Good evening, ladies and gentlemen, and a very warm welcome to ICICI Lombard General Insurance Company Limited's Q1 FY23 conference call. From the senior management, we have with us today Mr. Bhargav Dasgupta, MD and CEO of the company, Mr. Gopal Balachandran, CFO and CRO, Mr. Sanjeev Mantri, Executive Director, and Mr. Alok Agarwal, Executive Director. Please note that any statements or comments made in today's call that may look like forward-looking statements are based on information presently available to the management and do not constitute an indication of any future performance, as future involves risks and uncertainties which could cause results to differ materially from the current views being expressed. As a reminder, all participant lines will be in the 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Bhargav Dasgupta, MD and CEO, ICICI Lombard General Insurance Company Limited. Thank you, and over to you, sir.
Thank you, Nirav, and good evening to each one of you. Thank you for joining our earnings conference call for Q1 FY23. I will give you a brief overview of the industry trends and developments that we've witnessed in the last few months. Post this, our CFO, Mr. Gopal Balachandran, will share the financial performance of the company for the quarter ended June 13, 2022. During the quarter, the Indian economy continued to steadily grow towards the pre-pandemic levels with broad-based improvement across consumption, investment, credit growth of banking sector, et cetera. In spite of the headwinds of inflation, geopolitical tension and supply chain disruptions, with improved rural and strong urban demand, the optimism towards India's economic recovery remains intact. Amidst this, the GI industry performed reasonably well, primarily driven by segments such as health insurance and motor insurance.
As for the data published by SIAM, the new vehicle sales witnessed moderate growth for private car segment amidst continued supply chain constraints. The commercial vehicle segment grew robustly supported by underlying demand, while the two-wheeler segment continued to remain slow compared to pre-pandemic levels. Health insurance, in line with the expectations contributed to the overall industry growth. The commercial lines witnessed growth in sync with the current market environment. Resultantly, the GI industry delivered a GDPI growth of 23% for Q1 FY 2023. As for public disclosures, the combined ratio of the industry was 118.1 in FY 2022, excluding one company which is yet to disclose the Q4 results, as compared to 112.2 in FY 2021. We give this data with a one-quarter lag because that's when we get the full information.
Moving to regulatory updates, the government of India the Ministry of Road Transport and Highways in consultation with the authority on May 25, 2022, published revision in base premium for motor third-party insurance for various classes of vehicles effective from June 1, 2022. The rate hike is expected to be marginally positive. However, the rise is not commensurate with the loss experience and the inflation that the industry has envisaged in the segment. Amid the current need to increase insurance penetration in the country, the authority has recently announced several measures for the benefit of policyholders and towards ensuring ease of doing business for insurers.
This includes reducing compliance burden on regulated entities by rationalizing regulatory framework, forming committees, working committees towards distribution reforms, finance and solvency-based product-related provisions, product governance, regulatory and statutory reforms, and review of data and technology framework, and organizing bi-monthly interactive sessions with the insurers for the suggestions for increasing insurance penetration. Subsequently, on June 1, 2022, the authority prescribed the use and file procedure for all health insurance products and almost all general insurance products by moving from the current regime requiring prior approval for launching retail products to a regime where products could be launched without prior approval. On July 14, 2022, use and file was also extended for agriculture and allied services.
On July 5, 2022, the authority permitted general insurance companies to introduce the following tech-enabled concepts for motor own damage as an add-on to basic policy. One, Pay As You Drive. Two, Pay How You Drive. Three, floater policy for vehicles belonging to the same individual owner for two-wheelers and private cars. The company had launched similar products under the Regulatory Sandbox initiative in 2020, wherein there was a limitation of INR 50 lakh of premium or 10,000 policies, whichever is achieved earlier. In line with the above regulatory change, the company has launched its Motor Floater add-on cover recently. It provides convenience to customers of having one policy document, one renewal date, and one premium at lower cost.
Moving to business impact for us in Q1 2023, the company grew by 24.9% as compared to the industry growth of 21.7%, excluding crop and health. Coming to the growth for key segments during the quarter. For motor, the company grew in line with the industry and has maintained its leadership with a market share of 11.3%. The company increased its proportion of CV mix to 24.5%. The electric vehicle segment continues to be a focus area for the company. The company continues to maintain its leadership position in this segment as well, with an estimated market share of 14% for private cars and 64% in two-wheelers. Our investment in retail health has resulted in our agency channel premium growing by 18.3% this quarter.
As indicated in our previous calls, we continue with our investment in adding managers to our, to grow our retail health agency business, and our current headcount stands, which includes new hires, at 1,101. We expect the growth to accelerate in the next few quarters as the agency managers start getting productive. I would also like to share that our one-stop solution for all insurance and wellness needs, the IL TakeCare app, has surpassed 1.7, 1.7 million user downloads till date. The incremental download for the quarter was 0.4 million. Our bank insurance and key relationship groups grew at 49.4% this quarter. Within this, the ICICI Bank distribution grew by 30.5%, and the non-ICICI Bank distribution grew by 65.1%.
Post-pandemic, the recovery in credit growth, along with the increase in wallet share in distribution partners acquired through the demerger, has been the key growth driver for us. Our business sourced through our Digital One team grew by 30.7%. Within that, the business on our website grew by 21.1%, and business sourced through strategic alliance partners in the digital ecosystem grew by 170.8%. Overall, our digital focus has enabled us to increase our digital revenues to INR 2.1 billion, which accounts for 3.9% of our overall GDPI for this quarter. As far as the commercial lines are concerned, we experienced robust growth driven by 18.7% growth in the SME segment.
We are optimistic with the recent positive regulatory developments would enable us to grow faster with emerging market needs. We remain on track and are focused on growth levers such as strengthening our distribution engine, digital enhancements, realizing synergy, rationalizing cost while scaling up our preferred lines of business. I will now request Gopal to take you through the financial numbers for the recently concluded quarter.
