this quarter above past 3-year performance.

For reference, year-to-date net income of MXN 2,050 million is 18% down. This was a strong year, such as 2019. But when excluding positive one-timers of MXN 200 million we had back then and the decrease of interest rates, which I mentioned went from 8% to 4%, we would be slightly above.

Our organizational, commercial and financial strength resulted in a 12-month ROE of 29.1%. Important to note, as we continue to see claims rate back to pre-COVID level and we consider our high base of capital, we should expect ROE to soften in the next quarters to the low end of our long-term target of 20% to 25%. This will still be an attractive and ahead of peers and industry’s return.

Regarding our cumulative financial ratio, 12 months earnings per share stands at MXN 12.7, which compares to the MXN 15.8 by the end of 2020. This earnings per share is 46% higher than second quarter EPS, reflecting the recent 7 million share calculation as well, which is still under process of approval. Our net margin stands at 10.8% for the quarter. Price to earnings stands at 7.3, well below other insurance companies and with a price to book value of 2.

Additionally, Quálitas holds the 20th position in the Market Stability Index, a new record position for the company and in line with our strategy to be more attractive in terms of liquidity.

Now moving to the capital requirements and the consolidated solvency margin. At the end of June, our solvency margin was 625%, which is MXN 15,450 million above capital requirement and [ model ] from which we will fund that through share repurchase program and fund business strategic priorities, expansion as well as potential M&As.

Our management health expansion, which will be done under a test and learn approach, will continue to move forward with permits and approval. And while this has taken longer than the initial impact, we should start operations late this year or beginning of 2022. More news will come in the next months.

Capital allocations will continue to be a priority. Jose Antonio already alluded to this in his opening remarks. We are committed to maximizing its use for our shareholders in which dividends will continue to play a key role.

Let me touch on 2 areas that are usually of common interest. First, on M&A, where we have called out our interest of seeking accretive value opportunities in Mexico or the rest of Latin America, but finding the right ones may take time, and it is unlikely that any of them will materialize in the short term. The time line we're working against is 18 to 24 months.

And second, on dividends. Quálitas has consistently distributed dividend over the past 6 years. We're now part of the S&P BMV Dividend Index and want to continue building our track record year-on-year. On this front, and to further increase visibility and transparency, we're revisiting our dividend policy, which we expect to share in the next quarter.

We are committed to creating value, and we know how we can do it. To illustrate, let me go back to 2019 when we acquired 100% of the equity of CristaFácil, Outlet de Refacciones and Easy Car Glass. After then, we were partial owners of these vertically integrated, relevant but nonperforming businesses, which have had a negative track record. By fully owning them and establishing a new management, we invested and redefined priorities with an incredible term loan.

They have now consolidated themselves as a competitive advantage for Quálitas Mexico in terms of service and cost and amending of profitable growth for the holding company, with a year-to-date stellar performance reaching MXN 590 million in sales and over MXN 40 million in profit during this first half of the year. Their future is bright. They will soon make way into single business line called Flekk. We'll start operating on a new eco-friendly warehouse, which will further expand their model with new business lines and under a more efficient operation.

Before we open up the line for questions, let me share some news on ESG and our commitment on this front. During the quarter, we launched a campaign called Juntos Cambiando Vidas, in which, for the first time, we amplified Quálitas corporate efforts by inviting employees, agents and business partners in selected projects towards children health, education and agricultural communities. We talk about our goals, having over 1,000 participants and over MXN 3 million in donations.

In addition, Quálitas Mexico has -- was certified by the Mexican authorities in labor, equality and no discrimination, ratifying our commitment towards a corporate culture of diversity and equal opportunities.

Finally, we obtained our ISO 9001:2015 International certification in the process of remote vehicle valuation. We are the first Mexican insurance company to receive such a certificate. We believe these type of initiatives inspire us all. We engage, empower and embrace a leadership mindset that directly contributes to improving the lives of the people in the communities in which we operate and the success of our organization. All of these efforts make us part of the S&P/BMV Total Mexico ESG Index sample for the second year in a row.

