Qualitas premiums will probably grow in low single digits as a recovery in the economy boosts domestic vehicle sales in the second half of 2010, Chief Financial Officer Wilfrido Castillo said recently in an interview.
Mexico's economy is widely expected to grow at least 3% in 2010 thanks to a rebound in domestic demand and exports to the U.S., its largest trading partner, after contracting an estimated 7% this year.
New car sales are a key growth driver for insurance companies in a country where there is no federal mandate for auto insurance and the few states that do require coverage don't enforce it.
About two thirds of sales are financed by banks and non-bank lenders who require that a vehicle carry insurance during the life of the loan.
New vehicle sales plunged 28% year-on-year to 662,957 units during the January-November period as the recession pushed-up unemployment and made lenders more reluctant to extend credit, according to auto industry association AMIA.
Insurance companies have suffered along with the auto industry. Automobile insurance premiums fell 4.5% to 33.32 billion pesos ($2.6 billion) in the first nine months of this year, compared to the same period in 2008, according to insurance sector association AMIS.
A soft car market has also dented Qualitas' top line. Premiums fell 5.7% to MXN7.76 billion during the first 11 months of the year, although the number of insured vehicles rose 7.7% to 1.48 million.
Castillo sees the auto insurance industry posting little if any growth in premiums next year.
"The issue is that more than 1 million vehicles ought to be sold in Mexico every year and right now we are at levels of around 750,000. I don't think we are going to exceed 800,000 next year," he said.
Qualitas also operates in El Salvador, where it currently insures just under 1,200 vehicles through a joint-venture with Canada's Bank of Nova Scotia.
"We continue to believe that growth overseas makes sense," said Castillo, who sees Costa Rica as an attractive market given its insurance industry was recently opened to competition after being a state monopoly for decades.
"We are studying the possibility of doing something next year," he added.
The company's CPO shares traded on the Mexican Stock Exchange rose 1.4% to close at MXN7.30 on Wednesday, bringing their year-to-date gains to 49%, compared to a 43% rise in Mexico's benchmark IPC stock index.
Qualitas, which has about 30% of its shares listed on the local bourse, has struggled to broaden its investor base due to its modest float and the lack of formal analyst coverage.
Brokerage houses have been reluctant to cover the stock given Qualitas is virtually the only insurance company that trades on the local stock exchange.
Qualitas hired local brokerage Ixe Casa de Bolsa last year to act as a market maker for its shares with a view to boosting their liquidity.
Castillo said the company will look at additional measures to improve the liquidity of its shares once it resolves an outstanding tax dispute, for which it created a reserve of MXN115 million during the second quarter.
"Once this is resolved, which should be in the short-term, we'll know what to do," he said.
(Source: irco.biz)
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