Thanks, Madhav, and good evening to each one of you. I will now give you a brief overview of the financial performance of the company for quarter one FY 2023. We have put up the results presentation on our website. You can access it as we walk you through the performance numbers.
Gross direct premium income GDPI of the company was INR 53.7 billion in quarter one FY 2023 as against INR 41.88 billion in quarter one FY 2022, a growth of 28.2%. This growth was higher than the industry growth of 23%. Our GDPI growth was primarily driven by growth in preferred segments, given that our approach has always been growing business sustainably. The fire segment GDPI grew by 10.3% at INR 11.43 billion in quarter one FY 2023 as against INR 10.36 billion in quarter one FY 2022.
As indicated in our results presentation, the overall GDPI of our property and casualty segment grew by 14.3% at INR 19.54 billion in Q1 FY 2023 as against INR 17.09 billion in quarter one FY 2022. On the retail side of the business, GDPI of the motor segment was INR 17.82 billion in quarter one FY 2023 as against INR 14.01 billion in quarter one FY 2022, registering a growth of 27.2%. Our agents, including the point of sale distribution, increased to 94,559 as on June 30, 2022, up from 88,545 as on March 31, 2022.
The advance premium members was INR 34.71 billion as at June 30, 2022 as against INR 33.68 billion as at March 31, 2022. As a result, the combined ratio was 104.1% in quarter one FY23 as against 123.5% in quarter one FY22. Our investment assets rose to INR 398.34 billion as at June 30, 2022 from INR 387.86 billion as at March 31, 2022. Our investment leverage net of borrowings was 4.18 times as at June 30, 2022 compared to 4.23 times as at March 31, 2022.
Investment income was INR 6.55 billion in quarter one FY 2023 as against INR 8.89 billion in quarter one FY 2022. Our capital gain was lower at INR 0.32 billion in quarter one FY 2023 as against INR 3.27 billion in quarter one FY 2022. Our profit before tax grew by 80%, 80.1% at INR 4.65 billion in quarter one FY 2023 as against INR 2.58 billion in quarter one FY 2022. Consequently, profit after tax grew by 79.6% at INR 3.49 billion in quarter one FY 2023 as against INR 1.94 billion in quarter one last year.
Return on average equity was 15% in quarter one FY23 as against 9.4% in quarter one FY 2022. Solvency ratio was 2.61 times as at June 30, 2022 as against 2.46 times as at March 31, 2022, continued to be higher than the regulatory minimum of 1.5 times. On the ESG front, we have voluntarily adopted the business responsibility and sustainability reporting for FY 2022, thereby strengthening our commitment to transparency in disclosures and also to promote a culture that embraces sustainability practices within our business processes. The company for the first time has also disclosed its GHG emission. An independent external assurance provider has also provided limited assurance on the GHG emission accounting.
As I conclude, I would like to reiterate we continue to stay focused on profitable growth, sustainable value creation, and safeguarding interest of policyholders at all times. I would like to thank you all for attending this earnings call, and we will be happy to take any questions that you may have.
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 touchtone 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. Participants, you may press star and one to ask a question. The first question is from the line of Deepika Mundra from JP Morgan. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, firstly on the motor insurance products, can you walk us through little bit of?
Deepika, may I request to unmute your line from your side and go through the question, please.
Hello, can you hear me?
Yes.
Yeah, hi. Sir, firstly on the motor insurance fees.
Deepika, sorry to interrupt, we are unable to hear you. May I request you to speak a little louder, please, and through the handset.
I'll try again. Hello, can you hear me?
Yes, much better.
Yeah, much better, Deepika. Yeah.
Okay, thanks. Got some trouble with the handset. Okay, on the motor insurance piece, in terms of what are you seeing on claim inflation versus the pricing trend, both on OD and TP. I think on TP you already very clearly mentioned you're running below what the inflationary trends are. And overall, how do you expect this to impact the combined ratio this year, given the fact that the volumes are on the uptick?
If I look at the OD side, what we are seeing is a slightly higher claims frequency than what we had last year. Some of it was anticipated, you know, as utilization of vehicles has increased. Overall, even beyond that, we are seeing slightly higher frequency numbers. Now, normally, you know, if you look at the ACS, it's kind of, you know, flat. We are not seeing any significant increase in the average claim size. Overall in terms of the pricing, the industry has also corrected the pricing little bit on the OD side, in line with what we discussed last time. On balance, on the OD, the pressure on loss ratio remains in line with what we've been saying over the last few quarters.
On the TP side, yes, while the premium, the rate increase is not in line with the claims inflation. One of the things that we are, you know, hoping to see come through is now that the motor vehicle rules have been framed, we will see how the courts begin to adopt this, you know, the six-month limit and the DAR process, the intimation process. If that, you know, comes through, that would be a positive. That is in a sense, you know, something that we will watch very closely for the next two quarters to get a sense of whether it's getting implemented. If it gets implemented, that will be a positive overall on the TP side.
Understood, sir. All the new products which are, you know, data driven, won't this be largely disinflationary in nature, so wouldn't it cap premium growth to a certain extent? Or do you see the penetration benefits, you know, outweighing that significantly?
You know, it could be a you know, mix of both. You're absolutely right. If you price the exposure, which is you know, in a sense people who drive less and those are the customers who end up buying the telematics driven products, that could be you know, disinflationary. But what it does is basically price the risk better and logically the rest of the book, the pricing should go up. If that does not happen, then what you're you know, saying may happen. We will have to see how big the penetration of this piece is because it's just early days. Our sense is it will take fair amount of time for this to become a large part of the motor business.
The second opportunity that we believe is there is that, you know, there is a large amount of business which is, you know, people buying only TP which potentially can buy OD also. So if we can increase penetration, that will help.
Understood, sir. A last one, if I may, in terms of the quarterly numbers, despite the scale-up in volume, there seems to be no operating leverage. Could you talk about the investments, I think that you're making on distribution or anything else that is contributing to that?
