Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 earnings conference call of Cholamandalam Financial Holdings Limited, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines 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 this conference call, please signal an operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pritesh Bumb from DAM Capital Advisors. Thank you, and over to you, sir.
Yeah. Thank you Rochelle. Hi good afternoon everyone. We, on behalf of DAM Capital, would like to welcome the management of Cholamandalam Financial Holdings Limited. Today we have with us Mr. Sridharan Rangarajan, Director, and Mr. N. Ganesh, Manager and Chief Financial Officer of Cholamandalam Financial Holdings, along with Mr. V. Suryanarayanan, MD, and Mr. S. Venugopalan, Chief Financial Officer of Cholamandalam MS. Now, without further ado, we'll hand over the call to Mr. Sridharan for his opening remarks. Thank you, and over to you, sir.
Yeah. Thank you. Good morning to all of you, and hopefully everyone is safe your family is fine, and kindly take care. So just a few initial remarks. As you know that, it's a consolidation of Chola Finance and Chola Insurance at the Cholamandalam Financial Holdings level. To start with, I think the consolidated results consist of the Cholamandalam Investment and Finance Company and Cholamandalam MS General Insurance associates and Cholamandalam MS Risk as JV. The total income for the quarter ended June 2022 increased by 10% to INR 3,963 crores. The profit after tax increased by 63% to INR 582 crores, primarily due to reduction in impairment charges on loans. On a standalone basis, the quarter ended March 2022 is INR 200 crores .
Sorry, June 2022 is INR 210 crores as against INR 212 crores in the corresponding quarter of the prior year. Losses for the quarter that ended June 2022 is INR 0.66 crores as against INR 0.93 crores in the corresponding quarter of the previous year. Cholamandalam Investment and Finance Company is well covered, and you have all the required details in the presentation as well as in the earnings call. I'll move to Cholamandalam MS General Insurance. Q1 FY 2023 witnessed an industry growth of 22.3%, and private sector grew by 33%. Chola MS registered a GWP of INR 1,292 crores in Q1 FY 2023. It's an increase of 43.3% over the prior year given the growth across products, channels and partners.
The previous year slower growth was also due to the lockdown situation in Q1 of last year. Motor, representing 61% of the portfolio, grew by 35%. Commercial, representing 17% of the portfolio, grew by 44%. Health, accident travel representing 11% of the portfolio, grew by 67%. Within motor, two-wheeler and passenger car share has gone up to 22% and 32% respectively, compared to 20% and 28% last year. Commercial vehicle has come down from 15.1% to 46%. Volume from new channels, new verticals, OEM and financial channels had a very good growth. The company is continuing to maintain its leadership position in Tamil Nadu and Chhattisgarh and bettering its performance in Andhra and Telangana.
Chola MS, one of the leaders in the compromise settlement and be able to save more than 50% level in terms of average CIP. We has increased the repo rate continuously, which resulted in substantial improvement in the yield for the fresh investment requirements. However, the NPV value of the existing book could have a negative impact on the profit bookings. The company's long-term policies growth was more and more. As for the IRDAI directive, the company needed to upfront absorb the full cost for the all long-term policies. However, the EPR gets earned over the long-term policies, creating an embedded value in the balance sheet. With this, I will open up for Q&A, and we'll take your questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. To ask a question at this time, please enter star then one on your touchtone telephone. If you wish to remove yourself from the question queue, you may enter star and two. Participants are requested to please mute handsets while asking a question. Anyone who has a question may enter star one now. We will wait for a moment while the question queue assembles. Ladies and gentlemen, you may enter star one to ask a question. Our first question is from the line of Devansh Nigotia from SiMPL. Go ahead.
Yes. Thank you for the opportunity. Just a couple of questions. Again, when we look at our operating expenses as a percentage of net written premium, it continues to stay elevated. The run rate is around 41% of net written premium. When we compare it against ICICI Lombard, that's around 30%-33%. Against Bajaj Allianz, that is 28%. Against Royal Sundaram, that is 25%. I'm just trying to understand. Even like for us two years before, we used to do around 30%-33% of net income, net written premium as operating expenses. This sharp jump even in Q1 when our prepaid expenses have been absorbed, this run rate is still at a very elevated level.