In summary, we feel very good on the results we're sharing today. We celebrate new watermarks in the number of insured units. Profitability is healthy despite navigating through the expected trend normalization. Our capital position is strong, and our focus towards executing against our strategy is sharp. We know we have a challenging second half ahead, but we're ready and set to make it a great future.

With that, acknowledging a detailed report is available as of yesterday with all specific figures, I hand it over to the operator to take your questions.

[Operator]

[Operator Instructions] The first question comes from Ernesto Gabilondo with Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Jose Antonio and Bernardo, 3 questions from my side. The first one is on revenues. We have seen them returning to double-digit growth, supported by the gradual economic reopening and the repricing on tariffs in some specific segments. So do you continue to see earned premiums at double-digit growth for the rest of the year? And how should we think about the growth per segment? Because now we saw a strong financial growth in financial institutions.

And then for my second question, how should we think about the earnings in the next quarters, considering that weather seasonality tends to be more challenging in the second half. And considering that you have more circulating cars in the street, do you continue to see a year-over-year contraction in earnings due to higher claims? And also related to this, the ROE is already at 20%. So where do you see the 2021 ROE and then your long-term ROE?

And then for my last question is on the investment portfolio. We take an important exposure to fixed income rates. So how would you be positioning your portfolio to benefit from a hiking cycle. And also, I would like to know your point of view or where are you seeing the interest rates for year-end. We have seen some Mexican banks evaluating to move their algos to position, to an increase in interest rates. So what will be your strategy? Would it be changing part of your fixed income portfolio to the short term of the core and to a floating rate?

[Bernardo Salas, executive]

Thank you, Ernesto. Let me start off with the first question and then perhaps we we'll make some -- just to make sure we cover them all. On top line, for the second half, we clearly are encouraged by the performance on the second quarter, well ahead -- based on the first quarter that the industry reported, we're well ahead of the balance of the insurance companies. We need and we will continue to outperform the industry, and we have been doing so consistently. And we need to track as well GDP evolution. We know there's a high correlation with GDP and the new car sale stabilization, which is happening. We would be expecting that by year-end, we can close at mid-single digits for 2021.

It is important to remark that we're pursuing to retain our customers as long as it makes sense in terms of profitability. We have been doing so since the pandemic started. We have been successful in doing so, as represented by the number of units reaching all-time highs, and we will strive to do so. We anticipate some headwinds in the next quarter based on the price increases that we announced and which we expect that the market will eventually follow given that claims is something affecting also -- that we also, as a market, in general, decreased prices last year. So this is going back to pre-COVID pricing levels. This is not an increase versus the prices we held at 2019, but rather going back and taking those discounts out of the tariffs. So let me pause here to see if I covered the first one regarding top line.

[Ernesto María Gabilondo Márquez, analyst]

Yes, perfect.

[Bernardo Salas, executive]

You want to take the ROE question?

[Jose Correa Etchegaray, executive]

Absolutely. Yes. Ernesto, glad to have you here with us today. Let me say that, probably, I'm not counting, but probably for the last speak to more than last quarters, I have been indicating that the ROE that we were having in the mid-40s was not sustainable. Obviously, a number of things that we did at the time were pushing our profitability through record levels, and that's good. We continue to look for ways to do that.

Now considering that the market has seen a reduction, the industry numbers of 10% reduction versus last year for the first quarter, clearly, there has been a lot of competition and some price competition by all the participants in the market.

Now certainly, what we have been doing here is that we have been defending our business but making sure that our business is profitable. This is particularly true in the fleet segment. The fleet segment is one that major competitors wanted to enter. They see an opportunity having other businesses of their businesses soften. Clearly, they wanted the share of what we have. We have been successful defending this part clearly, but clearly, there has been a reduction in margin in these businesses. And we have been conserving clients, but conserving clients on a profitable way. Certainly, we have had a few instances, a few, and I underline a few, in which we have lost the business simply because competition is willing to lose money on those businesses, and we are not and we will continue to do that.