Yeah. Deepika, I think what we have spoken about is continuing to make those investments in health agency, digital and claim service. That's something that is a continuing one, which is why if you recollect, I think why we had announced to add almost close to 1,000 health agency managers, which we had spoken about last year. Effectively by end of March, we had onboarded about 750 of them. That number, if you speak, including the new hires as at June 30 stands at almost about 1,100 and odd thereabout. We are continuing to make those investments in health agency distribution.
Even digital, for that matter, in fact, again, when you look at the numbers which is growth delivered through both our contributions coming in from website as well as the alliance partners tie-ups that we have. That numbers again has done quite well. I mean, which was put out even as a part of our opening remarks. That growth for us has been almost about 30%. That's an area where we are continuing to make investments in increasing the sourcings of the digital channel as well. The third area which we'll always continue to stay focused on is with respect to excellence in claim service.
Those areas are continuing to kind of stay invested, which is why when you look at the aggregate, let's say the growth in the management expense numbers, the overall growth for us for the quarter one this year has been roughly at about 28% or maybe on a gross written premium basis it will be close to about 30%. Vis-a-vis that, if you see the growth in management expenses has been about 28%. In some sense there is some element of operating leverage. At the same time, obviously, there are those continuing investments that we are making, which will obviously play through as we speak over the next several quarters.
Okay, sir. Thank you so much. I'll get back in the queue.
Thank you. Next question is from the line of Hitesh Gulati from Haitong. Please go ahead.
Yeah, thank you for giving me the opportunity. Firstly, on the health segment, we are seeing some slowdown for the industry in the retail health. What are your thoughts on that? And also, if you could comment on what we are doing in the health segment exactly. For instance, in the ICICI Bank channel, we had highlighted that they had started selling some amount of indemnity products. So what is the progress there? What is the progress in the other HFC and NBFCs who we wanted to do more benefit products there. In general, indemnity benefit, some flavor on that, sir. I'll follow up with one more question after that.
Yeah, you know, in terms of what we're doing in health, you know, one is your first question of the bit of slowdown. There is a bit of base effect for the industry. Last year's Q1 was very strong. For the industry, the retail health growth has got a bit muted, but for us the growth is beginning to pick up. As we explained, the agency-driven business has grown by about 18% for us this quarter, even as the full distribution that we are ramping up is getting productive. We believe that this growth for us will actually increase, you know, going ahead. From our perspective, that's a positive. The second thing is on the bancassurance side.
If you look at the point that I made in my opening remarks, you know, your question on ICICI Bank, as I explained, and we had talked about this last quarter as well, that last year was a bit of a headwind because the benefit business that that was held as an attachment by the bank that had, you know, gone away. The bank had started selling, indemnity products, as a group, in a group format, as an attachment to the, mortgage loans. That's driving the 30% growth in that channel that we are seeing.
Other partners, which is basically the new, you know, the existing relationship that we've had over the years, the NBFCs, HFCs and other banks, as also the new bancassurance tie-ups that we've got through the merger with Bharti AXA. That channel has grown really well. That number, that growth is roughly about 65%. Overall, the bancassurance business has grown by about, you know, roughly about 50%, 49.4% split into 30.5% at the bank level and 65% at the other bancassurance partners. And within that the benefit numbers also grown very well because a lot of the attachment products that just get sold by the HFCs and some of the other banks is a benefit product.
That's what is growing the group other segment within health, right? This is the entire bank of the-
Group number. Yes. Yes. Absolutely.
Right. Just on the crop segment, we have, I think one of few tenders here. We are again looking to grow crop, right? This is in addition to what we got from Bharti AXA because our reinsurance rates also look higher this quarter. Is that correct?
No, that is not correct. What we are doing is if you look at what we got from Bharti AXA, they had two states, one was Karnataka, the other one was Maharashtra. Maharashtra changed the scheme from the original insurance scheme as per PMFBY to a scheme where the loss range is capped. It's a 80-110 scheme, where if the loss ratio is below 80, as an insurance company, we will refund the premium to the state. At the same time, if the loss ratio is more than 110, the state will pay for that claim. It's a you know fixed range product, which you know that's a replacement of the traditional PMFBY.
What we've done is in Maharashtra, under the new scheme, we've taken two clusters. Aggregate crop numbers for us will not be very different from what it was last year. Maybe marginally, you know, a little bit here and there, but aggregate numbers very similar to last year. The reason why we, you know, bid for Maharashtra is because we have kind of indicated that we will observe how the scheme evolves and accordingly will take a call. With the 80-110 model our reinsurance cost for the stop loss that we used to buy goes away. That's a big saving. If you remember, we used to talk about the fact that reinsurance cost was very high for a scheme of this nature, and that's one of the reason why we stopped writing this.
That reinsurance cost goes away because the loss is capped at 110. You know, overall, we don't want to increase the crop exposure beyond a certain level. We're staying in line with what we did last year in aggregate as a company. Now there's been some booking difference this year. Some of that got booked in the first quarter. Last year a lot of that got booked in the second quarter. There may be some timing differences, but aggregate for the year, we don't see too much of a difference in aggregate crop business that we will write.
Right. Just one last thing on motor OD. Some increase in claim ratio is due to higher CV business, right? This combined will still be lower. Is that understanding correct?
Hitesh, what we had kind of indicated, even if you recollect in our earlier calls, we had said particularly on motor, we would look at certain segments which could be relatively high on LR but could be, let's say, relatively lower in so far as our cost of distribution is concerned. Because from an ROE perspective, those kind of business selections makes viable sense. That's one reason why you also see maybe an increase in the OD loss ratios. Even if you recollect when we had kind of announced numbers for the full year, at that point of time, we did indicate particularly for, let's say, own damage, maybe quarter four will be more representative of, let's say, what one could experience in so far as OD loss ratios are concerned in so far as trend line is concerned.
