Ladies and gentlemen, good day and welcome to the Cholamandalam Financial Holdings Limited Q4 FY 2023 Investors' conference call hosted by Axis Capital Limited. As a reminder, all participants will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star and 0 on your touchtone phone. Also, this conference call is being recorded. I now hand the conference over to Mr. Praveen Agarwal from Axis Capital. Over to you, Mr. Agarwal.
Thank you, Vikram. Good morning, everyone, welcome to this earnings call. From the management team, we have Mr. Sridharan Rangarajan, our Director, Mr. V. Suryanarayanan, MD, Mr. S. Venugopalan, CFO, and N. Ganesh, Manager and CFO to basically discuss the key highlights of the results. I will request Mr. Sridhar to give his initial remarks. Over to you, Sri.
Mr. Paul, good morning to all of you, and thanks for taking time for participating in our call. I have with me Suryanarayanan, MD of Chola MS, and Mr. Venugopal, CFO of Chola MS, and the CFO of our company, Mr. Ganesh. The consolidated total income for Cholamandalam Financial Holdings for the quarter ended March 2023 increased by 39% to INR 5,281 crore, while the profit after tax increased by 31% to INR 901 crore. The consolidated total income for FY 2023 increased by 25% to INR 18,376 crore, while the profit after tax increased by 26% to INR 2,810 crore. Cholamandalam Investment and Finance Company, you might have attended the call, that their details on the presentation and transcripts were available, and I'm sure you would have gone through that.
I'll just give a broad highlight of that. CIFCO gained market share across product segments in vehicle finance and other business units. Disbursement were at INR 21,020 crore for the quarter ended, which went up by 65% and INR 66,532 crore for the full year, went up by 87%, while AUM stood about INR 112,782 crore, which is up by 26%. Profit before tax for the full year was at INR 3,600 crore, went up by 25%. Asset quality also improved from 3.51% in December 2022 to 3.01% as of March 2023.
Cholamandalam MS General Insurance registered a gross premium of INR 1,776 crore in Q4, increase of 27.9%, and the company crossed the INR 6,000 crore mark, and they did INR 6,200 crore for the full year, an increase of 27.6% over the last year. I would also request Suryanarayanan to make a brief comment about Chola MS General Insurance. We'll open up for Q&A.
Good morning, everyone. Thanks, Sridhar. As was mentioned by Sridhar, Chola MS recorded a GWP of INR 1,776 crore in Q4 and INR 6,156 crore for the full year. A growth rate at 27.6% was strong compared to the multi-line insurers growth of 16.3%, meant that Chola MS enhanced its market share to 2.67% amongst the multi-line insurers. The growth was across all lines of business, with growth rates of 33.4% in fire, 26.8% in motor, 36.7% in health, and 16.7% in personal accident line of business. The company grew across all its channels. In its captive channels, business from the sister company and the Insurance Express outlets grew by almost 20%.
Bancassurance business grew by over 50%, with the addition of new tie-ups in Tamilnad Mercantile Bank and South Indian Bank. Growth from the new channel acquisitions across OEM platforms, financial partners helped behind the strong growth. Chola MS investment portfolio corpus was at INR 14,060 crore with no net exposure to stressed assets, meaning that all of the stressed assets have been fully provided for. Recoveries from the fully provided exposures in IL&FS and Reliance Capital will be recognized on cash basis as and when it happens. Chola MS registered a combined ratio of 104.2 in the quarter and 109.3 for the full year. The claims ratio for the quarter was at 70.8 and for the full year at 71.2.
The company ended the year with a profit before tax of INR 264 crore, solvency ratio of 2.01 times. With a net worth of about INR 2,160 crore, Chola MS earned reserves over the years constitute about 81.5% of the net worth. That, ladies and gentlemen, is the summary of Chola MS results. We shall now open the floor for questions.
Thank you very much, sir. We will now begin the question and answer session. If you wish to ask a question, you may press Star then one on your touchtone telephone. If you wish to remove yourself from question queue, you may press Star then two. Press Star requested to use hand to ask your question. We will wait for a moment for the questions. If you assemble to ask question, please press Star one on your touchtone phone now. Take our first question from Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Yeah. Hi. Good morning, and thanks for the opportunity. Just one question in terms of at a broader level, if you look at the listed entity, are there any plans in the medium term or the near term to unlock value for shareholders from the perspective that this is good to entry? One is Chola, which is listed entity, and that one is a general insurance business which perhaps can be listed at some point in time. I ask given the potential in terms of discount the company could check underlying value. Just thoughts around this would be very helpful, sir.
