Qualitas Controladora SAB de CV

BMV:Q

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for standing by. This is the conference operator. Good morning, and welcome to Qualitas' Second Quarter 2022 Earnings Results Webcast. The conference will begin now.

It is my pleasure to turn the call over to Ms. Andrea González, Qualitas' IR Manager.

[Andrea González, executive]

Good morning, and thank you for joining Qualitas' Second Quarter and First Half 2022 Earnings Call. I am Andrea González, Qualitas IR Manager. Joining us today are our CEO, Jose Antonio Correa; and our CFO and International CEO, Bernardo Risoul, to walk you through our results and performance.

As a reminder, information discussed on today's call may include forward-looking statements regarding Qualitas 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. Qualitas undertakes no obligation to publicly update or revise any forward-looking statements whether because of new information, future events or otherwise.

Let's turn it over to Jose Antonio, our CEO, for his remarks.

[Jose Correa Etchegaray, executive]

Thank you, Andrea. Good morning, everyone. Great to be with you all again. Well, I cannot think a better way to illustrate the meaning of the buca, B-U-C-A, work on this first half of the year. It has been certainly volatile, uncertain, complex and ambiguous. And it has been across many fronts.

In this challenging environment, I feel good about the results we delivered growing written premiums on insured units while being profitable, both in our underwriting and in our financial income. Our quarterly performance is within the range of our expectations, recognizing that high inflation, a continued restricted supply of new car sales and mobility above prepandemic levels have impacted the industry and our own results plus comparison versus strong past years should not be taken as conclusive.

The inflation we have seen in recent months has put higher pressure in our cost structure. While we continue to look for efficiencies, trying to not fully pass through to consumers at least not immediately, we have been adjusting our tariffs. We did it during the first half, and we will do so again in the second.

As I mentioned in the last quarter, some of our competitors have lagged behind using it as an opportunity to gain some volume at the expense of margin. This was comparing on first quarter industry report where small market share changes came along important increases on combined indexes with some companies even above 100.

We will remain competitive, but financially disciplined. And this is very important as we strongly believe this is in the best interest of the industry and the investors.

Let me mention again that underwriting result for Qualitas and for the industry follow a cyclical trend. We saw it after the 2008 crisis with strong growth periods from 2010 to 2012 and we saw again a few years ago. Qualitas has navigated different stages of the cycle during 28 years of history. And while the nature of the crisis might be different, we know what to do.

We will stay focused on service and cost control, disciplined on tariff adjustments, flexible and agile to react to consumer needs and market changes. And all decisions will consider short- and long-term implications. I can assure you that by doing so, we will once again come out stronger.

Managing this year turmoil is not coming at the expense of our long-term plan and executing on our 3-pillar strategy. On that regard, I am pleased to share new and relevant updates for our health and medical operations, where we expect to write our first premium in this third quarter.

It is a major step for our company, but one that has been carefully planned and crafted. It is not intended to make the difference in the parent company results in the short term, but it will certainly in the next 5 years.

Before I expand on the how, let me touch on the whys. First, because the potential is huge. Data shows it, our agents and people have voiced it. Mexican private health and medical insurance penetration is less than 10%, and Qualitas Salud will become a great opportunity for a non-attended population segment, which we have estimated at around 60 million people.

Second, while we recognize sales on held [indiscernible] are quite different lines, we know that high-quality service, a unique value proposition and a company they can trust is relevant and is what Qualitas Salud will bring. And the third, the maturity level in the Mexican auto insurance industry and the evolution of it with new trends such as autonomous vehicles, shared mobility, et cetera, has made us pursue a business diversification.

And to be clear, we are not expecting a disruption in the auto insurance in the next decade but we are responsible to set Qualitas for generations to come.

With those company facts, let me briefly comment on some relevant points on the product and strategy for Qualitas Salud. As we mentioned during the Qualitas Day with investors and analysts, we decided to launch Qualitas Salud in an organic way and under humble approach. We will launch, learn, adjust, and then we will expand. Our entry will also be phased geographically, starting in Mexico City and the metropolitan area.