Having said that, I think the way to look at the OD segment will be to obviously look at both the loss ratios plus the cost of distribution put together. On that basis is how we are looking at risk selecting the portfolio. You could see some periods where you would see possibly an increase in the OD loss ratios, given the fact that you would want to select certain segments which could be high on loss ratios, in which case you may see periods of increase in loss ratios. At the same time, possibly we will see a moderation in the overall cost of distribution. On an aggregate basis, I think we would want to kind of stay disciplined in terms of the risk selection that we do.
Sure. Thank you, sir. That's it from me.
Thank you. Next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, sir. Two questions from my side. Firstly, now, you didn't explain in the previous question the reason for the, you know, lesser retention in this quarter. If growth was not the reason, then what was the reason for lesser retention in this quarter?
Prayesh, if you are comparing the net retention ratio vis-à-vis the full financial year and the quarter one of this year, then obviously it will not be a like-to-like comparison because a large part of quarter one business is largely driven by the commercial line of businesses. Particularly, let's say, fire and engineering and bulk of the corporates, they will kind of have their renewals coming through in quarter one of this year. Where relatively because of the size of the risk is high, bigger, you tend to have an element of reinsurance. It's more towards, I would say, quarter three and quarter four, where bulk of the retail business, particularly motor and health, will largely get driven and booked, insofar as business book is concerned.
Where, as we have explained earlier, both on motor and health, we kind of leave aside the obligatory minimum, which now for the current year is at about 4%. By and large, we tend to retain rest of the risk on the net account. Hence, whatever retention that you're seeing of a 65% number for quarter one vis-à-vis maybe a 70 or 72% for the full year may not be a like-for-like comparison, as I said, because of the corporate renewals that happened in the first quarter.
Okay. Got that. Secondly was on the investment yield. You know, it seems to have dropped sequentially quite a bit. Any explanation for that?
Could you just repeat that, sorry, please?
The investment yield on the, if I calculate on your investment book, that seems to have dropped sequentially, materially in this quarter. Any reason for that?
Largely driven by capital gains drop. If you look at the Q1 of last year, we had almost INR 300 crores of capital gains. This quarter, the capital gain number is down to about INR 32 crores. That means-
No, just comparing Q1 QoQ, which is compared to Q4
I'm comparing Q Q1. Q1 last year we had about INR 327 crore of capital gains that we had on the investment book. This quarter it's about INR 31-32 crore. If you compare sequentially, last quarter, that is Q4 of last year, we had about INR 136 crore of capital gains. This quarter we have about INR 32. Even sequentially it's dropped a lot. It's largely to do with the market context. These are times, you know, as long-term investors, we see these markets as opportunities to invest rather than worry about the fact that for this quarter we've had our capital gains drop.
Okay. Got that. Last one, could you give an explanation as to, again, possibly what is a NEP to NWP ratio. Generally, I would assume that in this quarter there should be an unwind that would happen from Q4 and that NEP to NWP ratio should be a positive number, but it should be a greater than one number. Anything that you can guide, help me understand that.
Nothing specific, Prayesh. At least so far as recognitions of earnings is concerned, pretty much it remains the same, which is earnings get earned over the policy contract. What you see as a gap between, let's say, growth in, let's say, premiums or NWP and NEP is largely a function of the growth coming back in this quarter, which we'll possibly start seeing unwinding happening towards the next two or three quarters. It's more a catch-up of the growth that we see coming back in this quarter vis-à-vis, let's say, if you would have looked at Q1 last year, for example, the growth for us was low single digit numbers, in terms of aggregate growth revenues.
Vis-à-vis that, if you see for quarter one this year as we explained as a part of the opening remarks, we had a growth in GDPI of almost about 28%. This unwinding of earnings or maybe the gap that you will see between NEP and NWP will start getting to converge maybe over the next several quarters, of course, subject to what we get to experience insofar as growth in revenues are concerned.
All right. Thank you so much for all this. Thanks.
Thanks, Prayesh.
Thank you. The next question is from the line of Madhukar Ladha from Elara Capital. Please go ahead.
Hi. Good evening, and thank you for taking my question. Most of my questions have been answered, but what's happening on the commission line? I see like a drop in the commission ratio. What explains that? I'm guessing it's something on reinsurance that you would have earned some commission. That's one thing. Again, the management expenses that have also gone up a lot. I'm talking not the insurance related expenses, but the expense of management that's gone up to about INR 19.8 crores. Why is that happening?
I think on the first one, Madhukar, I think insofar as commissions are concerned, yes, you're absolutely right. When you look at the net commission ratio, it's a function of both what commissions that we pay as a cost of doing business and obviously the element of reinsurance commission that we earn as a part of reinsurance ceding that we do to the reinsurers. As we have been explaining, particularly on the reinsurance side, given the outcome that we have exhibited to the reinsurers, we talked about even in the last quarter to say that the reinsurance programs that we have been able to renew for FY23 has got two positive changes. One is we have been able to strengthen the panel of reinsurers which we have been able to operate with.
That's positive from a credit risk standpoint, given that we are working with high quality reinsurers. The second aspect that we kind of exhibited also was, given the fact that, as I said, we have been able to exhibit a positive outcome to the reinsurers. The terms of commissions that we have been able to get from the reinsurers have also been relatively better than what we had seen for FY 2022. As I said, quarter one typically forms bulk of the corporate policy renewal cycle. Hence, to that extent, you will always find in quarter one the extent of reinsurance commissions coming to you at the time when the businesses are booked. That's the reason why you see possibly that commission ratios reflecting a relatively lower number than what we had seen in the earlier period.
That's in response to the commission ratio point that you made. On the management expenses, as I explained, I think if you look at it vis-à-vis the growth in revenues that we have had, as I said, whether either if you look at it on a GDPI basis or even if you look at it from a GWP standpoint, we have seen a growth in revenues of almost about 28% or 30%, whichever way you look at it. Vis-à-vis that, I think if you look at the growth in management expenses, which includes both commissions that we incur for cost of distribution, plus let's say the operating expenses that we incur, both of them put together have grown at about 27.8%.