Well, as a result of this contractions that we see is that the ROE that we have as a target between 20% and 25%, that's something that we continue to be looking for on a long-term basis. And I think that, that is good. We will continue making a lot of investments that we have in the past quarter, and frankly, in the past 6 months related to technology to make sure that we provide this technology to our customers and that we'll do that also to be more efficient in our operations here.

So clearly, we are going to be seeing that we are going to be close. I believe Bernardo mentioned that during his remarks, indicating that we probably would be in the low part of 20%, 25%. But clearly, the price increases that we have taken are here to make sure that we maintain our mid to long-term target of 20%, 25%. We acknowledge that competition in the market continues to be tough and that continues to be that as long as the market is decreasing. We are hopeful that considering the pressure -- the profitability pressure that the rest of the market has, we are confident that at some point in time, they will follow. So I am confident that we should be on that range.

And obviously, in the future, we will see, whatever we do -- and Bernardo also mentioned about our subsidiaries and the vertical ones to help us in the future, to make sure that we go back to probably to the high range of the 20% to 25%. But in the short term, it should be going closer to probably to the 20%.

[Bernardo Salas, executive]

On the last comment -- last question, Eduardo (sic) [ Ernesto ], on our portfolio. Just to summarize some highlights, our portfolio today stands at MXN 34 billion. We are -- we'll continue to assess what makes more sense. We're happy with the progress and the performance we've had. The ROI, as I mentioned, 5.5%, exactly in the midpoint of our 100 to 150 basis point target that we set at the beginning of the year. So we plan to continue moving on that strategy.

As you would see in the details, we have shifted from having a higher exposure close to 60% in government paper now down to -- sorry, we continue to work on governance from the valuation that wouldn't be at fixed for the long run. And that is alluding to the points you mentioned regarding interest rates, we expect them to [ leave ] by the year end, somewhere between 4.25% and 5%. There's still not a consensus on where that would land. That is what we believe. But most importantly, we're not trying to beat the market. What we're opening is we have a more variable and not fixed in terms of all papers.

We are increasing as well our exposure to private papers. Now they're yielding a little bit more than government, and the risk that we see in them, it's worth. And I think in terms of equities, we are close to reaching where we wanted to be. Remember that we come from 10%, we're now 15.2%. And I believe the 15% to 18% should be the range in which we look at it, especially because we are anticipating that equities momentum may be stabilizing in the next quarters or so.

With that said, it's also, again, a commitment that we're making with our investors that we will continue to be a conservative investment portfolio, but looking to deliver the 100 to 100 basis points that we committed and that we are looking also to deliver in the second half.

[Ernesto María Gabilondo Márquez, analyst]

Perfect. A follow-up in terms of earnings. Accumulated earnings as of June amounted MXN 2 billion. So just wondering if you're expecting a similar number for the second half.

[Bernardo Salas, executive]

Yes. We -- this year has been atypical. And since the beginning, we decided not to issue guidance. I see what we rather deliver is a set of long-term operations. And I believe, so far, we've met all of them in terms of premium growth of that being ahead of the market, in terms of our claim or combined ratio being in the 90% to 94%, which were midpoint of that range. Our return on the portfolio, which again is being met. And our long-term ROE guidance, which is still being met.

And also, I think for the second half, rather than I give you some specifics, just to reinforce that those goals that we set at the beginning of the year continue to be true. We're navigating to grow the changes in terms of mobility and competition, but we, I believe it would be fair to assume that those targets at the beginning of the year continue to be true by the end of 2021.

[Jose Correa Etchegaray, executive]

Let me add to what Bernardo said, Ernesto, indicating that, clearly, we on the conditions that we are living through the world and in Mexico, particularly, it is difficult to provide specific guidance. What we have said, and we said that at the beginning of the year and we have said for some time now, is that regardless of what is what we do, in the end, we are going to be better than the market in Mexico. So that continues to be guiding, as Bernardo said, some of the things. But clearly, the way to measure Quálitas' performance will be obviously relative to our peers. And we believe that we are going to be in much better position than they are. That's what I would add to Bernardo's comments.

[Operator]

The next question comes from Carlos Legarreta with GBM.

