Edited Transcript of GRUPOSURA.BG earnings conference call or presentation 18-May-20 1:30pm GMT

It also led us, fortunately, with the capability to do it so that most of the employees, almost 30,000 of this group, could work remotely. As you are — as you can see in Slide 5, in Colombia, exceptionally, 10% of the services of health care are physical. And the rest of the people in Suramericana can work remotely, even in the other countries it’s almost entered at SURA Asset Management, more than 90%. There are some employees that require to be present in their offices, but they’re doing it with all the protections required. And when it comes to the group, the 84 employees have been working remotely, all we insist with that methodological support to maintain our health and also, quite important, to maintain the productivity, but especially to maintain the huge standards of services for the people and the companies that require them even more in times like the special pandemic time.

Moving on to the next slide and talking about our second topic, which is clients and businesses. We can see that in the affiliates due to as something relevant. Today, more than ever, is when the clients, the people need the assistance of each of the companies where we are present. Today, more than ever, we must be relevant regarding the people and the enterprises.

And here is the big circumstances besides what’s said on the slide is that we went beyond. Instead of restricting our services and our services, SURA Asset Management and Suramericana expanded their services, enabling the channels. They expanded coverage as they anticipated, as you can see, the pensions. The workers’ compensations company expanded also its coverage facilitating, without doubt, the reactivation of the economy in terms of health. We played a very important role, not only in Colombia but in every country where we have health policies. Telemedicine, for instance, expanded to the 5 countries where Suramericana has held coverages.

Anyways, what’s most important here to highlight is that the companies expanded their coverage, facilitating access of customers and people. And in that sense, today, we can say that our service standards not only were kept regarding what we’re used to do before the pandemic, but also expand and improved after the pandemic, regarding coverages, services and processes.

This very relevant for this time, and we’ll see it with the opportunity is that we reached awareness of a digital transformation that we already had. And perhaps, we really didn’t appreciate it. But in very few days, both companies, SURA Asset Management and Suramericana, just as Grupo SURA. But the 2 prior companies in number of daily operations could serve all of our people with our products are — and doing everything online, using online channels. And that made us aware of the strengths that we have been building for some time, but that — really, the opportunity didn’t arise. Also, we have the relevance of the opportunity also on the speed of adapting and now to having a human talent that has had that capability to transform in such a short notice to keep high standards of service.

Now let’s continue with something in which, for this company and for this group from early on, has been pivotal in its society. You are well aware that for us, the growth of the company should be harmonic. And from the — early on, our participation goes beyond the natural order of the business. And we have a commitment with the corporations or societies where we are.

So also looking at early on from the pandemic. Very especially, we took initiatives as a group and as each of the companies to support early on the health care sectors of Colombia and in every country where we operate, in the 10 countries where we are. We made investments through the foundation and through the companies that have made investments to protect all of the health care personnel, not only our own but public hospitals that needed that support to increase their ICUs.

Anyways, the first focus was how can we protect the health care institutions and the health care personnel? And through the foundation, we insisted then through each of the companies to make very significant contributions to that protection. Contributions, which besides added to the knowledge that we in Colombia and in other cases, in Chile, have. And we have shared, regarding health care services, how we can make the epidemiological fences, how our collaboration with the local and national governments have helped to contain the pandemic and to solve those that are infected in their physical health viewpoint.

In addition, there are also 2 major objectives in all of this contribution we’ve made to society. One, how we can contribute to the people that have been affected by this pandemic, especially those that work in the informal sectors in Latin America because that’s the high rate. Because more than 100,000 families have received food from several foundations of the group.

So Grupo SURA, obviously, is present through the Grupo Nutresa, Grupo Colombia and Grupo Argos as foundations, and we reach more than 100,000 families with low income, providing them food to solve, at least, their basic needs in this very difficult period for everyone, but especially for these people.

Also, we’ve added our services to the economic reactivation. And there, the workers’ compensation, SURA and Colombia, plays an important role but ahead we’ll see it – company — Empresas Sura and the rest of the countries and SURA Asset Management, began to play a very important role. The workers’ compensation has been using all the protocols, so all the companies can begin their economic reactivation with the highest standards of security; and from SURA to provide tools to all of the SMEs, especially in legal terms, in the taxes and the digital marketing. It’s been a very important contribution that we’ve made for the reactivation of the economy, especially for the SMEs.

More than 20,000 SMEs have been hired — contracted right now, providing them that support for their economic reactivation. And as far as SURA Asset Management, it’s been working and creating new funds to support and finance the economic reactivation also of SMEs.

Anyways, we’ve worked with the health care to protect for — with Protección, calling it people, families with low income. And we’ve also been part of the economic reactivation per se, the industry, where we are, both in SURA Asset Management as well as trends, risks and insurance in Suramericana. It’s vital to have the economic reactivation. But beyond the products and solutions we’ve added in this time, more products, more solutions and even expand their capability to create value to people and enterprises.

Moving on to Slide 8. Let’s talk about risks. And we must begin by saying that these companies, given their natural knowledge and vitalness, are based on risk. And in that sense, we have an advantage compared to other industries where the risks are not their natural knowledge. And those risks have helped us to value to evaluate the negative way of facing the risks but also the opportunities found from the risk is clear for everyone that a lower economic activity will have an impact on the revenues of the company’s unemployment will hurt us. And exposure to financial markets that you know well will have an impact on us as well and has impacted, really, our investment portfolios, their profitability and valuation.

