Qualitas Controladora SAB de CV

BMV:Q

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to Qualitas Fourth Quarter and Full Year 2021 Earnings Results Webcast. The conference will begin now. It is my pleasure to turn the call over to Mr. Santiago Monroy, Qualitas IRO.

[Santiago Monroy, executive]

Thank you, Ariel. Good morning, and thank you for joining Qualitas Fourth Quarter and Full Year 2021 Earnings Call. I'm Santiago Monroy, Qualitas IRO. Joining us today are our CEO, Jose Antonio Correa, and our CFO and International CEO, Bernardo Risoul. 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 be [Technical Difficulty].

[Operator]

Pardon me, please stand by while we get the speakers reconnected.

[Santiago Monroy, executive]

Well, good morning, everyone. I was saying that the results of the quarter and full year 2021 reflect a strong and consistent performance, overcoming several challenges we faced such as mobility returning to normal and even above range level, inflation above historical average, increased competitive environment and supply constraints that affect the car industry recovery Qualitas result was again delivering our commitment of creating value to policyholders, agents and shareholders. Let me now expand a bit on the automotive industry. In terms of new car sales, it suffered the biggest year-end seasonal loans in more than 2 decades due to the lack of inventories and in seasonal demand in the face of semiconductor prices.

The situation impacted the industry and our own fourth quarter top line, but this is not the first time we face this challenge. New car sales in Mexico have been in a declining path for more than 4 consecutive years. That is why we have been prioritizing our underwriting through our more than 18,000 agents network remaining close and thoughtful of their needs and concerns. As a result, we have posted sustained growth in number of units. The inflationary environment has to support on challenges with Mexican consumer price index at 7.3% for this year. And together with mobility in organization have to increased claims costs for which we have increased the second half of the year for a total of around 8.5%. I -- this is in are part of our DNA. And while we try to stay competitive, we will adjust to a feline sustainable operating ratios. When conducting the results, I would like to highlight once again that this year's performance should not be compared against 2020, but rather to prior years or going target for years and the overall industry performance.

Year-end results came within the expected ranges and in line with the consensus estimate. As you may recall, at the beginning of the year, we talked about our goals, which included to go ahead of the market. According to the latest sector previous, which are at December, we were doing so standing at a record market share in Mexico growing steadily internationally while delivering as well financial performance ahead of the industry. Before I hand this over to Bernardo to disclose the specifics on 2022 expectations, let me share 3 things that I feel mostly proud for 2021 and that will continue to be an anchor to fuel future growth. First, Qualitas service DNA and cost basis. We are a team of 5,000 employees that evolve their work to exceed expectations and provide best-in-class service, achieving strong business resulted in the uninterrupted service peak to the commitment of each one. I thank and recognize all of them. This is a never-ending journey, and we are constantly revisiting our end-to-end processes to identify opportunities where we can do better and be more efficient.

Service and costs go hand-in-hand with innovation and technology has been in our best adjustment that now attend around 22% of our total claims versus less than 3.5% in 2019. There is also in our clients need us to be. During 2021, we opened 9 new service offices and 23 new development offices, which we call , expand our network in Mexico and expand in the countries where we operate. Second, our strategy is working, and we will stay on cars.

As you recall, we have shared simple, clear and focusing our strategy, which is maintaining and widening our leadership in the Mexican market, investing resources to expand our competitive advantages and continue to offer new solutions and tools to the market. second boost around growth potential in our international and noninsurance subsidiary, encouraged by their potential expansion of margins and energized on new market campaigns. And third, exploring new business opportunities with insurance ecosystems such as our health and medical operations where we can create value when finding synergies with our core business. Well, lastly, we have embraced our volumes faster in terms of sustainability.

Today, we are the only Latin American insurance company part of the sustainability Alliance Index. Growth of Qualitas attractive ESG strategy, such as our annual reforestation campaign, the integration of a hybrid fleet support of those organizations to help the needed labor equality and no discrimination policies among others. In terms of corporate governance that we remember in in the of take, we have complete the importance of succession plan, a strong processes and a corporate culture that we shared and is beyond the field. What is a better way to units legacy than to lease daily and strengthen our unique business model improving and selling in service while assuring personal and professional development of our employees to continue strengthening our organization.

