Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited's Q4 and FY 2023 earnings 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 involve risks and uncertainties which could cause the 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 this 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 Mr. Bhargav Dasgupta, MD and CEO, ICICI Lombard General Insurance Limited. Thank you, and over to you, sir.
Thank you, Nirav, and good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard General Insurance Company for Q4 and FY 2023. I will give you a brief overview of the industry trends and developments that we have witnessed in the past few months. Post this, our CFO, Mr. Gopal Balachandran, will share the financial performance of the company for the quarter and year-ended March 31, 2023. The Indian economy is showing signs of resilience while the global economic uncertainty remains elevated. Domestically, all the leading indicators are pointing towards sustained momentum in the economic activity. However, persistence of elevated inflation in advanced economies, tightening financial conditions and ongoing geopolitical tensions may impact domestic growth going forward.
For the quarter, as per data published by SIAM, the new vehicle sales continued to deliver growth year-over-year for private car. The pent-up demand seems to have settled. Commercial vehicle segments continued to deliver robust growth, while the two-wheeler segment in terms of volumes is still below the pre-pandemic level. Health insurance continued to de-deliver robust growth. The commercial lines witnessed growth in line with the current market environment. The overall growth for the industry was highest in the last five years. We remain optimistic that the industry will continue to grow given the favorable regulatory changes, low penetration and positive customer sentiments. Speaking of the performance, the GI industry delivered a GDPI growth of 16.4% for FY 2023.
At the same time, the underwriting performance remained weak, with the combined ratio of the industry at 116.2 for nine months of this year, as against 119.2 for nine months FY 2022. For motor business, the combined ratio for the industry was 123.5% for half year of this year, which improved to 118.9 for Q3 FY 2023, as for public disclosures. While there have been gradual signs of improvement in the motor segment, the combined ratio remained higher than FY 2022 levels, which was at 115.6. The authority in the current financial year introduced various reforms seeking to expand the market and increase the penetration of insurance products.
During the quarter, the authority notified Expenses of Management and the Payment of Commission Regulations, proposing an aggregate limit at a company level with effect from April 1, 2023. Moving to the business impact for us during the quarter, the company grew by 6.7%. Excluding crop and a one-off transaction in the motor segment, the company grew by 12.6% as against the industry growth ex crop of 17.9%. Coming to the growth of key segments.
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Okay. I'll just repeat the last line that I spoke. Coming to the growth of the key segments during the quarter, in the commercial lines we experienced robust growth driven by growth of 15.9% in the SME segment. During the year, we accreted market share across segments such as engineering, liability, and maintained our market share in the fire segment. In addition to the above, another development in the commercial line segment was the discontinuance of IIB rates as minimum rates in the fire reinsurance treaties due to a regulatory directive. The impact of global hardening on reinsurance terms, especially on natural catastrophe protection, was experienced by the insurers during April 1 renewals. We believe that although this may create short-term disruption, in the long term this is expected to be positive and bring in underwriting discipline.
At the same time, for players like us who have capital brand and presence across multiple lines of business at scale, we should benefit from this. In motor, we de-grew by 11.5%. Excluding the one-off transaction, the growth was muted at 0.6% as against the industry growth of 13.1%. We continue to focus on profitable subsegments using historical granular data and rebalance our portfolio, resulting in a CV mix at 22.3% and two-wheeler mix at 27.8% for FY 2023. Similar to the previous year, the overall health segment continued to be the fastest growing segment of the industry. During the quarter, we grew at 31.1%, which was higher than the industry growth of 29.7%.
In Group Health, the employer-employee segment, the change in underlying industry pricing sentiment resulted in customers moving towards companies which have better underwriting and service capabilities, resulting in our Group Health segment to grow by 35.7% during the quarter and 43.9% for the year. As a result of our continued investment in Retail Health distribution, we have outgrown the industry for Q4 FY 2023 with a growth of 19.4%, and in the month of March with a growth of 27%. This was driven by business sourced through Retail Health agency vertical, which grew at 30.9%. Further, in the month of February, we undertook a price increase in our Retail Health indemnity renewal book at approximately 19%.
I would also like to share that our one-stop solution for all insurance and wellness needs, IL TakeCare app, has surpassed 4.6 million user downloads till date. The incremental download for the quarter was close to 1 million. For Q4 of FY23, quarter growth of premium sourced through this app was 58.4%, which is over the previous quarter, Q3 of FY2023, thus contributing INR 55.1 crore to GDPA. For Q3 of FY2023, this number was INR 347.9 million or INR 34.7 crore. For Q2, it was INR 27.44 crore, and for Q1 it was INR 10 crore. Our bank insurance and key relationship groups grew at 25.7% this quarter.
Within this, ICICI Bank distribution grew at 14.2%. The non-ICICI Bank distribution grew at 32.2%. Post-pandemic, the recovery in credit growth along with increase in wallet share in distribution partners acquired through the demerger has been a key growth driver. Our business sourced through our digital one team grew at 19.4%. Overall, our digital focus has enabled us to increase our digital revenues, which includes the IL TakeCare app, to INR 3.14 billion, which accounts for 6.3% of our overall GDPA for the quarter. We remain on track and are focused on growth levers such as innovation, digital advancements, launching new products, strengthening our distribution engine, 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, Bhargav, good evening to each one of you. I will now give you a brief overview of the financial performance of the company for quarter four and FY 2023. We have uploaded the results presentation on our website. You can access it as we walk you through the performance numbers. Gross direct premium income of the company was INR 210.25 billion in FY 2023 as against INR 179.77 billion in FY 2022, a growth of 17% against the industry growth of 16.4%. Our GDPA growth was primarily driven by growth in the preferred segments. The overall GDPA of our property and casualty segment grew by 18.9% at INR 59.73 billion in FY 2023 as against INR 50.24 billion in FY 2022.