As I said, written premiums and capital return in the first couple of years are not expected to significantly affect our holding company results. The target market of Qualitas Salud will be the C and C- segment of population. We will focus on compensatory product for individuals, which will enable us to have a limited responsibility and well-defined risk cuts.

At this stage, we are not going after the people that already have premium private health insurance nor after the large corporate accounts. Qualitas Salud is a new company that will seek to specialize on health. We will not jeopardize the specialization in auto, and this is very, very important. A small team of people that we have, we'll mix members with health insurance background, a few that come from Qualitas auto team is fully in place. Back-office operation will be shared to benefit from scale, and our commercial network will help boost expansion.

Perhaps the most important thing about this entry is that Qualitas DNA will remain unchanged. And we will be passionate to provide unique service, quick and unbiased to honor our commitments to agents and policyholders and obsessed with cost control. If we do this, we will provide a unique value proposition to all stakeholders, and we will once again disrupt the market.

And before I hand it over to Bernardo, let me reiterate that I am pleased on how we are moving along with execution on our strategy. We understand low ends of the cycle are never fun, but they bring a learning opportunity for reinvention and to further stand out. And I am certain of our ability to overcome it and optimistic about the future.

And with that, let me hand this over to Bernardo, so he shares the financial details of the results for the second quarter. Bernardo, please?

[Bernardo Salas, executive]

Good morning, everyone. As mentioned by Jose Antonio, in a year with several headwinds and macroeconomic volatility not seen in decades, our results continue to demonstrate Qualitas ability to adjust, react and create value.

Top line is up 6.9% for the quarter and 3.8% for the semester. To highlight the strong performance on individual segment, that is up 12% year-to-date, and the international operation growing above 14%.

Our international subsidiaries now represent 10% of the total business, aligned with our strategy of boosting businesses outside the core. We expect that non-Mexico car insurance should make up for around 20% of our business in the next 3 to 4 years.

As you know, new car sales are the largest source of new policies in the industry. Thus, they have historically correlated to insurance market behavior. Mexico new car sales have stabilized and are now slightly above 2021 but still 14% below 2019.

To further illustrate, first half of this year has been the lowest car sales in 8 years, of course, excluding the pandemic period. Top line impact of this slowdown considers Qualitas -- considering Qualitas market share is equivalent to [ 4 percentage ] points.

On the positive, there are early signs of recovery, and we expect sequential improvements towards strong 2023. In terms of insured units, once again, we posted a record highest ever with 4.7 million insured units, an increase of 239,000 units versus same period a year ago.

Growth is broad-based. We're growing number of units in each of the countries and segments where we play. Our portfolio composition is now comprised of 78% annual policies and the remaining 22% in multi-annual. This compares to 74% and 26%, respectively, of last year, confirming the shift towards a more annual portfolio.

This effect, mostly driven by the mentioned new car sales slowdown, reduced its exposure on gear set, something that in light of current volatility is certainly welcomed. Earned premiums posted a 7.7% increase, growing slightly ahead of written premiums as a result of technical reserves model and the mix of businesses. As a reminder, while not precise, we have historically constituted reserves during the first and fourth quarter while releasing during the second and third quarter.

For the balance of the year, we expect to maintain low to mid-single-digit top line growth resulting from a mix of volume and price. On the latter, let me expand a bit on what Jose Antonio mentioned and what is clearly a relevant topic, considering the inflationary environment we're living. Local inflation in Mexico, our key market, stands at 8%, while the industry inflation is around 2 points higher.

Over the past quarters, we have adjusted tariffs across all subsegments for a point-to-point increase of 12% versus 2021, but that is still a few points short relative to prepandemic levels on real terms. As a reminder, we decreased prices as a means to help consumer bridge through 2020 and early 2021. We will continue to assess data and adjust accordingly, seeking that balance between restoring profitability while staying competitive in the market.

Moving to our cost indexes. Our claim ratio for the quarter was 68.1%, taking first half of the year to 67%, with Qualitas Mexico, our main subsidiary, very much in line with 66.7%. Differences versus last year and ongoing target range result from the combination of the mentioned higher costs as well as an increase in mobility.

