Qualitas Controladora SAB de CV

BMV:Q

Earnings Call Transcript 2020-Q4

[Operator]

Thank you for standing by. This is the conference operator. Good morning, and welcome to Quálitas fourth quarter and end of the year results webcast. Quálitas' team will review fourth quarter and 12 months of financial performance, the landscape impacting the insurance sector, perspective on the business, the strategy for this year and answer any questions that you might have.

Information discussed on today's call 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. The company cautions not to place undue reliance on these forward-looking statements. Quálitas undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

If you have trouble visualizing the presentation, you can also find this document in the Quálitas IR website.

If you continue with such trouble, please contact Violeta Ruiz. Her contact information is being currently displayed.

The conference will begin now.

[Jose Correa Etchegaray, executive]

Good morning, everyone and thank you for joining us today. The last few hours have been tough for us here at Quálitas. So before discussing business specifics, I would like to share some sad news.

Joaquín Brockman Lozano, our Founder and Chairman of the Board, passed away earlier this morning. Joaquín was a visionary leader, a true innovator who set the foundations for Quálitas; a great sailor who changed the game in terms of service, cost and our commercial model. Many of you had the privilege of knowing him, so I ask that you briefly take a moment in his memory now.

Thank you. Beyond his many successes as a businessman, Joaquín was as well an extraordinary man who impacted many of us and the whole insurance industry in numerous ways. He leaves an example with us all and in our country. It is a great loss but be certain that his legacy will continue to guide us. We send our deepest sympathies to his family.

As a result of the above and as communicated in a separate press release, this morning, the Board of Quálitas has appointed me as an interim measure to assume the role of Chairman and Executive President of Quálitas Controladora, providing continuity to the operation and corporate governance of the company.

It is important also to report that the Brockman family and the Castillo family will continue to be involved in the Board. Thank you all, and I ask Bernardo to take over to discuss the Q1 results. Bernardo, please.

[Bernardo Salas, executive]

Thank you, José Antonio. It is indeed a tough day for us so we will honor and always remember Joaquín. While this is not expected, the company is set and ready to continue on the winning path. And looking back at 2020, there aren't probably enough nor the right words to describe in terms of the impact to the economy, lives and our daily interaction, simply unexpected and unprecedented.

Despite challenges and unknowns, Quálitas came out strong, proving to be resilient, operating uninterruptedly, fulfilling our obligations with all stakeholders, while protecting the health of employees, clients and business partners.

Being true to our DNA and to our business fundamentals, we quickly adapted to the market needs and dynamics. Efforts paid off as we closed the year with very strong results, proving once again our ability to create value for all stakeholders.

We delivered double-digit net profit growth, generated substantial capital above requirements, a 42% return on equity, which is well above our long-term target and international peers. And we also delivered a stellar 31% earnings per share growth.

While we are super proud and happy with Quálitas' performance, and we celebrate new watermarks across many metrics, we acknowledge results were benefited by events outside of our control, which led to lockdowns and mobility reductions. These unfortunate events translated into significant drop in number of claims. We will give you some specifics along the call, but the one thing we all need to be aware of is that 2020 results should not be taken as a comparable basis for the future. And with that said, let me get into the financial specifics.

Starting with our top line. Written premiums closed the quarter at MXN 10,701 million, which represents a 2.2% decrease versus same period a year ago. Written premium for the year stands at MXN 36,057 million, just shy of being flat versus 2019. Considering GDP declines, new car sales collapse of 28% in the year and the Mexico car insurance market decline during the first 9 of the months, which is around 9% negative, we feel very proud on delivering these top line results.

Earned premiums stand at MXN 9,261 million, which represents a 2.2% decrease, driven by a lower underwriting and the constitution of technical reserves. Our 12-month earned premiums stands at MXN 36,291 million, which represents a 4% growth or MXN 1.4 billion increase versus last year.

Underwriting results in the fourth quarter reached MXN 1,239 million, up 5.2% versus a high comparison period of 2019. For the full year, we were up 68%.

As mentioned, these results were driven by the typical benefit of lower mobility as well as the continued decline on robberies. Number of claims have sequentially been increasing from its lowest point on AMJ, where they were down 40%, then down 30% on the third quarter and in the teens during this fourth quarter. While number of claims have gone down, the severity and cost of them has been higher as a result of mix, more skewed towards trucks and higher speed due to lower traffic. I will expand on the specifics later on.

The comprehensive financial income for the quarter was MXN 713 million. While down 15% year-on-year, it represents a 7.2% return on investments, which is more than 3 percentage points above reference rate. Our year-end results stands at MXN 1,975 million or 31% negative versus a year ago, both results impacted by the continued reduction of the reference rate, which is down 300 basis points. The cumulative return on investment stands at 4.8% or 67 basis points below the annual reference rate.