I think whatever increase in numbers that you are seeing is relative to the growth in revenues that one has seen. At the same time, I think as what we have been explaining, we continue to see, let's say, relative competitive intensity continuing in the market. To that extent, that's also a factor that is playing through with respect to the management expense numbers.
Got it. This commission ratio part of it, you know, is it more like a quarter one phenomenon or do you think it will normalize during the rest of the year? I'm getting some portion of it. There should be some further reduction in the latter part of the year. I don't mean. I mean, I don't mean from the 2.2% that we're seeing right now. On a year-over-year basis, there should be some reduction because of what you mentioned right now.
That's right. Again, it's a function of how do we see, let's say, growth coming back. I think while quarter one has been good, let's say to some extent from a retail standpoint. That obviously involves an element of commissions, expenses that we'll have to incur for doing the business. Over the next three quarters, we'll have to see how that growth momentum plays out, which will also have a factor in terms of the commission ratio numbers. Two, over the next three quarters, definitely you will see the extent of reinsurance commissions that we would have earned in quarter one. That number will definitely see a relatively declining number as we move towards quarter two, quarter three and quarter four.
Given the fact, as I said, and maybe Q2 and Q3, Q4 also to some extent the cycle comes back in terms of reinsurance commissions because some of the companies which follow a January- December cycle, they will have their renewal period starting from January 1 . There again you will see an element of reinsurance commission that will play out. There are multiple factors that get attached to this number. Obviously we'll have to wait and see how the growth plays out on the retail side. Equally, as I said, in terms of the renewal cycle that will happen in Q4 will also be a factor that will drive the reinsurance commission numbers as well.
Any particular lines of business?
Sorry to interrupt you. I'll request you to come back in the question queue for a follow-up question.
Sure.
Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah. Hi. Good evening. First question is, more from, you know, a strategy perspective. I mean, you are well-capitalized or rather overcapitalized. Commercial lines, typically you have your sort of, I would say, strength as well. I mean, how is the pricing environment? Because I see in commercial line you are more or less maintaining your market share to slightly ceding in some lines. I mean, why not sort of because you have the advantage on the reinsurance side as well, you have sort of your capital strength. Why not sort of go a bit aggressive on, you know, commercial lines, especially in the backdrop when the retail lines are seeing heightened competition for, I mean, ongoing. That's one. I will come with a follow-up question.
Oh, that's a good, great question, Avinash. If you see the last three or four years, we've consistently gained on the commercial segment. Our expectation that is that even this year we will gain. It is just that, in the month of April, we always find that because it's a big month for commercial business, most companies renew. There is a lot of pricing aggression that happens just in that month. We are usually a bit more cautious in that month and then gain during the rest of the year. Our anticipation is that even this year, like in the last three, four years, we'll gain on the commercial lines of business. Also, one other point that we made is the SME business for us has been growing.
We are even more, you know, sustaining that effort in the emerging markets of the, you know, more in the distributed markets of the country. We hope to see some traction there. Your point is absolutely right, and that's what our plan is. We hope to increase our commercial line market share even this year, like the last few years.
Okay. And, maybe again, kind of, you know, that you again, it's a bit of, I would say, irritating and yet, considering the sector aspect, I mean, the fresh capital continues to pour in. When sector profitability, some of the metrics you quote and we see, it is still not really impressive. I mean, of course, we have been hoping for some pricing sanity to return in some of the retail lines, but it seems that, you know.
Avinash your voice is a bit, you know, not very clear. You know, I think you asked a question about new capital coming in. Is that the question?
Yeah, I'm saying the sector. Does capital continue to chase, I mean, you know, the growth in the sector when the pricing discipline is already not coming back. I mean, how long this, you know, I would say, adverse pricing cycle, particularly in the motor OD continue. I mean, regulator, of course, I know regulator has given you a benign hike, but regulator cannot be giving hike in a TP line when the players are not sort of exhibiting discipline in the OD line. So just I want your sense that, okay, when do you expect some sanity to come back in the motor OD pricing environment?
Yeah, I think that's again a you know good question, Avinash. You're absolutely right. We cannot seek too much of an increase in TP if we don't see discipline in the OD beyond a point. Though, honestly speaking, when you look at you know each segment of risks, each risk should be appropriately priced. That's you know the ultimate principle. Having said that, your larger question about when we see discipline on the OD side, I think this quarter we've seen some you know discipline coming in terms of you know some rationalization by a few players, not all. I think the larger issue is that if more capital comes into a sector, there will always be you know aggressive behavior by some players.
Unfortunately, a lot of investors mistakenly believe that a valuation of a company is a price to GWP multiple, which actually makes no sense. Hopefully, given the change in the overall, you know, macro environment for, you know, more sensible, you know, investment valuations, we will see some of those changes. You know, till that happens there will be some that pressure. I mean, we've always been saying that, you know, motor OD normally rationalizes very, you know, within about a year and a half. We expect it to happen this year, but we'll have to watch for it. I mean, the first quarter was small signs in that direction. At the same time, as I said, unfortunately the claims frequency was a bit more than what I guess the industry anticipated.
On balance that canceled each other out. We'll have to see how that, you know, goes ahead for the next three quarters.
Thank you.
Avinash, I'll request you to come back in the question queue for a follow-up question. Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Yeah, thanks for the opportunity. A couple of questions from my side. First, on motor TP, I guess the rate hike has been effective from 1st June? If that were to be the case, then you know, in the quarterly motor TP loss ratio, given the price hike will come through fully in 2Q, if everything else remains similar, we should expect improvement there going forward, right?
Rishi, TP loss ratios, as we've always been saying, look at on an annual basis, don't look at a quarterly basis because there are, you know, and in fact last year, end of the year also we had indicated that look at the annual, you know, rate for TP, you know, our annual loss ratio rate for TP, because there could be quarters based on the actual models, there could be releases for that quarter. There could be, you know, in another quarter they may not be releases. Our recommendation has always been to look at TP loss ratio at an annual basis rather than a quarterly basis.