On this regard, private transportation is around 50% higher than 2019 levels. Based on Google mobility steps, visits to the supermarket, shopping malls and the road in general have returned to normality. Also, latest numbers of real estate companies have published occupancy rates almost in the same levels of 2019.

Thus, at least in Mexico, people are pretty much back in the office. The increase in mobility is impacting frequency. The number of [ death ] cost during the quarter was up 52% when comparing against last year's first half.

Addressing the higher cost reality will not solely rely on pricing. Our initiatives are placed on several fronts. For example, we have restricted the interest-free monthly installment payments. And most importantly, we are leveraging our scale and vertical integration, competitive advantages that help us to be better positioned against balance of the market.

We are expanding the lines managed by our own subsidiaries. I'm pleased on how they are now no longer a supplier with better service and cost for Qualitas insurance business, but they are also a source of growth and profit for the parent company.

As a final example, we continue to see the prices of salvages, those paid total losses, at an unprecedented high level, being able to recover 48.5% in the second quarter, which is up 6 percentage points above the same period last year.

Due to the nature of our business, where we have policies sold and preprice increases, the shift in trend is expected to be sequential and not immediate. Despite taking actions and those who are coming, we anticipate the second half of the year to still have a high claim cost, especially considering the seasonality of the ranges. We expect to get back to the 62%, 65% claim index only in 2023.

Our acquisition ratio was 23%, in line with the historical average with a lower mix of financial institutions, which carry higher acquisition costs. Commissions for agents remain at the same level of prior years, helping us to have a sound ratio.

Our operating ratio stood at 4.2% for the quarter, 31 basis points below same period year ago mainly explained by a 66% decrease of the employee profit sharing, referred as PTU in Spanish, and by our revised vertical accounting consolidation as well. All of the above resulted in a combined ratio of 96.3% for the quarter and 94.4% for the year, being slightly north of our 90% to 94% ongoing target but not surprisingly as we bridge through the adjustment quarters of peak inflation, high competition and mobility.

Moving now to the financial income. Second quarter delivered MXN 232 million for a cumulative year-to-date ROI of 2.6%. Soft portfolio performance can be explained by the 2 main items. First, global and Mexican stock market correction of double digits with key sectors such as technology and financials down 39% and 25%, respectively, in the second quarter.

Relative to the overall stock market, our equity portfolio has performed slightly better.

And secondly, the duration of our fixed income portfolio, which now stands at 0.8 years, and therefore, hasn't yet benefited from the increase in rates. Relative to other insurance and financial institutions, duration is quite short, Thus, we're in a very favorable position.

We will start capitalizing higher rate in the upcoming months. And towards 2023, we're expecting this to be a tailwind in our results. Together with the Investment Committee, we are assessing choices. At this time, we do not expect important or abrupt changes in our equity position as we should expect to progressively increase the duration of our portfolio even beyond our 1-year liability duration.

As a reference, last quarter, portfolio duration was 0.7 years and is now 0.8. So we have been taking slightly longer positions. Altogether, we posted a MXN 656 million net income for the quarter and MXN 1,391 million for the first half, representing a 7% net margin.

Regarding our financial ratio, our 12-month ROE stands at 16.7%, reflecting our strong capital position. 12-month earnings per share stands at MXN 7.8. Price to earnings stands at 11.9 and finally, price to book at 2.0. While key results are below a year ago, considering the evolution of external factors, we feel positive about them and how we are also setting the business for the future.

Going to our regulatory capital requirements, it stood at MXN 3.7 million at the end of the second quarter with a solvency margin of MXN 14.9 billion, equivalent to 508%.

Regarding capital allocation, we have concluded a thorough corporate development plan for the next 5 years. We have identified concrete avenues of growth when we will continue to create value. This key pillar of our strategy is an ongoing effort that starts this quarter with our entry into the health and medical sector. And we'll continue with new geographies, new business lines and vertical integration.