If you can just give a perspective of where we are doing these investments that would be really helpful.
Yeah. Well first off let me explain in relation to the past. Since we mentioned about our own cost ratios. Our cost ratios, when we were having the cost spread over the period of the policies. As you are aware, last year IRDA directed us to absorb it upfront, and we are following the revised method effective April 2022. The number, our own numbers of the cost that you are mentioning may not be really comparable to our rates of last year or the rate of this present year. That is one.
Second is, as I've mentioned even in the earlier calls, comparison with the industry players may not be really appropriate considering that many of them have a larger proportion of crop business, employer-employee group health business, and government health business. All these businesses are either on tender basis or because of the inherent high loss ratios that these businesses have very low acquisition costs, as in the case of group health employer-employee. This proportion is high for many players in the competition. For us our presence in all the segments that I've mentioned is very marginal. Very, very marginal. Even in the group health employer-employee, our total volume in quarter one was only about INR 36 crores of the INR 1,290 crores of volumes that we have done.
Therefore we do not have the advantage with respect to the cost through GWP or NWP as others may have. That is where the difference between competition and us lie.
When we let's say if I look at even ICICI Lombard for that if you look at the sales mix, it's very much similar because they have a very small book of Crop Insurance. Even within Health Insurance, which is 20% of their mix there is let's say 7%-8% of group health. At least for ICICI Lombard, our mix is very much comparable. Or probably it is not at such a deviation where we are spending at least 10% higher as a percentage of operating expenses, as a percentage of net written premium. Even when I look at, let's say a Bajaj Allianz, even for that if you look at the mix is around 40%-45% motor, 20% is health, and within that a good part is your group health.
For crop, there is some portion that they have. If I look at the difference from Allianz, the difference is around 13%-14%. For Royal Sundaram also, even if I adjust it for the group policies and crop insurance, even then the difference is staggeringly high. I'm not able to really understand why there is such a big difference. Even for us if based on historical numbers if I adjust 10% of operating expenses and if I elevate it, then what is the ROE targets that we have going forward? If we have to actually increase the operating expense by 10% as a percentage of NWP, that increases the combined ratio structurally by 10%. If you can just share your perspective here.
Yeah. If you were to look at crop, yes, some players have a much larger proportion, some players have in smaller proportion. It is not my intent to name any player in this call as this is only about HDFC Life, but more to give a perspective. Many players have a group health business which are in the range of INR 300 crore-INR 350 crore. These are available in the public domain, that both the regulator and the insurer then puts out, the council puts out. Our numbers in comparison to that is what I mentioned. It is only about 10% of the size of other players in terms of the group health business that we have put out. As I said, the group health business, employer-employee, that's what I'm referring to.
Mm-hmm.
Generally has even a claim expense ratio only at 7.5%. That inherent advantage will always be there. Which advantage is always squared up by a higher loss ratio on the claim side. That is the picture there. We do not write this business more as a group policy, in view of the volatility as well as the adverse loss ratios. Therefore, that advantage may not reflect in our cost structure. That is part A in relation to the broader competition comparison. The second is our own business profile is something that we can talk about. A good proportion of long-term business. Of course, the long-term business would also get reflected in the net rating premium. I don't deny that. It is there. That proportion has been growing fast.
Under the new dispensation of the IRDA guideline directive, we are absorbing those costs upfront. As we grow faster, our growth rate on a lower base was, as Sridharan mentioned, at 43%. But we don't expect that growth rate to sustain at 40 or 43 as we go along. The numbers for even July are out, and we are growing at about 21%. The clear growth as it stabilizes to a moderate level we will find that this structure, expense structure will also moderate.
For next one or two years, if you can.
Yeah.
Can you share the target for the combined ratio for next one to two years, the growth and the ROE profile for next one to two years as well, sir?
While we don't generally make forward-looking statements for the company as such, but then we are looking at, like, end of the year ROE in the range of about 12.5%-13% is what we will have for the year. Considering our own growth plans and the level of growth that we would have by the end of the year. This is an estimation that has been made by the management.