I am confident that we have a bright future ahead, but one that will not be extensive of challenges, we acknowledge you case thoroughly take a few months to ramp up, and we will continue to face cost increases on strong competition by being true to our business fundamentals and effectively executing our strategy leaves me to be optimistic on our ability to grow top and bottom line in 2022. And with that, I will let Bernardo to walk you through the financial details and after his remarks. As always, we would be glad to take your questions. Bernardo, please?

[Bernardo Salas, executive]

Thank you, Jose Antonio, and good morning, everyone. In the challenging environment alluded before, we delivered solid results during 2021 with performance ahead of the industry and a healthy indexes within the sustainable and provided ranges. Starting directly to our financials. Despite being slightly below year ago in the quarter, we posted a positive top line for 2021, up 6.3% versus last year and 5.7% of versus 2019. With the headwinds already mentioned, these growth rates are noticeable. When looking at the fourth quarter premium specifics, it is important to note that the fourth quarter of last year, our comparison base included a significant 2- and 3-year multi-annual policies. -- writing, which represented over $600 million of underwriting.

When excluding this, our quarterly top line growth would have been in the mid-single digits. Also on the top line, Jose Antonio talked about new car sales performance, one that we expect to sequentially be improving throughout the next quarters. For reference, if new car sales had been at 2019 levels, our fair share of business would have represented approximately MXN 350 million, adding 1 percentage of growth during the year. Now in terms of our international operations, we saw strong performance across every single one of them with O&D being no exception, closing up 35% in pesos and 32% in dollars. These subsidiaries continue to be an engine of growth for the holding company. Annually speaking, they now represent 8.5% of our premiums, almost twice versus where they were 3 years ago. The understanding of premium performance needs to be coupled with a number of insured units, where in 2021, we posted a new watermark, up 7.5% year-over-year or 12 -- sorry, 312,000 more units, reaching 4.5 million by the year-end. When looking at the details, number of insured units grew across all markets and vehicle types.

For perspective, growth of insured units would be equivalent to a size of a top 6 Mexico auto insurance company. On earned premiums, they decreased 1.9% in the year, driven by the constitution of MXN 1.9 billion in the reserves out of which 1.3% came in the fourth quarter. As you recall, technical models are locally regulated and incorporate growth and can performance, which explains this increase. For reference, during 2020, we released MXN 650 million. And by the end of 2021, we have over MXN 37.8 billion in technical reserves. Expanding to our loss cost and ratios. It is worth to measure and on mobility trend, where we have seen that annually, mobility is up 22% and pre pandemic levels, which speaks to the retired food property of the economy, but also explained by the shifting trends at public transportation is down 27% versus prepandemic. Within that context, Qualitas 2021 loss ratio closes 65%. As mentioned before, due to revised consolidation accounting laws, our verticals or noninsurance subsidiaries costs impact our loss costs and head our loss ratio.

When excluding this, 2021 loss ratio stands at 63.4%, which is in the midpoint of our technical range target of 60% to 65%. Our quarterly loss ratio, excluding the revised vertical accounting consolidation effect, it stands at 65.9%. Importantly, as we continue to see growth in international and in noninsurance businesses, we should no longer assume Qualitas Controladora loss ratio is equal to 1 of Qualitas Mexico. Thus, we will provide an additional perspective as we're doing now. Our 2021 acquisition and operational costs were in line with historical average. Acquisition ratio stood at 23.3% for the year, aligned with our growth in written premiums. Our operating ratio stood at 3.4% for the year, 3.2 basis points below the same period a year ago, mainly explained by the decrease of the employee profit sharing accounts referred to as that they will in Spanish and by the revised protocol accounting consolidation. Their sales are now accounted as revenue in the other income items within our operating expenses.

Our fourth quarter operating ratio stands at 0.9%, driven by 3 main factors: first, the significant decrease in the employee profit sharing provision, which is down 92% versus same period a year ago and reflects not only the softer profit base for new labor reform regulation, which, in our case, resulted into a lower employee profit-sharing amount versus prior criteria; second, the favorable effect of the revised accounting consolidation from our noninsurance subsidiaries that implied an income of $280 million for the quarter. And lastly, to a lower extent, the release of certain provisions in compliance with accounting guidance. Our claim management and operations continues to rely heavily on service, both through the committed people answer technology and innovation.