Okay. The other thing is, can you give us some sense of how much of your motor book currently would be coming from new vehicle sales and how much would be on the motor TP side from long-term TP?
Rishi, for the first quarter, the business mix in terms of new and renewal is about 40, 60. 40% of the business is new, 60% of the business is renewal. This number, if you look at for quarter one last year, that number was about 35% was new and the balance 65% was renewal. For the full year, pretty much it was similar. We had almost about one third, roughly about 33%, which was new and the rest was renewals.
Within motor TP, the long term TP portion would be?
We don't have that number separately kind of put out. I would say that I think the advance premium numbers is what we kind of put out. I think if you look at that number for the quarter ended June 30 is roughly at about INR 34.7 billion. This number at the end of March 32.2 over 33.1 almost about INR 100 crores higher than what we had towards the end of last year.
Okay. All right. Thank you.
Thank you. I request to all the participants, please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. The next question is from the line of Nitesh from Investec. Please go ahead.
Thanks for the opportunity, sir. Two questions. Firstly, on the health insurance, on the retail health insurance, the data which comes in, as mentioned in the call, there we have not been able to make any impact despite hiring so many people in last 12 months. Our market share has not changed. Any comment on that? That is one. Second is, if I look at claims experience data of FY22, our claim repudiation ratio, claim repudiation as percentage of claims intimated in health insurance, retail health insurance is around 20%. Which is similar to other companies. How do we think about customer experience on the health? Because I think last year a lot of companies.
lot of customers had a pretty bad experience with respect to health insurance settlement across the sector. In that scenario, how are we differentiating ourselves with respect to customer experience on claim settlements?
Nitesh, on the first one, as we indicated, our retail health numbers had businesses that we are sourcing from retail agency channel, as also some businesses that we are selling through banks, you know, as a retail health business. If you look at the agency channel, the number that we gave out, we grew at about 18% for this quarter. Our sense is given that, you know, these, you know, agency managers, agents are getting more used to our systems, processes and getting more productive, that number this quarter should, you know, we should be able to deliver higher growth in this quarter. The aggregate number for retail health was a bit lower because one of the banks which was selling things as a retail policy has converted that business to a group format.
It's kind of shifted from retail health to a group health, but underlying business is still a you know, B to B to C customer base. But as I said, the retail health channel that we are investing in, it grew at about 18%. We expect the number to grow higher in this quarter. Coming back to your question on you know, the claims experience, you're right. For some companies, this was an issue last year, and I believe the regulator actually asked them to reopen their claims and pay more subsequently. That happened for a few companies, not for us. We had paid whatever we believe was relevant, and that was fine with you know, in that sense.
I think the approach that we've taken is that, you know, the entire journey of claims has to be, you know, as much as possible on our ILTakeCare app to you know, increase engagement and, you know, service experience. What we are seeing is increasingly, I mean, cashless was always, you know, directly done, you know, to us, but even reimbursement claims with, let's say corporates, we are seeing almost 50% of the reimbursement claims coming through the app now. We believe our service experience is significantly superior. You know, that's been the approach that we've taken in terms of the claims experience.
What we also watch is the number of complaints of customers, and we track all complaints on whether we repudiate the claim, or the customer goes to an ombudsman, and when it goes to an ombudsman or a court, what is our winning ratio? We track all, you know, claims which we deny for what we believe are valid reasons. You know, what do we end up losing those cases in the court? We track all losses till the end, that end. Our experience on all of that has been, you know, quite positive. Our win-loss ratio in the legal courts and ombudsman is very high.
Sure, sir. One follow-up on motor insurance. In motor only, is it reasonable, is it right to expect that we are been losing market share in the new vehicle, while probably we have been gaining market share on the renewal book, given the changing strategy which we articulated last quarter?
To some extent, yes. I mean, if you look at our new market share, it's lower than what we were last year. While Gopal gave you the mix because overall new vehicle sales have been higher. Given the strategy that we articulated, you know, given the overall cost of acquisition in some of these channels, we are kind of, you know, we are kind of calibrating the book, and our share in new has come down a little bit, in private car that is. But in CV we've gained, in two-wheeler we've largely held on. This was in line with what we talked about in April.
Yeah. Thank you, sir. That's it from my side.
Thanks, Nitesh.
Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hello.
Yeah, we can hear you, Dipanjan.
Sir, just one question from my side. You know, on the group employer-employee health insurance policies, earlier, you know, historically we have seen for both Lombard and the industry, the claims ratio being on the higher side and probably the pricing on the large corporate is significantly higher than the SME side. Just wanted to get some sense of how things are kind of turning out in that sector, how the pricing is and how our SME mix has seen changes within that overall book out there.
Dipanjan, I think one of the changes that we are seeing on the group health side is we are seeing at least with some of the players, we are seeing a bit more discipline coming in. Obviously, last year's losses have hurt the industry. We are seeing some discipline coming in. One of the things that we had talked about last year from the July you know quarter onwards, we had talked about the fact that we had been increasing you know premium per life by about 15%. But we have seen continued you know retention of our customers given our service you know proposition that we had. That story continued.
Even this year, we are seeing a roughly about 15% premium, you know, per premium, per life premium increase, which should help in terms of the loss ratios. The other point to keep in mind is, you know, in group health, the cost of distribution is very minimal, particularly for us because we do a lot of business directly. Overall combined ratio, even if the loss ratio is in the low 90s, the combined ratio works out well for us.
Sure. Just to follow up on that, is there a metric that you track on, you know, how much of group customers have you been able to cross-sell or is there, is that even a focus area?
It is a focus area. If you look at the approach to cross-sell was largely triggered by the ILTakeCare app that we talked about two years back. What we're seeing is that almost close to 50% of the employees of our corporates are downloading the app. That number is increasing quarter on quarter. We are seeing them using the app and I gave the point, the data about them filing reimbursement claims through the app. Our thought process is, as you get more engagement, you will then look at, you know, cross-selling and, you know, it's only last year that we started the sales process on that app. The sales numbers on a month-on-month basis is, you know, growing quite well.