On the retail side of the business, GDPA of the motor segment was at INR 85.82 billion in FY 2023, as against INR 82.8 billion in FY 2022, registering a growth of 3.7%. Excluding the one-off transaction that Bhargav referred to, the growth was at 6.9%. Our agents, including the Point of Sales distribution count, was around 1 lakh 13,000 as on March 31, 2023, up from 1 lakh 6,119 as on December 31, 2022. The advance premium was INR 32.17 billion as at March 31, 2023, as against INR 32.79 billion as at December 31, 2022. Resultantly, combined ratio was 104.5% for the full year as against 108.8% in FY 2022.
Combined ratio for the quarter was 104.2% this year as against 103.2% in quarter four FY 2022. Our investment assets rose to INR 431.8 billion at March 31, 2023, up from INR 414.51 billion at December 31, 2022. Our investment leverage net of borrowings was 4.15x at March 31, 2023, as against 4.16x at December 31, 2022. Investment income for the full year was INR 29.77 billion as against INR 30 billion in FY 2022. On a quarterly basis, investment income increased to INR 8.17 billion in Q4 FY 2023 as against INR 7.06 billion in Q4 FY 2022.
Our capital gains, net of impairment on investment assets, stood at INR 4.53 billion in FY 2023 as compared to INR 7.38 billion in FY20 22. Capital gains in quarter four FY 2023 was at INR 1.59 billion as compared to INR 1.36 billion in quarter four FY20 22. Our profit before tax grew by 25.5% at INR 21.13 billion in FY 2023 as against INR 16.84 billion in FY 2022. PBT grew by 39.5% at INR 5.73 billion in Q4 FY 2023 as against INR 4.1 billion in Q4 FY20 22.
Consequently, profit after tax grew by 36% at INR 17.29 billion in FY 2023 as against INR 12.71 billion in FY 2022. Profit after tax grew by 39.8% at INR 4.37 billion in Q4 FY 2023, up from INR 3.13 billion in Q4 FY 2022. PAT includes the reversal of tax provision of INR 1.28 billion in Q2 FY 2023. The Board of Directors of the company has proposed a final dividend of INR 5.5 per share for FY 2023. The payment is, however, subject to approval of shareholders in the ensuing annual general meeting of the company. The overall dividend for FY 2023, including the proposed final dividend, is INR 10 per share. Last year, it was INR 9 per share.
Return on average equity was 17.7% in FY2023 as against 14.7% in FY2022. The return on average equity for the Q4 FY2023 was 17.2% as against 14% in Q4 FY22. Solvency ratio was 2.5x at March 31, 2023, as against 2.45x at December 31, 2022. Continues to be higher than the regulatory minimum of 1.5x . As I conclude, I would like to reiterate, we continue to stay focused on driving 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. Now we will be happy to take any questions that you may have. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star 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 one to ask a question. The first question is from line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Two, three questions, first from the motor side. I think in the recent conversations you have mentioned that there has been some, you know, small but positive development on the pricing side in motor OD. Despite that, I think what we are seeing, you know, in your numbers is that there has been a degrowth in the motor premium. Just wanted to understand, sir, what is playing out there and what has resulted. Is this a high base effect or anything else that we need to understand to factor in these degrowths that we have seen in the motor group?
Also, sir, probably if you can highlight the reason for the motor TP loss ratio being higher this quarter, because I checked the re-reserve cycles and there seems to be reserve release. Has there been any kind of adverse one-off impact that you have seen in the motor TP book this quarter?
The first one, Swarnabha, on the motor own damage growth numbers, I think, in line with what we have been talking about, why we continue to be a bit cautious given the fact that the competitive intensity on motor stays elevated. Having said that, you are right, we did talk about maybe some bit of easing in pricing that one had expected to kind of play through on the motor segment, which is why when you look at the industry combined ratios for the half year, the industry combined was roughly at about 124%. If you look at that number for quarter three, that number was about 118%. Clearly, I think there seems to be some signs of a bit of easing in so far as the industry participants are concerned.
In so far as ICICI Lombard, I think if you recollect, what we had said was obviously we continue to write the motor segment through a combination of both new as well as the relatively older segment. As we have been explaining, we have been also looking at segments which are slightly older, which typically comes with a slightly higher loss experience, and the relative cost of acquisition for that particular segment is relatively lower. Hence, from an ROE perspective, it made a lot of sense for us to look at writing that part of the business, and hence to that extent we would possibly see maybe the loss ratios, slightly elevating.
Having said that, I think what we would always urge is to not look at maybe any numbers on a quarter-on-quarter basis, but rather look at it more on a full year basis in terms of the opportunity. That's one. On motor Third-Party loss ratios, again, we will continue to make the same stance, which is to say that in a given quarter there are a lot of factors that influence the loss experience. Therefore, in so far as if you ask us whether there has been any change in our reserving philosophy or approach, there has been no change in the reserving philosophy or approach. Motor TP being unlike some of the other segments which are short tail in terms of loss development, as we know, it's a relatively long tail of claims.