While we cannot provide specific on categories, market or lines, let me share that all of them are within the insurance ecosystem. And they can yield a strong ROE, and the Qualitas DNA and strength will provide acceleration.

The amount to be invested in this strategy is yet to be determined but will never jeopardize solvency nor dividends. We continue to be committed to shareholder dividend payment as we have done it in the past 6 years.

As a reminder, this year, we're paying a total of MXN 6.5 per share, which is MXN 2.5 -- of which MXN 2.5 are yet to be paid in November. This represents a 60% increase versus last year and a yield of around 7% at current stock prices.

In addition to cash dividends, we have also been canceling shares as the 6 million approved in April that will represent 1.5% of share cancellations. We will continue to assess ways to maximize return to our shareholders while ensuring to remain a liquid stock.

In other news, as part of our never-ending efforts to our sustainability, I'm glad to share that at the beginning of this month, Qualitas was included as part of the new S&P Bolsa Mexicana de Valores Total Mexico ESG index composition, proving that our sustainable strategy and awareness is promoted from senior management throughout the company.

To wrap it up, our commitment to you remains unchanged. We faced a challenging environment, but one that brings the best in each of the Qualitas people. We know what to do. We're working on the actions to ensure we continue creating value to policyholders, agents, and the stakeholders.

Now operator, please open up the line for questions.

[Operator]

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

[Ernesto María Gabilondo Márquez, analyst]

I have 3 questions from my side. So on the first one, what could be the implications for premium growth and claims costs if we go to a potential economic recession in Mexico, meanwhile considering a potential GDP contraction of 1% next year?

Then my second question is on claims costs. We continue to see high inflation levels in spite of the higher rates. So how do you see the pressure in claims costs related to inflation? And also considering the seasonality of the claims cost in the second half related to weather impacts like floods and hurricanes, how do you see the evaluation of the claims cost ratio?

And then finally, my last question is on your investment portfolio. We have seen 2 consecutive quarters with results affected by volatility in the equities portfolio. I know that you have been taking actions, and you have been reducing the evaluation of the portfolio. But given that the first half has been low of expectations because, again, related to what is happening to the volatility in the market, how comfortable do you feel to comply with your guidance?

[Jose Correa Etchegaray, executive]

Okay. Thank you, Ernesto, for being with us today. Let me take the first one, and then let Bernardo take the other one.

But the first one that says the implications of a potential recession in Mexico, the slowdown in the world, and let me tell you that, that's something that we have experienced in the past. And for this, it would be very, very important to understand that we have the healthiest balance sheet that we have had in the history of Qualitas.

We have very healthy margins, and we continue with our programs to have a strict cost control. So we are better prepared for this potential slowdown. It's also important to note that we have been making money, and we have been finding new niche markets to keep growing. So we are in that.

And I also would like to say that insurance is typically an anti-cyclical industry. So it is important to note that in the past, we have fared well in situations like this. So certainly, it will have some impact. But clearly, we are well prepared to take this situation.

I see there is a lot of uncertainty in the world. It's a lot of uncertainty, the impact. In Mexico, it's uncertain on how now the latest news on the free trade agreement that we have. So we have some headwinds that we have, but we are best prepared than in the past. And it is an industry that is typically anti-cyclical. Bernardo?

[Bernardo Salas, executive]

And to that first question, Ernesto, let me just add that we should eventually see in 2023, the year in which new car sales stabilize and turnaround. So I think the potential recession will come along to that supply that is now unrestricted and can satisfy demand.

As I mentioned in my remarks, just if we were to see new car sales in line with 2019, our first share of Qualitas volume would have represented 4 additional points of premium growth. So that's something that we're expecting.

Now let me move to the claim piece. As you well refer, high inflation has taken a toll together with higher mobility. We're, for the first half, above our long-term goal of being a 65%, that is the 62% to 65% in the technical range.

And considering not only the trend that we have seen but also the digestion of new fares and prices takes time. So this is a sequential, and we should not expect that we will see a second half below 65%. So I think that's yet to be something that we return on that range until 2023.