At year-end, our investment portfolio rose to a record of MXN 35 billion, 89% of which is invested in fixed income and the remaining 11% in equities. As anticipated in our last earnings, in the current low interest environment, we are seeking to rebalance our portfolio, including higher exposure to equities in both Mexico and international markets where we're starting to invest.

The historically strong underwriting performance, together with the financial return resulted in a net income for the quarter of MXN 1,465 million, down 4.6% versus same period year ago, but still among our best quarters ever. Cumulative net income stands at MXN 6,798 million, up 27% or MXN 1,440 million versus 2019, setting a new record high in Quálitas' history.

Regarding our cumulative financial ratio, earnings per share stands at MXN 16.5; that compares to MXN 12.6 a year ago. When we take a longer view, earnings per share are 3.5x what they were 3 years ago for a compounded annual growth rate of 53%.

Our net margin stands at 13.7% for the quarter and 19% for the year; that compares to 14% and 15%, respectively, from 2019. Price to earnings stands at 6.5 and price book value at 2.3.

Our 12-month return on equity was 41.7%. 41.7%, well above our long-term goals and the overall market performance. When compared against global peers and particularly other insurance businesses, Quálitas' financial ratio stands out and still speak to valuation upside potential.

For a wider understanding of our top line performance, I will go back to our P&L to provide a bit more detail. As mentioned before, written premiums decreased 2.2% during the quarter and 0.4% during the year. These results were well above the industry as reflected in the September market share results where Quálitas reached 30.5%, up 2% -- or 2 percentage points versus last year. This confirms that the actions we have taken since the beginning of the pandemic proved to be effective. As a reminder, we implemented a 10% discount across auto tariffs, interest-free installments and tailored plans for larger fleets. These actions have already been extended to March 2021.

Breaking our top line by segment. In the fourth quarter, our traditional one, which includes our individual and fleets, was up 4% and the financial institutions channel, which correlates directly with new car sales, was down to 16%. New car sales decreased 21% during the quarter, slowly and partially recovering first half of the year drop, ending the year with the already mentioned cumulative fall of 28%.

The total number of insured cars stands at 4.2 million at the end of the year, which represents a 1% marginal decrease when compared to 2019 year-end. Renewing our existing customers has been and will continue to be our #1 priority. We will maintain efforts to do so.

Regarding our underwriting in geographic subsidiaries, we continue to see broad-based growth, up 13.2% all-in or 6% in local currencies. While all regions contributed to the results, the U.S. was standing -- a standout, growing 48% and confirming the potential of the focus of the niche border states. By the end of the year, our geographical subsidiaries represented around 8% of the holding company. That compares to the 4% that they weighted 2 years ago. As José Antonio will mention, subsidiaries will play a bigger role in the future.

As per the mix of annual and multi-annual premiums, by the end of the quarter, our portfolio had around 79% annual and 21% multi-annual policies. The portfolio mix, which relies on annual premiums more than historical average, increases our ability to react more quickly to market and to industry changes, with tariff adjustments 3 to 4x a year. We expect that as we see economy recovering and new car sales restoring growth, this percentage of multi-annual policies will likely go up.

Moving now to costs. In the fourth quarter and year-end, combined ratios stands at 83% and 80%, respectively, the latter being the lowest one since Quálitas was founded. The adjusted combined ratio, the one that meets the international standards, stood at 86.6% and 79.7%, respectively.

The fourth quarter ratio, which stands at 57.7%, in line with last year's. During most of our fourth quarter, confinement measures in Mexico were eased and this reflected on mobility. According to Apple mobility figures, fourth quarter was basically in line with year ago.

For the year, loss ratio stands at 51.3%, 8 percentage points below year ago and almost 10 percentage points below our 5 past years' average. Then again, this reiterates the importance of not considering 2020 as a comparison year in the future.

To note, we have included in our fourth quarter claims cost around MXN 250 million of loss ratio bonuses distributed among agents and office directors due to the mentioned loss ratio results. These bonuses are in place to align the incentives and to make our agents and office directors part of our cost control to promote healthy portfolios. Targets of these bonuses are set at the beginning of each year, and this year, most participants will max out, equivalent to 3x historical averages.

Within the loss ratio performance, we also highlight the positive trend of theft and recoveries. Robberies were down 20%, and our recoveries were 54%, which represents 8 percentage points ahead of industry. While history shows as economy and unemployment conditions deteriorate, crime increases, yet we have not seen this happen in auto theft.