There again, I think we would again urge all of you to look at numbers more on a full year basis. If you look at it on a full year basis, the motor third party loss ratio for the current year stands at 72%. That's a better reflection of the loss experience as compared to looking at the numbers on a quarter-on-quarter basis.
Just to add one more point to what Gopal said. When you compare YOY numbers, last year Q4 for us was a very big quarter for in motor business. That base has played out in terms of the growth numbers for us this quarter. Otherwise, in terms of pushing price increases, that we are actually taking. We've pushed through some price increases. We will see whether others follow.
Mm-hmm. Okay. got it, sir. also, I mean, in terms of the overall cost structure, sir, I mean, ideally, I understand that Q4 is generally a retail heavy quarter and hence our commission outgo is generally much higher. This time the net commission ratio is somewhere around 2%, 2.2% in our numbers. Is there any impact of the one-off transaction in this? if you could highlight the reason and also the one-off transaction, if I were to triangulate the numbers somewhere in the PNL how should I, you know, look for it?
Tristan, so far as the net commission is concerned, I think there is definitely nothing which is more one-off. We obviously see cyclicality in some of the outcomes when you see on a quarter-on-quarter performance. Particularly for example on some of the commercial line portfolios, we get to see the experience of how good or bad the portfolio outcome has been. That gets demonstrated at the end of financial year, particularly in quarter four.
Hence, to that extent, you will possibly be able to see some element of maybe profit commission that typically gets recognized in Q4. There's nothing which is like one-off. In general, as we have been talking about on the commercial line, our portfolio experience has been, in that sense, profitable. Therefore, the terms of commissions that we get from the reinsurers is what has possibly resulted in maybe the net commission ratio reflecting a different number. But otherwise there is no one-off insofar as this particular recognition is concerned.
Thank you. Swarnabha, sorry to interrupt you. I request to join the queue again for a follow-up question. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Hi. Good evening. Two questions. First is more on the regulatory side, where regulator has sort of bring in, I would say a vague clause saying that benefit of a direct distribution to be passed on to the policyholders. Now here my question is that is the regulator sort of saying to you or the industry that, okay, you have to have a kind of a direct version of the same policy? If not, I mean, I'm saying just simply that, okay, what if a health policy, a retail policy, a customer coming for renewal, now are you supposed to pass on that if the customer is willing to pay to your branch and your portal directly, are you willing or are you required now to pass on the commission difference?
I mean, I am talking of a renewal where, I mean, there is definitely no, almost no cost in terms of direct. I can understand the cost on the new issuance. But when a customer is coming for the renewal directly for health, I mean, virtually there is no distribution cost involved. Are you going to pass on or are you required? That's number one. Second, on the, you know, Expenses of Management side, I mean, of course, the new regulation has come, but even for the existing regulation perspective, I mean, at for your scale, the 31% kind of a reported Expenses of Management, it looks, I mean, there's something, I mean, the operating leverage is kind of a bit elusive.
To add to that, if I see the P&L, there is some close to INR 900 crore or like, you know, or close to 4% of your gross premium that is being charged to a shareholder's account, whereas the ratio says 31%. Why is, I mean, at least from the ratio, it does not appear as if you have breached Expenses of Management by that kind of an amount. What, sort of a connection I'm missing here? These are my two questions. Thank you.
Thanks, Avinash. Gopal will take the second question. Let me answer the first. I think the direction that the regulator is taking is making the regulation more principle-based and leaving independent companies with lot more flexibility to manage their business in the way they think appropriate. Everything that he was, that they're doing, at least our read of the matter is they're giving insurance companies a bit more choice than what we had in the past. Even, I mean, when it comes to the fact that you can give a lower commission, that is also a choice given, which in the past we were not explicitly given. As a company, we still have been giving a lower price in the online policies by 2.5%-5%.
That's the practice that we've been doing, and we will continue to do that. Coming to what will happen because of this, I think, you know, it's just too early to comment on how market would adjust to these changes. As I said, my sense is that it is giving a lot more flexibility to us and different companies will plan out what they want to do with these flexibilities. You know, do remember that the in certain products, the agent, even if, let's say customer renews online, sometimes agents do play a role in recommending that and driving that behavior. May not be true for everything, but a lot of times it is, that is how it is.
As I said, more importantly, it's a choice given to insurance companies to plan their business strategy.
Avinash, on the second point, I think the number what you're saying of 31.4% is basis for quarter four based on regulatory stipulated way of computing the Expenses of Management ratio. There if you see the denominator as what is being put out on the footnotes, it's based on the gross direct premium income. Having said that, the threshold on the Expenses of Management works on the basis of gross written premium. When you kind of compute the numbers on the basis of gross written premium, that 31.4% will stand revised to, let's say, 29.5%, which is within the threshold of compliance insofar as the limits on Expenses of Management is concerned.
The same number on a full year basis, what you are seeing of 29.6%, which is again based on gross direct premium income in line with the requirement of the regulation, which is on gross written premium, that number will be looking like 29%, which is again within the threshold on limits that has been laid down by Expenses of Management. That's one. To your second point on there seems to be an amount of, let's say, close to about INR 900 crores, which is reflected as a part of the P&L disclosures. What the regulator has also under the earlier regime, which is valid until March 2023, had also stipulated, one, compliance is at an aggregate level, which is what I explained, we are well within the limits on laid down by the regulation.