The only way to stay ahead is to combine them in an efficient and effective way. To illustrate how this is executed and expanding on already mentioned, for our policyholders, we launched a follow your crane acquisition in Spanish Figueroa, which is a feature that works as a disposable lead and as part of our mobile app to provide the function to follow in real time with train requests and improve their service experience and service plan.

Besides, our service via WhatsApp now can be used to report a simple claim, as frequent questions, renew insurance policy, locate the newer service office and other features. We also relaunched our agent platform with enhanced features to manage their portfolio, tracking and upgrade data storage with automatic statistics, striving to reinforce our long-term and co-relationship in the end. We improved service agents and they as well create value to policyholders. They are key and instrumental piece of our ecosystem. All of the book is opened in a combined ratio of 93.4% and 91.7% for the quarter and full year, respectively. While this is significantly ahead of last year to the reasons provided and discussed, the final ratio stands in the low end of the range provided at the beginning of last year. And according to the 9 months of AMIS figures, well below our top 5 competitors in Mexico and the market average. Our financial income close to MXN 620 million for the quarter and MXN 2,273 million for the year. Our annual ROI stands at 6.5% or 120 basis points ahead of the annual average Mexican reference rate debt.

Basically, at the midpoint of the target we have set for the investment portfolio. During the fourth quarter, Banxico increased the interest rate, taking us from 4.75% to 5.5%. In line with , we expect this upward trend to continue and will manage the portfolio accordingly. Our equity exposure changed from 13% at the end of last quarter to 15% this quarter. Regarding the effective tax rate for the fourth quarter, our rate was 11.7% and 21% for the full year. The lower rate is explained by an employee profit sharing and agent bonus provisions for 2020 that were reflected in last year's P&L was paid in 2021, affecting the .

Additionally, the local tax adjustments, which were at a higher and the higher technical research constitutions played in favor as well for the . And let me just make sure that everyone gets that we're not involved in any tax planning or tax plan. We are complying with 100% of regulations. Altogether, for the fourth quarter of this year, we posted $808 million net income, which represents 7.6% net mark. Our 2021 net income stands at MXN 3,778 million, which represents a 9.9% net margin.

As per our 12-month aside the end of December stands at 19.2%, just shy of our mid long-term target, but in line with expectations considering the high capital base. Just as a reference, we will work to exclude 2020 a typical benefit because of the pandemic, which is around MXN 2.8 billion. Our annual ROE would have been above 22%. As we have been mentioning over the past earnings calls, our capital position and solvency margin is being carefully managed with fondly, new growth opportunities while delivering as well return to our shareholders. These unprecedented and favorable position of capital and liquidity actually plays against our short-term ROE. But when wisely invested will provide diversification and sustainability of our business in the mid and long term. And it will also support our commitment to continue paying dividends to shareholders, something we have been doing over the last 7 years and consecutively during the past 6 years. Specifics on our corporate development path, opportunity and Venue shared as they make progress, we have a patina with the discipline and intentionality that is required.

We are committed to the mentioned time line on mid-2023. Going to financial ratios, 12-month earnings per share stands at MXN 9.3 price to earnings at 11.2% and price book value at 2.1. Now moving to capital requirement and solvency margin. By the end of December, our solvency margin was 565% with over MXN 13.5 billion above capital requirements and box from which just alluded, we will fund our share repurchase program as well as strategic projects, expansions and potential M&A. Finally, on the use of capital and re-trading we don't intend to maintain these levels of solvency margins or excess capital, let me share that corporate development ideas, including potential M&As and expansions will not come at the expense of dividends, and we plan to honor our revised policy.

On that front, management will be issued recommendations to the same general assembly for its meeting on late group. And with that, I believe I covered the highlights for the quarter and the 2021 full year, and I would like now to shift towards our expectations in the recently started 2022. No different to last year, we stand with many uncertainties outside of our control that can affect our performance in the next quarters.