As Einstein once said, "In the midst of every crisis lies great opportunity" and while impossible to predict when mobility will restore, we know we need to be better and benefit from some of the changes the pandemic has forced us to do. As an example, we have the express claim app, which avoids the need of a claim officer in person. It represented 19.3% of the claims attended during the fourth quarter, and this results in a much faster service, better experience to the client and a potential lower cost to us; a true win-win that was inexistent pre-COVID.

Another good example of this is the express lane we've just launched, where we want to immediately repair bumps that only require a minor repair work and painting. This can be requested when the damages caused are 100% repairable and the vehicles are delivered in a 24-hour period.

We continue to invest on technology and innovation to prevent accidents and theft, to reduce fraud, to better set prices to outstanding service. When it comes to car insurance in Mexico, we're not waiting for the future, we are creating the future.

And now moving to acquisition cost. We closed the quarter at 19.9%, which is 100 basis points below last year, for a year-end rate of 21.8%, practically at the same level of last year. The quarterly drop can be explained by a decrease in the underwriting through our financial institutions, which carry a higher acquisition cost. Annual ratio stands at the same level as 2019, as no changes in the commission or bonuses paid to agents and office directors have been made, and there are no plans to change them in the near future.

Finally, our operating ratio stands at 5.3% for the quarter, an increase of 32 basis points when compared to same period year ago. 2020 operating ratio stands at 7% or 1.3 percentage points above year ago. As we have mentioned during the year, the increase is mostly explained by 2 factors. First, employee profit sharing accounts, which is linked to the business performance, which if we were to exclude it, year-end operating ratio would stand at 4.3%, 50 basis points above year ago. And second, the financial institutions -- sorry, the financial cost behind interest-free installments offered to customers during the pandemic, as we mentioned, they are still active. We're noting as well when looking at the cumulative operating expenses for the year, we need to consider the MXN 185 million onetime benefit in 2019 for comparison purposes.

Now moving to capital requirements and the consolidated solvency margin. The regulatory capital requirement totaled MXN 2.5 billion by year-end, reflecting lower claims and our portfolio composition. As always, we will continue to apply our internal policy of having 1.5x the regulatory capital requirement to absorb potential fluctuations and as part of our conservative strategy during uncertain and volatile times. By the end of the quarter, the solvency margin was MXN 15.6 billion, that represents as a percentage of solvency margin of 718%, which is the highest ever. The overall tone of the business is strong and the momentum continues.

Regarding capital allocation, the philosophy remains unchanged. We are going to be disciplined and to try to do things that we believe are going to maximize value for our shareholders. As we have shared previously, investments will be done consistent to our 3 pillar strategy, which José Antonio will expand later on as well as to fund dividend and share repurchase programs.

On the latter, which I know is a topic of interest to you all, we will be discussing the matter at the General Shareholders' Meeting on April. We are excited about the opportunity to return part of this excess capital to our shareholders, doing so in a responsible way to guarantee the funding of the current business, capitalize opportunities of existing and new businesses to sustain attractive growth and returns in the future.

Regarding our current buyback program, from the MXN 1.4 billion approved in the last General Shareholders' Meeting, until December, we have used MXN 728 million and repurchased 8.7 million shares.

In terms of our stock liquidity, the daily average traded amount operating through the year was above $3.5 million, and we improved 6 places in the marketability index, moving from position 29 at the beginning of the year to a #3 (sic) [ #23 ] by year-end.

As a result of the efforts to incorporate ESG criteria to our daily operations and culture, Quálitas was elected to join the MILA Dow Jones Sustainability Index, which adds as the fourth incorporation to an index during 2020; together with our historical entry into the IPC index in April this year.

And with that, I will now hand it over to José Antonio for him to tell us how is it that we're planning to keep Quálitas on this winning path.

[Jose Correa Etchegaray, executive]

Thank you, Bernardo. As you well said, in one of the most challenging years the world has ever seen, Quálitas' results were nothing short of extraordinary, and we are very proud about it.

Before talking about the future and expectations towards 2021, let me highlight some of the aftermath of the first 9 months of the pandemic in our key market, Mexico. GDP will decrease between 8% and 9%, which is unprecedented. Over 3.3 million people will be unemployed. Over 1 million businesses closed. Tourism declined 47%. And beyond all, despite there is a vaccine, there is absolute uncertainty on the time that, that will allow people to move, travel, gather socially or for business purposes. Net, while there is light at the end of the tunnel, it seems that will be a very long tunnel.

With such an environment, it is quite challenging times to forecast the near term. And even when we assess performance each quarter, we play for the long term. We strive to make decisions that will deliver sustainable results. And with that in mind, what takes more relevancy is to know where we are headed and how we get there.

Today, we once again reaffirm our strategy that we discussed a year ago. It's working, and we are staying on the path, adjusting to new realities, but not shifting course.