So in that sense, we’re looking at the results as of March and April. We anticipate that the results will be better than what we have been expecting from the viewpoint of income, even from the financial results. But as of March, we have already seen an impact on the economic activity and some impact on employment — on unemployment.

When it comes to Suramericana insurance trends and risk, there’s a clear affectation of demand like in every industry, especially regarding mobility, automobiles and the corporate because of the vulnerability of the companies and the SMEs; and the increased claims ratio of some solutions, which is relevant. But still, there’s an increase of this claims ratio of some products that we have.

And when it comes to SURA Asset Management, we have been aware of the regulation. Seeking the economic reactivation and the conservation of jobs has made some material temporary changes for SURA Asset Management. We expect that it’s only temporary because it’s required that they’re only temporary to sustain the system, but more than that, for the expectation of the pension of each of the employees of the region, where it’s very important to have a quotation in a time of quotation of each of us.

In Colombia, as you are aware, there’s a reduction of the contribution from 16% to 3%. Voluntary, there’s a process of program retirement that is not requested by the AFPs. It wasn’t necessary, but the government is looking at it as part of having more cash flow in that process.

While in Peru, the remove — the withdrawal of funds and you know of and the suspension of contributions in April has been determining in the removal of 25% of the funds, which we clearly expect is only to face this crisis to, let’s call it, some liquidity to the SMEs and to keep the economy more active by keeping jobs. Because structurally, it would be very delicate for the people, even beyond them and the AFPs for the expectation to reach the pension.

Also, there are opportunities from this period. The first one is we — as I mentioned, the fact of being able to work under this volatility and the ambiguity, being able to work in such uncertainty, which we have been seeing since the conception and the strategic development of the management of trends and risks. We already saw that the human talent to make these companies competitive and sustainable because of the speed in which the planet and the economy moves today requires that human talent that’s capable of working under certain — high uncertainty, volatility, ambiguity and speed. Today, we’re proving that in this period, so we can say that this is the first advantage that we are perceiving in this time of the pandemic.

From there, we can also mention, like before, the digital transformation of the companies was beyond what we could have estimated and expected. And that major digital transformation enables efficiency frameworks. And as you are aware, these have to do with competitiveness and sustainability. These are some of the large lessons and opportunities that this pandemic period has delivered.

Loyal — customer loyalty. By giving every day to them more than expected from SURA Asset Management and Suramericana has been pivotal for our sustainability as well. You know that the customer loyalty is strategic in these companies. And through it, we can obtain the main growth, and therefore, to attract new clients. So we believe that these have been great opportunities.

But above all, there are other opportunities of how we can speed up the strategy in Suramericana. The trends in risk management today is a reality to foreseeing this allowed us to quickly adapt to this new setting, but besides, confirm that this strategy is entirely valid and that clients are also seeing it valid and resorting to us.

As we mentioned before, we have 22,000 SMEs plus Corporate clients that are supporting and leveraging on our trends and risks management on our portfolio diversification and also increasing the efficiency of Suramericana and using a model that’s much more relevant. That’s absolutely important today. And we firmly believe that this pandemic enabled this.

When it comes to SURA Asset Management, there is no doubt. Also, we have this digital transformation that became evident. And investment alternatives were changed, the advice, the digital advisory service, many alternative channels supporting the economic reactivation, thinking about funds for SMEs. And we believe firmly that will activate a lot of the capital markets, and it will give a new oxygen to the capital markets in which SURA Asset Management will be a very important player in the region. So all these have been opportunities of these 2 months that we had the pandemic and surely will compensate the period that we’ve been living, and undoubtedly also, will give us very good results on a — it won’t give us good results in the short term, but these lessons will guarantee our sustainability in the future.

Financially, which now Ricardo will explain to you deeply in more detail, I’d like to highlight several things within our models. The net income of 2020 is quite guaranteed as well as our solvency. I believe it’s been the result of a professional vision of our equities, of legal reserves of the companies, of the financial exercise of the companies, which has been historical and this grew for 75 years. The growth of the companies from their operation, as you can see in the figures, is quite significant. In Suramericana, growth in premiums is 9%. In Health Care services, provided is 25%. At SURA Asset Management, they have commissions, we have 9% a bit more.

Anyways, these are very significant growth in the operation, practically, as if we didn’t have 15 days of pandemic and lockdown in March, meaning this is the first chapter, which we believe was an important chapter as of March in the results of both companies and in the accumulated on the result of Grupo SURA.

The affectation and the net income of the company is exclusively and accountably only for one reason or 2. First is the valuation of the market prices of our portfolios, and this is same in legal reserve. As you know, at SURA Asset Management, there is an equity method in protection — and the provisions in Bancolombia, which are natural in times like this, which have to be increased precisely for that protection and that solvency.

Lastly, I’d like to remind you again, as we said that in April, both for SURA Asset Management and for Suramericana, results are better than what we had expected. And the growth is still being affected in a month like April with the lockdown, but better than what we expected and with the financial result that, as you know well, recovered compared to results of March. And therefore, we expect that April will be a much more positive April than what we expected.

Now Ricardo will give you more details of the financial statements as of March. Thank you so much. Really, it’s a pleasure to be with you this first teleconference of the results of the company this quarter.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [4]

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Thank you so much, Gonzalo, and welcome to the teleconference results. I’d like to say hello to everyone, and I hope that you’re all well of health at home.