Thank you. I think, this question is being posed to us every now and then. I think, as we stated earlier, our aim is to carry out both the business well. That's the primary objective of management. Both the businesses, the NBFC and general insurance are doing really well at this point in time. We would like to present how they have performed, what's the future hold for them. It's up to the investor to take a look at it and value the company accordingly. We will stay with that stance as clearly as stated.
Right. Right. I understand the perspectives are on business performance. Just that, at a board level, is there any, in terms of discussion on this particular point, given the, like, potential value to go to the shareholders of this entity, if and when, an action is taken? Just trying to ask more particularly about the, structural changes rather than underlying performance. Underlying performance I'm sure is obviously doing very well, sir.
As and when a board takes a call, definitely we will, get back. As of now, no such discussions.
Got it, sir. Sir, secondly, for the GI business, is there a listing plan because there are number of other GI company which are listed? From that perspective, anything on that particular element?
Look, I think, if you look at the capital adequacy of GI business and capital required for its growth, both in terms of the insurance business as well as some of the investment they would like to make in terms of, let us say, software, grades and some of the digital sets that they would like to own and then improve the productivity of this business. They are adequately capitalized, and we feel there is enough and more that we can definitely look at for the growth trajectory, what they have been projecting at this point in time. Definitely, you know, as and when if we have a certain plan in terms of requirements of equity, we would definitely look at it.
Our joint venture partner has a similar view, and I think, we will explore, this as and when we feel definitely there's a need for us to do.
Just one final question on GI. In the sense that, maybe at some point in time you can look at a universal license or in terms of, in terms of GI companies being allowed to do other insurance products. Is there a plan to get into life insurance at any point in time and as and when this opportunity starts open?
I think, we are definitely observing the developments in this space. I think we require more granular details which is awaited. I think most of the industry is waiting for such details. Then we would take an appropriate call depending on how the guidelines would evolve and based on what definitely we would take an appropriate call on that.
Got it, sir. Thank you and wish you all the best.
Thank you.
Thank you. Okay. The next question is from the line of Devansh Nigotia from SiMPL . Please go ahead. SiMPL, I'm sorry. Please go ahead.
Thanks for the opportunity. Congratulations on good set of numbers. In case of certain operating expenses, ex commission, the run rate has actually started to moderate despite higher growth. So as a percentage of existing premium, it was hovering around 41.23%. This quarter is around 40%. If you could just help us understand, are there any reversals or are there any changes in marketing expenses? Where are these savings are subject to come from? Incrementally, how do we see this number shaping up?
Yeah. If you're talking about the COR element of EOM, 33.4%. For the YTD, FY 2023 is 38.1%. We have been able to reduce from the previous year Q4, from 38.5% to 33.4%. Basically, the reduction is on account of a higher growth in GWP and corresponding NWP part. There is, you know, whatever the savings that are possible in the acquisition cost. These are all the two elements which have led to a reduction in Q4. Continue to, you know, examine the reduction in the, you know, expenses of management, in way of, you know, reducing the acquisition cost as much as possible in the, in spite of the business growth.
Okay. These are largely the marketing expenses, the customer acquisition costs that you're talking about?
Yes, yes. The other fixed costs are, you know, will also come down basically because of the top line growth. You can clearly see that the top line growth in Q4 also has resulted in the reduction in the acquisition cost as well as in the expenses of management.
So sir, we heard, what we understand is that because of higher competitive intensity in motor insurance also leading to such high acquisition costs for us. Can you comment a little bit about the competitive intensity that are on motor insurance and how it is shaping up? Also how were we participating in this competitive intensity before and how we are participating in the competition right now?