Two, as you know, they had also laid down limits for individual lines of businesses. In case if there are any line of businesses where possibly the limits on expense is slightly elevated, then to that extent from a disclosure perspective, so much of the excess is required to be separately disclosed as a part of the P&L numbers. When the computation of the combined ratio happens, it factors in for all the operating expenses that we incur as a company. It's more a disclosure that is stipulated by the regulation as compared to the fact that it is not a case where at a company level we have exceeded the limits on Expenses of Management. We are well within the threshold.
Okay. Thank you. A quick, follow-up. I mean, sorry, a different one. On the reinsurance side, if I see there are three kind of, changes happening. One, of course, the global hardening in the reinsurance market. The second thing I see, you know, that kind of a regulator nudging the primary insurer that, "Okay, go ahead without any sort of a reinsurance prescribed or flow rate." That was a kind of a practice in commercial lines. Of course, that's a kind of a second impact.
Thirdly, with the new EOMM regulation coming on the GWP basis, probably, I mean, the way some primary companies or even reinsurance companies soliciting, certain reinsurance businesses where commissions might be, I mean, get a bit disturbed, the kind of a reinsurance commission they would be paying because now this, I guess, new EOM regulation of 30% will be applicable on all. These three things that, you know, a bit of dislocation commissions, you know, that the reinsurers-driven flow rates not really mandatory rather, you know, insurers, trying to choose. Thirdly, the global reinsurance market hardening. All this net-net, how is going to sort of, impact, you know, like yours or the industry behavior as far as the commercial line or kind of a heavily reinsurance back line are concerned?
No, that's a great point, Avinash. We've been talking about the fact that in commercial line there'll be a fair amount of change. Even in the last quarter before these things were explicitly clear, we were talking about the fact that some of these changes would have impact. Of course, we couldn't anticipate the rate hardening on the reinsurance side till that time, but that's now evident. The point that you're making is very, absolutely valid. Globally, if you look at rates in certain markets, it's gone up by, you know, 50%, 60%. In our market, it's also gone up by 45%-60% for most players in the market. That's an input cost to us. Largely, the on the non-proportion side, the cost has gone up.
The commissions that reinsurers give on the proportional side has gone down. It's a significant increase in cost. The second is, as you rightly said, that pricing is largely not mandated to be in line with the burning cost of the industry. Individual companies can charge whatever they want to. Hence, there is a risk that the pricing can drop. Our sense is, and, you know, UM of course is there, but, you know, at the end of the day, finally it's within, you know, overall combined and we see UM as a very positive development, in the sense that, you know, it's expected from the regulators that companies will reduce their Expenses of Management, even if they're below the threshold, and those above the threshold have to bring it down to 30% within three years.
That should drive positive behavior in our anticipation. That I don't see as a negative in this sense. From the first two perspective, you know, I think the way we are seeing the market at this first month, on the second issue in terms of rates coming down, episodically one or two cases have come down, but on aggregate the rates haven't come down as much as we would be worried about. It's come down a little bit, but nothing material. Our sense is that, you know, usually April is a big month, gives a sense of where the market is headed. In future also, we are not anticipating a major drop in commercial rates in the market simply because the industry cannot afford to.
You know, as you rightly identified on one side, the cost has gone up and it's not as if the combined ratio for the industry was very healthy. I don't think the industry has too much of a wherewithal to, you know, reduce prices much. Maybe there's one or two episodic, you know, cases that'll happen, but not at scale. The last point that I will make is that, you know, if let's say certain companies go very aggressive on the property side and in effect end up burning their treaty, the reinsurance market with this hardening that we are seeing and the attitude hardening, in the sense the reinsurers don't have appetite to give treaty capacity which you can keep burning. That's what you've seen in the market this year, right?
If that happens, if any company does that, our sense is in the next year they will find it very difficult to get proper treaty capacity. I think this year itself some companies struggled. You know, more will struggle if that happens. If that happens, I think we are on a, you know, better wicket because we have the capital and the solvency and the size to continue. The quality of a book that we have, we've been writing, and the discipline on underwriting, we should stand to benefit. Our experience or our estimate for the year, you know, we've been giving a guidance as a company that over the next two years we want to bring it down to 102. We are not changing the guidance in spite of this cost increase on the reinsurance side.
Thank you very much. We'll move on to the next question. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, good evening, everyone. A few questions from my side. Firstly, could you highlight as to when this one-off transaction happened in February? There would be some income and which line item does that income sits in? Secondly, is there some seasonality in motor TP loss ratios? In past three years, we've seen Q4 being far more elevated than Q3. In one of the, I think if I recollect well, in one of the fourth quarters you had mentioned that this was because of adverse judgments in that case. Thirdly, we've seen a sharp, a good decline in terms of absolute cost for advertisement and publicity, sales promotion, employee remuneration. That's, you know, recent decline in terms of sequentially.
What is the kind of run rate that we should think about, from a full year perspective of next year?
Prayesh, on the one-off transaction which we have been kind of explaining, that's something that has happened in quarter four. This is in that sense something that we did in line with what, let's say, other market participants have been possibly doing it in the current year or maybe in the earlier years as well.
Hence to that extent, it's a commercially viable transaction that we have kind of undertaken. Hence to that extent, the outcome of the transaction will be reflected in the overall underwriting result, when you look at the aggregate numbers. In so far as your motor third party, loss ratio trend line of seasonality between quarter four, there is in that sense not any specific seasonality that typically gets attached.