So let’s continue with Slide #10. We’re talking about the financial vision that we’re facing in the crisis. I’d like to focus on 2 main things: first, the cash flow of Grupo SURA in 2020; and then the cash position in solvency of affiliates.

First, it’s important to remind you the high predictability that the cash flow of Grupo SURA has in which 85% of the dividends to be received have already been decreed, and 42% have already been paid. This leads us to expect to have, as you can see on the slide, an operating cash flow close to COP 1 trillion. The uses of this money is also seen in the graph, mainly in interest, dividends. And also, we see the yield of the debt of about COP 131 billion, of which we already paid COP 100 billion. And this is only the debt of the holding.

Likewise, we continue with the strategy to increase our coverage — exchange coverage. And it’s important to give the message that the main focus right now is to begin to plan the 2021 cash flow, understanding that this year, we have the maturity of an international bond of $300 million in other banking maturities.

On the very bottom of the slide, you can observe the cash position of affiliates. And beginning with Suramericana, it’s important to show you that we have cash available of about COP 500 billion after the recent approval that we have from the superintendents of the spin-off of portfolio as a result of the merger of the Life and workers’ compensation company.

Suramericana has also a debt service close to COP 150 billion, which would add in total as a consolidated group that we are lowering the debt for our COP 200 billion. Likewise, the solvency of the companies can still exceed the regulations given the orthodox manners in which we’ve handled solvency.

Now we can round to SURA Asset Management. It’s important to mention here that we have cash available of $200 million, mainly in Chile, as a result of the disinvestments we’ve made in the past and the generation of cash flow of the company in that country. This allows us then for the companies to navigate the crisis with a healthy cash flow position that will give us peace of mind in these times.

Now let’s look at the consolidated results of Grupo SURA initially and then of the affiliates. Beginning in Slide 12, I’d like to highlight, there are 2 messages that — introduced — that Gonzalo mentioned before, and that summarize the financial statements, particularly the income statement of Grupo SURA. And it’s said, on the one hand, we have a very good growth dynamics in the main business lines of the affiliates. You can see that in the first 3 lines of the income statement. Retained premiums grew 10%. Income from commissions grew 6.4%. And services provided grew 25.4%. And second, it’s important also to be aware of the negative impacts that we had, exclusively counting because of the financial markets and the revaluation of the investment portfolios.

In addition, we can add the impact of the exchange difference related to the devaluation of the peso and the reduction of the equity method, mainly by Bancolombia, because of the provisions that, that entity has had to make during the crisis.

So now let’s look at the table in which I would like to highlight that the income reached COP 4.7 trillion, down 6.6%, sliding — or decreasing COP 334 billion. But look at what we talked about before, only the income from investments has dropped COP 630 billion compared to 2019. On the other hand, we see operating expenses growing 6.3%, operating revenue decreasing 71% with a decrease in numeric terms of COP 600 billion. Again, very related to the impacts that we showed in the income from investments before.

And in the financial result, we have the impact of the exchange difference, highlighting a devaluation in the quarter of COP 700 per dollar. And even when compared with 2019, the difference is higher since the first quarter of that year, the difference in the exchange was positive. So with this, we reached a net income of less — of minus COP 76 billion, which we’ll analyze ahead in the next slide.

So let’s look at Slide 13. And there, we can observe that the net income — and we begin in 2019 with COP 560 billion. We can see how Suramericana subtracted COP 12 billion. Now we’ll deepen on why that number, why that figure? Well, SURA Asset Management is opening in 2 components: the one related to the operation of the company, which adds COP 12 billion; and the component related to legal reserve, which subtracts about COP 370 billion. Then we see the impact of the equity method, again, mainly due to the results of Bancolombia. And later, we move on to the items related to Grupo SURA, which are in the table — the gray table. And we see that the main item is the exchange impact, again, an item — or an impact that was merely accounting related to subtract from the group COP 140 billion and reaching a negative income of COP 76 billion.

If we would exclude the impact of the legal reserve and of the exchange in Grupo SURA, we could make an analysis and see that on the dotted lines, meaning we would move from income in 2019 of COP 367 billion to an income in 2020 of COP 274 billion, dropping 25.4%.

Now let’s look at the consolidated results of Suramericana. And I invite you to look at Slide 15, highlighting, first, the operating dynamic positive growth of the revenue that contrasts with the lower revenue or income from investments. The company reached COP 4.3 trillion in income, growing 14.6%. But if we look at the indicators on the right of the slide, you can see that both losses and legal reserves show a slight degrade in terms of claims ratio, but at levels that we still consider normal. For technical results of COP 643 billion with a growth of 6.1%.

Operating expenses as a percentage of the operating revenue have been inclusively decreasing about 90 basis points, up 8.8%, which we consider are controlled. Lastly, investment income from investments has dropped 11.2%, meaning COP 31 billion.

Moving on to Slide 16. You can see in detail the profit of Suramericana in the quarter. So we can highlight the reduction of the net income, explained mainly because of the devaluation of financial assets. And we begin with the net income in 2019 of COP 118 billion in the company.

So let’s look at each of the segments. First, let’s begin with Life. The Life segment has grown in premium — written premiums, 18%, an improvement of 30 basis points in claims ratio to reach a net income of COP 106 billion. Here, it’s very important to highlight there are about COP 10 billion related to the VAT and commissions, which during 2019 weren’t held and are held in 2020.

On the other hand, in casualty, we observed the growth of written premiums for 6.1%, degrading in the claims ratio by 180 basis points. And this segment reached a profit of COP 3 billion. But here mainly, it’s because the significant impact in the portfolio of COP 36 billion in Argentina and COP 6 billion in Panama.