As I have mentioned, before in earlier calls as well, competitive intensity in the industry, all lines of business continues to be high. Motor is such thing like that. What we are beginning to see is some budgeting in the market in terms of deciding, you know, of what discounts. With the advent of the OEM limits coming in effective April 1, we do see that some of the larger players are more conscious of what is being sold in the market. It is good for the industry and good for almost all players there. Given the trend of motor OD loss ratios, this reduction in discounts is something that is badly required for the market.
Chola MS as the fifth-largest player in the motor line of business is more than happy to sail in this direction of reduced discounts.
Okay. Now that we are at an EoM of, you know, still very high, around 40-41%, and the regulations are giving a direction to come down to 30%. This 10% gap, where do you think how we can bridge this gap, which line item, where maximum savings will come from? Some thought process on savings incrementally, saving initiatives that we gonna take.
Yeah. This expenses of management is always seen in relation to gross written premium and therefore should not be confused with the COR computation which is based on written premium. As against the 30% limit that we have from effective April 1, 2 and 2023, we are at about-
36
On a comparative basis?
Yeah. We were at 36 in March 2023 compared to 38-
Yeah.
-in March 2022.
The point is the number is 36, which is there even in our published numbers. Comparative number from the previous year is about 2% down. The regulation had also prescribed a three-year glide path, for which we do have a plan for continuous reduction over the next three years to conform the 30% limit. The board is pleased with the matter, and we should see the as our structure going down the glide path as planned.
Which line item, do we think can have maximum possibility of savings?
No, it will have to be across the lines of business. Besides, there will be some advantage that will accrue to the company by sheer growth in size. As I have maintained before, our operating expenses will now get absorbed better on a larger base, which will also provide some relief in terms of the overall EoM.
Okay. In case of commissions, the run rate is lower by 1% to 2%. If you can help us understand the same, please.
Can you repeat the question?
Commissions normally the run rate is around INR 35 crore, INR 40 crore. Gross written premium of INR 1,500 crore-INR 1,700 crore. This quarter the gross written premium was INR 1,757 crore, commission expenses were just INR 15 crore. Like a delta of around INR 25 crore-INR 30 crore is there. This is the normalized limit. Any reversals or, why is this run rate so low?
No. Commission is as per if you are talking about the, you know, the Q4, am I right?
Yes. I am talking about Q4.
Q4. That's, you know, it's as per the IRDAI part of this thing.
If you are talking about the commission net, please, you know, understand that if you are looking at the revenue commission net, it consists of both RI commission as well as the gross commission. In the Q4, there are various treaties running on a sliding scale basis, wherein, based on the last ratio at the end of the year, there will be a, you know, RI commission approval that will come as a part of additional. The, you know, net commission looks lower. Actually, this one has to be seen from the point of view of, you know, gross and the net. The net is RI commission.
Let me explain. Chola MS, conservatively recognizes the insurance commission through the year. When numbers get crystallized at the end of the year, it recognizes the full reinsurance commission as per the treaty. Naturally you will find that, the quantum of the insurance commission that gets recognized in Q4, is generally higher as we do adopt a very conservative method of recognition. At the full year level recognizes the effects of operations for the full year.
In case of when we look at all the segments, fire, motor and health, the business momentum is stronger than the industry and strong market share gains continue. If you can touch upon individual segments, what are we doing differently that is helping us gain market share, like in fire, also motor and health, that would be really helpful.
Let me begin with fire. Fire, there are a few drivers that have helped us grow. One, our volume of business from the non-insurance segment has gone up this year. With the new tribes coming it should help in the current year. Sites in fire are newly set up verticals for SME business and volumes from the larger Indian corporates has also grown well over the last couple of years. In motor, we have, as is clearly visible from the deck that is out, we have diversified the portfolio. We are now part of most OEM programs in cars, in two-wheelers, and which is helping us diversify and grow in cars and two-wheelers, which help us enlarge the pie in terms of the motor business.
Health has been, we are seeing, both the bundled attachment, health benefit, business and our growth in health indemnity has also been there. Though still the proportion is smaller as compared to the proportion in the benefit business. These have been the drivers.
Thanks a lot. I'll come back.
Thank you. Participants who wishes to ask a question at this time must now one on his touchtone phone now. Second question from the line of Swarnabh Mukherjee from B&K Securities. Please go ahead.