Just to mention a few, new sales time and speed of recovery, locally and interest inflation and interest rates. We're focusing on what we can control and maintaining the agility, flexibility and discipline that has described Qualitas over the years and that will continue to be instruments moving forward. As such, we believe it would be unfeasible to share a detailed guidance, so we will share some overall expectations and ranges toward next year. On premiums, we are expecting to grow ahead of the market with Mexico being a part and international business contributing 1 to 2 points. Growth will be contingent on new car sales recovery as well as pricing environment.

Our base plan is to be in the mid-single-digit growth rate. On claims, considering mobility inflation and excluding any consolidation effect, our insurance businesses are expected to be in a loss cost ratio between 63% and 65% range. Acquisition and operating costs are expected to maintain with a historical average of 23% to 24% and 4% to 5%, respectively. Summing all of the above, combined ratio targets should be within 90% to 94%, slightly ahead of past 3 years, but consistent to our ongoing structural model.

On the investment side, our objective remains unchanged, which is to be between 100 to 150 basis points above the average reference rate. With the expectations to see rates hike, the absolute contribution on the comprehensive financial income to our net profit is expected to be higher. As priority, as I mentioned, we acknowledge the excess capital effect on ROE that in 2022, we will see ROE at the lower range of our mid- and long-term 20% to 25% target. To wrap it up, we are pleased with this performance, the strength of the company's excellence in service, cost control, our portrait balance sheet, talent and culture have enabled us to perform well through this challenging period. As we look ahead on department normalizes, new challenges will not be a rise, but we feel confident with the position of the company and the strategy going forward. And at this, operator, we will be glad to open the line for Q&A.

[Operator]

[Operator Instructions] We will pause for a moment as callers join the queue. Our first question comes from Ernesto Gabilondo of Bank of America.

[Ernesto María Gabilondo Márquez, analyst]

Good morning, Jose Antonio, Bernardo, Santiago, and good morning, everyone. My first question is if you can elaborate on your expectations for the premium growth. You mentioned mid-single digits. Would that be for written premiums and premiums, how much of technical returns to total premiums are you expecting? And how are you seeing the sales of new cars? Are you still seeing difficulties in the inventory of some auto agencies? Also, I remember that you increased prices last year and the industry didn't follow. So I just want to know if the industry is already following that goal. And finally, your expectations on the U.S. business. You saw it was kind of relatively flat.

So it will be interesting also to see your thoughts on that segment. So that's on premiums. And then my second question is on your expectations for the investment portfolio. You mentioned that you're expecting sets plus 150 basis points. So just wondering how will you be positioning in terms of equities and fixed income? And how are you seeing the interest rates for this year? And finally, well, after incorporating all your guidance inputs, I am just wondering if you are seeing reasonable to expect low double-digit net income growth in this year. Thank you...

[Jose Correa Etchegaray, executive]

Good morning, Ernesto. Thank you very much for your questions. Let me try to start on the some part of your questions, and then later on I'll pass on to Bernardo. But first of all, let me tell you, as I mentioned last year when we started 2021 that the year looked a little bit uncertain. And what I indicated in our commitments to the market was we would be doing better than the market. This is the same thing as we believe and I believe that we can do this year. Let me tell you that there are a number of items that are Bernardo discussed during the presentation, and they will continue to play for 2022-- on that one, I can tell you that we continue to expect to be ahead of our competitors in terms of growth of written premiums.

And here, we should expect somehow -- there is one thing that we are not very -- we have not seen really the fact that in 2020 and 2021, there was a significant pricing pressure out of the reduced mobility, et cetera. And that weighs into the decrease in tariffs and prices and which we have been able to recoup part of that in the second part of 2021-- as such, we have not seen that our competitors have moved to increase prices. So in order for us to grow more than the one that they're not during the mid-single digit.

I think there is the potential to be higher than that, but that will depend on -- again, on how the car sales increases, but also on how the tides move. Clearly, I see that there is the potential to be higher than that. But it will depend on how fast our competitors really follow the prices and tariff increases that we have had over the past 6 months or so. As far as new car sales trends, I can tell you that they continue to see supply constraints. And well, it's interesting because I was talking with one of the large one of the large credit agencies in Mexico but indicated that in the month of January, they were closing contracts and 90% below of what they had expected for January, which is significant, and that is the lack of inventory for them. Now having said that, the estimated rate for the the industry acquisition for distributors of card distributors as soon as around between 2% and 3% growth for 2022.