Moving to the Health Care or Health segment. We see that the segment continues very good income growth, growing 25.3%. In this segment, we are reaching close to 3.8 million of affiliates. And we had a cost indicator, a degrade of about 60 basis points, especially related to several investments made in the company to prepare for the COVID.

When we look at the Corporate segment, which adds up to COP 8,340 million to reach a total net income in the quarter of COP 106 billion, dropping 9.8%, which if we keep in mind the 2 factors I’ve mentioned, the income related to the portfolio of Argentina; and on the other hand, the VAT of the commissions of Life of COP 10 billion, the company will be growing its net income 28.6%. So the message here is that the business has been growing healthy and in a positive dynamics.

Now let’s move to the next slide, in which we’ll look at consolidated results of SURA Asset Management. We see resilient growth of the commissions affected by the profitability of the legal reserve and obviously by the effect of the equity method, where we also bring the legal reserve effect for Protección. The company reached income from commissions that are healthy of COP 635 billion, up 9.6%. And we can see on the right-hand side of the slide and the net income, how despite having positive growth in commissions, both the equity method as well as the yield of the legal reserve created a decrease about 60% in the company’s income. Here, it’s important to highlight that both components, the yield of the legal reserve and the equity method, mainly is due to the accounting effects and not of cash flow. It’s really a devaluation of the portfolio.

Moving to the lower part of the slide. You can look at operating expenses. The company reached expenses of COP 443 billion, up 8.7%, below the growth of the revenue. And when we look closely at the expenses of acquisition as a percentage of commissions plus the margin of insurance, it grew 0.8%.

Administrative expenses grew 11.6%. And operating earnings, excluding the legal reserve, decreased only 7.4%. At the end, we can see then the effect more specific of the yield of the legal reserve, which obviously had a very negative performance, as we’ve mentioned in the financial markets.

Moving on then to Slide 19. We see in detail at the net income of SURA Asset Management, and we begin with a net income of 2019 of COP 225 billion.

Looking at the different segments. Let’s begin with the mandatory, which had a positive growth of AUMs of 7%, reaching COP 417 trillion and a variation of revenues of 4.5%. However, the strong impact of this segment, as we’ve said before, was related to the yield of the legal reserve. Here we can highlight that this growth of the commissions is mainly driven by the growth of 7.5% in local currency in Chile and 8.8% in the local currency in Mexico, which was compensated somehow because of the increases in Peru related to the bid that you’re aware of and as we’ve mentioned in prior calls and also the decrease in Uruguay.

Now let’s look at the voluntary segment, which has been showing growth of income from commissions of about 20%, reaching COP 56 trillion in AUMs with the variation of AUMs of 3% and with the variation of clients of 12.2%. This segment subtracted COP 2 billion in the income.

And moving on to the segment, Corporate segment, which again is framed in the gray part of the slide. It’s close to COP 37 billion, mainly related to the financial result from the cash flow in dollars that the company has in Chile and which presented an exchange difference that was positive. So with this, we reached income that drops — is negative of COP 130 billion. But again, as we saw it in the case of Grupo SURA, if we exclude the effect of the legal reserve and we look at the 2 incomes that we have on the slides, on this — we see that the net income of the company is from the merely operating viewpoint is — and this is something I’d like to highlight is from COP 87 billion to COP 101 billion, up 16.3%.

So these are the results — a summary of the financial results, which you can find in more detail in the report that we published. And right now, we can begin then the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Here we have Katherine Ortiz from Corredores Associates.

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Katherine Ortiz Sogamoso, Corredores Davivienda S.A., Research Division – Equity Research Leader & Senior Equity Analyst [2]

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Can you hear me well?

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Unidentified Company Representative, [3]

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Very well.

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Katherine Ortiz Sogamoso, Corredores Davivienda S.A., Research Division – Equity Research Leader & Senior Equity Analyst [4]

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Gonzalo and Ricardo, I would like to know, perhaps, could you give us more details what’s taken place in April and in May in every segment? For instance, the premiums placed or written, contributions to the pension funds? In Peru, how many — how much has been withdrawn to date? So we can understand what can happen during the second quarter of the year and the final impact that COVID can have in the performance, at least for now in this quarantine.

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [5]

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Okay. Katherine, I hope that you are doing well. Really, what we’ve seen in April is that the business has continued with good operating dynamics, as we’ve mentioned. We were seeing growth in premiums of about 5%. In income from commissions of SURA Asset Management, they were hurt because of the measures taken in Peru. But in the other countries, we’ve seen similar growth because we are not seeing yet the levels of unemployment yet — of higher unemployment. Service — health care services provided, there was less growth, about 22% in April, but still it’s a very positive growth.

And what’s important as well is that 2 of the effects that we mentioned for March, meaning income from investments and exchange difference have had some effects on that trend. We have recovered, depending on the portfolios, from 30% to 50% of what we saw that — in drops in March. And the exchange difference with the dollar has changed its trend. And there, we have less impact.

These are the preliminary results we have. We haven’t had the the Board meeting in May that shows the results in detail of April and May, but it does show us that operational — the April was much better than what we expected.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [6]

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Yes. Thank you for your question. I would like to add. Overall, the conservation has been very good for both affiliates, and that’s a purpose that we have because, as we said, it’s a basis for the sustainability of those companies. So overall, without having an exact figure of the customers that we have kept, we do see that the numbers that we still have is very relevant for April and May.