If you look at, let's say, our investment leverage, currently is around 6.5x, which I think the solvency has decreased. If we are looking at 12%-13% ROE, then if we made the recovery of auto cycle over the next two to three years, the investment leverage will keep expanding because I think our ROE will be lower than the expected growth. How will this impact the, if you see the share price perspective, considering all the news flow around the recovering auto cycle, and we have a large mix of auto insurance book in our own business. How do you think this would play out?
You are right about the investment leverage, which is one of the highest in the industry, and therefore a strong point in terms of the investment purpose and the related yield that it gives for the industry. There are two, three factors that are developing. One is as you are aware the Motor Vehicles Act has been notified effective first April.
Mm-hmm.
There are both Supreme Court and a few High Courts have also confirmed the applicability of many of the provisions that are favorable to insurers for accidents occurring on or after April 1, 2022. What this would mean is that the speed at which the claims get reported is poised to go up. In the revised procedure, the speed of settlement will also happen. That is one development which is both positive because the uncertainty of motor OD loss ratios for the future is poised to reduce. One impact that it will have is that the cash outflow rather will be faster towards the end of the H2 as we proceed to settle those claims faster. There will be effect on the leverage.
The second dimension is our own ambitions to grow in motor as to what it would be. We are clearly on the path of while we will certainly grow strong in motor and we are just about to join fourth largest among the private sector in the motor line of business. While we will grow, but the diversification in the balance sheet in terms of business profile will also be to keep continuously reducing the motor proportion. That also will be happening with growth both on the property side, where even as you can see in Q1, we have grown much faster and the trend is poised to continue. As also in our traditional businesses of personal accident, which has come back strongly. We will help both in the bundled side as well as in the retail side.
The growth in these will be at a faster clip and which will keep reducing the proportion of motor business.
This has been notified long back, but this was actually not played out. I think can you just help us understand on ground how this claim intimation when is it actually going to start coming? Because I think this has been notified six months or a year back, or probably even before that.
Notified in March, effective from first April. Amongst the many provisions that are being notified, the single most important one is the time limit for intimation of a motor accident claim.
Mm-hmm.
Which is now placed clearly at six months from the date of accident.
Mm-hmm.
Motor third party typically, historically has had a practice of getting reported even up to seven years, which is what brought out a high level of uncertainty. More importantly, in the amended provisions, the power of courts even to condone a delay has been taken out. Which provision has been confirmed categorically by High Court of Kerala and in a unique way has also been confirmed by Supreme Court of India in some of its recent decisions.
Like I said, you mentioned first April 2022 it has been notified, right? It's applicable from first April 2022.
Accidents on or occurring after first April 2022.
The question is how it is actually playing out right now because what I heard is that this has still not been playing out the six months timeline. This is the response that we are seeing from the court and how it is actually playing out right now.
Sure.
Because we are in August 2022 already.
These confirmations by both High Court of Kerala and Supreme Court of India have happened sometime in July. I'm sure the entire legal fraternity will take cognizance for this. Anyway, even the first claim has time to be reported until October. We will get to see. Probably we will clearly have an indication by October end or November; we will see as to how this is actually happening in the market. What I meant to say is that these confirmations by apex courts is positive for the industry and for any player who has a larger presence in the motor line of business.
When we look at the spend of advertisement and sales promotion, it used to be around INR 60 crores-INR 80 crores up till Q2 FY 2022. That increased to INR 130 crores in Q3 FY 2022, and it increased by almost INR 100 crores in FY 2022 to INR 183 crores. Now, when we look at all this increase, it is only because of the addition in fixed costs, which is happening upfront, or we have also structurally increased some kind of ad spends, because we were targeting to grow some segments of the business. What I see is that we have largely increased on motor insurance only.
As a percent of net premium, it was I think around 17%, so that has increased to 21%-22%. Is it only the change in accounting which has brought in some delta or even we have stepped up our advertisement in some segments, and if at all any benefits we are expecting from them, if you can just share with us, that's it.
See broadly this is a combination of multiple factors. One is the absolute increase in volume itself. We've had a 43% growth, which in absolute terms is about, per quarter, an INR 400 crore addition. That strong growth going by the present industry structure on cars pulls in an element of cost structure in its multiple forms. Within that, the proportion of the long-term business is even higher. With us traditionally we have been strong and doing good volumes in niche segments, profitable segments of Personal Accident, Dwellings and then Health Insurance and other products. You can see on page 49 as to the rate of growth that is there in the PA and Health and Dwellings will come under the third segment.