And for the next half, unless something radical happens, what we anticipate is that we will still again be above the 65%. But that -- on that, let me also highlight that in our combined ratio, we are still at target. So we've been able to rebalance acquisition and operational costs to be very close to the 95%, which is the high end of our 92% to 95% on combined ratio.

So we're not yet to that point we're seeing above 100% combined ratio as we are seeing in many auto industries, insurance industries in Mexico and elsewhere, okay? The seasonality of the second half is a reality. We're starting already at a high rainy season in some parts of Mexico. Some others are suffering from drought. But we know that will come. That's a fact, and we're ready to serve our consumers. And what we also expect is that it will take a toll on third quarter claim ratio as it has historically done.

Now let me move to the third part of your question, which is an investment portfolio. And yes, I think there is no way to downplay that the fact that the performance on our portfolio has not met expectations.

I think would be very unlikely to set -- or to deliver the 100 to 100 basis points that we -- 100 to 150 basis points that we set as a target at the beginning of the year. I think we will see sequential improvement. And I think what you say has been a headwind over the past quarters because we've not even met -- set this rate, we'll start churning and becoming a tailwind.

So we should expect the financial returns to be something that helps the ROE and the health of the overall profitability of the company sequentially starting on the second half, but most importantly, in next year. We're not taking any abrupt decisions in our equity portfolio.

We're holding most of the positions. While they have been hammered in line with the market, we believe their fundamentals are strong, and they should eventually start picking up.

And in terms of portfolio duration, which is one of the biggest conversations, let me reemphasize what I mentioned. We have a portfolio that was 0.7 next quarter -- last quarter, sorry. We're starting to take higher duration, 12 months basically. And that has already started to move to 0.8 months -- 0.8 years. So we have liabilities slightly above a year, and we should expect when the time comes that we will take position and our portfolio duration could go beyond 1 year.

And I think, again, that goes hand in hand to what I mentioned about portfolio returns being a tailwind and something that give us different news in the next quarters and certainly in the next years.

[Jose Correa Etchegaray, executive]

Just to reinforce what Bernardo is saying, yes, we are not happy with the returns that we have had, but we all understand what has happened to the financial markets overall. So the important thing is that we are, as we said, with good companies in the equity side and AAA companies, et cetera. So they are strong companies as Bernardo indicated.

So we should see that being a good thing for our portfolio going forward. And the part of the duration of the portfolio is very, very, very important because, I guess, we have been at one of the lowest points in the history of Qualitas with this duration. So we are going to be able to capitalize on the rates increase, which are expected to increase sales in Mexico. And then we are going to be in a very good position to be -- for a strong 2023.

[Ernesto María Gabilondo Márquez, analyst]

Perfect. No, super helpful. Just a follow-up on the premium growth. So just again, considering a potential recession more likely next year, how should we think about premium growth? Would that be in the same level as this year? Or do you think it could be more at the low single digits?

[Jose Correa Etchegaray, executive]

Well, typically, as I mentioned before, Ernesto, typically, this is an anti-cyclical business. Usually, when there is the situation, people tend to be making sure that they are well insured. So we don't see that as necessarily a negative.

Certainly, we are not going to be growing in the terms that we would like. But the insurance sector as a whole has proven resilient to these cyclical points where there is this cooling of the economy, if you will.

So in that regard, if we look backwards to what has happened in previous periods, and we will, I'm sure that we have always been ahead of that. Typically, the insurance sector grows about 2 to 3x the growth of the economy. So it should be able to sustain our low single-digit target for next year.

[Ernesto María Gabilondo Márquez, analyst]

Perfect. Understood. So maybe the impact could be more related to claims. If we have a recession, maybe there's some robbery in terms of vehicles or cars, maybe the impact could be there like instead of the premiums, right?

[Bernardo Salas, executive]

Yes, I think it would be just speculation at this point. I think robberies, they make up for 12%. We have seen a decrease over the past 3 years, and they are now stabilizing. But that's where technology comes in, and that's where being a specialized auto insurance company allow us to really work on those things to prevent them and if they happen, to recover them.