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Katherine Ortiz Sogamoso, Corredores Davivienda S.A., Research Division – Equity Research Leader & Senior Equity Analyst [7]

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Perfect. In terms of the effects, and I understand the report you’re giving us, are we looking really at the development of the spread? But have you made an exercise, looking at some estimates in Colombia of the number of people that are affected by the virus and the impact in Health and Life exclusively looking at the COVID?

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Unidentified Company Representative, [8]

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Yes. Literally, we are constantly making a daily evaluation of the curves, not only in Colombia, but in the Czech countries where we operate. And we are looking at those curves, comparing them with the results to the point that we’re looking at the economic sectors. And the impact, as we’ve mentioned before, is that despite everything that we’re living, we’re not meeting yet the revenues that we have budgeted. But we will have lower income, and we’ll have some losses. But what we see and insist on is that we don’t have solvency margins problems.

And so we do have developments. We are analyzing this information every day. And we’re making a follow-up between the knowledge that we have in health of the pandemic as well as other sources of information in the areas of risk. So for SURA Asset Management, for Suramericana, systematically, we do see those — we have been carrying out these exercises and models.

So what is important to insist on is that all of these modelings in April still confirm that the company’s solvency and liquidity is guaranteed.

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Katherine Ortiz Sogamoso, Corredores Davivienda S.A., Research Division – Equity Research Leader & Senior Equity Analyst [9]

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Okay. I don’t know if that means — if it’s possible to have a guide of claims ratio and what you expect it to increase to?

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Unidentified Company Representative, [10]

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It’s very difficult, really, to tell. Uncertainty today is part of something that we’ll have to start to manage, so it’s hard to answer. And in Health even more because one more day or less really has an effect on the claims ratio of the company. And for decades, we have been used to managing this, but to talk about claims ratio projected is something that’s not prudent for now.

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Operator [11]

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Daniel Guardiola from BTG.

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division – Director of Equity Research [12]

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I hope you are all well. I have several questions on 2 matters. One, is leverage. If you look at the leverage of the holding company, during the quarter, there was a degrade, even looking at the dividends that will be received during 2020, which were approved, as Ricardo said.

So my first question, with leverage, do you see any risk that the dividends decreed and approved by the shareholders’ assembly will be deferred?

And my second question is what measures are you implementing to control a possible additional degrade of the leverage for next year, with the income and dividends decreed, which surely will have contraction?

So that’s my first question. You can start answering them, and then I’ll ask the second question.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [13]

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Perfect, Daniel. Likewise, we hope that you’re doing well. Okay. There are several items that I’d like to touch. In the financial statements as of March, the leverage was really related. If you always look at the financial position, it does have to do with the dollar. What do you have to keep in mind? That there’s an item in that that’s related to coverages because most — as of March, most of the exposure to dollars is covered. So we already know exactly. We already looked — took care of that debt in dollars. That has to do with the financial statements.

In others, as I said before, we expect during the year to amortize the debt. We even planned — we have maturities, and that could be depending of how we see the situation or the development of the profits of the company because we have to start planning, as you said, the cash flow for 2021.

So in 2020, we expect to drop or decrease the leverage. Also, most of the dividends have been decreed. We don’t expect right now to have any restrictions to provide these dividends. 42% have already been given. There is no doubt — and here, I see the questions that we’re receiving. Definitely, we will have an impact on the dividends received in 2021.

Right now, as Gonzalo just said, the uncertainty is huge. As you know, dividends comes from the 5 main investments, especially SURA Asset Management, Suramericana and Bancolombia are the ones that contribute the most of events. And we have to monitor step by step the profitability of each company. Right now to imagine how it will be — is very difficult. As Gonzalo said, we are using some models that — using models constantly. And everything is connected, it is the development of health and the public policy measures implemented to see how many quarantines we’ll have because quarantines really — are really the ones that are hurting our unemployment rates and the economic activity and provisions in banks, possibly the demand of our products, the insurance and unemployment in SURA Asset Management. So I believe it’s very difficult right now to commit to say how the level of dividends will be in 2021.

However, we — knowing that we have an important obligation to refinance the bond of $300 million next year, we are analyzing as of now, and we’ve been doing it even before the pandemic. We’ve been looking at the alternatives we can use to refinance it either through international markets, local markets. And we believe that the company has enough freedom to refinance that obligation.

Again, I think that what is most convenient right now is that while we see some progress, we can provide you figures, not only for 2020 but for 2021.

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division – Director of Equity Research [14]

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And my second question is for Gonzalo. And I’d like to understand the 3 main goals that Gonzalo would like to reach in his new position, to understand how you think.

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [15]

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Thank you for your question. First, let me say something I repeated, is to not stay trapped in the present. After passing this period, there are several things that are fundamental.

One, is to have a Grupo SURA strategy and that of affiliates. And that strategy, as mentioned during these years, is the one that seeks long-term sustainability and gives value to companies and people. And that’s fundamental because the first thing we do as a group is to ask ourselves is how can we use our knowledge to leverage our affiliates and how can we be better with our investments. So that strategy will create more loyalty from clients and to attract more clients. And there, we can solve the fundamental problem is market penetration. We have to continue working on that because we are in industries where we have a lot to do still in every country, from SURA Asset Management and Suramericana’s affiliates and our main investments and in the banking. So that’s very important because the first thing that we have to guarantee is market penetration and value for our clients.