The profile of business that we have been growing has also meant that costs have been pulled in. As to real marketing, proper advertising expenses which is there, right, there were elements. For example in Q1, Chola MS associated itself with RCB in the IPL. There were some related advertising costs which were also there, which were expensive in Q1.
Okay.
When it helps us, it's a combination as you rightly said. You know, there are expenses incurred on advertisement like Delhi Metro and also in the OTT. These are also part of that. Every segment requires a level of, you know campaign and also drives increase from the brand review. The advertising expenses will be higher when the volume grows.
Okay. Sure. I'll join the connect.
Thank you very much. Our next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.
Thank you for the opportunity. If you can quantify out of the total P&C or indemnity you have spent in the current quarter, how much would be long-term in nature that is dedicated to sales or PA or dwellings? How different it is compared to last year and how it potentially play out for full year of effective business?
Since you know the long-term policies which are embedded into the GWP, you know, as such you know it's growing for Chola MS. In Q1 2022, we were at 5% level, and it has grown to 10.6% by Q1 2023. Clearly that shows that, you know, the long-term premiums embedded in the form of dwelling, health and PA is growing for us. That growth will have an impact on the cost that you know that it all absorbs the financial team.
Mm-hmm.
The central pre as a percentage of Do we expect for the full year this number to be around 10%, or they could differ, maybe if it come back to 7% or 8% for the full year, naturally you'll see a better OpEx ratio to play out in subsequent quarters? That's the whole idea why I'm asking this question, whether this number will remain at 10% or if you can see this number to come off a bit and see an improvement in the OpEx ratio.
Sanket, yeah let me take this question. Since we have large, profitable lines of businesses that I mentioned a while ago.
Yes.
In terms of lending and PA and health benefit.
Yes.
Our intent would be to try and maintain that high proportion because these are inherently and economically profitable businesses. With normally motor is the largest season as we go along. Q1 is a leaner season for motor, and that will be much larger as we go along in the rest of the nine months. That would play out in terms of reducing the percentage. I would tend to think that the 10.6% may could come down to about 8.5% or so by when we reach the end of the year position. Our intent would be to grow these businesses.
Oh yeah Got it sir. As a technicality like you said probably it will come back to 8.5 kind of a number. That's the way I need to read it, right?
Yes.
If you can do the same exercise probably in our OpEx ratio coming from what was almost three point seven years ago. If you are comfortable, just break down 3,900 for how much is towards the long-term business and how much is towards the annual policy subscription. I mean number whether it is in line with the 10.6 maybe OpEx or it is on the higher side. Maybe that give a picture of how OpEx ratio can evolve going ahead.
If I could refer to slide number 48 where we have decline on a note. You know, we have given the two costs separately. There is INR 23 crores of the sourcing cost incrementally. That's a long-term premium embedded cost that is already embedded. It is also including the motor part, and also it is embedded in the motor part. There is INR 3 crore, which is sourcing cost. Additionally, that has been there in the Q1 for the claim. In addition to that, you know that we have grown at 40% growth this, you know, the last year. That has also got some impact on that. We are in the process to bring Q1 back. Of that there is an impact towards OpEx, acquisition cost being absorbed fully.
That comes to around INR 59 crores there. Together if you look at it, the INR 59 crores and INR 33 crores is fully absorbed incrementally in Q1 2023.
To add to what Venugopalan said, the annual portion will naturally moderate, because there it will start reflecting in the earnings as we go along.
Okay.
The claim rate also will not continue at that same clip. It was on a much smaller base. The data set was there.
Got it. Yeah. Just to touch upon the growth, Q1 growth was 43%. I believe the growth for the full year might be half. Just wanted to understand what is the growth rate we are looking for the full year compared to possibly what we have reported in Q1. Which segments, I mean obviously Q1 all parts have fired very well. Whether there will be anything from Q2 or some other products or some from full year perspective.
Rather than additional percentage, I would see our growth was 1.9x of industry growth, GI, excluding the SAHI players.
Yeah. Yeah.
