Ladies and gentlemen, good day and welcome to Cholamandalam Financial Holdings Limited, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in 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, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Parth. Thank you, and over to you, sir.
Thank you, Saisha. Welcome everyone to Q2 FY 2027 earnings call of Cholamandalam Financial Holdings Limited. From the management, we have Mr. Sridharan Rangarajan, Non-Executive Director; Mr. Shyam Shankar, Manager and Chief Financial Officer; Mr. Rajive Kumaraswami, Managing Director, Cholamandalam MS General Insurance; Mr. Santosh Pandey, Chief Financial Officer, Cholamandalam MS General Insurance. I will now hand over the call to the management for the opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and welcome to the earnings conference call of Cholamandalam MS General. On behalf of the Chola MS team, Chola Group, I would like to wish all of you a very happy Diwali. May the festival of lights bring you joy, prosperity, and success to you and to all your families. With that, let me start with an overview of the industry and the performance for the quarter and for the half year ended 30th September 2026. The general insurance industry grew by about 8.9% on a GDPI basis for H1, which was driven by a growth of close to 11% in Q1 and 7% in Q2. The motor insurance segment, which was a key growth driver for the industry, registered a 13% growth in H1 over the corresponding quarter for the last year.
Retail health continues to be a bright spark, continue to be one of the fastest-growing segments within the industry. While on the other hand, if you look at the group health business, there continues to be significant pricing pressures on the group business, which is largely the employer-employee segment. Within the commercial lines, while growth trends improved in the second quarter, supported by robust growth in the engineering, marine, and liability, and specialty segments, the fire segment continued to witness significant pricing pressures due to huge pricing competitive intensity. However, we have seen some discipline return in the market from middle of September, and we are hoping that this pricing discipline would continue as for the rest of the fiscal.
Keeping this backdrop, Chola MS continued to pursue a growth strategy, which is predominantly one, trying to bring in a portfolio balance, grow the commercial line of business, increase the health proportion, and on all lines of business, focus on improving the portfolio quality, maintaining underwriting discipline, and maintain a sustainable market shares expansion. The company reported a gross premium of INR 2,386 crore in Q2 and INR 4,517 crore in H1, representing a 7.4% and 7.1% growth respectively for both the periods. Our growth continues to be driven by the strong distribution franchise that has built over the years. And motor being our largest line of business, recorded a premium growth of about 4.1% in H1, which was also supported by the growth in the commercial vehicle segment and the passenger vehicle segment.
Our sourcing loss ratios on the book on motor have shown positive trends as we have pivoted the portfolio and trying to go towards more NCB portfolios as far as the motor portfolio is concerned. Including NatCat, we are seeing some improvement in the sourcing loss ratio as compared to last year. If you exclude the NatCat, the improvement is quite reasonable and gives us confidence that as the earnings of this book flows into the current fiscal, as well as into next year, the motor loss ratios would start moderating downwards. We have also continued to stay, as of now, away from the two-wheeler portfolio, primarily because we feel that the TP pricing in the segment still remains quite inadequate.
Back on the strong reinsurance capacities that we had built up on 1st April at the start of the year, we have really bucked the trend in terms of the market de-growth on the commercial lines segment, and we have actually grown by about 6%, which is largely driven by an increase in the spread of risk. On the other hand, we have de-grown the group health business because we have shunned all large accounts where we felt the pricing was not sustainable. But on the sourcing book, we have seen a significant reduction in the loss ratio, and we believe, again, as the earnings of this portfolio flow into this fiscal, as well as into next fiscal, the loss ratios will start moderating closer to where the market is. Our personal accident book, which has been fairly large, continues to witness robust growth during the period. The quarter has been tough.
The operating environment has remained fairly tough in quarter two. We have seen elevated loss ratios on the motor OD book. There has been competitive pricing on the commercial side. Even though we have increased the spread, we have managed to keep the loss ratios in check. But the NatCat events have had quite a severe impact, which is a collective impact of Maharashtra, Gujarat, Daman, and Diu, which have impacted the results by about INR 71 crore in H1. There is also an incremental impact of about INR 14 crore on account of a large risk. I would just like to clarify why the impact is large. This is essentially driven by the fact that normally, the reinsurance contracts have what are typically called the hours clause.
And since most of these events have been separated events, on every loss, a different deductible has applied, which is why on an accumulated basis, the impact on the net account is about INR 71 crore as an accumulation of the various NatCat events the industry has seen. The combined ratio for H1 stood at about 124.2%, while if you exclude the NatCat losses, it was about 122.7%. The profit before tax for the half year was about INR 98 crore, and the profit after tax was about INR 78 crore. While the near-term pressure on earnings have, because of the NatCat events and a little bit of an elevated loss experience on the legacy sourcing book, we remain confident basis the sourcing that we've done in the first quarter and more so in the second quarter.