If you look at the growth in the I'll Take Care app download, I'll give you numbers from Q2 to Q3- Q4-Q 1 this year on the group segment. In Q2 last year, about 38% of our employees in the group, employees of group that we had insured, they would have taken the I'll Take Care app download. That number has moved to over 48%. I gave the number in terms of the usage of those apps. The sales and the cross-sales numbers are ticking up month-on-month. As we speak for this month, the total sales on that app is roughly about
INR 10 crores.
Hmm?
INR 10 crore.
For this month. Just for this month.
For the quarter.
For the quarter, yeah.
For the quarter.
Just for this quarter, the sales that we've achieved on that app is about INR 10 crore.
Sure. Sure. Thank you.
Which, you know, one year back wasn't there.
Okay. That works. Thank you. All the best.
Thank you. Next question is from the line of Shreya Shivani from CLSA India. Please go ahead.
Hi. Thank you for the opportunity. Sir, I have two questions. First, I think I missed your explanation on why the loss ratios in crop are surprisingly better, like 63% versus historically we've always seen like 100+% ratio. First is that, and second, it's a bit more technical here, but I just wanted to get a clarity on the unexpired risk reserve. For FY22, the unexpired risk reserve also includes an adjustment for the merger, the impact of the merger, around INR 10 billion on that INR 80 billion of URR that you have. But in the P&L, that adjustment doesn't flow. In the P&L where you have between the net earned premium and net written premium, there the change in reserve, change in URR doesn't include that impact.
Just wanted to understand in Bharti AXA, how is the reserving methodology? Is it different from ICICI Lombard? When I build my future numbers, should I take the reserving? How should I take the reserving going ahead? Like, right now your URR is at around 59%-60% of your net gross premiums. How will it be going ahead? Will it largely be the same? Anyway, Bharti AXA is not a very big chunk of the gross premiums, but just some clarity on that.
One, Shreya, the second question first. I think as I kind of explained, so far as unexpired risk reserve is concerned, it's purely a function of earning the premiums over the policy contract. That is pretty much similar whether it is for ICICI Lombard or whether it is for the incoming company, Bharti AXA. To that extent, there is no difference in methodology or approaches in which earnings were done by both the companies.
Second, in terms of for you to model what is it that URR could be as a percentage of net premium, honestly very difficult for me to kind of give you a number for the simple reason, as I said, if you look at, for example, this particular quarter, which was in response to one of the other questions, the growth in revenues for us was almost close to about 28-29%. The change in earned premium was only about 10%. That's primarily because as we said, quarter one last year, growth was relatively muted. Growth has come back to us in Q1 this year. Obviously you will see, let's say, a relatively lower contribution of earned premium coming in from the policies that we have written in the last year.
The ones that we have written on an incremental growth in quarter one of this year will start to play out as we speak, which I mentioned over the next three or four quarters. That's one. Second also is, I mean, over the next three quarters for the year, it depends on what kind of growth that we are able to exhibit in terms of businesses from different segments. That will also be a function of how the URR as a percentage of net premium could kind of play out. Very difficult to give a point number, but as I said, it's nothing but just earning of the premiums over the contract period. Predominantly, I would say a large part of our contracts are annual in nature.
I mean, barring some of the long-term policies that we may issue, which is not a very large proportion of our overall numbers. Given the fact that a large majority of the policies that we are writing are annual contracts, I think to that extent it depends on at what point of time we see growth getting exhibited, and the earnings will happen correspondingly therefore. A better thing to look for will be more maybe, which is what we keep saying, I think look at it more from an absolute or final underwriting outcome in terms of the combined ratios or maybe the loss ratios, which is kind of factors in both the element of earnings that has been done for the risk that has been underwritten and corresponding to that particular risk which has been earned, what has been the claim experience therefore.
I think that could be a better measure to kind of look for across different segments, rather than just looking at only unexpired risk reserve on a independent basis. That's one in response to your unexpired risk reserve question. On the first question of yours in terms of why crop portfolio has exhibited a relatively lower loss ratios, as we keep saying, generally quarters will always have aberrations in different lines of businesses in terms of loss experiences. In the past, if you recollect, the approach that we have followed, particularly on crop, has been that we obviously, given the fact that we don't have complete information on the claim position, we tend to reserve conservatively on a no profit, no loss basis. However, factoring for the cost of reinsurance protection that we take.
As and when maybe you have evidence of claims getting factored in appropriately in terms of loss experience, we tend to kind of actualize those numbers. Hence, to that extent, you will always find in, let's say, in some quarters when the claim experiences are getting actualized, you will possibly see a loss ratio which is relatively lower than what you would have seen at that time when we estimated the loss experience. Which is why in Q1 you see possibly the loss ratios on crop at maybe at about 65%. Secondly, I think when you look at the crop earned premium for this quarter is just about INR 8-9 crores. Hence, from an absolute number standpoint, it does not have a material impact to the overall numbers for the quarter.
Principally the crop book that Bharti AXA had written while we had provided higher earlier, in reality it's looking like a better book than what we had provided for. The impact in terms of aggregate P&L is not material.
Thank you. Shreya, I'll request you to come back in the question queue for a follow-up question. Thank you. The next question is from the line of Prakhar Sharma from Jefferies India. Please go ahead.
Thank you. Just a broader level question in terms of, you know, the direction of, you know, combined ratio and return on equity. You know, with the acquisition of Bharti AXA, you've had identified some areas where you can have some cost efficiencies, et cetera. Over next two years or so, what in your view will be the direction of these two line items? You know, what could be the critical assumption that you are building in to, towards improving, you know, return on equity from about 15%, which used to be +20%. Within that, the combined ratio, which, you know, FY21 was a good year and 99%-100%, but now we are at 104.
If you could just give some direction over the next two years, where should we be expecting? Thank you.