[Carlos de Legarreta Diaz, analyst]

I have a few on my list. I think it will be very helpful if you could help us understand which segments did you perform the price increases that you mentioned that were effective in July. And secondly, broadly speaking, what features do you look for into the company that are potential acquisition targets just to get a sense? And lastly, is there a timing for the cancellation of shares that you approved in the shareholders' meeting.

[Jose Correa Etchegaray, executive]

Carlos, let me speak briefly about pricing. About pricing, we have -- essentially, where we have done that is in the individual segment. The individual segment, which is the one in which we can have better control of pricing in order to recoup the increased cost and the increased level of claims that we have seen, which by the way, we turn a bit sooner than we had anticipated, clearly. As we have said before, we anticipate the return of the claims. It simply came a little bit sooner than we anticipated. So we'll do that.

The other segments are pretty much by themselves, meaning the fleet ones that I mentioned in the earlier question, this is done on a, I would say, case by case basis, more on that. And at some point in time, we will be able to do that, but that will take probably a little bit longer. So -- and the other one, which is the financial institutions, by the nature and how they work, it takes longer for that. But no, we feel confident that we are going to be able to recoup some of the extra costs, or the cost that we are now seeing coming back for 2021. So essentially, the short answer would be more in the individual segment. And on a continual basis, we will be reflecting that both in the fleet and in the financial institutions.

[Bernardo Salas, executive]

Now on potential acquisition and M&A, Carlos. I would say that first, the umbrella principle, which is twofolds. First, it needs to be something that will create value for the company. And by the company, I mean, for shareholders but as well for our agents. And therefore, the value creation principle is perhaps the overarching one. And then it needs to be something that we can believe will create value by contributing with what we already have in place in Quálitas. That means because of our specialization, because of our DNA of service and cost control. So it needs to be something that we can amplify to further exponentialize whatever we acquire.

With those principles, I would say we're looking into 3 areas. I think it's still very broad, and that is true to what we're hoping for. First would be an acquisition where we already play, something that will make us grow faster or be more efficient. It could be also a new market, and by new markets that could mean a new geography in which today, we are looking into new geographies, and I think I've already mentioned that it will be Latin America, non-Brazil. Or it could be also a new category, a new sector. And those are likely to follow a strategy on health and medical, something that we have topped, and we have also discussed the rationale and the inference behind that sector.

And the third bucket that we're looking into could be an expansion into a vertical integration. And I think in my remarks, it was clear that the fact that we have within our operation, a car glass company, a spare part company and a salvage company creates value by differentiating in terms of service and cost. We're yet to see the potential of those integrations. And I think there's willingness to hear about new opportunities to become vertically integrated, potentially in the technology area.

So with that said, I will only close with your last question regarding timing for the cancellation of the 7 million shares that were approved by the general assembly to be canceled. The process takes us now to August. It should be by the end of August that we see those cancellations happening.

[Operator]

The next question comes from Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

On the very significant rebound from financial institutions, was this driven by you being more aggressive in that particular segment? Or is it more about competitors pulling back from the market? And on the dividend policy, is there anything you can share at this point on the alternatives you are considering?

[Jose Correa Etchegaray, executive]

Let me take the first one regarding financial institutions. The financial institutions, really, the fact that we have, in the past, reduced the level that we have in financial institutions. Since the beginning of this year, we started doing a little bit more on that. So we have been prepared. We -- probably, some of our competitors, which were probably overextending themselves, from what I know, in terms of financial institutions. So we're probably not willing to do a lot of that. But we are in -- very comfortable with the level that we have.

One important thing that we have is that, as long as we have, and we have the FX in Mexico, the relationship with peso-dollar continues to be very stable, so to speak. So we are confident that with the prices that we have and with the loss ratio that we have for financial institutions, we are doing well. So we are happy with the level that we are having in financial institutions. Bernardo, would you want to take the dividend one?

[Bernardo Salas, executive]

Sure. Gilberto, on dividend policy, this is work in progress, as I said. But we've heard you. And one thing that has been clear is, we have mentioned, we were working on a dividend policy that was prior to the size or to the current reality of the company in terms of capital. And we want to be true to that dividend policy. We want to make sure that whatever is out there, will be compliant.