And historically, we're well ahead of the market on those 2 fronts. So what we can control and the rest will play it as we see it fit. And we will continue to be agile, to adjust and react.

[Operator]

The next question is from Jorge Henderson from Santander.

[Jorge Henderson Cubillas, analyst]

I have 2 questions. My first question is regarding the income tax line. So we've seen that you have posted a very low effective tax rate in the last 2 or 3 quarters. Could you give us some color on the reasons behind this? And also, do you see this effective tax ratio sustainable ahead?

And my second question is on your excess capital. Do you still plan on M&A, something on M&A? And if you do, do you have a time frame? And what would be like the average size of your -- what the deals you would be seeking?

[Bernardo Salas, executive]

Thank you, Jorge. Let me take the first one on the tax -- on the effective tax rate. For the second quarter, it was 14.6%. As you well refer, that is below our historical rate. But let me -- we understand the why. The lower rate is related mostly to the inflationary adjustments. As we saw -- we have been seeing the local inflation has been high, and that plays in favor for the taxable income. So this adjustment is done on revaluation of our assets.

There's no specific plans. We're not engaged in any tax planning. This is just how things turn out. And again, the one thing behind it could be the high inflation, which has been by far over the past 2 decades. And therefore, the effective tax rate moves different.

We don't expect this to be the ongoing tax rates. I think we should sequentially as we see inflation stabilized going back to that 20% to 23%, which have been historically. That, of course, excludes the [indiscernible], which is something totally different.

[Jose Correa Etchegaray, executive]

Okay. Let me take, Jorge, the second one, which is related to the excess capital. Certainly, we are -- we have been active in M&A. I mean, probably you started following Qualitas just about 6 months ago. So so far, you didn't have a chance to know. But clearly, it's important for us that we use the excess capital in the right way. We have been returning dividends quite significantly to our shareholders.

Now having said that, let me tell you that we are always looking for business opportunities. And we are looking for opportunities that should contribute to our ROE objectives in the low 20s.

Innovation has been always a priority for us. So we do not describe to make investments in this regard. But it is important for you also to know that in the past, we tried recently -- relatively recently about 1 or 2, 3 years ago, we assessed 2 significant M&A opportunities. But those were not successful for several reasons, not that one of those was a valuation.

So we have always think that we need to be very careful with using the excess capital that we have. And we know that no deal is better than a bad deal. So these deals, unfortunately, did not came through, but we continue looking for these.

Now if I -- I would like to add to this one, and let me tell you that acquisitions could come essentially 3 different data, different fronts, if you will. Secondly -- the first one would be where we play currently, and that would be to expand our position and size. That is one of the elements where we could do this type of M&A.

The second one is that we have been doing. We entered 3 years ago in Peru. And we are considering to enter new LatAm countries and markets. And clearly, the third one would be in expanding our vertical integration is something that could tell us, give us -- could help us to increase either our competitive advantages, cost or service.

So we are -- we have a set of, let me tell you of opportunities that we are looking, and certainly we will inform if any of this come through. But we are clear that we have this excess capital position, and we plan on using that in a wise way.

[Andrea González, executive]

So now we will take you to the sent questions, written questions through our systems. First, we have Carlos Legarreta from GBM. First, can we discuss pricing dynamics in the different segments in Mexico? Particularly has the fleet segment seen more rational competition lately?

And second, it caused our attention that the [ death rate ] is increasing for Qualitas while it is declining for the industry. What do you think explains these dynamic?

[Bernardo Salas, executive]

Carlos, let me take the second question first. It is a fact that Qualitas has seen a higher tax rate or that is true in this second quarter. And there are 2 things that explains it.

One, we have been growing consistently in number of insured units. So on that front, we're ahead of the market. And therefore, we should expect that as we maintain or increase number of units, the delta on absolute terms is played against us relative to last year's.

And the second, we have a high percentages of higher-risk units, including close to 47% on heavy equipment, which is now something that gets a lot of attention from the robbers. And the combination of scarcity of auto parts and spare parts and the higher price of those usually correlates to higher [ set ].