For example, if you recollect two years back, which is in FY 2021, at that point of time when we had possibly seen elevated levels of motor Third Party loss ratios being higher, we had kind of talked to the market to say that we did see at that point of time incrementally new Supreme Court judgments that had come through in terms of defining the basis on which compensation will get paid to victims of accidents. Hence, to that extent, when we kind of evaluated that particular book, we obviously wanted to make sure that we did not know in which direction that would take shape in so far as future settlements are concerned. Having said that, given that we have always followed a prudent approach to reserving, we obviously wanted to strengthen the reserves at that point of time.
To that extent, you would have possibly seen maybe an elevated quarter four motor third party loss number. The last year again is more a function depending on how things have come back in terms of normalcy, because last two years typically has been periods where we have seen in different quarters, COVID experiences play out. To that extent, the scale of operations will possibly also be a function of what kind of loss experience that one exhibits. Thirdly, as we keep saying, one should always look at particularly long tail line of businesses experiences more on ideally over longer years, but definitely not on a quarter on quarter basis. You should look at more on annual numbers as compared to, let's say, looking at a quarter on quarter trend.
The last point of yours, I think as we have kept saying, we do kind of look at productivity and efficiency in the overall the means of doing business. Hence, is where we have kind of spoken about what Bhargav just mentioned, where clearly the direction that we want to take is to bring down the overall combined from the current levels of closer to 104 that we have been operating down to, let's say 102 over the next two years. Within that, we are extremely focused on looking at every element of cost, whether it is the cost of doing business or even any other investments that we are kind of looking through. In that sense, it is not that there is any significant change.
We continue to make investments in the health agency platform that we have spoken about. We continue to stay invested in digital and in line with our recent, digital day that we had, which we kind of shared with all of you. We continue to stay invested in this, various, technology transformation projects as well. Hence to that extent, that is how we should look at, in terms of the loss, in terms of the expense ratio trend line. Nothing specific that is there as a one-off, in so far as the quarter four numbers is concerned.
Thank you.
Thank you very much. The next question is from the line of Shreya from CLSA. Please go ahead.
Hi, thank you for the opportunity. Sir, I have most of my questions are answered. I have one doubt, basic doubt, that the reinsurance that gets added to the gross direct premium, and eventually becomes gross premium retained is high for fourth quarter seasonally or because even last year fourth quarter it was a higher number. This year again it's a higher number. If you can help me understand this bit?
Nothing, nothing unusual, Shreya, in that sense. I think that we look at again, the reinsurance inward is again an opportunity that one sees depending on how we are able to get businesses for a particular period. In general, yes, there could be some kind of a seasonality attached to it. For example, you would see on the corporate side to be significantly heavy in Q1. You may see retail to be significantly heavy in Q3. You may see Q2 and Q3 seasonality attached to crop. Therefore, different businesses exhibit and maybe retail health for the matter of fact, to some extent I would say attached to some seasonality in Q4 as well. Hence, there are different lines of businesses that exhibit seasonality. Hence to that extent, the reinsurance inward could also be one of them.
At the end of the day, whichever segment that we are talking about, we obviously look at it from the ultimate lens of profitable growth.
In fourth quarter this is heavy because of health is what you're saying, because commercial is mostly first quarter.
Not necessarily. All that I was referring to is different segments of businesses could have seasonality attached to it. As an example, I'm not saying in the context of reinsurance inward. Even on the direct side on retail health, you will possibly see Q4 to be a slightly seasonally higher quarter. Reinsurance inward could be a mix of business across different segments. It need not be necessarily only health.
Okay. Okay. Okay. Got it. Yeah, that's, that was my only question. Thank you.
Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.
Thanks for the opportunity. There's three questions. Firstly, on the combined ratio, what is the impact of this one-off transaction on our combined ratio of 104.2% for the quarter? Secondly, what is the health agency GDPI, in absolute terms, for FY2023 and Q4 FY2023? Lastly, we have got access to HDFC Bank and Axis Bank. If you can share how is the progress there? What is the business which we have been able to source from these channels, in FY2023 or Q4 FY2023? These are three questions.
Let me, let me take the third one. I think we are quite happy with, as we said in the covering, you know, remarks. Most of the distribution channels that we got through the demerger with Bharti AXA, we are quite happy with the progress that we've made. In those specific, partners that you're talking about, the large bank of partners that we've got. In both these, relationships, we've increased the share of wallet, in fact, month-on-month, quarter-on-quarter, even during this year. Vis-à-vis when we had announced that transaction till now, it has been a significant increase in share of wallet. I'll ask Gopal to answer the last two... the first two questions.
Insofar as, maybe I will take the second part first. In terms of the split of health GDPI, that for the full year is at about INR 47.82 billion. That's for FY2023. For FY2022, that number was INR 34.87 billion. On the point on the impact of combined ratio, Nidhesh, the fact that it's a commercially viable transaction is why we have done that. Hence, to that extent, in terms of it does not have any material impact insofar as the overall combined ratio is concerned.
Sure.
It's commercially viable though.
There's minor positive impact on combined ratio you should, that is the way we should look at it.
That is correct.
Then on the health agency, I was talking about health agency GDPI for FY 2023 or FY 2022. INR 47.82 billion is total health GDPI. Health agency GDPI, I was looking for.
The health agency GDPI for the full year stands at about INR 5.6 billion.
