Cholamandalam Financial Holdings Ltd
NSE:CHOLAHLDNG
Cholamandalam Financial Holdings Ltd
NSE:CHOLAHLDNG
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Earnings Call Transcript
Other Earnings Calls
Good morning, ladies and gentlemen. I'm Kritika, moderator for the conference call. Welcome to Cholamandalam Financial Holdings Limited Q1 (sic) [ Q2 ] FY '23 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note, this conference is recorded.
I would now like to hand over the floor to Mr. Pritesh. Thank you, and over to you, sir.
Thank you, Kritika. Hello. Good morning, everyone. On behalf of DAM Capital, I would like to welcome the management of Cholamandalam Financial Holdings Limited. Today, we have with us Mr. Sridharan Rangarajan, Director; and Mr. N. Ganesh, Manager and CFO for Cholamandalam Financial Holdings. Along with Mr. V. Suryanarayanan, MD; and Mr. S. Venugopalan, CFO of Chola MS General Insurance.
Now without further ado, I will hand over the call to Mr. Sridharan for his opening remarks. Thank you, and over to you, sir.
Thank you. So good morning to all of you. I hope you are all safe. So in this call, we have with us Suryanarayanan, our MD; Mr. Venugopalan, CFO of the company; Mr. Ganesh, CFO for Chola Financial Holdings. As you all know that Cholamandalam Financial Holdings consists of the consolidated results of Cholamandalam Investment and Finance Limited, Chola MS General Insurance and also Chola MS Risk Services Limited. And there is a wide coverage about Chola Investment and Finance Limited. You would have gone through their investment presentation to you as well as you would have participated in their call. So I would like to get into Chola MS General Insurance opening remarks, and then we'll open up for the Q&A.
Chola MS General Insurance registered a growth of INR 1,474 crores in Q2 FY '23, an increase of 21% over the previous year, driven by growth across channel and partners. The company continues to have a dominant presence in Motor segment and strategically diversifying across the motor vehicle segment. In Q2, the industry grew by 8.7% and private sector players grew by 12.5%.
In the first half, industry grew by 14.7%, and the private sector players grew by 20.8%; Chola MS General Insurance grew by 30.2%. In Motor, Chola MS improved the market share from 5% to 5.3%, and PA grew the market share from [ 2% to ] 4.7%. In the fire business, the growth is about 43%.
In the first half, Motor representing 66.5% portfolio, grew by 25.6%; Commercial represented 15.4% of portfolio, grew by 43%; health, accident and travel represented 17.1%, grew by 38%. Within Motor, two-wheeler and PC share has gone from 21% to 35% and Commercial Vehicle has come down to 36% from 40%. Volumes from new channels, new verticals, OEM and financial channels had a very good growth.
The company's long-term policies grew to us more. And as per IRDAI direction, the company needed to upfront absorb the full cost for all the long-term [ cost ]. However, the [ EPS ] [indiscernible] getting an embedded value balance sheet. The long-term premium over GW was 12% in H1 compared to 8.4% in the same period last year. The solvency ratio as of September '22 is 2.13 as against 1.77 the same period last year.
With those opening remarks, I think I would like to open up for Q&A. Thank you all for your participation.
[Operator Instructions] First question comes from Avinash Singh from Emkay Global.
So my question is on Chola MS, the insurance. The first question would be, if you can provide some kind of the light walk on the expense, the commissions -- non claims cost basically over the second half and over the next year? Because this is something, I mean, of course, we had the reason -- but that -- I mean, upwards of 40%, which is slightly on the higher side if we compare versus peers, even [ the adjustable ] business mix. So that's number one.
Second, with a number of changes happening on the crop insurance side with regard to the scheme restructuring different [ speeds ], do we have a kind of a rethink of your change in the strategy as far as [indiscernible] has been as concerned?
Good morning. Thanks, Avinash, for raising these questions, one on EOM, next on crop. I will take the crop insurance first.
Chola MS was participating in crop insurance until 2018, '19, and took a pause from that line only because of the operating environment in that line of business, the related cash flows and the impact on solvency, et cetera. But we do expect some changes in the program -- crop insurance program. Earlier in the last 2, 3 weeks or so, the government has unveiled a slightly modified program and its intent to roll out.
So we would be looking at that pretty closely. And based on the exact contour of the program that is unveiled, we would -- the Board would evaluate its reentry into that segment. That is the -- on the crop part.
The second is on the expense management overall front. You would have noticed from Page 42 (sic) [ 52 ], where we are giving up the breakup of COR. We -- overall, while claims ratio has more or less remained at about 72.3% and 72.4%, between Q1 and Q2, you will find that there is a 2.5% reduction largely in the EOM-related costs.
So this is the shift that has happened from Q1 to Q2. We had [indiscernible] we are confident that we will be able to glide down that path as we go along into subsequent quarters.