Without getting into the specifics, which I mentioned, should come out in the next quarter. What I can tell you would be that we will continue to maintain capital requirements as one of the vectors, but we're assessing to include a second vector could be profit, something that is common to some other companies, something that you are used to seeing and something that will, again, give you the right visibility towards our dividend policy and expectations in the future.

[Jose Correa Etchegaray, executive]

Clearly, let me add to Bernardo's point, I'd say that, certainly, there are opportunities there for us to review exactly how we are going to deal with the policy, and we have been discussing this internally. But just let me remind everyone that we have given dividends and the repurchase despite the fact that regulators in Mexico recommended that we wouldn't do that. So I mean we are being, to the extent we can, we are thinking, obviously, we are doing that in the right way. But this is -- you need to weigh all the factors to make sure that we make the right decisions. And in the meantime, we are disciplined, that's the best way to return capital to our shareholders.

[Operator]

The next question comes from Martín Lara with Miranda Global Research.

[Martín Lara, analyst]

I have 2 questions. The first one is, you say that the number of claims increased 60% in the quarter. So how do you see this figure in the next few quarters? And the second question is, do you think that the performance of the financial institutions channel is sustainable going forward?

[Bernardo Salas, executive]

The first -- and the number of claims, yes, the increase is somewhere around 60% versus second quarter of 2020, which actually was the lowest point of number of claims, I would say, in the last 5 years. So that was the worst when it came to lockdowns and mobility restrictions. So we should expect -- I think our first assumption would be that claims, moving forward, should be closer to 2019 number of things. That is what we're working against. We have reset our structure in terms of claim management having call centers. And also, one thing to highlight, and we've alluded to this in prior quarters, is some of the changes that happened because of the pandemic are staying with us, many of them positive.

And in the terms of claim management, we're keeping the [indiscernible] express, which is, for the first time, the fact that you can service a claim or file a claim without having to have an in-person claim officer. This is a major step change in the history on how we manage claim in Mexico. It is proved to be successful when it comes to the speed of service, the feedback from the customer is extremely positive. And up to last quarter, we were serving close to 20% of the claims through this channel, something that we're evolving to maximize in the future.

[Jose Correa Etchegaray, executive]

Martín, regarding the financial institutions part, let me tell you that probably, between 3 or 4 years ago, we've had several financial institutions that were not necessarily -- while they had a combined index higher than 100. So at the time, we did a number of moves to make sure that our financial institutions were also profitable. So they have been profitable. And yes, and we believe that it is sustainable. You know that the basics of our model includes that we are moving costs and that the cost control is key for Quálitas. We have plans to make sure that this cost control continues, as had been in the past. And the fact that we have corrected and corrected the number of financial institutions' profitability, leaves me to believe that we are going to be -- that's not going to be a problem, it will be sustainable.

But as I said earlier, too, I mean, we are here to make money. We are here to set a relationship for the long term. And that's what we -- obviously, our customers, our financial institutions. And as long as we do that, we will continue doing that. So I believe it is sustainable, and we will maintain our profitability standards for that one.

[Operator]

The next question comes from Carlos Alcaraz.

[Carlos Alcaraz Pineda, analyst]

Congratulations on your results. I have 2 questions. The first one is, we saw an important growth in the foreign subsidiaries. What percentage of written premiums do you estimate it will represent by the end of the year? And the second one is, what is the progress in the health subsidiary?

[Jose Correa Etchegaray, executive]

Let me take the first one, on our international subsidiaries. We're very encouraged on seeing progress across all of them. I think it was clear in our strategy that we need to amplify the weight and the relevance they have in our portfolio. Going back 3 years ago, they were less than 4%. They're now, for the first time, as I said, 10%. We believe we are being able to replicate it and adjust locally by maintaining the DNA of Quálitas, which I mentioned, standing on the service and making sure our cost is under control, so we can offer a better value proposition.