Yeah, good morning, sir. Thank you for the opportunity. Two, three questions. First of all, on the channel side, wanted to understand what transpired in the broker and the direct channels. A broker, as I see, has been, you know, quite a good growth driver for us in the previous quarters. This time the number seems a bit low. Anything specific to read out there or would it continue, you know, or would it reverse back going ahead? That was my first question. Same for direct. Second is, in terms of fire business. With the IIB bond rates related deregulation that has happened, is there any initial trends that you could highlight which would help us understand the trend seriously?
Thirdly, in terms of the motor business, I see that a large part of the growth has been driven by private vehicles. Given that the competition level what we hear about is very strong there. How should we think about in terms of our loss ratio for the segment? Also from the fact that we are also starting to see growth in the CV business to come back. How should we think about the loss ratio in the motor segment in the upcoming quarters? Given that it has seen slight elevation this time, what would be the expectation we're seeing? Those are my questions.
On the brokers business. Brokers business reflects the volumes that we get in motor from the OEM types, the retail broking entities, as also the volumes that we get from the commercial lines of business. Generally, you will see that the commercial volumes are lower in Q4. As compared to the other quarters, it will wait for the volume and the business happens on April 1. That's the really broader trend as far as the broker volume is concerned. On the fire business, yes, with IIB benchmark rates going away, effective April, we have seen a dip in the property premium pricing, not just for us, it's there for the entire industry.
One set of segments, what we charge for the pure fire and earthquake rates, that has come down. The pricing for STFI risks. That is actually gone up, which is for the storm, tempest, flood, and inundation. That segment is gone up. The combined effect is that we have seen about an average price reduction of about 8% to 9% for us in April. On the numbers for the industry, the fire line of business is out. Actually, I can see that the overall growth in this line of business itself has been rather muted this year as compared to the previous year, which means this effect is going to be there for everyone. On the third question, relating to motor.
I think now we have reached a stage where the mix between the three categories of two-wheelers, cars and commercial vehicles would more or less settle down. As you have rightly mentioned, the volume in commercial vehicles will be better this year. This is a wider expectation. Given Chola MS' traditional strength in this area, both arising from the sister company as also the other larger tires, we do expect the proportion of commercial vehicles to go up, leading to slightly amended mix from the one that we see now.
Yes, sir. Just wanted to come back on the last question. What I wanted to understand was also your thoughts on how the loss ratio might shape up because of this change in the mix. Also as a follow-up to the previous question in terms of higher segment, wanted to understand that given that this year for reinsurance rates, it's seemingly a hard market, possibly the rates might not go down this immediately. Is there a risk that when the cycle changes and we move towards the softer market, the impact is what you have mentioned, about 8% to 9% will be more?
First on the motor loss ratios. It's now even for the industry and for us, we have been around this stable mark of around 68% to 70%, which has definitely gone up by at least about 10% as compared to the numbers that we used to see, say a couple of years back, pre-COVID period. Which is the effect of price discount. As it's stated earlier in the call, market is seeing some tightening with respect to discounts and pricing. Hopefully we should see that helping the loss ratios. As we go along, at least, but then what we have to counter is also that the parts prices and labor prices are also on the increase given the inflation in the country
This price increase would effectively neutralize such price hikes in the material and labor parts. That's the broader direction that I'd like to mention on the motor LR part. Coming back to the fire, yes, reinsurance rates have gone up across the industry. Hopefully one can expect a softer regime if overall losses across the globe are down and in India also if we are fairly rough on the cat losses. Last year, of course, the increase for the Indian industry was more a reflection of the higher loss levels across the globe and not necessarily a reflection of Indian losses. A good year on the Indian subcontinent would mean that hopefully the rates will pull down.
Sir, will mean that, can that result in, like you mentioned, in the pure fire and earthquake rates that has come down because of the reinsurance? Once the reinsurance market turns soft, can there be higher reinsurance coming out of this?
I'm sure, yes, corporates would seek a price reduction at that level. It is fair to assume that corporates would seek a reduction if loss ratios continue to be low and manageable.
Got it, sir. Got it. Very helpful. Thank you so much, sir, and all the best for FY 2024.
Thank you. We'll take our next question from the line of Sanketh Godha from Avendus Spark . Please go ahead.