As I had mentioned before, this upfront absorption is also casting its impact. Our long-term business continues to be strong, as Mr. Sridharan had mentioned, which means that while the cost push from fresh business acquired will be there, but we will be earning incrementally higher in the subsequent quarters and in the subsequent year, which should help us bring down the overall cost level as we go along.
Okay. Okay. Just a quick follow-up on motor side. I mean, on the motor OD and TP. I mean yes, I mean, in terms of claims ratio, on a quarter-on-quarter basis, there are some slight improvements. But in overall sense, for the first half, the claims ratio, upwards of 75-odd-percent, it appears to have been higher. So I mean, do you see sort of an industry environment improving, allowing this to improve? Or do you think that at 75% claims ratio, you are running satisfied -- I mean, you can operate?
First, on the industry part, the overall motor OD loss ratios remain elevated for almost all players in the industry. For Chola MS, as we have indicated in Page 54, our OD LRs have come down by about 5% from Q1. We were at 75.8% to 70.5%. So the company is working on multiple initiatives to keep this under check -- a combination of initiatives of geography, segments and all of that. This is on the motor OD side.
On the TP side, it is more or less at around 76.577% and these small mutations on a quarter-to-quarter level, is largely driven by the product categories that we put emphasis on. So for the current year, I can safely say that it's unlikely that there will be any major shift in this loss ratio in the TP side.
We generally do an evaluation at the end of the year taking into the full year experience, taking into account the price movements, the frequency developments and all of that and determine the loss ratio together with the appointed actuary.
As I have said before, the motor TP loss ratios turning down, would have -- will -- it can happen on a larger front as the Motor Vehicles Amendment Act of provisions get implemented strictly by codes. We are probably at the cusp of the first implementation. The time limitation that was imposed by the MV Act of 6 months from date of accident has just come into force. So we would -- this quarter would probably tell us as to how the codes are viewing and implementing this particular provision of MV Act, and that can be a big pointer to the way the loss ratios shape for us and for the entire industry.
Next question comes from Devansh Nigotia from SIMPL.
A couple of questions. So one is in our presentation, we mentioned in Q2 FY '23, there were a few one-offs, like INR 47 crores of inflation in motor TP provision and 2 others. So I'll just one on -- one I'll ask for them. So this inflation-linked motor TP provision, is it in claims or operating expenses? And what is it regarding?
Yes. Venu, you can answer that question.
Yes. Here, we wanted to explain for the profitability movement here, what is provided in the [indiscernible]. So one is about INR 47 crores in the Q2 part of it, inflation-linked motor TP provisioning. As you know that there is a TP price increase, there is an inflation on an annual installation, the claims will go up on the TP side. So we are highlighting here that we have provided for the inflation in the TP ULR that has been estimated by the actuary. That amounts to INR 47 crores. That has been part of the [indiscernible] on the TP side.
The second is on the sourcing cost. As we explained earlier, there are 2 components of the absorption of the acquisition cost. One is the growth base. And second is the long-term policies growth. We have segregated this and said that because of the high growth, initially, we said that we are one of the top growers in the industry in H1 '22, '23. And that growth, absorption of the acquisition cost is INR 28 crores. And the long-term policies growth, a fresh long-term policies that have been acquired, that part is INR 47 crores.
This, both put together, has been absorbed in the acquisition cost.
These are on an incremental basis of current Q2 versus the corresponding Q2 of the previous year. And to add to what Venu had said on the inflation-linked motor TP, see, this is an actuarial assumption. Whether this -- the actual inflation bears out to the full level as envisaged, we would know only over a period of time.
And if you were to look at this incremental provisioning, translates to something around about 4%, 4.5% on the COR. This, we believe, is a provisioning that is required and time will determine as to whether it will get unwound or will remain.
Okay. Just a few basic questions relating to the long-term policy business. We highlighted that these long-term policies are for [ bundled credit link, ] personal accident and health policies. So this is largely the policies for benefit being the health insurance which are sold by -- with the property loan through our banker channel? This is the right understanding?
Yes. That is one large segment through which these attachment products happen.
Okay. So let's say, we mentioned that it is 12% of our business mix -- these long-term policies. So if I look at health part of our portfolio, health insurance, our mix is roughly around 8% on a net premium basis. Personal accident as a percentage of our portfolio is almost 5%. So when we say that there is 12% of our mix, long-term policy -- so are we trying to reference the total mix for personal accident and health insurance over year? Is that the right understanding?
Also dwelling is also...
Dwelling is [ not there ].
[indiscernible] The 3 segments: health long-term policies, PA long-term policies and home dwelling, which is part of the property. That's also a long-term policy.
So some part of the mix in fire insurance. Is that the right understanding?
Yes. Yes.
So basically, what -- then what it means when there is basically including fire, personal accident and health mix is 17% -- of that 17%, 12% of our mix is towards the long-term policy? Is that the right understanding?
Yes. The 3 segments only. What we are saying is the percent of our things on the overall business mix is long-term premium, which is embedded in the GWP. The 3 parts: fire, health and PA.