We will continue to take these pricing discipline calls and make sure that we get our growth back in line with the private sector growth. September, our growth was at about 6%. If you look at the month of October, our growth has been at around 4%. While it's not in line with the industry, I think you would need to see some of these moderated growth numbers in the context of some of the measures that we are taking to improve the portfolio quality. Coming to the investment portfolio, the book was at about INR 19,050 crore. The carrying yield on the debt book is up by about 20 basis points. We've done some kind of rejig in the portfolio. So, the carrying yield from March of about 7.13% on the debt book is now at 7.33%.
The realized yield is up at about 7.45% in H1, and again, 7.2% in quarter two. So actually, quarter one was at about 7.2%, and quarter two, we are at about 7.45%. The net worth is at a robust level of INR 3,409 crore, with a solvency of 1.88x . There is no stressed assets as far as the investment portfolio is concerned, and there are no exposures to securities which are rated B B and below. The current year has had its challenges, but I think the sourcing that we have done, the cost correction that we've done, and I would only like to add that the work is not finished. There is more efficiency that we need to bring into our cost structures as well as our claims efficiency, which will help us get back to profitable growth and better ROEs as we go into the next year.
With that, I would open the floor to questions and wish you all and everyone in your family a very happy Diwali.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. I repeat, ladies and gentlemen, in order to ask a question, please press star and one on your touch-tone telephone. The first question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yes, ma'am. Thank you for the opportunity. Rajive, my question actually is on the loss ratio. You alluded that you are trying to improve the sourcing loss ratio. But if I even look at motor OD loss ratio for second quarter compared to the first quarter, where the incremental motor OD would have sourced, would have got added, still our loss ratio in motor OD has deteriorated only. Because even if I exclude CAT events, we are at 94%, or even for 1H, we are at 90% in motor OD. Just wanted to understand the changes, what exactly we are doing compared to what was the earlier practice, and whether it is too early to call out that the benefit will be visible in the numbers, or in your view, how many quarters it will take to get visible in our numbers? That is my first question.
I will ask later the other questions.
What we are doing is that, so let me try and address this in two parts, Sanketh. See, typically when you look at a financial view of a loss ratio, you end up taking certain decisions as compared to taking a sourcing view on the loss ratio. There were a couple of things that had happened that when we were looking at the portfolio quality, somewhere, the financial lens kind of made us take certain decisions from a discounting standpoint, which kind of made us, I would say, lose some market share in certain counters, both on the OEM portfolio as well as in the agency portfolio.
When we started looking at the same portfolio from an underwriting lens, the results were very, very different, which is why we've kind of regained, we try to regain some of the counter space, because if you see, the motor growth for the industry has been at a much higher level. While our motor and motor is 70% of our book, it's taking us a little more longer to kind of get our share back in some of the counters, because it's easy to kind of walk out of a counter, but it becomes a little more difficult to get back that counter space, and that is what we have been working on in terms of quarter one and quarter two. The second thing that we started doing is, we have started looking at the portfolio at a gross level, right?
We are looking at underwriting triangulations at a sourcing level from a private car, from a commercial vehicle point of view, and the decisions to stay or not to stay in a counter geography vehicle make model is actually determined by that, and we are gravitating. While we managed to retain our counter share space in most of the new vehicle segment, it was basically on our own renewal and rollover segments that we were kind of losing business, and we've made now a very conscious effort to gravitate towards more the NCB book, which is customers having a lower propensity to claim on the OD side. Our belief is that as we source more NCB portfolio as part of the private car book and on the commercial vehicle segment, the TP behavior also tends to be better, right?
Now, what is the impact which is hitting us from a legacy standpoint? There are a couple of things that have happened. One, there have been a certain, I would say, theft legacy claims on the consumer forum side, which have come and hit us, and some of those typically come with interest components. So, that has, if I may say, some part of the legacy portfolio had an impact on the loss ratio. The second is the portfolio where there have been total losses. So, especially on the flood side, wherever there are total constructive losses, the amount of the payout that has happened as compared to, say, the reserves that we're holding has been a little higher than what were the reserves that we were holding.
So, the true reflection of the portfolio is clearly the sourcing view, and I can just share with you that if you include NatCat, roughly we've seen a 1%-1.5% improvement in the loss ratio on the sourcing book at a gross level in H1 this year as compared to H1 last year. If you exclude the impact of NatCat, the benefit is actually between 4%-5%.