If I had to look at 1.9x.
Mm-hmm.
We would tend to think that we would still by the end of the year be at about 1.5x-1.6x of GI growth. I think that is the kind of growth that we expect. As I said earlier, our own emphasis in property and the other lines will be larger. Given our conscious bid to diversify and de-risk from motor.
Got it. Got it, sir. Just quickly on the loss ratio. So we just wanted to clarify on motor part. For the 76% loss ratio in motor only seems to be a little elevated despite having mixed in favor of a little better profitable kind of like OD and OD less, which is supposed to be lower motor only loss making product. Still we have a little elevated motor only loss ratio. So just wanted to understand if it's more to do with discounting or you see this number to improve going ahead or not. That's point number one on motor only. On motor TP, the 78% loss ratio naturally because the claim frequency has increased.
The 78 is somewhere we have baked in Ind AS benefit or it is without Ind AS benefit, it is just 78%. As Ind AS benefit kicks in, this number can potentially improve by end of the year.
Sanketh, I only invite attention. I think you are also reading only from page 53 of the presentation deck for the purpose. You can see that the motor OD loss ratios have moderated from Q4 levels of 82.8%.
Right.
It still is elevated as compared to the past.
Yeah.
By and large, in line with the industry in terms of what other players are experiencing in terms of OD loss ratios as well. Very clearly the pressure both on debt funding is there, and we are also seeing many of the OEMs increasing the labor charges as well as the parts price. That generally increases 4%-6% by almost all OEM manufacturers with respect to material prices.
Mm-hmm.
This inflationary effect has been there and will probably continue. The question is that more we how the players are now getting much more granular in terms of their choices that they make in respect of geographies and subcategories. Chola MS is also doing so. The other advantage that Chola MS will have going forward is that our commercial vehicle business, especially with respect to the financial tie-ups is slowly restoring back. When that gets restored, there will be some positive effects to come in the forecast time. We can also see the proportion of two-wheelers going up from present level, but certainly not up to the levels of what it used to be in the past in 2018, 2019 or even 2020.
That is one thing on the motor OD part. On the TP side, yes, obviously we have not considered any Motor Vehicles Act benefits that are there. On this we would definitely want to wait and see as to how it actually gets adopted in the marketplace and how. While the reaction of course, initially has been very positive, as I mentioned earlier, we would love to see it actually pan out and get implemented, at which point I'm sure our actuaries will take a re-look in terms of advising us on what ratios that we should be providing.
Got it, sir. Last question. On the health side, if you can break down the health business, it will be around INR 138 crores in the current quarter. If you can break it down into benefit-based and indemnity to the extent that you have that.
INR 138 crores, where benefit would be about INR 74 crores.
Okay. The contribution of benefits definitely has gone up in current quarter compared to last year, right, sir?
Yeah. It has gone up.
Okay, perfect. Thank you. Thank you so much, sir.
Thank you. Ladies and gentlemen, before we take the next question, we'd like to remind participants that you may enter star one to ask a question. Our next question is from the line of Pritesh Bumb from DAM Capital. Please go ahead.
Hi sir. Just wanted to check on investment yield. We still at about 6.2% and it's more or less unchanged from last quarter. Do we see the investment book itself or the yield picking up from here on? How do we, I mean, does the profitability start improving even at these levels? That was the first question.
Can I answer that? Actually, this is yield started increasing as you rightly said about that. There are two things that is happening. The incremental investment is also occasionally, you know, growing after the COVID turmoil is over now. We started approving the investments. That is getting deployed at a higher yield. That is really as a part of that is advantage to Chola MS. Also the redemption is also we are soon talking about INR 380 crores of the creation in the Q1. Which is the normalized one compared to the previous year it could be much higher. That shows that we have a normalized level of this thing. Our average duration is around three point six years.
That shows that, you know, the current yield seems to be lower basically because of the current investments, which are made as a part of that is, you know, at the lower yields. Since the incremental investments are getting deployed at a higher yield. In fact, in July, you know, after this price revision is all the what we have done as a part of that is around some time from the release. Basically that is going to give a clear advantage to Chola MS in terms of the investment income.