As a reminder, our 3 pillar strategy is: number one, strengthening our core, which has been and will continue to be vehicles insurance in Mexico. We will stay true to our business model, having the best-in-class service and strict cost control policy. We will invest to leverage technology and will not be shy on innovating to cope with new markets and new trends and needs.

The second pillar, accelerate profitable growth in our subsidiaries. As mentioned by Bernardo, during the year, our subsidiaries grew 39%, being an engine of growth. While they all play in markets that have been affected, they are gaining share in a profitable way. Today, they represent approximately 8% of the business but believe they would represent between 15% and 20% in a few years.

And the third pillar and last is to continue exploring new business opportunities. We have mentioned our intention to expand our service to other business lines, and we are making progress and we expect to issue our first premium during 2021. We are also open to mergers and acquisitions as long as there is certainty it will create value to stakeholders. On this regard, let me reassure you that we are working, but in no rush to make decisions. Actually, we have concluded 2 processes without reaching a deal, either because of valuation expectations or because we did not see it would be accretive to our business. On this one, we do believe that no deal is always better than a bad deal.

We are investing behind those pillars, but current times call for a couple of boosters to our strategy, specifically agility, flexibility and innovation. Let me expand on this as I truly expect them to be a catalyst.

In agility and flexibility, Quálitas has been able to exponentially grow and become institutional, but without turning into a bureaucracy machine. We pride ourselves to always seek and listen our agents and policyholders' needs and to have the ability to quickly take decisions that are quickly implemented. We have strict control on compliance policies but remain flexible to adjust. In a changing environment to adapt, decide and move is more relevant than ever. We are good, but it can be better, and we are working on that.

Innovation and technology: even before we became market leaders, we have been setting the tone in the market regarding technological and product innovations. We acknowledge this is a never ending journey, and we need to keep up with the market new dynamics and our policyholders' needs. We are aware what is happening and what is available globally. We assess and then decide what makes sense to our market needs and dynamics, creating value to our agents and customers. These differentiators allow us to take decision not only based on pricing. And to go further and faster, we are streamlining the selection and implementation.

Going back to discussing our 2021 objectives, with so much uncertainty right now, while it's hard to predict the next 90 days, let alone the next 12 months, we see no grounds to provide guidance that will be solid. But what I can share are some thoughts on the future and the certainty that we are focused on delivering another strong year.

We are expecting to perform premiums growth ahead of the market, which will be highly correlated with GDP, new car sales and employment recovery. This, together with the effect of the tariffs, which they continue to reflect the decreases taken since the beginning of the pandemic and will now only be adjusted as we see claims going up, will determine our growth.

As per cost, what we can expect is acquisition and operational costs to be in line with historic averages, with claim cost being the biggest driver and the bigger unknown. As mentioned before, mobility and number of claims, while increasing, they are still down versus pre-COVID. Exchange rates, which correlates with spare part cost, has recovered but not exempted from volatility.

Seeing kids going back to school, people back in restaurants, airports and hotels is something we cannot yet put a date, but we know will happen and personally, want to see it happening. But we do not know what we do not know, thus every month we review, assess and adjust. What I can tell you when it comes to claims costs and while we continue to look for ways to reduce it, we consistently plan against claims ratio between 59% and 64%.

On our investment portfolio, global benchmark interest rates are at the lowest ever, with Mexico being no exception. We expect that they will remain low and, therefore, will adjust our portfolio, and while we will remain overall conservative, the equity position will likely increase. On this key component of our profitability, we have a target to deliver between 100 and 150 basis points ahead of the reference rate.

Independently of the above and going back to our mid- long-term ROE guidance, we are holding it at the range of 20% to 25%.

Equally important to delivering strong financial results is to continue on our journey of becoming a world-class ESG company. As I have mentioned before, being the leader is no longer a matter of size, capital or profit; it goes beyond, it is much more complex. It requires our culture and daily actions to reflect our commitment towards environmental and social matters and to strengthen everything related to our corporate governance.

Having joined the Dow Sustainability MILA Index as well as the S&P Total Mexico ESG were certainly important steps, but not the end point. This is a long journey to which Quálitas reassures its commitment that we're being the best insurance company not only in Mexico, but for Mexico.

To wrap it up, let me thank our agents, investors, policyholders who have trusted us all and all of our Quálitas employees and business partners for delivering such a strong year. Moving forward, we acknowledge challenging times, and we know that we need to keep up the good work, playing to our strengths. I am excited about the future and confident in our ability to continue exceeding expectations.

And with that, I close my remarks.

Operator, could you please open the line for questions?