So it depends, it looks like some of them are going to be better than others, but the supply constraints will continue being part of a constraint that we expect and the industry expect that probably by the second half of 2020 to improve not still yet to do. In any event, I would like just to say that as much as I indicated before, that we expect to be ahead of competition in terms of our performance in those trends. And that would be part of that. I don't know,do you want to take Bernardo.

[Bernardo Salas, executive]

Let me take the second part of your premium question related to the U.S. And just to clarify, on Q4 of this last year, we did post strong top line growth for the U.S. business, we were up 28%. That will take the year in the U.S. business to a very strong 27% premium growth. Now it is important that we consider that in the U.S., specifically, the number of insured units doesn't necessarily correlate with premium growth and the reason being not only the truck and the cost of all policies but also because we've increased significantly rates in the U.S., specifically in the Texas business. Now as we see 2022, we are setting expectations in the mid- to high teens, slightly below this last year.

And the reason being because we're coupling our top line efforts with making sure that we have a profitable business. The U.S. does require higher capital and does imply a different litigation environment, specifically in Texas, where we have seen long sales 5 to 6 years, and we're still under earning. Now let me argue to the second question regarding portfolio. In terms of expectations for the rate in Mexico, we see status similar to many analysts ending the year in the 6% to 6.25%.

As I said, we're currently at the -- 5.5%. And therefore, we should see a couple more -- 2 or 3 more hikes of quota. We are planning against that, and our portfolio is following that trend. Now in terms of equities, we're closing the year at 15%. That is slightly up versus where we were. And we are looking for opportunities to invest. We're doing carefully on some sectors and countries considering they might be a little bit expensive, if I may, but some other areas and specific software factors still pose an opportunity. Now the risk profile and risk appetite for the company will continue to be a conservative I can see equity is moving in that 10% to 20% corridor, but they will never reach the 30%, which is the regulatory cap despite we could. That's not necessarily what we're aiming for, and therefore, what sets the expectations between being 100 to 150 basis points ahead of sets.

And the last part of your question regarding net income. As we laid out, there's many scenarios, many assumptions depending on top, how inflation evolves, how industry recovery goes or pricing environment. So there are several of them that would take the doubles that would take us to a bottom line growing double digits, okay? So it is not something that we're calling up. It's one scenario. We'll see how the quarter progressed, but that's still within the positives.

And with that, let me. we address all your questions.

[Ernesto María Gabilondo Márquez, analyst]

Yes, no perfect is very helpful, Jose Antonio, Bernardo. Just a last question on capital allocation, dividends and solvency margin. We saw that the sovereignty margin declined to 565% from 720% approximately in 2020. And it is getting closer to the pre-pandemic levels of 487%. But don't get me wrong, it continues to be a very solid and high solvency ratio. However, as you are saying in your remarks, you are proposing a dividend between payout of 40% to 90% of net income. So I just wanted to know your thoughts if there is a possibility to pay a dividend in the high end of the range considering this high solvency margin. And again in the next years, where should it be normalizing? And is taking the dividends in the high range, how much are you considering for M&A activity and buybacks in this year?

[Jose Correa Etchegaray, executive]

That's a good question, and I'll let Bernardo to answer it.Let me tell you that we have increased dividends in the past. We are in a good position. And certainly, that's something that we still need to discuss with our Board and to make a recommendation for the general ascending. -- certainly, we plan to maintain the -- obviously, the points that you mentioned, we will apply that for sure. And we would, that's something to be said. Now in terms of M&A, I think that we are going to be responsibly using the capital that we have or the excess capital that we have according to our strategies, and we continue looking at opportunities with that. We are actively looking into that. And certainly, you will hear more on that one. But Bernardo, can you answer...