The three point six duration means that we will have a large part of investments during the COVID period itself. That's why the yield is lower. Because during the COVID, because you would have invested at about 10.5 or 6.20 into fixed yields.
One advantage of a lower duration is because if you compare with other companies where the duration would be used to be higher. Whenever they invest at a you know longer duration, it will take much more period for redemption. That means that continues to be diluting. For us it is three point six, which also includes 5.3% of the portfolio in the bank deposits, which are you know less than one year deposit. When it gets matured we get the clear advantage on that particular front which is a strategy that we adopted in the last year during the COVID, that we deploy a major portion of the you know creation into bank deposit of less than one year. And then redeploy it at a high.
It is really happening now. Those the concept when it is getting mature, it's getting deployed at a very higher rate. Especially when the RBI has increased return and also all the, you know, even now we are not investing in the long term. We are though we are increasing the, you know, the newer type here to get some more of the yield. But we are one of the companies, you know, invest not more than around the four point five to five years of duration. That will give us a, you know, the duration risk will be very little.
Sure. That is clear. Second question was, we've mentioned the mix change which can happen in the motor only side. Just wanted to check, does the OpEx also change when we do more of CVs compared to two-wheelers? Does the OpEx also change?
The OpEx will change as we take our foot off the OEM business and move towards more of financial business. As volumes from financial tie-ups go up, then the pressure will reduce. Also more importantly, in terms of cars and two-wheelers who have a larger pressure in terms of OpEx, CVs will have a lower pressure.
Sure. Can you just mention how many financial tie-ups we have today and how much we are looking to do in next financial year, I mean, at 20?
Some of our larger channels have been very clearly our own sister company. Chola Finance is a large contributor, and that is a natural network effect that they grow. It means more business for us. Especially if they grow faster in commercial vehicles, it grows advantages for us. We continue to operate in some of our leading relationships with Indian Bank, with many small finance banks like Equitas, Ujjivan, and also get volumes from other smaller financials. These volumes are there, but these are some of our larger traditional and lump-sum channels.
Sure. That means, as banks are growing and we'll also see the repetition of the same. Yeah.
Yeah.
And, uh-
These are large distinct finance players, and when they grow, naturally, there will be a volume growth for us.
Sure. Few questions for when we look at motor and health mix, I think mentioned that health mix go down back to like 18.5, 19. So again, there also OpEx change a little bit towards better side, or health is much more cost effective than motor?
It is all cost. There are multiple drivers there. I mentioned that in that 8% is in terms of overall long-term, which will also include, dwellings business, which is, the overall, long-term premium business. Naturally, the cost structure for benefit products are very different. It all depends on our own appetite and then we check your economic benefits. It may hurt the CS financials, but the value that you are building in the balance sheet will be much stronger.
Sure. That is clear. Thank you so much. That's it from my side.
Thank you very much. Ladies and Gentlemen, a reminder to participants you may enter star one to ask a question. Our next question is from the line of Dipanjan Ghosh from Citi. Please go ahead. Sir, your line is not very clear. Could you use your handset, please?
Is this better?
Yes, sir. It's fine.
Just a few questions from my side. First is, you know, on your retail health business, if you can kind of quantify how much proportion of the business comes from renewal side efficient and indemnity part of the business. The second is, and you know, this is not for the quarter perspective, but more let's say from a long-term or, you know, historical perspective. How do you see the claims really change on the indemnity side as the book business increases the customer geography? My third question is on the wholesale businesses. The B2B business is out there, excluding group health. What are the key USPs that you have in this business to dominate this segment over a longer period, whether it's pricing or is it the relationships that you have with them?
Last, if you can quantify how much of your overall premiums are generated from the Chola Finance entity out there. That's the four main questions. Yeah. Let me proceed. Definitely, you asked about the health indemnity as to how it can pan out. The point is, health indemnity will always be susceptible to medical inflation, which can grow anywhere between 10%-14%, depending on geographies. Metros obviously will have a much higher inflationary tendency as against the tier two markets. There will be the need to do periodic price corrections for retail health indemnity. That is on one side.