[Operator]

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

[Ernesto María Gabilondo Márquez, analyst]

My sincere condolences to the Brockman family; a very sad news.

My first question is if there was a plan of what will happen to the stake of Joaquín Brockman.

And then my second question is related to the recent lockdowns. We have seen that Quálitas claim costs benefit from the lockdowns during the first half of 2020. So given the recent lockdowns in the country, do you expect to have the similar story during January of having over-claims?

And my third question will be if you can provide some expectations on trends in terms of premiums growth, some ranges for claims costs and if you continue to see the 100 basis points above the reference rate for the investment portfolio yield.

[Jose Correa Etchegaray, executive]

Okay. Ernesto, thank you for joining us today. We share with you the sad moments that we are living with parting of Joaquín.

Let me tell you, first of all, that Joaquín is shy -- just shy from 50% holding about -- yes, below 50% of the Quálitas shares. These shares have been held in the trust, and they will remain there. And the Brockman family has the intention to continue being involved heavily in the running of the company.

I would also -- by the way, I also would like to say that the Castillo family likewise, as I said -- indicated at the beginning, will continue very involved in the handling of the business. So from that standpoint, we see no changes in that. And they will continue to support all the management of the company to go forward and continue being successful in the future. Now Bernardo, can you...

[Bernardo Salas, executive]

Let me take the business questions. And let me see if I cover them all, Eduardo (sic) [ Ernesto ], and if not, you tell me.

On premiums growth, no -- and as José Antonio mentioned, there are still a lot of uncertainties. We don't know when will things stabilize and when they do, the speed of recovery. And we know on the top line, the business heavily correlates with GDP performance, new car sales and employment. So we are expecting that in the short term, growing the top line will be challenging, not only because of the contracted economy, but also because of the price reductions in place, not only from Quálitas, but the broad market itself.

We are expecting on the mid, long-term that the Mexico car insurance grow mid to high single digits, and we will strive to deliver double-digit growth as a holding company due to the accelerated growth of the subsidiaries that was probably mentioned as well during the call.

So on premiums growth, very challenging, but we're working towards exceeding any performance of the industry as we proved in the 2020, where once again, we grew 2.5 share points, getting to above 30% on written premiums.

Now on the claim cost, I've mentioned that we have sequentially been, across the quarters, restoring the number of claims. They come from the slowest on AMJ and then they're down in the teens on the fourth quarter. So we are expecting this first quarter to be very in line.

We understand the new lockdowns. But they are not as heavy as they were a year ago. So we are tracking on a daily basis the number of claims. They are getting closer to last year's levels. And while we expect the first half of the year to still be potentially lower versus average, they are marginally and sequentially getting back to the expected levels.

And last, on investment portfolio, I think we have set a team in place, and we mentioned that during the second quarter we have a new CIO, Alejandro Elizondo, which comes from a very thorough years of experience, together with a new team that has also been hired. We are expecting that we will strive to that 100 to 150 basis points above reference rate.

We are not changing dramatically the risk profile of our portfolio. That's an important highlight. I think no one in Quálitas would like to see a shift, a dramatic shift from our conservative approach to a more higher risk profile. But we've seen the approved ranges by the Investment Committee; we are taking a more active approach to new instruments that will allow us to have, again, that performance between 100 to 100 basis points above the reference range.

And let me pass here and see if José Antonio has anything.

[Jose Correa Etchegaray, executive]

Yes. I would like to add there, Ernesto, something related to claims cost. Claims cost is the biggest unknown here and the speed at which it will increase to back to normal, let's call it, "normal level".

Depending on that, we will see how it's going to behave. The lockdown, as Bernardo indicated early on, I mean this January, et cetera, should once more help on that. But in the end, it will return.

And I would like to mention that one of the things that we are doing, and you have been following us for many, many years, is that no matter how the behavior goes, last year, we adjust tariffs to recognize the fact that the claims costs were going down. But it's also very important to realize that we, as the leader, are also -- as the claim costs go up, we will recover to make sure that our business grows profitably as has been demonstrated, and we will continue to do that.

So yes, it is difficult to forecast at this point in time, but we will remain flexible to take the right decisions at the right time to ensure a profitable growth. And as Bernardo also said, that we are going to be relative to the market. That is very difficult at this stage to go in absolute terms, but on relative terms, we should be better than our peers.

[Operator]

The next question comes from Natalia Zamora with GBM.

[Natalia Zamora, analyst]

First of all, I'm deeply sorry for your loss. It is undoubtedly a huge loss, and we had the chance to witness how much you appreciated Joaquín.

Moving on to the question, if I may. I was wondering if there are any news on the health care business lines at this time.