INR 5.6 billion. Okay. Okay. Thank you, sir. Thank you.
Thanks, Nidhesh.
Thank you. Next question is from the line of Madhukar Ladha from Nuvama. Please go ahead.
Hi, good evening. Thank you for taking my question. First, you know, on the regulatory change side, the Expenses of Management now allowable differentiate between the SAHIs and the general insurers as far as the health business is concerned. SAHIs are allowed 35% and, but the general insurers on an aggregate level are allowed only 30%. Does that create some sort of, you know, uneven playing uneven field for the industry and for you guys? Second, you know, I see that your investment income has improved considerably in Q4. Also if you look at the Q3 balance sheet versus Q4 balance sheet, the unrealized gains have dropped significantly from about INR 550 crores to about INR 213 crores.
Has there been, you know, an increase in realized gains in this quarter, which has resulted in a strong investment income performance? Those would be my two questions. Yeah.
Yeah. Madhukar, if you look at the EOM, I mean, you know, I think principally any difference in arbitraging regulation is not, you know, something that is useful. Having said that, I think SAHIs have a genuine problem in the sense that they are single product company. We can defray costs across multiple businesses, they can't. When we look at the fact that as a multi-line company, we write different types of businesses where the cost of distribution is lower, we don't see a big disadvantage because SAHIs have 35% and we have 30%. We have other products where the cost of distribution would be lower than let's say the health business. Even for us, the health business would be higher, we have some advantage in the other lines of business.
On the second question, on the investment side, Gopal, you wanna take that?
Yeah. If you look at on the mark-to-market side, the drop in from INR 550 crores to let's say INR 200 crores. In that context, the point that you asked as to whether there is a significant increase in capital gains for this quarter vis-à-vis, let's say, quarter four of last year. There is, in that sense, there is not a significant increase. If you look at Q4 of the current year, the capital gains stood at about INR 1.59 as compared to INR 1.36 billion, which was the capital gain that one had seen in quarter four of last year. To your other point on the quarter-on-quarter increase in the overall investment income, that is exactly what we have been talking about.
To say that any increase in the interest rate regime obviously augurs well for us, given the fact that as the portfolio starts to get rebalanced in terms of a mix of investment assets which gets invested at a relatively higher yield, you will start seeing on an incremental quarters, maybe the interest income getting reflected appropriately. That's the only reason why you see possibly the increase in investment income. Otherwise, there is nothing else that is attached to those numbers.
Just one more point to add to what Gopal said on the investment side. I think, you know, we were probably, we, you know, we were correct in expecting the interest rate movement in the market. At this point in time, it seems to be a correct decision where we increase the duration of our portfolio in the first half of the year. That's also playing out. You know, because of that interest rate change that Gopal is talking about, we've been able to take advantage because we increased the duration of the portfolio in the first half of the year.
Right. Understood. Thank you.
Thanks, Madhukar.
Thank you. Next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.
Hello. Thanks for the opportunity. I have two questions. One, on the health retail health side, could you talk about the investment opportunities that you are looking at going forward? Also, would these investment opportunities include an acquisition to, you know, drive the retail health and care channel faster? That's first. Secondly, on the URR, and if I look at it or, you know, compare it with the Net Written Premium, then that ratio comes out to around 56% for FY2023. Typically, it has been around 58%, 59% previously. It seems like you are booking more revenues in FY2023. How should I look at it? If you could give some clarity around that would be very helpful.
I'll take the first two, and I'll request Gopal to take the last one. In terms of health retail, as we've said that this is a area that we want to sustain our investment. We've talked about the manpower that we've added during this year, and we have also said that we wanted to see the productivity gain come through. Clearly the signs are very, very positive. If you see our second half growth in retail health business, we generally are performing the market. Having said that, we don't think they've reached the true level of productivity that we expect them to reach.
There is still some traction on the investment that we've made in terms of improvement in the top line from that channel that we've added. What we've decided to do is, as we go through the year, we would look at how, you know, where we are reaching with that investment and we will, you know, opportunistically add more resources to ensure that the investment focus remains on building the distribution. As we've said over the last few years, our retail health market share is, you know, much lower than an average, and our endeavor is to, over the years, you know, build it up. That focus remains.
With regard to acquisition, you know, I don't want to get into specific conversation about any, you know, one segment or one specific company. I think we've always been saying that, if there are, you know, viable opportunities in the market where, you know, an opportunity which gives us access to a new distribution or a new business, as also comes with a reasonable price, we are always open. There is nothing specific that we are looking at this point in time.
To the third question on the URR, I think URR, as we have been explaining even in the earlier quarters, is purely a function of earning the premiums over the contract period. And hence, to that extent, depending on, again, as I was explaining in response to an earlier call, there are certain lines of businesses which could possibly depict in some quarters maybe a faster earning. So for example, you will see maybe the crop insurance segment typically operates for particular seasons. Not that we are writing a very large proportion of that particular book, but in terms of any impact that one would see on the net earned premium, you could see some cyclicality attached to it. Otherwise, URR is purely a function of the way the portfolio get earned over the contract period.
Yes, if you had to see last year, for example, in FY 2022, the overall growth was only about 4.7%. If you look at our growth for the current year, it's at about 17%. That's again a factor that one will have to take into consideration when you look at earnings of URR over a period of time. There is, in that sense, nothing one-off which is there as a part of the unexpired risk reserve numbers.
Thank you.