Second also is to use operating models. Fortunately, as we’ve mentioned in this talk, this pandemic has shown us the capability we have for transformation and efficiency. So the second task is to use our knowledge in models to implement our strategy, but to have higher efficiency indicators. We’ve been working systematically to find better efficiency levels that will undoubtedly become more income and sustainability for our companies. And the idea is to improve the profitabilities that we have in our affiliates in every country and also that of Grupo SURA as a result of those new operational models.

We highlight, as we said before, that this period has shown us that we do have digital transformation and the capability to transform processes that will undoubtedly lead us to have more efficiency levels. Here, all our affiliates are very relevant, and that path has to be made on a short-, medium- and long-term basis.

And third, obviously, everything has to do with investments management. As Grupo SURA, we not only have investments, the main ones in Suramericana, but also in the industrial sector, but we manage those investments through knowledge. The fact — I mean, we have 5 main businesses. And to be throughout the region, the leverage of that knowledge and from here with the knowledge applied to leverage all those investments is something that sets us apart and we have to deepen upon so that we can be the best owners of each of these investments.

So these are the large goals — 3 large goals I have. That’s the work that we’ll be focusing on. Remember, competitiveness comes from the knowledge we have applied seeking to penetrate the market leveraged by Grupo SURA, using strategies in affiliate; second, more efficiency, using models, not only reducing expenses but using efficient models, which we have proven this period; and third, with applied knowledge, which helps us to share the knowledge we have in the main — 5 main investments we have throughout the countries.

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division – Director of Equity Research [16]

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Thank you, Gonzalo. Can I ask you another question? With regard to a third goal of investments management, do you have a goal or, I don’t know, a tool that you plan to implement to deblock the hidden value? Because there are many listed assets. And another question, have you considered to disinvest assets in which you have noncontrolling interests?

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [17]

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No. Today, we are focused on the profitability of all of our operations. That’s the most important thing that we have to do. Every operation which still has some income level that can be increased in the last decade are investments that can grow still. And there — that’s the focus that we have in our strategy on a short-term and medium-term basis. These are investments that are powerful enough and large enough, and we have no doubt, will leverage Grupo SURA in its results and its growth. And that will allow us in turn to start rethinking on different solutions and investments.

However, it is important to say that today, the investments that are not core like Sodexo was disinvested, even in Dominican Republic, where we had a minority share in brands. I mean all these investments, which are not part of the core of the group’s investments, have been realized because clearly, they weren’t part of our goal. So the idea is to strengthen what — and leverage what we have today.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [18]

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Let me add to what Gonzalo said. Gonzalo is focusing on the main task that we have of increasing the value of our investments. But there’s another component is that the market is looking at the values differently to us. So I’ve said it many times, this company has a list of initiatives that it’s working on to eventually see how the liquidity of the share, et cetera, can lead us to close the perception of the market in what we believe companies really are worth.

So we have to look at the profitability. And we have — how the holding can close that discount.

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Operator [19]

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We have Johanna Castro from Itaú.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division – Research Analyst [20]

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I have 2 questions related to — now that Gonzalo manage operation in which SURA was extremely efficient until it acquired international businesses. I’d like to understand his viewpoint or the various difficulty he sees in Grupo SURA to handle the efficiency within the companies.

I understand that there is a topic of size, but it’s been very difficult for SURA Asset Management to control administrative expenses consistently. I understand that now there are different — a new model of views, and I’d like to know about them more. Because I understand perfectly a 0.5% of savings in SURA Asset Management for the holding is a bunch of money. So that’s my first question.

What — tell us more about these operational models to increase the efficiency that Gonzalo mentioned. And second question, what mechanisms do you think you can use to anticipate within your role as a holding to improve the operations of a company like Bancolombia?

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [21]

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Well, let’s begin with the first question. The acquisition process of these companies, and we already have stories that have taken place, companies like Paloma, which is creating a lot of value, but it took time to do so. So I think it’s something natural in different industries in different countries and in different types of companies.

So why does it take longer than expected or wanted? Because it goes — it undergoes a process, and this is for SURA Asset Management and Suramericana. Because first, we have to invest to then look at the operational efficiencies. When we have a long-term basis, first, we have to make an investment to seek the operational efficiencies.

If you allow me, I’m not an engineer, but I’d like to say that the taller the building, the deeper the columns. So we have to invest more to reach those operational models and to have more efficient companies. We have to look at both things, not only for efficiency do you have to look at expenses, but also revenues, and that has to go hand in hand.

So the first reason, is that we have to invest. And there — we have very clear examples like investments in advertising that companies didn’t do in our market analysis, investments in channels, even investments in the core of the companies. In this company, there are huge investments in the core, which if we wouldn’t make, we would have — we wouldn’t have the significant net income we see today.

So we take time. It’s because we want to make a long-term investment, and we need to have very, very sound bases, pillars, so that we can have solutions for products, services and also, obviously, using operating models with good technology, second.

That operating model that you’ve mentioned is one in which we began to work at the companies with people and companies towards it, meaning that will facilitate that the processes that didn’t exist, today we have a good sample in this almost 2 months. There are processes that stopped existing or will disappear. There are other processes that have to be changed. How we can have more direct access to companies and people, and build a better bridge from SURA Asset management and Suramericana?

So there’s something that — there are many money depths of any — at Suramericana and SURA Asset Management that will help us guarantee that the operational model is based on good processes.