We are expanding quickly into Peru, which was the most recent one. And we're very coursed with the U.S. subsidiary, in which top line continues to be reflecting the attractiveness of addressing that border -- those border states by being able to offer people that go back and forth, either because of residential, working or merchandising reasons, coverage on both sides of the border. That is a niche, that is uncontested, and we believe there's still offset potential that we need to balance with capital requirements and claim management, which have a longer tail in terms of litigations.

So I would say, forward-looking, I believe 10% is the right number. We should expect not such an aggressive growth in the second half because we're now comparing against higher base. And we're also managing the capital requirements so as to balance top and bottom line growth. So I would say, we're happy. We see -- we should expect second quarter to continue showing growth, but in a more reasonable level, let's say, 15% to 20%.

[Bernardo Salas, executive]

Let me take the other one regarding our other business lines. And let me say that, yes, we will continue to work for the health business line. What I can comment here is that we continue with the process of getting licenses and approvals. We are moving. We are getting closer. We're still moving forward with that. And we should have more news as the year goes by and before the year ends. It is important for me to mention, as we have always said, is that we will start small. We are not going to rush [indiscernible]. We are going to be in only a certain part of the country because that's something that we have to learn and then expand.

Now what we want to do is really to play to our strength, to create our quality as a strength and to get unique business model, which should help us really in that. But we are not [ rising ], certainly, our core business nor our specialization of the auto segment. So we will start small. We are making progress, and you will hear more as we go by in the second half of the year.

[Santiago Monroy, executive]

We will now go to your written questions, and we will start with the first one from Alejandro Velez.

Could you expand on international businesses? Are you breaking or generating capital already in Peru? Where you have reached that 6% market share? What about the loss ratio evolution in these markets?

[Bernardo Salas, executive]

Thank you, Alejandro So I think I briefly touched on this, but I will expand. Specifically in Peru, we have not increased our capital since the beginning of the operations there. We were, in a way, helped by the 2020 pandemic, which will require -- which generated a little bit more profit, and therefore, we have not yet needed to invest capital. We're willing to do so. We're ready to do so as soon as we see the requirements. But so far, at least in 2021, we do not see that happening. And towards 2022, we're still looking at a $3 million to $5 million investment in Peru when it comes to capital to boost the continued growth.

And in Peru, our objective, we never set market share as an objective. But there is a goal set by the local operations to celebrate 10% of market share in 2022. That would be kind of the insight on Peru. And on the loss ratio, well, I think I've talked about how in course we are by the top line performance. That was the priority. But now we need to balance the bottom line.

And in terms of bottom line performance in our non-Mexico car insurance businesses, I would say it's mixed. On one hand, and as I mentioned in my remarks, the vertical integrated businesses are doing great, growing fast and delivering an unprecedented bottom line, all positive as well in Peru, I just mentioned that, ahead of expectations in all key metrics when we decided to enter that market.

But on the other hand is the U.S. business in which we're investing. And the bottom line should come in the next few years because it's a combination of research contributions to support the 52% in local currency dollars growth year-to-date as well as to cover historic claims, which are coming higher than expected as a result of the long tail litigation, specifically in Texas. We have a plan. There's a strategy to better balance top and bottom line, making important changes to our underwriting process and claim management. And we have a positive outlook towards 2022 and beyond. So I would say things are moving along as we plan with our strategy, and we are very encouraged with the potential growth market traction.

[Santiago Monroy, executive]

We will go to the next question from Daniel Espejel, Signum Research.

With the continuous increase in mobility, but with a possible increase in the number of people in Texas, what is your outlook for the net cost of claims for the second half of the year? Do you expect to keep a combined ratio below 90%?

[Jose Correa Etchegaray, executive]

Okay. Let me take that one. Thank you, Daniel, for joining us today. Let me tell you that, yes, there's consumability and there is also an increasing number of people infected in Mexico. What I can tell is that the government has not -- is reluctant to close the economy again. So what they are saying is that they are continuing. I mean, if you -- obviously, you work through the Mexico City streets, you see that since business is pretty much normal on that regard, and I don't see the government really willing to close the economy again. So with that, we have seen that, and we have discussed during the call that the claims have increased.