Second is continuous addition of new customers to the portfolio is also essential because when the renewals get extended to the 7th or 8th cohort and it reaches that level, it is more a matter of time that the claim comes from, these policyholders. It is inevitable at that point. It's more a probability of whether it is going to come in this year or next year or the year after. That is how quickly it tends to see it's likely to be. The success of a good, strong franchise in the retail health, indemnity especially, would always be to, the ability to add new policyholders and maintain it at a certain proportion to the overall. That is the health indemnity part.
Benefit as per your specific question on what we are doing, they certainly emanates from many of the long-term relationships that we have. Some of the names that I mentioned earlier, of course, and also from other partners. These went through a lull during the COVID period when they had their own issues and problems. Now with the business restoring, we are seeing an uptick in the volumes of the benefit business, both in terms of the health as well as the personal accident that we are talking of. That is the second part. Overall premium from Chola Finance, it is there. I think we have put that out in. It is there in page 62.
It is also there in terms of the volumes that we get. In terms of the captive channel, which is our own insurance distribution outlets plus Chola Finance. That number is there. If you have to look at, this is almost 1,596 out of 1,290. In a way roughly around 31%, which is also mentioned there. That's the proportion of business that we get. We expect this proportion to grow to about 35 at least by the end of the year.
Okay. On the wholesale end, I think.
If I missed anything, please remind me, please.
Yes. Two things. One is the you know, the right to win in the wholesale or the B2B businesses, insurance maybe, you know, some of these B2B segments. You know, how should one differentiate one from the others? What are the key USPs to dominate this segment?
Very clearly, we have continuously over a period of last two, three years, we have increased our capacities to reinsurance arrangements. We have provided the returns to the reinsurers in terms of the profitability, which has made them enhance our reinsurance capacities. This is almost double from what it was in FY 2019. Which means that today we are in a better position to compete in the market for larger businesses in the, you know, property insurance space, which is also yielding results in terms of growth. Plus many of our other initiatives in by way of setting up specific verticals to target SMEs across the country, they are also contributing to the growth.
Which is why we are seeing a growth in prior business, fairly robust as compared to the industry growth.
Sure. Just one question, I think, one follow-up and one question. One was on the retail renewal. How much of your business comes from renewals, annual renewal or quarterly, whichever works on the indemnity side? One follow-up, when we discuss post claims, you know, if you can highlight, do you get any favorable pricing settlement on your select hospital network? If in case you get it, can you quantify a broad range for it?
Our health renewals indemnity is at about 70%.
Okay, sure.
It's just there and for cashless network, we have a network of over 10,500 hospitals, which is mentioned somewhere in the deck. We are continuously engaging with the various hospitals for based on the volumes that get directed there. We don't direct it, so the question of where the patient happens to live and we keep track and we go back to the hospitals for better negotiation. Benchmarking also is continuously done. We are seeing some improvements over a point to point. We do track that meticulously the month-on-month improvements that we get by way of discounts.
Just one clarification. When you mentioned the renewal ratio at 70%, is it renewal premiums to overall premiums in a particular period or is it renewal as a proportion of overall premiums that were originated in the prior period?
Renewals we always see in terms of number of policies, the policyholders.
Policies which were to be renewed and which got renewed.
Sum insured varies from policy to policy and, in tandem with that, is being admitted. The industry always lacks renewals in terms of number of policies.
It's basically like the number of policies up for renewal and the policies which get renewed during the period, correct?
Absolutely. Absolutely.
Oh, sure. That was
Mm-hmm.
As indicated then, thanks and all the best.
Thank you very much. Ladies and gentlemen, our last question is from the line of Devansh Nigotia from SiMPL. Please go ahead.
Yeah. Thanks a lot for the follow-up. Also, can you tell us the expected yield for the next one year and for the year after that once our FD matures and we will reinvest it, expected investment yield for FY 2023 and FY 2024.
That would clearly be as a function of the investment accretion that we will have. In a normal scenario, we expect to have an accretion of about INR 2,000 crore, very clearly. To put a number, say March 2023 we could well see the after trading at about INR 14,500 crore.
Mm-hmm.
The incremental yield that will naturally be market linked, market related. We can also safely assume that we are underrated in terms of equity, and we could very well see the growth in the equity book to about 4%-5% over the next two years. Thereafter I would leave you to do the math.