Thank you for the opportunity. Sir, in the previous quarter, we alluded to the point that we might be too low optics products like crop or even commercial lines to some extent, due to recent situations like 133-year period. So it still remains the same or we believe with the existing business model that we can reduce it. That's my first question.
The company has started participating in tenders for crop insurance.
Okay.
We are planning for a portion of the business to come from crop, which incidentally would also help us on the trade part.
Any internal targets you have set to the crop as a percentage of the total business or which you might not be comfortable doing it?
We would ideally like that to be around, say, sub 10%.
Okay. Okay. Okay. Second question, sir, was like you in your previous question you alluded that you increased losses locally. The market spend, which was down to INR 260 crore in third quarter has reduced to INR 219 crore. I just wanted to understand that, is that we consciously reduced our exposures to the products where the acquisition cost is higher, probably like two-wheelers or cars, where the competition intensity is higher? Is it largely just a target on the center capital which has increased and therefore the sourcing points were lower? This is if you can give the granularity. The reason why I'm asking this question is just that the sub 0.05 improvement predominantly happened because of the expense ratio improvement.
Just wanted to understand the durability or the sustainability of this combined ratio to remain at 104 or what you guided for maybe the next financial year.
We, actually, it's a combination of both, the enhanced volumes from our captive markets, company as well as our Chola Insurance Express outlets, plus paring off high cost businesses from certain quarters. It's a combination of both is what has contributed to this.
Plus the effect. Sorry. If the captive volumes are seasonally or due to any reason are higher in fourth quarter, and if the contribution from a full year point of view to you remains similar, then from a full year point of view, the 38%, 36% is from AUM point of view, will improve or is both and essentially what would be like a combined ratio you are expecting it to be?
We ended the year at, as you said, about 109% of combined ratio for the year. While it is certainly not a guidance, we would certainly want to reduce that by at least 200 to 250 basis points for the current year. I think that is the broad direction that I would probably say that we would be working for.
This will be largely achieved by opex improvements?
It's a combination of what we will have by opex. The reduced sourcing costs and also the loss effect claim ratios in certain lines of business. It will be a combination of all.
Got it. The claim ratio improvement, I just wanted to understand because you are already one of the best in claim ratios in the industry at around 71, 72 or even lower than that. But contribution I understand, health is the one segment where you can see an improvement because there is no price risk there, which will have a clear benefit in FY 2024. We know your motor people price hike is current year. Just wanted to understand, given motor people price hike is not there and health if it improves, net-net it will get. Still you believe there are levers for loss ratio to improve?
Our expectation is that the non-motor portion has been increasing, which should help broadly. As you rightly mentioned, our health loss ratios with price corrections, they should tone down over a period of time through the year, which should also help. I agree with you that motor third party, in the absence of price actions, we would only continue to step up our inflation linked positioning. Of course, as we have always mentioned, we have not recognized any Motor Vehicles Act related benefits.
Right.
in the quarters which are there from April 1, 2022.
Right.
We would also await the final Supreme Court decision on the matter.
Got it. Got it. Last two questions, probably. One is keeping what is the average duration of bonds, what we own today. In a broader sense, in entire opex what we have, just wanted to understand how much is fixed in nature and how much is variable in nature. That the growth and the leverage story we wanted to understand. If you can give these two data points, it'll be useful.
The bonds duration is about 3.7.
3.8.
3.8, Venu confirms. It's about 3.8.
Okay.
Yes, the company will take advantage of the rate position and also the volatility in the markets, for monetizing gains as and when they arise. That part will be there. Given the fact that, we have over almost 63%, 64% in G-Sec bonds, all of which have been invested. This volatility will give us some opportunity as well. That is the first part.
Yeah.
The second question on the opex part is that I should tell the investor community that this year Chola MS is also embarking on a tech and data transformation program, which will entail some spends. See, we have been operating a fairly legacy system which requires a revamp. The board has decided to spend some money in transforming that piece. It's also setting up a data analytics architecture. Thankfully, the spend will qualify for the additional allowance that the regulator has put out.
While that may have some strain on the overall EoM, the board, and we believe that this is required for the company to incur this expense at this juncture for further growth, not just volumes, but in efficiency and productivity as well.