Let me add, we reduce expenses, yes. But we have a spectrum that’s very small. So up to where can we reduce expenses is an important spectrum, but small. But when we change the operational model for higher competitive levels — let me give you an example that’s clear and historical. In the HMO, we had expenses for 14%. Today, it’s only 4.8% with the operational level that you can imagine. So it is possible, but you have to change the operational model. The idea is to provide different solutions and how the companies have to do things differently. So that’s the path that companies are seeking to create, undoubtedly, higher net income.

Let me see — I’m missing something. Is there something of your question that I left out? Oh, the bank. The bank is the same. The bank was going very well on its path. And it was affected in March, obviously, because banks provisions were affected. But the growth of the bank, systematically, if you look at the history of the bank, today, the indicators are way below 50% in the bank. March was not a good time. But there, we’re also taking care of new operational models regarding efficiency. Something that’s very clear for everybody, efficiency has 2 connotations. And we prefer to talk about the operational model for that because it’s not only reducing expenses, which we insist is an activity for only a very short-term basis. It’s not — it will be okay until May but not for long-term projections. So this should lead us to have lower costs, and those lower costs should lead us to have more market penetration.

So with this work, the bank is also carrying out its part. It’s been showing year after year good results. And this year, the bank had a very good indicator, way below 50%. As you know, I’ve been in this Board 13 years. And that order early on, we wanted to be before 50%, and structurally, we’ve managed that goal. And it shows us a different trend. But really, operationally, the bank has a different trend.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division – Research Analyst [22]

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I would add that the bank has been able to operate very satisfactorily, understanding that there are many offices closed. And I think that this will lead us to think that there, according to the operational models of Gonzalo, how to increase efficiencies in the bank?

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [23]

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It’s important to highlight as well, there are lessons with COVID 19, yes. But what we mentioned before is that in these 2 months, we’ve learned how to be more efficient — to have more efficient operations for higher sustainability levels.

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Operator [24]

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Now we have [Heidi Lastia].

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Unidentified Analyst, [25]

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I hope you are well. I have 4 questions. One, related to the losses recorded in the pension fund managers. Tell us more about that decrease of the legal reserve.

Second, when it comes to the repurchasing of stocks, will you execute this or not and the amount and the time taken to — for this repurchase? Third, in the last issuance of stocks made by Grupo SURA, the preferential stocks, Mr. Bojanini back then said that on a medium-, long-term basis, SURA Asset Management would be listed. Have you reevaluated that chance?

And my fourth and last question has to do with the companies of the group. Have you talk about disinvesting in companies of the group?

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [26]

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Thank you, [Heidi], for your questions. First, specifically, when it comes to the decrease of the legal reserve, we have not discussed this yet. I suggest — I mean we have another question that has to do with the regulatory context in the region. But I would like that Mr. Múnera to talk about the overall concepts of those regulations and their development. But particularly regarding your legal reserves, there — we haven’t seen any change in that point.

Second, the repurchase of stocks, I think it’s important to say that the Board — the shareholders delegated to the Board our cash flow for a certain amount for 3 years to execute that possible reacquisition of stocks. So it is an option. And I’d like to highlight that our priority is focused now on the liquidity and solvency. And that additional use of resources must be clear. We have to be sure that it’s the right time to use it. Although the price of the stock is quite low and it could be an interesting financial moment, we have to be careful with the cash flow and we have to see when it’s more convenient to use the amount, keeping in mind that we have a 3-year horizon.

The third item, your question, you remember the discussion held to list SURA Asset Management was related, highly, to the financial investors that were leaving. However, we have the devaluation. We decided not to list it and not to have the financial investors through bilateral transactions.

So I understand that, that topic was touched before. But today, it’s not on the table. What we, as a company and as a group, do have to see, keep in mind, are the opportunities out there? And if we see — and when we see that it’s good to list Grupo SURA, SURA Asset Management or Suramericana, it’s something that we’ll be analyzing ahead. But for now, I can say, we have nothing on the table on that issue.

And as to your fourth question, right now, we’re not evaluating either any disinvestments of the strategic company because regarding price, it makes no sense, and those 5 investments are very strategic for Grupo SURA.

Part of the vision also includes the fact that today more than ever, we’re looking at the strength of being diversified in different regions and in different industries. I mean there’s a strength in the portfolio today that’s proven in these months with so much volatility. So it’s that diversification is increasingly important.

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Operator [27]

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Right now, we have no further questions by phone. Now let’s listen to Ricardo Jaramillo to answer the questions from the webcast.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [28]

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Okay. We have several questions by web. Some already asked by phone. We have Daniel Guardiola. He already asked his.

So now we have from (inaudible) we have — who asked us — she says that, in casualty insurance, you had a drop of — what happened in Mexico and Panama?

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Unidentified Company Representative, [29]

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Let me clarify, when I talked about the impacts of both countries, especially because of the losses from the valuation of investments, of the companies that we have in both countries. So Suramericana has financial portfolios to support that legal reserve. And of course, these are the 2 countries that were hit in March.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [30]

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We have a question from SURA Investment Management. What’s the claims ratio related to the loss of employments in Suramericana? Loss of operation?

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Unidentified Company Representative, [31]

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[Maria Jose], this topic originally was structured that everything is dependent on the material damage, and that’s why the impact has been null. Because clearly, there is no coverage of this because of the COVID-19 and there is no material damage. So the coverage isn’t there.