[Bernardo Salas, executive]

Yes. Just to bat and I know her, our recently Polish dividend policy establishes the once we maintain 1.5 the regulatory capital requirement, we will recommend a dividend payment, as you said, within a range of 40% to 90% of the net income of previous year. That I think is something that you were looking for a little bit more clarity in perspective. Now where will we be landing, whether it's in the 40% or more in the 90%, that's still being discussed. We will make a recommendation in March for the general assembly, and we will be providing that update as we fit.

Now I think already, Jose Antonio mentioned, we are not looking for M&A that would be let's say, $300 million, $400 million. Despite we have the cash, we're looking more in the range of $50 million to $100 million M&A, something that we can still create value that their subset with Qualitas' strength and that will also be something that in the mid- to long term would contribute and be accretive to the ROE target between 20% to 25%. So I think that probably not the 100% clarity you're looking for, but I believe it's important that we keep it open until we have more clarity in specific projects, which we expect to have in the next months...

[Ernesto María Gabilondo Márquez, analyst]

No, no, Super helpful. And just to buy back an amount for this year?

[Bernardo Salas, executive]

We like to have an active share purchase program. I think one of the areas that you and some other analysts and investors have highlighted as an opportunity for Qualitas back in 2018 was our liquidity of the stock. Back then it was just shy of $1 million per day. We're now at 5%. Actually, we closed 2020 highest with $5 million of stock trading per day. I believe everyone likes that, and we want to continue and share repurchase is a way to do it. Where we will be a little bit more careful now is what is the use of those stocks in the treasury because in prior years, we have been canceling and that is a way to also give back dividends to shareholders, no free value. But we want to be careful not to go to a point that we would be hammering the float percentage. Also, again, that will also be a topic of discussion, and we will be sharing what we're tactful and we will manage it percolates not to affect the liquidity where it is today.

[Operator]

Our next question comes from George Henderson of Santander.

[Unknown Analyst]

Thank you very much for the presentation, and thank you for the Q&A space. I want to ask, you have an update on the health insurance process and you could provide guidance on the timing of when you will start pricing premiums in this segment and also you're expecting to go into another segment ahead. Thank you very much...

[Jose Correa Etchegaray, executive]

Sure. Thanks for the question. Let me tell you that this health business that we are going to do this year has been somewhat delayed because of all the regulatory items that have had to pass over the past 18 months or so. The government agencies have been semi paralyzed in some respects. But we have been taken this strides recently on this one. And we expect that this could be done probably the approval process really be completed 100% before the end of the first semester of 2022. So it's important to note that we have for now sometimes we have a fully dedicated team to manage this project they have expertise in the field. And importantly, I believe that it's important to remind you, as we have always said that this is something that we want to enter and we want to really understand better because we're moving at full scale.

So we will start relatively on a small scale for the beginning. And we will be more forward after we realize and learn that the systems, the process of the products and the sales force, the agent really nice. So I believe this is important. The market is a big market that we have in health. And clearly, it is the penetration of the credit is very, very low in this one and side. We have considering the target that we have to address, which is not necessarily the top line of the market. We see that there is a significant potential in that period. So really, we -- you could even call it a test initially. It's not going to be a test clearly, but it's clearly going to be a learning process. And as we have said, we are in no rush to really to do this. We want to do it well.

In Qualitas, what we have done and what has made us be the leader that we are today is that we want to have the right combination of different product distribution pricing, et cetera. And obviously, the excellence in service, and we are striving to do that for this help. So we will have to lean on this one. But we are going to -- we are saying by the end of the first semester, we are going to be in a position to...

[Bernardo Salas, executive]

And evening, just to add -- there are currently over 12 people working on these projects to set. It's going to be a separate company that falls into part or we're going to keep it separately from the auto as we don't want to risk or jeopardize what we have been learning in the 27th of specialized auto management. And the last thing I would add on the health insurance project is that for 2022, we estimate that it may require, and that includes the constitution of the company between MXN 50 million and MXN 100 million. So that is up to $5 million in capital allocation.

[Unknown Analyst]

So are you talking like spinoff or would be still part of the group?

[Bernardo Salas, executive]

No, no, it's still part of the foreign company, but it's not going to be part of Qualitas Compania de Cebu. So it's going to be Qualitalute. It's a different company. And again, it is not only just for the time purpose is to make sure that the people that are currently working on auto continue to be devoted and specialized in R. So I think that's an important difference between multi-sector companies and having 2 companies specialized one in health, one in auto.