Thank you. Next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yeah, yeah. Thank you. Thank you for the opportunity. I wanted to understand what exactly you are going to do with the crop insurance business in FY 2024 because this year is the last year for the AXA business what you acquired. Given the URR rules are around, and if you intend to focus more on retail business which are OpEx intensive, do we go a little aggressive on the crop business in the current year? That's the first question.
Yeah. Let me answer that. Will we go aggressive on crop business just because of UM flexibility? The answer is no. We had said at the beginning of or even last year, last couple of years that, you know, post the acquisition, we had said that we will continue to have some exposure to the crop business now, given that overall market has improved. There are new schemes which are coming in, and the capacity in the market, which is the, you know, total number of players in the market have reduced. We have been clear that it will be, you know, roughly about 4%-5% of our business. That narrative does not change. We are not changing any of those objectives just because of UM.
Got it. Given the reinsurance market as you highlighted has hardened and probably the commercial lines potentially could see a lower profitability in the current year because of the rules changes or UM rules. The glide path, what you have mentioned that 104 combined gradually improving to 102 by FY2025, despite competitive intensity increasing in few profitable lines, you still continue to maintain that 102 by FY2025 will be achieved or there could be a deviation here?
That's what we said earlier in the call, Sanketh. Our, you know, our objective hasn't changed. Yes, while in commercial lines, the profitability may not be in line with what we have in the past, but at the same time, we've taken a lot of calls during the year, which will play through in the future is our expectation. You know, actions that you take now helps you in the, in the next year. We are reasonably optimistic that we will continue to deliver on that glide path that we've talked about. When it comes to commercial lines also, you know, I think one of the things that which happens on the ground is that there is a lot of calls that are taken at a client level profitability.
If you're making a bit of money in fire, you may be a bit relaxed in pricing your group health or marine.
Correct.
You're looking at overall portfolio profitability.
Okay.
If, let's say, fire profitability comes down, group health profitability should or rather, you know, the aggression in group health should reduce. Those are the expectations that we've had, that we have. You know, some of those changes we've seen on the group health side as we speak. We've not seen an improvement in marine, you know, rates as yet. Overall, we believe that we will continue to manage the, you know, commercial line business profitably. The combined ratio may deteriorate a little bit, but that's something that we'll make up from the other lines of business, where this year was a very stressed year in terms of combined ratio in some of those lines.
Lastly, the health investment that we made, you know, that was a cost which I think Gopal has been talking about.
Yes.
on every call. As that channel becomes more productive, we will get some, you know, benefit there.
Okay.
Some of the channels that we got from Bharti AXA by the integration, you know, there were early days of investment into including some of the, you know, large distribution partners.
Yeah.
Those are all beginning to come within reasonable numbers in terms of combined. All put together, we are reasonably confident about the numbers that we're talking about.
Got it. Last one. If you can give the retail health loss ratio and group health loss ratio for the quarter and for the full year. Given the price hike you have taken 19%, I believe it is both for new and the renewal part. Can we expect a significant improvement in the retail health loss ratio because 19% hospital inflation looks a little unlikely. The benefit will be there in FY2024, is it safe to assume that way?
The first part, Sanketh, as usual, so far as quarter four health GHI loss ratios are concerned, that's at 93.2. Retail indemnity loss ratios for the quarter is around 61%. If you recollect, even in the last quarter, when I think you had only asked what has been the loss ratios, we had kind of talked about saying that the group health will possibly end the year with a loss ratio of close at about 95%. If you look at it on a full year basis, the GHI book loss ratio stands at about 95, and the retail indemnity loss ratio stands at about 64%. That's the breakup in so far as the loss numbers are concerned.
Your second point on the increase in the pricing. The increase in pricing is with respect to the renewal book. It's not that it's on the entire book that one has applied the increase in pricing. Having said that, yes, to some extent there will be an improvement in the overall loss experience. At the same time, as you rightly mentioned, there is always an element of health inflation that one sees. Going ahead in FY2024, we obviously will also have to see what kind of a business mix that one is able to source. There are various factors that would influence the overall loss number.
As we have said, even in the past, in general, we believe the retail health indemnity book should kind of operate at a loss ratio range, which will be between 65%-70%.
Thank you very much. Sanketh, I'll request you to join the queue for a follow-up question. Next question is from the line of Gaurav Singhal from Aspex Management. Please go ahead.
Yeah, hi. Thanks for taking my question. Sir, just one question from my side. For the investment book that we have, what's the average maturity? Also, what's the difference roughly between the yield that we are realizing on the investment book right now, excluding capital gains, and the incremental yield that we can invest by maintaining the same average duration? Thank you.
The duration of the book at the end of the year, FY 2023, was 4.99. This was slightly lower duration than what we had at the end of nine months, because, you know, in the month of March, we had very good inflows into the portfolio, largely because the March numbers from a business perspective were positive and also the corporate business, some of the, you know, premium comes in. That money obviously was not invested. We didn't have enough time to invest in the long duration bonds, so that's sitting on cash. Hence the duration of portfolio was slightly lower than what it was as on nine months. It's about 4.99, roughly about five.
YTM of the portfolio is carrying an yield of about 7.2%.
All right. Thank you.
Thank you. Next question is from the line of Neeraj Toshniwal from UBS Securities. Please go ahead.
Hi, sir. wanted to know, our thoughts one year into Motor Vehicle Accident Act. are we experiencing the tail getting shorter and that show are we going to release reserves and that is considered into our target combined ratio?