[Bernardo Salas, executive]

Natalia, thank you for your condolences and your question. On the health and medical, yes, we have been talking and working on it for several months. We're still in the process of getting all the licenses and approvals. There are quite a bit of approvals and despite all delays, we're moving forward.

As mentioned by José Antonio, we are confident and working towards issuing our first policy during this year, hopefully, during the third quarter. And let me just make sure that everyone understands the why and the how.

First why is it that we're taking a step into a new sector? And there are many reasons why, but I would start off by saying we are setting Quálitas to be successful in the mid to long term. And we acknowledge that getting beyond that 30% market share that we have in a profitable way will be challenging. And the right momentum comes when you're well capitalized with an unprecedented, good reputation and agent network and commercial officers that now cover the full country.

The how is that we will start small, first in Mexico City and then the metropolitan area. Then we will learn and once we have proven we have a right to win, win with the agents, win with policyholders and win with shareholders, we will expand. We will play towards strength.

I think medical and health is similar in cars in many ways. It is complex. You have to avoid fraud. You have high frequency. And we once wrote the story of changing the market dynamic in cars coming into what was then an unprofitable and high-risk business, and Quálitas proved it could evolve it to good service, lower cost and high profitability. We plan, and hopefully, will repeat the story on that regard.

[Operator]

The next question comes from Carlos Alcaraz with Apalache Análisis.

[Carlos Alcaraz, analyst]

My deepest sympathies in this time. I have two questions. The first one is what will be your expectation of a normalized loss ratio in 2020 supposing a significant recovery in traffic?

And the second one is regarding the share buyback front. Will you continue to buy back and cancel shares this year?

[Jose Correa Etchegaray, executive]

Thank you, Carlos. Yes, that's some discussion that we have been having earlier, Carlos. And what I can share here is that let me say that at the beginning of the pandemic last year, we knew that the ratio would probably be low for a relatively long period of time.

Now we, at the time, made some I wouldn't say estimate, but expectations of how fast it could return to normal levels. And the fact is, is that it probably went a little bit slower than we had anticipated. So at this point in time, the return, we know that the target that we have always had for pricing purposes has been having a loss ratio of around 64%. That's for pricing purposes.

So the fact that we have been so low in 2020 and that we are starting low, we really don't know when it's going to go back. But what we do know is that it's going to trend toward that direction. And the reason being is very simple. As you know, the pie last year was smaller in Mexico for the car insurance and being smaller, our competition wants a bite of that. So we have seen competition already taking significant measures to try to maintain margins. Now, having said that, I can say that we have reducing, yes, our tariffs and our -- with the big fleets and taking stops for the individual lines too. But we are maintaining profitability.

So the market -- and it is normal in this type of market that there is going to be this type of pressure. So how fast it will take to recover to the levels of 60% to 64%, we don't know. As Bernardo, I believe he mentioned that earlier, that for the first 6 months of the year, we anticipate it to be relatively, as you know, below that level. But I would be -- it wouldn't be right for me to tell you how fast it will take. I guess the important point here to make sure that whatever the level is, that we are right priced to the level. Because one of the things that we have always said over the past conference calls for the past year is that the return on equity that we have achieved, thank you to our operation and the strength of our operation vis-à-vis our competitors, is that being ahead of 40% in terms of return on equity is not sustainable long term.

We also said that we are going to be targeting between our 20% to 25%, our long-term target, because the market tends to put the pressure on that one. So I know it is a long answer for you, but let me tell you that nobody knows at this stage. And I would be bad if I say something. But the important thing is that we are very flexible to do that. And as the leaders, we are going to take the decisions that we need to make sure that the levels are right and the profitability of the company is the one that we shoot for.

[Bernardo Salas, executive]

And Carlos, I'll take the second question, which is related to the share buyback problem. And going back to our call, Quálitas has shown consistency to give back to shareholders, both at the dividend and through the share repurchase program.

Up to today, we have 413 million shares outstanding. Our plan was to get to somewhere in the 10 million to 13 million shares through the share repurchase program approved this year. As I mentioned, by the end of December, we're getting close to 9 million shares. And yes, we plan to continue operating. I think that creates the liquidity that everyone is looking for. And towards the General Assembly, to recommend, once again, the cancellation of certain shares.

Moving forward, yes, we want to continue on our share buyback. But the size of it will also depend on, one, what is approved, what is feasible; and also to guarantee that we don't make a change that will affect the liquidity of this stock. That is one thing that we are cautious and conscious of the relevancy it has, again, for all our investors. Thank you.

[Operator]

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

[Eduardo Miller, analyst]

I would like to know what Latin American countries do you find attractive to expand to? And what strategy do you foresee to sustain long-term growth in terms of written premiums?