Let's say if the interest rates which are there as on today, and those interest rates stay for next two years, then what would be our expected investment yield?
Can you repeat the question?
Just a directional number. I mean, let's say if the interest rates are stay flat for the next two years based on the expected yield today, what would be the investment yield on the books for next one or two years if the interest rates don't change for next two years? Just a directional number only, not looking for a very precise one.
We have provided the current yield as far as Q1 is concerned. Then we have also said that we are deploying the incremental accretion in the higher yield, even higher yield around 1.7% with the range of, you know, redeployable yields. It's a mix of the two. Basically that INR 14,500 crore is the closing investment that we talked about, and then out of that around INR 2,000 crore-INR 2,500 crore may be the element of higher investment yield. The current yield is also, you know, depending on the maturity of the, you know, the business that are going on. It's a question of, you know, currently we have given. We are deploying in the higher yield on the incremental part we have here.
Mm-hmm.
The remaining math will go on there. It will be on the upper side, you know, as far as current yield is going to be, at least from one month data. Because there is going to be an incremental investment deployed in a higher yield.
Okay. What would be, let's say, the shuffle in the portfolio as a percentage for next one year? When you say some FDs will mature, what would be the kind of churn that will happen?
Churn depends on, see, majority of our investments are in the debt book, as we have mentioned about that. Equity is not so much matured. The maturity book is actually, you know, our, we have said about that three point six years is the average duration for it. Some part which we have deployed in the retail market around INR 3,000-INR 10,000 will be cleared, which will get matured in one year part. The part which will get matured in the current year will get in, will also get into the, you know, higher investment yield. In addition to that accretion we are getting from the operational surplus.
Okay. What would be the reversion of if we just
Mm-hmm.
I could understand what is the provision of premium deficiency reserve which we find growing in this quarter? What is that related to?
You are talking about the premium deficiency reserve?
Yes.
That happened in March 2022, not in the current Q1.
Okay, when we look at.
Maybe on the COVID claims. The exposure is not there. The reversal happened as the, you know, IRDAI regulation. It has nothing to do with any management venture or something like that. It is it's a COVID product level of the UPR that was carried in 2021 or 2021. The premium deficiency was created on that particular front. When the exposure gone off, the reserve also reversed. This was in March 2022, not in Q1.
Okay, got it. Within our OpEx, like, the question for ad and sales promotion and similar question for outsourcing and employee cost as well. Over there also the run rate of 7%-8% has moved up to 11%. Even that increase is structurally because of upfront increase in the operating expense for long term policies or there has been some step up in the employee count or some salary increases that have happened or some perspective if you can share.
No. As far as Solvency is concerned, the outsourcing expenses was not there as a part of the reclassification process. If you look at the, you know, the financial accounts of March 2022, there's a clear note there. You know, it is all the staff related. We have a, you know, two wings of the employee cost. So the outsourcing part is mainly constituting the element of manpower cost and 10% on that, which we reclassified into staff costs in May and March 2022. We have disclosed that in the notes to accounts also.
Basically, your both employee costs and outsourced expense costs, they are both of them employee costs, right?
That's right. That we have already moved in March 2022.
Correct. Yeah. What I'm saying, the sum addition of both was less around 7%. Even that has moved to 11%, 12%. I'm just trying to understand over here also, the change in accounting policy has led to this step-up from 7%, 8% to 11%. That has happened structurally or there has been step-up in the employee count? That is where my question was coming from. If I go by the exact numbers before March 2020, if I add the employee costs and outsourcing expense as a percentage of net revenue, it's usually around 6.5, 7%. Over the last one to two years, that has moved up to 11, 12%.
That is where I'm trying to understand what part of this delta of 4.5% because of this accounting policy change and what portion is related to actual step-up in the employee cost.
The change, as I mentioned in March 2022, we have reclassified outsourcing expenses into staff expenses. Staff expenses are combined. Even earlier, if you look at the two expenses, employee-related costs and outsourcing, and compare it to March 2022, there will not be a bigger change in that.
Sir, there is a bigger change. I'm actually going by the data.
How can you come offline on that perspective?
Okay. Okay.
Thank you.
Thank you.
Thank you very much. Thank you. That was the last question. I now have to hand over to the management for closing comments.