The answer, short answer is no. As in it's not, you know, it's not factored in our target combined ratio. We are still not assuming any change in the underlying pattern. As we spoke last time, you know, the, what's happening on the ground kind of remains the same. We've had different judgments in different high courts. Some judgments in the favor of insurance industry, some judgments not so in favor of industry.
What we are doing is we are observing the trends. There are certain months where it seems like it is accelerating, certain months the data is not very clear. As we've been saying that we have to watch this data for some time. I think what we'll have to see is cases that have got reported with beyond the six-month period. Obviously, we are contesting all of that. We will have to see in the courts how that plays through. We are not assuming any benefit, though we remain reasonably hopeful that in the longer term this will come, you know, the courts will rule in favor of the insurance industry because this is the law of the land. At this point in time, we are not factring anything in.
The second thing that you will remember in PP is that we've not seen a price hike, right? In PP we assume a certain claim inflation as a norm as a company. That claim inflation increase is something that we are continuing to assume even for the coming year. Not only are we not taking a benefit, we are also assuming a inflation in the PP claims, which is what we've been doing over the years.
Got you. When is the hike in discussion with the industry body this can happen and there was some media article of change of formula towards new pricing?
Yeah. Let us wait for that to come through because this is of course something that, you know, you know, the central ministry, MOF, you know, MOFs will have to give, so we have to wait for something to come through. As of now, we have no clarification about any, you know, the increase, or any formula change.
My question is more on OpEx. Though optically it's looked to be much lower given the fact that reinsurers in world have been there, so fourth quarter last year also we had a lower OpEx, you know, on NWP. How should we think about it, in absolute amount also is actually lower. Is it sustainable or do we think that the run rate will again jump up or it's a fourth quarter phenomenon? Any color on that will be helpful.
Sorry, I missed, Neeraj. Which element were you referring to?
On OpEx, wanted to know in terms of sustainable, given the fact that it has gone down both absolute and in terms of percentage. Percentage I understand it's, NWP is little lower given the higher reinsurers involved, so might have been optically looking a little lower. Wanted your thoughts on the sustainable amount in terms of absolute numbers.
No. Neeraj, again, there as we keep saying, you should again look at more the combined ratios of the overall operations because different segments again will exhibit breakdowns of that combined differently. I mean, there are portfolios which could be high on LR, but relatively, let's say, lower cost of acquisition and conversely the other way around as well. Obviously we'll have to wait and see how the portfolio buildup takes place in FY 2024. As we have said, clearly the objective is we would want to kind of stay on that glided path of combined coming down from 104 to 102. Secondly, what we are seeing as obviously, encouraging signs is some of the investments that we spoke about, particularly on the retail health agency franchise, those are starting to play out.
As you would have seen in, let's say, most of the recent months, our growth % have been even faster than even the standalone health companies. Clearly those signs are getting exhibited. Having said that, we continue to stay invested in building that franchise, which will again mean expensing of cost upfront and the benefit of revenues coming through over a period of time. A better trajectory is to look at more the combined ratios rather than looking at just the, let's say, Expenses of Management number on a standalone basis.
Got it. Can we expect this volatility in claim ratio to happen in the coming quarters as well? Because it's, I think, much higher compared to what the street was building in. Obviously as you mentioned that this is more so to be looked at on an annual basis. Just wanted to understand how one should look at it. I mean, 32% looks on the higher side.
In general, I mean, I'm just giving a slightly broader range. I think if you look at the loss ratios, they have kind of stayed in the range of between, let's say, 70%-75% in that kind of threshold. Again, as I said, that's again a function of depending on what segments of business is one able to see as an area of opportunity. Hence, I mean, very difficult to kind of tell you as to what could be the loss ratio number that what we would be kind of working with. What we are largely targeting is the combined ratio threshold to come down to 102 over the next two-year period.
Got it. That is helpful. Thank you, Gopal.
Thank you. Next question is from line of Nischint Chawathe from Kotak Mahindra. Please go ahead.
Hi. Thanks for taking my question. I'm looking at the advance premium, you know, figures. You know, for last couple of quarters, this has actually not been going up. In fact, it's come down a little bit, you know, over the last three quarters. This is despite the fact that you have actually been growing faster in motor TP. I'm just curious as to how should we look at this trend.
Nischint, if you look at, in general, I think the relative growth for us on the overall motor has been kind of slightly lower than the market as what you have seen from public data. Relatively, if you see the growth on third party, a large part of the third party growth for us, again, which is a thought through approach of increasing the commercial vehicles portfolio. There obviously the commercial vehicle portfolio is not a long-term third party book. It's more on private car and two-wheelers is where the portfolio typically has a longer-term tenure. Commercial vehicle portfolio in the current context operates as a one-year term. That's primarily the reason why you possibly do not see in that sense a significant change in the overall advance premium numbers.
As and when obviously we see the market coming back as what we have seen some early signs on, let's say, on the private car side, we should definitely possibly get to see the advance premium numbers, maybe increasing.
Thank you. Sorry to interrupt you, Nischint. Ladies and gentlemen, we'll take that as the last question. I will now hand the conference over to Mr. Bhargav Dasgupta for closing comments.
Thank you. Thank you everyone for joining the call so late in the evening, and look forward to engaging with you over the next few days. Thank you again.
Thank you. Have a good night.
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.