And that is the confidence that is giving us that, as the earnings of some of this come in, and a lot of the actions were actually taken more in Q2, I would say, one, our ability to sustain building an NCB portfolio going forward, and the fact that the earning of this NCB book, because, I mean, you clearly know that 55% of last year's earning is what comes in this year, and it is only 45% of this earnings which will come into this year, and 55% will go in next year. So, I would say that it would be at least another three to four quarters before you start seeing the benefit of some of these actions.
Because it has also made us, Sanketh, relook at some of our, I would say, theft consumer forum cases, where we would then look at, is it really worth contesting some of them? Because in most of these matters, what is happening is there is an interest levy which gets accumulated over a period of time, and it is hitting us hard.
Understood, Rajive. So, Rajive, is it fair to say that now, if a large part of the legacy book got addressed in the current quarter itself, because the motor OD loss ratios looks a little meaningfully elevated compared to even what we liked.
Yeah.
So, the improvement, what you said on sourcing being 4%, 5% is even if it, for example, we started at Q1 or last year at 83% kind of a motor OD loss ratio. So, 83%, 84% kind of a loss ratio in motor OD. Is it fair to say that, if 4%, 5% improvement is happening, excluding NatCat, what you said, then at least in FY 2028, our number will be somewhere between 78%- 80% motor OD. Is it a fair expectation?
Yes. Yes.
Okay.
Sanketh, Santosh. So, we are seeing this improvement, and roughly 5% from the level you spoke about, we are expecting to get for the next year experience as well as the current year's sourcing experience.
And what I can also add, Sanketh, and I don't want to give a quantification at this stage, we do believe that there is scope for improvement in managing our ACS on the private car book, and w e have 4 lakh claims in a year. So, even a INR 1,000 per claim brings in significant efficiency in terms of an improvement in loss ratio. So, that is a journey that we started in this quarter, and hopefully, quarter- on-q uarter, we expect to see an improvement in our ACS on the private car portfolio, which will again help bring down the loss ratios over a period of time.
Got it. But Rajive, just again, sorry, asking on this particular point. Is it fair to say that to further improve compared to even 78%-80% kind of a number, you need to revisit your motor two-wheeler strategy, or you will continue, given you don't have clarity on TP claims, because there is no price hike for five years and you're locking premium for five years, you still stay away from that line of business largely?
So, let me put it this way. I think the IFRS regime clearly forces us to relook at every line of business, whether it's group health, whether it's investment in retail health, or the two-wheeler portfolio where there has been historically a significant accounting strain. I would say that nothing is off the table. We have had internal discussions that how do we relook at the two-wheeler book, because like any line of business on motor, there are pockets on the two-wheeler book where there is money to be made. But it is compliance with regulation, which is obviously paramount, and that's one of the reasons why we decided to exit some of the more profitable segments of the two-wheeler business. And obviously, there is the issue about the elevated claims experience on certain segments of the two-wheeler book.
Understood. The second question outside motor OD was just to understand our external treaties, because you told that multiple, the same event was bifurcating into multiple events, and that's why the hit was more on the net compared to ideally, it should have been. Have these external treaties been revisited in the past, and that's the reason why it has taken little bigger toll this time, or it was in general spread across multiple days, and therefore it was inevitable you would have taken a similar hit?
No. The contract terms, whether it is for our reinsurance program or any other company, will typically have a 72-hour or a 168-hours clause. So, it's just unfortunate that there have been multiple events and the 72-hour or 168-hours clause has not had an overlap. So, if there's an overlap, then you have the ability to accumulate the events into one and apply one deductible, because they did not have an overlap. So, it's not, it's BAU. It's just that the number of NatCat events has not been BAU, but the reinsurance structure is BAU and nothing exception.
Understood. Our external absolute number, if I remember right, you were at INR 15 crore. Has that number been changed or is it at INR 15 crore only still for NatCat?
At INR 15 crore. It is only INR 15 crore, sir.
Okay. Perfect. And second question, or third question, Rajive, is on the regulation. First of all, the bigger point I want to ask is that we are decently very big in credit business, means attachment to the loans, whether it is PA, whether it is bank-led health, or to that extent of what we do low motor through NBFCs or even bank partners. Just wanted to understand, given commissions will be meaningfully reduced, and I am not sure how NBFCs or banks will behave, any thoughts you have likely impact on the business? Or if you can quantify first of all how much of your business is linked to credit across the portfolio, whether it is motor or SME or your health or PA. And second, how do you view to navigate this problem if the consultation paper goes exactly in the proposed format?