Sir, one, can you tell me how much you intend to spend?
I think we should, I mean, this is a program of three years, and I think, we would like to complete this program and share the progress as and when we do it.
Okay, sir. Okay. Thank you.
Thank you. To ask a question at this time, press Star one on your touchtone phone now. We'll take the next question from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead.
Yeah, hi. Thanks for taking my question, and congratulations on good results, sir. I just wanted to kind of, you know, get a broader, you know, understanding from you on the ROE path that, you know, our company might take as general insurance business metric. I think historically pre, you know, let's say couple of years back, we used to be a fairly high ROE business. Last few years, of course, there we had write-offs earlier and then last year there were significant jump in operating expense. I think you've alluded to that in a couple of calls. Going forward now, where do you think, you know, our normal ROEs of the general insurance may settle down, in what range and what would kind of drive that? If you could just share a little insight into that.
Yeah. Our current ROE for March 2023 is around 9.2%. Definitely, you know, with the profit growth contemplated for the subsequent period, we are looking at around 14% to 15% ROE.
We are looking for 14% to 15% ROE in the current year itself, in FY 2024 itself?
Yeah, it would be around 14%. Yes.
Okay. Okay. Okay. Okay. Thank you.
Thank you. To ask question, press Star one on your touchtone phone now. We'll take the next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. Am I audible?
Yes, you are. Please go ahead.
Okay, thank you. Most of my questions have been answered. I just wanted to check with the team. In case there is a capital raising event in the CIFC, would Chola hold its market share?
Can you repeat the question, please?
Yeah. I think, we will definitely evaluate as this comes, you know, depending on funds availability and capability to rise. Last time we did participate and we maintained, you know, our shareholding. We'll see. It all depends on the quantum timing and other aspects related to that.
Got it. Thanks. Thank you.
Thank you. Anyone who wishes to ask a question, may press Star one on your touchtone phone now. We'll take the next question from the line of Devansh Nigotia from SiMPL. Please go ahead.
Yes. Thanks for the opportunity. Are you looking to raise any capital in Chola General Insurance and any comment that you can give on since our investment leverage is at six to seven times? Where do you see we find comfortable investment leverage?
We are in the, you know, high level of, you know, leverage in terms of both network and, you know, GWP. We will continue the same level and maintain that part in the future too. That's one of the major advantage for Chola MS is in maintaining such high multiplier on the investment side.
To add actually our proportion of motor business gives us this high leverage. As a company which has almost 2/3 sub plus in the motor line of business, the cash accretion contributing to the investment corpus is high, providing this leverage.
This is why ROE that we guide is around 20% to 50%, while our business growth when we look at is upwards of 20% to 25%. So the investment leverage will keep expanding. That is where I'm asking that where do we find comfort, beyond which we will look to raise capital.
Capital is a function of solvency level. As long as our solvency continues to be strong, we are at 2.01x . This is sufficient to look at the growth for the next year and the internal approvals that will come in. We hope that will be sufficient to sustain the growth at these levels.
Yeah.
This multiple I think has nothing to do with the capital because this is driven solely by solvency.
The risk weighting factor based solvency is being proposed. How will that affect our solvency ratio if implemented?
These are under discussion with the regulator. It has not even been put out as any structured framework. We will have to wait to see. I would broadly tend to think that we are largely a retail business. Still about 80% to 82% of our business is retail and with granular risks. Even a risk-based solvency method should not affect us if one were to look at the models that are there globally.
Okay. What is the outlook on the claim ratios also the next year for 2024?
This was answered in part earlier. As was correctly mentioned by one of the speakers, in the absence of motor TP price revision, the motor TP loss ratios will tend to go up if we have to provide for inflation both in medical expenditure as well as the wage levels. Which will lead to an enhanced severity in motor third party claims. That will be the push factor. The reduction factors is probably the efficiencies that we would look at emanating from the health line of business and the motor OD line of business. These are two of our fairly large lines for us. I would tend to think that we should be fairly successful in maintaining the LR at current levels on an overall portfolio basis.
Okay. Just a re-clarification on the EoM regulation which is applicable for April 1st. That three years by April 26th, we have to comply with 30%, 30% of our EoM as a percentage of gross premium. Is that the right understanding?