[Jose Correa Etchegaray, executive]

Yes, Bernardo, could you take it because you said last time, right, because we have a good growth in the U.S. I mean we have had a very good growth, but LatAm countries have been also impacted by the cost of the COVID. For instance, we know that Peru, which is our newest market has been in a very strong lockdown this week. But we have some growth there. I think that we have -- in Costa Rica, we have -- we anticipate a relatively nice growth for 2021, for this year. And in Peru, we continue also to see a nice growth. Peru had a very good performance generally speaking.

And also here, it is important to note that it will -- it depends on the lockdown, too, because we don't know, for instance, in the Peruvian market, how long it will take to reopen the economy. So a lot of that will be impacted on that. But clearly, the growth that we expect in those markets is ahead of what we can expect in Mexico.

[Bernardo Salas, executive]

And just, Eduardo, on the future expansions, I think the first is we see enormous potential on where we're already playing. If you look at the share percentage in this market, we go anywhere between 3% in Peru to all the way to 8% in Costa Rica. But I think in all of them, we have a right to get to that 20% corridor. So first, the priority, before looking at new markets, is to make sure they're well-funded, they're well set to continue this growing and winning path.

Beyond the countries where we are, we have started to assess what could an entry into some other countries, such as Colombia and perhaps Chile, may look like. And at this point, we would certainly stay away from Brazil. I personally have lived in Brazil and understand that it's a whole different market. So with that, I can tell you where we could assess later on the expansion and where we're not focusing at this point.

[Jose Correa Etchegaray, executive]

But we see a bright future on that one -- on that one, Eduardo, and we see that it will help us really fuel the growth of the company going forward.

[Bernardo Salas, executive]

And on the question regarding premiums. And I think José Antonio already mentioned that, but the #1 priority, as it was last year, is to secure the renewal of the 4.2 million units that we have. Many customers have decided to take down their number of vehicles in those fleets. But as economy reopens, we're confident they will once again expand.

So I think the #1 priority on premiums growth is to make sure that we continue to be the right company for them to renew their policies. From there on, we will continue to expand and seek for good proposals to new fleets and to also secure that we're competitive in the individual market, which once again proved to be a great vehicle growth. This year growing almost double digits despite all headwinds.

And in institutional businesses, we, I believe, have found the right pricing. Remember, in 2019, we took down the level of relevancy behind pricing it right because it does carry a higher risk because of their long-term nature. But I think this year, we're very well set to grow. We're gaining a little bit more market share on that, proof that our prices are competitive.

And overall, I think we want to continue outstanding in service. This cannot be only about our pricing, and I think especially on fleets where we hold close to 50% of the market share, it is more relevant that we have -- together with a competitive price, we put on things that no one else can. And then it becomes not a pricing conversation, but a best value conversation, and that is what we're aiming towards. Thank you.

[Eduardo Miller, analyst]

I'm sorry for your loss.

[Operator]

The next question comes from Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

Please accept our condolences on your loss.

My question is on dividend. There was a significant step-up in 2020 compared to previous years. Given the high amount of available capital that you have and the options that you have discussed, do you have any sort of color on where dividends might fall this year?

[Jose Correa Etchegaray, executive]

Well, thank you. I think that in this part of use of our excess cash in terms of dividends, as Bernardo indicated, I mean, we do have a significant amount, and we are, frankly, excited being in this situation. As you know, most of the world is having liquidity issues, but we have been having extraordinary results for 2020.

It's important to tell that dividend payment will not change. I mean, we will -- and we can -- I can expect that -- to recommend to the General Assembly really in April and probably a substantial increase from quarter 1 that we carried out last year.

Evidently, I cannot say a figure at this point in time. But every year, we have been giving dividend distributions. And as we will discuss in April, and we will be -- and certainly will be higher than the one we paid in 2020. So it's still too early to tell. But yes, the expectation is that we will increase the dividend payment in an important manner.

[Bernardo Salas, executive]

And Gilberto, if I may say on dividend, on the use of cash, truly, we're excited to be in this unique situation. And I think José Antonio mentioned, we want to make sure that while giving back to our shareholders, we're also investing towards the growth of this business.

We will invest on accelerating growth on our subsidiaries, to fund our expansion into health and medical, and to continue assessing M&As inside or outside Mexico. And we're not in a rush to make any precipitated decisions. I think we will continue to assess. And the good thing is that with the size of additional capital, I think we can do them all. We can pay dividend. We can share -- we can fund the share repurchase program while continue investing in the business and new opportunities.

[Operator]

And I would now like to hand the call back over to the presenters for live questions.

[Bernardo Salas, executive]

We'll take one that came through the web page. It comes from [ Josefina Gimenez ]. I'm going to read it out and then provide some context.