[Unknown Analyst]

I have another question about pricing. I know you already talked a little bit about that. But if you go more into debt on how current prices compared to prepandemic prices and if you see further space for additional increases on your pricing, if the competition does not adjust...

[Jose Correa Etchegaray, executive]

Sure, Jorge. Let me tell you that prices still are below the pre-pandemic level. Competition has been here in this area. Let me tell you lat,particularly in the 3 segments, competition has been really, really, I would say, pricing well below the pre-pandemic level. Having said that, we can say that we have been able to maintain businesses pretty much we would have been able to maintain profitable business, I have to say, because whenever is the situation in which we see that we will be this novel prefer to let those businesses go. We really want to be disciplined in this regard and making sure that we continue to be profitable. Now regarding what we can expect, as I indicated earlier, I see that it will depend on how competition goes.

I believe that some of the 5 largest companies are probably showing a combined index of above 100. So I believe there are going to be some incentives for them to ride to move into the pricing part. But to be -- the short answer is the rate continues to be a little bit below, and we expect that it will decrease further. Now -- that's how you see the Bernardo indicated during this presentation in terms of the loss index and the loss index that has increased significantly, primarily because of that and these at which the recovery of the mobility recovery took place...

[Operator]

Once again [Operator Instructions]. Our next question comes from Carlos Gomez of HSBC, New York.

[Carlos Gomez-Lopez, analyst]

You referred to changes in the profit-sharing with employees and the impact of the new outsourcing law. Could you please detail that a little bit more?

[Jose Correa Etchegaray, executive]

I'll let Bernardo answer that one, but let me tell one thing regarding the profit sharing in the profit sharing really they noted no change at the beginning of last year. And at the time, I was asked how would that would impact Qualitas. And at the time, I said that it wouldn't have a P&L impact simply because we were ahead of the market by around 7 years or so. So in that regard, we were okay. Now but what we have been now is that there is a change that limit, and that is a new change that took place around May and beginning of last year. That limit a way in which companies because there was a change in the outsourcing of companies, et cetera. And that in order to make that feasible for the government, they put a cap to how much you can distribute of employee profit sharing to employees. So in the end, we were better at the time, and it's helping us again to even do better.Bernardo.

[Bernardo Salas, executive]

Great to have in the question in the session. Just as Jose Antonio mentioned, for us, we have been paying the profit sharing. Actually, last year, many of the employees received several months, and we're talking from 6 all the way to 12 or 15 months of salaries through the profit sharing. Now what happened with this new regulation is a few companies, including ourselves that we're doing it as we -- as everyone should have been for the time, we actually get a benefit -- the quantification of this benefit when we break the one by one individual, knowing if there's a cap or not, would be around $35 million for the year. So that -- sorry, pesos, MXN 35 million for the year. So that, as I said, it's a benefit versus the way we were distributing for the P&L. It's full compliance with the regulation and new norms and then maybe the only thing that changed for Qualitas with the naval report of this .

[Carlos Gomez-Lopez, analyst]

All right. So that's an improvement for your accounts. Do you expect you will need to compensate your employees in any way? I mean, is this a temporary phenomenon, but eventually, you will have to make it up in salary?

[Bernardo Salas, executive]

Well, what we have been discussing is we're only -- we know the most important asset in Qualitas in its people, and we like to always have a compensation that is fair and recognizes contributions. So in over 85% of the quality of employment, there is an important part that is very based on performance. Now what we will address is considering this but also inflation, we will be looking at compensation as a whole, and we will prioritize increases and to retain people that are most important for the company.

[Operator]

Our next question comes from Carlos Legarreta of GBM.

[Carlos de Legarreta Diaz, analyst]

I have 2, actually. And the first one is just a clarification on the expectation of the combined ratio for the year or the combined ratio range, if you will. I assume that's under the prior accounting consolidation methodology. If so, what would be the equivalent under the new methodology? And secondly, you mentioned that equity allocation in your portfolio is around 15%. If I recall correctly, you have targeted in the past something like 18% to 20%. Just wondering if that still makes sense for you or given the current environment in interest rates that could perhaps change...