Yes, you're right. The glide path is up to March 2026.
March 26.
Bringing down to the level of, 30% as, allowable for rural and, insured expenses together. We should achieve it by March 2026.
Okay. With the change in accounting policy which is proposed for, based on, if we go with IRDA accounting, does that change the way we are recognizing expenses in opex as well as commission and any insight you can give how that will change our P&L?
Actually, we have not changed any of our accounting norms with regard to acquisition costs.
The question is, if you adopt the Ind AS or IFRS going forward, will that impact you?
Yeah, sure, it will impact. Basically, we need to wait and see how the regulator is framing those regulations. IFRS is allowing for the deferment of the expenses in line with the revenue recognition. We need to wait and see that part. If that comes as a part of fees without any interference from our regulator, definitely we will get that benefit.
Okay. Can you help me understand the variable payouts, except commission which is reported within opex? How much would be that amount?
You want the breakup of the opex? What is that you are asking?
Yeah. What we are saying is that the variable commission which is recognized up front into P&L but in case of IFRS it will be deferred based on the timing recognition. Just wanted to understand within opex, what would be that, you know, variable expenses which currently are booked upfront in the P&L that might be deferred going forward if the IFRS accounting is implemented.
In fact, we have mentioned in earlier calls as well. The company has a fairly strong level of long-term premium, both in motor as well as non-motor. In motor we carry somewhere around INR 1,450 crore plus, for which the future premium, which is not reflected in the P&L, the expense has been fully absorbed. That itself, given the current market rates, would be somewhere in the region of about, let me say about INR 300 crore or so. That is it. It is fully absorbed. If there is a change in position only with respect to motor, that's the kind of effect that it can have, not just for us, but for all players in the industry.
As we have said in the past before, the non-motor long-term premium continues to be fairly strong. That there also where we are actually bearing the cost for a premium, the benefit of which accrues over a long-ish period, three, five and 10 for the different lines of businesses. That also is to help us. From a cost absorption point of view, company continues to be conservative. The regulator is now examining to see even as a preview to IFRS, it should permit insurers to absorb costs over the tenure of the policy. That discussion is also on. Which would mean that it won't exactly be a reversal of the absorption that we took in the year 2021, 2022.
Okay. In case of when we look at our if we normalize the part, so we are guiding around INR 280 crore-INR 300 crore PAC for FY or if you work with 14% ROE, and we are guiding for similar claim ratios. The benefit from operating expenses would be around INR 70 crore to INR 80 crore at least. This is largely the savings in acquisition costs or.
I mean, if you can just help us understand more on how the savings will come.
See, Venu has already given you a broad indication, so I would leave it to the team to do the math.
Thank you, sir. I'm turning my question.
Thank you. To ask question, press one. Next question from the line of Ajox Frederick Sridhar from Sundaram Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. We are intending to improve our combined ratio. Do you have trends that explain this improvement, like it'll boost our trends in the... Is that right?
It consists of both CapEx and RevEx. you know, it is considered in the, you know, plan for year 2023, 2024.
Okay. Thank you for that. My second question is, sir, the intent of IRDA is to improve efficiency and pass the benefit to the customer. When we improve our efficiency and bring the expense to below 30%, how will benefit the cost to customers?
It is reflected in the growth that we bring because of the passing on. Hence, it will also offset some, you know, higher growth will translate into higher benefits. Some compensation that will be passed on. Net-net it will travel in the trajectory that we have been traveling.
All right. Thank you.
Thank you. With general diversity last question, I'd now like to hand the conference over to the management for closing comments. Over to you, gentlemen.
Thanks for the attending the call and also raising various questions and seek clarifications on the company. It was a good, fruitful year for Chola MS that ended with March 2023. Even in 2023-2024, our intent would be to continue on the growth path and grow at least at 1.3x of the industry growth. If industry growth is 15%, we would like to grow at about 20%. Which means that you would continue to see stepping up of market share. On the profitability, as we have indicated, the growth in investment purpose will provide solidity in terms of investment income. It should help the improvement in the ROE.
Directionally, as was mentioned earlier, we would like to pare down the combined ratio by about 200 to 250 basis from the current level of 109%.