First, our condolences for the loss of your Founder and Chairman.

Second, congratulations on the excellent results. My question is with the automobile sales in the U.S. having declined by an estimated 15% in 2020, please comment on how you're able to achieve a 48% increase in written premiums. I'm not sure if I heard 48% correctly.

By the way, you did. But for written premiums, growth increased 38.7%. It is correct. The U.S. subsidiary came through with an outstanding result.

And let me just clarify because in the years you see there, it is not that we're going against the domestic large corporations that have and will continue to play a massive role on multibillion-dollar businesses. We have found this niche on border state basically addressing a need that was unmet by the people that go back and forth the border. I think Quálitas is setting itself as the one company that can provide reliable coverage at both sides of the border, being a company that has already a huge track record in Mexico, and it's starting to create a reliability in the U.S. We're focusing on border states. Again, we started out in California. We're now expanding into Texas, and potentially, we will later on assess Arizona and New Mexico.

But what is important is it is not that we're trying to go against the GEICOs or the Prudentials. We're in that niche, and I think that niche gives us reliability -- or confidence that it can continue to grow today close at $80 million in written premiums. We can easily see it going all the way to $200 million in the next years and doing so in a profitable way.

[Jose Correa Etchegaray, executive]

Let me add to that, Bernardo. And [ Josefina ], thanks for the question. It is really a good question. But if it goes with our objective of really supporting our subsidiaries and to good capital whenever we have the right returns. And we are -- that's something that we will continue to do for 2021, in which the opportunities that we see for our subsidiaries, in the U.S. one included, to make sure that we're supported for healthy growth. I just simply would like to add that, as Bernardo indicated. Thank you.

[Bernardo Salas, executive]

Next question is from [ Daniel Enclari ]. Can you break down the profitability of our subsidiaries?

We don't break down that information. We do give some perspective on premiums. What I can tell you is for the first time ever, all subsidiaries are profitable. They're growing top and bottom line, and we plan to continue working their way to become more relevant. They are still not yet in the 20% to 25% ROE, but that is very in line with the maturity of the business. But I think that is the level of [indiscernible] that you need to have at this point.

Next question comes from Martín Lara from Miranda Global Research. I have a question on the MXN 250 million charge that you reported as part of the lost cost. Should we expect more in these next few -- in the next few quarters? And where do you see the loss ratio in the current year?

[Jose Correa Etchegaray, executive]

Martín, good question. Let me tell you now, this is a charge that is a good thing, let me put it this way. I mean it's not a bad thing, it's a good thing. It is part of the results that we have. It is simply the fact that we provide loss ratio balances whenever they are met. So the fact that we have such a low loss ratio allows to do that.

And that's one of the beauties of having our business model based on variable cost. So as those ratio increases, obviously, these bonuses will go down. And we will maintain, but the important thing is that we will continue to consider and manage our business based on variable, which allows us to do the right thing in the right manner. So considering the fact that it would be increasing the loss ratio, clearly, those bonuses should be going down.

[Bernardo Salas, executive]

We'll take next question. We'll probably take two more. Hopefully, you understand. We're happy to take them in the next weeks. There are some things that we need to manage internally as a result of the news regarding our Chairman and Founder.

What are your expectations of representation of reporting for subsidiaries' premiums written for the following years?

We expect subsidiaries to continue to be an engine of growth. I think next year, we could expect them to be above 20%, hopefully, in the 30%. And that way, they will come from representing that 2% 5 years ago to representing 8% this year. And hopefully, the non-Mexico car insurance business will represent between 15% and 20% in the next 3 years.

On the U.S. subsidiary, what are the plans for expansion?

As I mentioned, we're very encouraged by the performance of the U.S. subsidiary. We actually opened up offices in San Diego. And we plan to continue on our strategy. We will continue to further penetrate the Texas and the California market. We just opened offices in Texas in McAllen and Laredo over the past 3 months. That office expansion was -- has been a major competitive advantage for Quálitas in Mexico, and we plan to continue on that.

We -- as I mentioned, we are in no intention to go outside of that niche border state. At this point, I believe that gives us enough fuel for the next years.

And with that, I will open up the line to see if there's any other questions and, if not, we'll close it for today.

[Operator]

There are no questions at this time. This concludes the question-and-answer session.

I would like to turn the conference back over to José Antonio Correa, Quálitas' CEO, for any closing remarks.

[Jose Correa Etchegaray, executive]

Well, thank you, everyone, for joining us today. And let's make sure that we go and do -- and are true to the legacy of Joaquín Brockman Lozano, to make sure that we continue to be for a very long time the #1 insurance company in car industry. Thank you very much to all.

[Operator]

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