And as I mentioned to -- when Ernesto asked, we are taking actions in that regard. We will continue to leverage our technology and the partnership with some companies that are specialized on those front. And we also take that into consideration when pricing.

Remember that Qualitas is one of the only companies that considers not only car type and model on value, but also [indiscernible]. And a lot of that correlates with [ debt ] chances, and we're taking that into consideration.

Now let me be also clear that up to now, we have not yet seen a major shift on robberies trend. They still represent close to 12% of our total claim cost. It's moving in decimals, so not something that we should be very concerned, but always conscious on preventing it.

[Jose Correa Etchegaray, executive]

Carlos, let me tell you the first part of your question for you. Can you discuss pricing dynamics in the different segments in Mexico? Particularly has the fleet segment seen more rational competition lately?

I guess the key word there is lately. And let me tell you what has been the dynamics, Carlos, a bit. As a leader of the industry and considering how the claims ratio and combined ratio have behaved over the past 18 months or so, we have been very responsible to make sure that in addition to cost control that we lead in pricing. And we lead because we need to make sure that we are financially disciplined. In Qualitas, we have always been, and we will continue to be.

Having said that, let me tell you that I can see early indications in the past couple of months that some companies in the industry start saying that they -- it would be a good idea to make sure that we recover some of the cost increases, inflation increase, et cetera.

So there are early indications that they will start somehow following. In the part of the -- specifically for fleets where we saw a major, major, major competitive -- our competitors trying to get that part of the market, they were doing -- let me put it this way, stupid things. And that is not my word, that is what some agents have told me, and that has -- agents that are non-exclusive for Qualitas, for sure, are doing that.

And some of those companies have already realized that this is not an easy thing, and they have backtracked. So in that, I see that certainly the margin that we had in the fleet segment has been reduced, I mean, because of the situation.

But I can see that they have become more rational right now as the reality catches up with them. So we have early indications, and they are encouraging that this will turn. And I hope that it will turn out in the months ahead.

[Andrea González, executive]

Next question comes from [indiscernible]. Could you explain the low return on the investment portfolio given first, increasing debt rate; and second, better relative performance in Mexican equity markets?

[Bernardo Salas, executive]

Thank you, [ Javier ]. I think we've already touched on this briefly, but let me just expand a bit more. We will not see the benefit of the interest rate increases immediately. It's going to be sequentially due to the portfolio duration. But as I mentioned, we are expecting the point show progression towards better portfolio returns in the second half and mostly in 2023.

Now when it comes to the equity performance, let's take into consideration that the Mexican index was down 11%. The S&P is down 20%. So there was no way that we could isolate our 15% portfolio position that is on equity from this effect. On the positive, our equity is slightly better than the average IPC. It's down close to 9%, and we are expecting that the nature of our investment, capital position that we have should rebound a higher or faster fee. So I'm not sure if you want to add something else or that would be enough for the time.

[Andrea González, executive]

And the next question comes from Daniel [indiscernible]. Who will be your target market for health insurance, please, individual, group, corporations, unions, government organizations?

[Jose Correa Etchegaray, executive]

Certainly, Daniel. Let me tell you that the target market, as we have indicated in the earlier remarks, is in the segments of C, C- of the population. What we want to do here is really to play to some of the Qualitas strengths. One is the distribution part that we have, and the other one is in the cost control.

So that's what we really plan to really focus. Initially, we are not going to be -- it's going to be more for individuals, certainly, than for corporations. And as we indicated as well, but it is going to be -- that we are going to be learning.

And the most what we have said is that we are going to launch and learn and expand. So we are going to be taking this in a very rational way and in no rush. We don't have any rush. As we said, we are going to be only targeting the first part, which is the -- on a geographic basis, we're going to be in the metropolitan area.

Once we put everything, tuned up everything on our operation and how the market takes it, we are going to be expanding further. So it's going to be something that we are going to go little by little. We have a lot to learn, and we want to do it right in order to be able to successfully expand.

[Operator]

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