Prakhar, in line with what we said, you know, simply because of the merger, we would have ended up with 104-105. We saw the synergy benefits of roughly INR 200 crore that we anticipate for this year. We said we will reinvest that back, and hence we had said at the beginning of this year that our combined ratio will be elevated above our normal 100-101 number that we had over the last two years. Elevated means it will be in this ballpark that you're seeing now, you know, and over the next two years, we hope to bring it down gradually. We don't expect the number to go below 100 in this two-year period, but the trend line would be, you know, gradual reduction.
At the same time, the focus for us, as we've been saying, is that, you know, we want to continue to grow some of these businesses where we are investing, particularly in health and digital and some of the other areas in the technology side that we are investing. That is something that we want to continue to focus on. What it translates to and, you know, because health business is relatively lower ROE than you know, corporate business, it translates to a ROE number which is in the high teens. That's what we think we will be able to deliver over these periods, over the next two years.
Got it. Thank you.
Thank you. The next question is from the line of Sanket Goda from Spark Capital Advisors. Please go ahead.
Thank you for the opportunity. So I have two questions. One, if you can give the breakup of health loss ratio broken down into group health, retail health, and PA. So just wanted to understand which segments drove the improvement in the loss ratios compared to the previous quarter. Second question was with respect to the commercial vehicles, we had a year-end target to achieve at around 25% of the total book to be commercial vehicles, which seems to have been achieved in the first quarter itself. How do we see this?
We see as a book will become a meaningful part, whether it will go beyond 25 by the end of the year, and whether it is new lead or renewal lead is the part which I wanted to understand with respect to CV line?
On the first one, Sanket, I think in so far as the health split on the loss ratios are concerned between corporate and retail indemnity book, the corporate loss ratios for this quarter stands at about 91%. On the retail indemnity book, the loss ratio is at about 78%. This, if you look at vis-a-vis last year, honestly it may not be a relative comparison because that was a year where we had those impact of COVID losses both on the corporate book as well as on the retail indemnity book. The numbers what I gave you is for the current quarter one of this year.
Sorry, sorry, Gopal. The retail health loss ratio at 78% looks little higher compared to given we have a little newer contribution to the entire pie. I just wanted to understand what led to that little increase because last year's fourth quarter we had some sub 60% kind of a loss ratio.
Yeah. Sanket, as we keep saying that, again, I will keep maybe repeating this point. Quarterly loss ratios have got many elements attached to it and therefore to that extent one may not necessarily be representative of what loss experience is for the book that we are underwriting. Hence to that extent, comparing a Q4 number with, let's say, Q1 of this year may not be a like-for-like comparison. I think a better thing will be to start looking at loss experiences over annual cycles, which will be far more better reflection of the portfolio that's that one is underwriting. That's one.
The second and more important thing is, if you recollect even what we had spoken during our annual earnings call in April, we did indicate that possibly, particularly in this quarter one, could possibly see some slight increase in, non-COVID health intimations. That's something we are continuing to see. In this quarter, we did exhibit a relatively heightened number of, claim intimations which has happened on the non-COVID health front. The question for us is whether is it again just bunch of our cases which has happened in quarter one or is this trend line likely to be more structural in terms of intimations to continue in the next few quarters. We'll wait for a couple of, maybe, couple of weeks, particularly quarter two we will observe how the intimations are happening in so far as, non-COVID health claims are concerned.
Two, even on the ACS front, I think we have seen maybe a slight increase in the average claim sizes relative to what we had seen in the earlier period. That again is something that we are watching to see whether it is more structural or if there we could possibly see, let's say maybe a reduction as we look ahead in the subsequent quarters. These are things that we'll also kind of watch out for and maybe we'll be able to come back with a better estimate of what direction the loss ratios could take.
In so far as the portfolio that we are underwriting, as we explained, I think we are looking at writing a book on the retail indemnity side, which from a steady-state standpoint, both new plus renewals put together, we would want to see the portfolio running with a loss ratio in the range of 65%-70%.
Got it. On the CV question.
On the CV, we believe our range will remain in the 20s. We reached over 24% in this quarter, but the range will remain in the 20s. That's the plan.
It will be new led or renewal led?
Sorry?
It will be new business led or renewal business led?
It's a bit of both. We've gained in terms of new share also in the CV side, but the larger focus is on the agency channel, so it'll be more old.
Got it. And the last one in the OpEx side, sorry. On the OpEx side, the sales and promotion expenditure which almost doubled year-over-year and maybe have declined quarter-over-quarter. So exactly what is the nature of this expenditure? Because we just wanted to understand it is more business expenditure done to get the higher business or how do we read this number? It should be linked to the top line incrementally every time?
Sanket, every expense that we incur is in connection with sourcing of businesses. To that end, which is why I think when we look at the numbers, we always look at it more from a management expense ratio standpoint, which include both the commissions that we are required to kind of pay for the cost of doing business. At the same time, some of the other operating expenses which we incur in order to kind of run the business on a sustainable basis. Which is why I gave out that management expense change or variance between quarter one last year and quarter one this year.
That vis-a-vis the growth in revenues, if you see, just to kind of repeat, our top line has grown by about 28%-29%. The management expense growth has been about 27.8%. That's the way we look at the numbers because end of the day, whether it is commissions or whether it is, let's say, operating expenses, all of them go into, let's say, cost of doing the business. This will also include maybe some of the investments that we are doing, particularly let's say on the digital side, for example, when we are required to do a lot of marketing and other related promotional efforts. Those also gets into the sales promotion related costs.
Hence, the better way to look at it is more the expense ratio number, which is the management expense ratio number, rather than looking at the line item on a standalone basis.
Thank you very much. Ladies and gentlemen, we'll take that as our last question. I will now hand the conference over to the management for closing comments.
Well, thank you. Thank you guys for joining in. It's pretty late in the day, and we are very happy to take any questions that you may have subsequently. Look forward to, you know, meeting you during the course. Thank you. Bye-bye.
Thank you so much.
Thank you very much. On behalf of ICICI Lombard General Insurance Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you. Thank you.