Now to what extent we are going to be doing that? Well, our expectation is to be -- the loss ratio is expected to be within the ratio that we have said, between 60% and 65%. And the combined ratio, which is our target, is around the 90%, 90% to 92%. So it's difficult to say, but we feel confident that it's going to be in the low 90s.

[Santiago Monroy, executive]

We will go to the next question from Rodrigo Ortega, BBVA.

We saw some changes in your reporting. You removed the number of claims attended, which we think was a good measure of the accident rate and aided to estimate the average cost of claim. Are you planning on showing some other data that could help us see that trend? On the other hand, you're now included in your presentation information on the loss cost composition, which I find very useful, thanks for that. A quick question on this.

Could you provide us with some color of the historic trends of these metrics, particularly robbers, which caught my attention for being relatively low. Historic series on this will be greatly appreciated. Finally, some accounting changes took place. Can you provide us with some sensitivity as to the size of the impact on the claims or combined ratios as a result of this change?

[Bernardo Salas, executive]

Rodrigo, thank you very much. Let me address the first question. Yes, we sometimes [ publish ] information that we will need based on what we believe is more relevant for you to make -- and the investors to make decisions. What we found in terms of the number of claims attended, they could be misleading, and sometimes they were because number of claims doesn't necessarily correlate to the size or the cost of those claims. Because a claim can be, we were affected, so we're not going to pay a penny. Or it could be that they need a change in spare tire, so that the cost is marginal. Or it could be a severe product loss.

So the information, we have it, but what we want to avoid is putting out their numbers that could be misleading. On the contrary, and as you highlighted, we're now providing a breakdown in terms of how much of our loss cost comes from key…

[Technical Difficulty]

[Operator]

We seem to have lost the presenters. Please stay on the line as we attempt to get them back.

[Bernardo Salas, executive]

We apologize, there seems to be something happening with the phone lines, and we lost you. But just wanted to connect back to Rodrigo's question regarding, specifically, the breakdown of loss cost. And if it's useful information, we will continue to provide it. We believe that is more relevant.

And specifically to the robbery trend, yes, the number is much lower than it used to be. It represents now 13%. A few years back, it represented over 20%. And this is something that we have been discussing over the past 6 quarters on the declining trend of robberies and the higher recovery that we have had. So I think on an ongoing basis, the more you can get us or give us feedback to what helps you, we will continue to provide information.

And now in terms of the accounting changes, the size of the impact on the claims or combined ratios as a result of the change, we are adjusting as well the historic basis. So whatever you see reflected has also been adjusted. But in the claim ratio, specifically, the new accounting basis would allow -- would give you around 2% of points. So it is significantly this quarter. And happy to follow on that specific item and break it down to the concepts and let you understand how is this affecting the consolidated metrics.

On a specific -- Quálitas Mexico, this have no effect. This is just the consolidation of our subsidiary, specifically the noninsurance ones that, prior to this year, they were considered sales as premiums and then cost as part of claims, and that wasn't something that we are so comfortable about, and we are adjusting based on the latest norms and leverages.

[Santiago Monroy, executive]

I'm going to our last question from [ Ben Hard ]. It would be -- can you discuss the difference between premium growth and insured unit growth at the foreign subsidiaries and give an update on profitability on the foreign subsidiaries, which I believe Bernardo alluded a few minutes ago.

[Jose Correa Etchegaray, executive]

I think that one, we already mentioned. So let's move to the final.

[Santiago Monroy, executive]

Our final one would be from [ Juan Ponce ] from Bradesco.

Congrats on the results. Are you seeing cost pressures from auto part suppliers?

[Jose Correa Etchegaray, executive]

Yes, we are seeing that. As you know, there have been a number of elements that have increased in terms of cost in the world, which is in the steel, which has gone up quite significantly. Also transportation costs, we can see a short-term logistics issue and -- in the world, and we have seen the freights coming from different parts of the world increase significantly.

Having said that, we are taking the steps to control our costs in the way that we best can. But yes, we are seeing this, and this is being considered in our numbers to make sure that we deliver on our targets.

[Santiago Monroy, executive]

So that would be all. Thank you all for joining us, and have a great day.

[Operator]

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