So, one, I think at the outset, the consultation paper is one keeping clearly the customer at the center of some of the distribution reforms that are proposed, and we welcome that. Ultimately, what is right for the customer will ultimately be right for the industry. You also pointing out one part of the portfolio where there is the attachment, but there is also a significant part where, given the fact that we are heavy on motor, if there is a similar sharper reduction on the TP price, the TP commissions also, the company is expected to stand to benefit from that aspect as well. Clearly, it would all depend on how the various distributors, which is in this case bancassurance, look at the effort, given the fact that the regulator is clearly saying that financing is something that they may not permit.
I mean, when we are, I would say, doing our internal stress scenarios, whether it is in terms of pricing reductions or a drop in attachment levels, what I can tell you is that it is not something that we are overly worried about. It is within the realms of our appetite, and there is enough installed capacity in the company to continue to grow without it impacting the current level of EOM or the expected level of EOM that the regulator is proposing.
Understood. But Rajive, within the motor, OD or TP put together, how much is sourced from credit institutes like banks and NBFCs? Just wanted to understand because as they were dispersing and they were trying to attach these insurance-oriented people to the consumer, then whether that behavior will change or not is the point. Maybe I understand from the point where you came from that reduction in commission will benefit if it's sourced from some R2 agent or an agent or other sources. But just wanted to understand from bank point of view where it played a role for getting the sales done.
Let me answer this from a couple of lenses. Number one, I think there are multiple companies who made a representation that given the fact that the country faces the issue about uninsured vehicles, we need to identify various catchment areas where some of these vehicles which are uninsured could come into the insurance pool. Financing is clearly one of those catchment areas. If you look at at least some of the NBFC sectors, t here is a large pool of assets which are getting financed, which are the youth segments. These are people who are new to credit, first-time buyers, first-time users. There are multiple players, who we understand have made the representation that anyway RBI is proposing a consent-based approach effective 1st of January.
So, as long as the customer consent is there, please continue to allow the financing as far as motor is concerned, because under DPDP anyway, you need to. The second aspect, just to give comfort, the current level of distribution costs on this particular part of the segment is actually sub- 15%.
Okay.
It is not that the cost of acquisition on this segment is so elevated, which causes concerns from a regulatory perspective.
Understood. That is very clear. Lastly, on solvency, if growth is coming back and it takes profit to catch up, as you said, the premium originated in the current year will show largely result in the next year. I know 1.88x is still higher than 1.50x minimum required, but if the profitability or ROEs are dragged for a year or and a half, do you think this 1.88x would be good enough, or you think we would be in a zone where we need to either raise a sub debt or do a fundraise?
I think there is one sufficient headroom, more than sufficient headroom from a sub debt standpoint. It may entail some element of capital restructuring, which we have had some internal discussions. I mean, the current capital is at INR 442 crore, which means INR 110 crore is something which is easily available on tap. INR 100 crore would mean it would add at least 5 basis points on solvency. But if you look at the net worth, we are at INR 3,400 crore, which means it gives us ability to raise INR 1,700 crore of capital. Obviously, it is sitting in the form of reserves and surplus. The sub debt regulation says capital and share premium. So, that is something which is, I mean, available on tap, so I am not too overly worried.
Yes, obviously, sub debt brings in a negative carry depending on what you are able to raise the money at and what level you are able to deploy it at. But I would say 1%-2% could be the cost of a negative carry if we need to go to the sub debt route. But what we are doing internally is, given the fact that the regulator had anyway asked the QIS 2 to be delivered on 2024-2025, we are anyway internally working on preparing the QIS 2 on 2025-2026 and trying to find an optimal level. If RBC comes in next year, what is the absolute preferred level of capital that we would want to maintain? And linked to that, what should be the reinsurance strategy that we need to have?
What you need to also understand that we have been sitting on sizable amount of premium received in advance, whether it is on our home portfolio, whether it is on our accident portfolio, and even our motor OD quota shares. So, our ability to kind of pivot and start retaining all these numbers back on our balance sheet, also given the way the treaties are structured from a sliding scale perspective, gives us the ability to make it more value accretive, retain these businesses on our balance sheet, and help improve the combined, because then your operating leverage is calculated on a much larger denominator. But we will obviously weigh solvency versus IFRS results and take a decision what is optimal.
Understood. This is very clear, Rajive. Thanks for the answers. That is it from my side.
Thank you very much. Ladies and gentlemen, in order to ask a question, please press star and one on your touch-tone telephone. I repeat, in order to ask a question, please press star and one on your touch-tone telephone. Ladies and gentlemen, please press star and one in order to ask a question. As there are no further questions, I would now like to hand the conference over to management for closing comments.
Thank you. Thank you once again for coming on to the call, and wish you all once again a very, very happy Diwali to all of you and all your families. Thank you.
Thank you very much. On behalf of Cholamandalam Financial Holdings Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.