[Bernardo Salas, executive]

Thanks, Carlos. Let me take the first question and the second one will be addressing on Antonio. The combined ratio, the guidance or the range that we discussed is for insurance-only companies. That would mean excluding the revised consolidation effect. And just to make one note, the revised consolidation effect doesn't have any impact on the net profit or for tax. It is only a mix between what do they fall, whether it's in the operating or in the claims cost, but it has zero effect on the profit. Now combined ratios would be impacted and therefore, thanks for clarifying that the target that we've laid out is only insurance companies, excluding noninsurance businesses or vertical integration of this.

[Jose Correa Etchegaray, executive]

Thank you, Bernardo. About the portfolio, really, we used to have closer to 20% than we reduced to a in equities, we reduced to around 10% in the slightly development we make the decisions. Today, we are about at 15%. And I have to say that kind of this is because we have good acquisitions in some of our stocks in this portfolio, which is good, very nice returns, I have to say. So where would you expect that to go going forward for 2022 is thing around this later. not going to exceed the 20% and veracity this level. The good thing is that we have been very, very selective on this one. And part of the increase reflects the fact that we have increased the returns of that portfolio.

[Santiago Monroy, executive]

We will now go with the operating questions. And we have a question from Martin Lara. I have the following questions. Number one, you implemented an 8.5% price increase in some segments in 2021. Could you please specify what segment kind of price adjustment and what can we expect in 2022? The second question is how do you see the performance of international subsidiaries in 2022? And the third and last question is the individual segment accelerated in fourth quarter versus third quarter 24. What was the reason? And what can we expect going forward?

[Jose Correa Etchegaray, executive]

Thank you, Martin. Thank you for the questions. Let me take a couple of them. The first one is the price increase. But obviously, we do under the segments of our portfolio in many, many ways. I mean, we have part heavy equipment with motor cycles, we have pickups. We have -- it's a very extensive portfolio, the one that we have. So it would be difficult to say the exact. But the thing here is that we continue analyzing on a quarterly basis at in the situation of the different segments that we have. And we take pricing however, we see that the combined ratio is going to be above 90% or so. So we continue to make sure that we have profitability targets in line now.

One important thing that I can tell that you say what we can expect, well, we can expect that we will continue to do visibly say price increases wherever they are needed. -- how and how we are going to be doing that. We just depend again, as I mentioned a couple of times, saying that it will depend on how competition follows. I believe there are some incentives for the competition really to follow up. And one element that I would like to see having increases would be probably in the heavy equipment one because in that area, in the heavy equipment in the pit, there has been by the port and some agents that I see that they have seen things that are not -- I don't know how the heck I have set objectives that I can think of, but they are doing things that are created to some extent.

So I hope that sanity returns to the market somehow, but that is yet to be seen. We will continue to be responsible and we are going to be doing that. Now regarding your third question, which is that they did an an accelerated Yes, that was an important thing that we decided in 2021 that we wanted to reduce to, but we cannot control how the car industry goes and they cannot control some of it we already decided and I believe Bernardo indicated that before that we are going to in managing the teams that we can control. That's something that we have always done in Qualitas. So this not something that we said that we could have a performance that we have had in fact, which is good. We have had a very good performance, but now we are improving it. So it was a specific effort to make sure that we have reducing the deal segment of pages. Bernardo can you take the last one...

[Bernardo Salas, executive]

Yes. So regarding the -- how do we see the performance of international subsidiaries next year, let me tell you international subsidiary have been and they have been paying the role that we expect them to have. They will continue to be an engine of both -- we expect to be in the 20%, slightly above 20% with a mix of roles within countries. As I mentioned, in the U.S., we expect to be in the mid things. But this will be accelerated by growth in Peru, for example, where we have been looking at growth over 50%. We're very encouraged with the success of being 3 year of business. We've opened up offices in . We've been getting traction for new agents and new businesses, and we're very glad with that. And also, we expect, again, as a whole, that the international subsidiaries will continue to provide top line growth of 20% plus...

[Santiago Monroy, executive]

I think we do not have any other great questions. So thank you, everyone, for joining.

[Operator]

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