Perhaps in the ahead, we’ll think about that. But today, the impact is — the material damage is 0 because of COVID-19.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [32]

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Daniel Duarte from Corficolombiana asks, what’s the current status of — let me see, Daniel, that we have made no report. We consider this time is of a lot of volatility and uncertainty and to look at things on a 10-year basis, a long-term basis in the companies is to make those assumptions right now would be very complicated. So to respond, we have made no exercise for that.

Maria Cruz from Seminario. In your investments in airlines, tell us about that. How are you doing?

We understand that practically, we are not exposed to airlines. We — I cannot tell you, there are minor points in some of the portfolios we have in other countries, but there is no real investment in airlines.

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [33]

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To complement we have no position in bonds or stocks of Avianca. Our portfolios — the only thing we have with Avianca is that we are the insurers of labor risk. Ricardo?

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [34]

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Yes. Carlos Oquendo from SURA Asset Management.

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Carlos Esteban Oquendo Velásquez, Sura Asset Management S.A. de C.V. – VP of Corporate Finance [35]

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I’d like to complement by saying that we had something small in airlines and integra and in capital in the funds in Peru. But before the crisis, also in Chile, the capital we have there is quite minor, not representative.

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [36]

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Perfect. Thank you both.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [37]

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Roberto asked us a question that has been answered, I believe. With regards to the dividends and how we see the dividends for 2021?

Again, we’re looking at different options for that.

Luis Carlos from Itaú Asset Management asks, could you give us an update on the regulation? Could you give us more information of the monetization of the digital? How should we see your efficiencies in income and expenses?

Because of the many new regulations in every country, I think that Juan Luis Múnera can give you a better answer for this.

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Juan Luis Múnera Gómez, Grupo de Inversiones Suramericana S.A. – Chief Legal Corporate Affairs Officer & Secretary General [38]

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As Ricardo said, the many regulations issued in Colombia, in the region, has been extensive. So you could say that there are patterns or overall characteristics of the regulations, which are aimed, first, to create exceptional status in which the executives of every government can issue regulations swiftly to face the situation, the pandemic. And this is something that we’ve seen throughout the region. Lockdowns have been decreased in most of the countries with less — more or less restrictions, but still that’s been something seen throughout the region.

In every country, we’ve also seen regulations issued to create relief for sectors that could be hit hard by the emergency. So on that, there’s a lot of similarity in the different regulations that have been issued. And I would say that this is — finally, really, the regulations, what they do is to adapt to the emergency situation experienced. And as the situation expands in time or changes or is worse or better, regulations will surely — will follow the parameters — general parameters. So that’s something I could say about like an overview of the region because there are many regulations.

So it makes no sense to talk about each specifically. Mostly are temporary regulations focused on serving the current situation.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [39]

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Let’s continue. We’re asked also from [Luis Alberto]. What’s the decision of the government’s decision regarding the percentage subtracted from pensions?

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Unidentified Company Representative, [40]

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[Luis Alberto], we are aware that the effect should be entirely neutral, meaning the request made by the Colombian government has to do with pension commutations. So the effect has to do relating the asset with the liability, and there should be, technically, a null effect. I move the asset I have in accordance with the liability that I have of the people that transfer their pension. And that’s a valuation truly actual and financial.

So for us, it’s simply making that transfer of the assets with the people they are pensioned, which should give us a neutral effect, technically speaking.

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Ricardo Jaramillo Mejía, Grupo de Inversiones Suramericana S.A. – CFO & Chief Corporate Finance Officer [41]

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[Juan Sanchez] from [Tuse Capital] asks, if the repurchasing of stocks is still going to be taking place? As we replied that we haven’t made any decisions yet

From [JEI], we’re asked about the future of the real estate business of the group with this COVID. Carlos Oquendo can give us a hand with this response.

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Carlos Esteban Oquendo Velásquez, Sura Asset Management S.A. de C.V. – VP of Corporate Finance [42]

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Yes. Definitely, this will — this business will be hit in the future. However, specifically, for the Colombian fund we had recently gathered the capital, and we had invested little. So we have a dry powder there that’s interesting. I think we will have the chance of acquiring assets with good discounts. So specifically, for these funds, we see interesting opportunities, again, because of the capability of investment that we still have.

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Gonzalo Alberto Perez Rojas, Grupo de Inversiones Suramericana S.A. – CEO [43]

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Perfect. We don’t have any more questions — written questions. So without further ado, we’d like to thank you all for joining us. We’re open to any questions you may still have. And again, this is something that we have to manage step by step because of the uncertainty that we’re facing. And we can provide you guidelines — as we can provide you guidelines of what we’re doing, we will. We’d like to highlight as well the important role that we are playing in SURA Asset Management and Suramericana affiliates, and also the bank and economic reactivation.

This is something that we’ve been managing the risk. And there, as we’ve mentioned before, we are correlating the COVID-19. We’re looking at the industries that are hit the most and how we can support these types of industries, the SMEs. And that, of course, implies reactivating the economy for all and to protect the income of SURA Asset Management and Suramericana.

So the virtue of working with AUMs that are using the best knowledge for economic reactivation is great for the country and positively the results of both companies. And with that order of ideas improving, we hope the position that we can have in the future.

Thank you all for joining us, for attending this teleconference. And as Ricardo said, here with Juan Carlos, we are willing to answer any questions you may have. We are aware that there’s a lot of uncertainty now. And therefore, we are — yes, we would like to answer all your questions when we can. Thank you all.

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Operator [44]

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Thank you, ladies and gentlemen, this ends our teleconference for today. Thank you for attending. You may hang up now.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]