So basically, 60% of the mix in these businesses are long term and the remaining 35%, 40% are short term in nature.
Now to come again, let's say, what -- how long term are these policies? And what is the kind of OpEx which is front loaded? So when you say long term, what is the average duration of these policies for each of the segments?
As we'll have mentioned before in earlier calls, dwellings would invariably be -- have a weighted tenure of anywhere between 7 to 8 years. And the PA would be anywhere between 3 to 4 years. The health could be up to 3 years.
Okay. So for these, the premium is recognized over the 3- to 4-year period -- [ 3-year period or 7-year period ] in case of dwelling, while our commission structures are frontloaded and [ at the end ].
Yes. You are right. That's correct.
But when I look at the numbers and when I look at the operating expenses, the change in our operating expenses has actually happened from December '21, where our run rate used to be around INR 280 crores before December '21, and that trended became INR 380 crores to INR 400 crores for the last 4 quarters. So basically, there's INR 100 crores delta on a quarterly basis in last 4 quarters, it can -- in comparison to Y-o-Y, if I compare it -- the operating expenses number.
But when I look at the mix for these businesses, definitely even the revenue amount has not increased by INR 400 crores for these businesses, while our operating expenses itself has increased by INR 400 crores when I'm comparing it Y-o-Y.
So I'm still trying to understand where is the delta coming from?
Just to put some numbers, prior mix for last 4 quarterly INR 150 crores for the total portfolio of the revenue that we recognize. The health part of the portfolio is INR 304 crores for net premium and personal accident is around INR 182 crores. So INR 180 plus INR 300 is INR 480 plus INR 150. So INR 650 crores is just the revenue that we recognized while the delta and operating expenses we are seeing is INR 400 crores.
So I'm not able to understand when we say that these operating expenses have increased, the numbers somehow doesn't add up, if you are able to understand where I'm coming from. So it looks like that the operating expenses are also coming -- have also stepped up from other parts of the business.
[indiscernible] Venu, you can explain the...
Yes. The numbers you have given -- actually we are not fully following. But what we have seen as a part of that is you have compared the previous year quarters versus the current year quarter in terms of the earnings and the [ put in ] cost plus expenses.
So please note that in the previous year, '21, '22. As per the IRDAI order, we had to absorb the opening prepaid expenses to the extent of INR 326 crores, which is already in '21, '22 is forming part of that as the expenses.
In the current year, the incremental premium that has been, as we said, that is fully absorbed towards the long term, as well as for the not embedded premium, like motor.
There are 2 components of the long-term premium. One is the motor is not forming part of the premium. That is also fully absorbed in the acquisition costs in the current year, as well as the normal growth part of it and also the embedded long term. There are 3 elements into that. When the acquisition cost comes to as a part of that, there are 3 elements. One is the long term, which is embedded into the GWP that is, I think, but the dwelling, health and PA. Second component is the long-term premium of the motor, which is also part of our acquisition cost absorption. Third is the growth part of it.
I don't know whether it is comparable to the previous year. There are aberration in terms of the absorption of the onetime costs also in the previous year.
Which was taken over the four quarters.
Yes.
Okay. So if I have to...
When it comes to the numbers, and I think we can go offline and discuss about that basically because we need to see the numbers point of view from the previous year and current year, we can explain you.
But in principle, what we are saying is the 3 elements of the cost that has been observed in the current year.
Sir, I'll take that offline, maybe. I will contact [indiscernible].
Sorry to interrupt, sir. Can you please join the queue for further questions?
[Operator Instructions] We are having a question from Ravi Purohit from Securities Investment Private Limited.
Just a follow-up, and I will probably rephrase my question as compared to what Devansh has mentioned earlier.
When we analyze our general insurance business over a longer period of time, there have been times in the past where our ROEs are fairly good [indiscernible] prior to, let's say, when we had to -- prior to COVID and prior to -- before we had to make this IRDAI adjustment on our expenses, right?
So now the -- and last year, in pretty much every con call that we had mentioned on Q3, Q4, Q2, but our -- our true profit is about INR 350 crores pretax or INR 380 crores pretax and these are onetime adjustments that we are making this year because of the IRDAI norms and all that.
So in this sense, we have kind of anchored and kind of communicated that the true business profitability of the general insurance business is about INR 350 crores to INR 400 crores pretax profit, right? Now this year, again, we have a lot of these one-off provisions and adjustments.
So I was just trying to understand what really is the true ROE of our business? Or long-term return on equity that we as the business are underwriting when we are kind of underwriting policies? Whether the ROE that we reported in the past were correct -- painting the correct picture or what we are reporting now is painting a correct picture?
So if you could just kind of give us a little insight into what are we thinking in terms of when it comes to return on equity on our business?
Yes. So if you look at page 49, I'm sure you're drawing reference to the 9.32% and 14.95% of '21. But then you have to bear in mind that those return on net worth were prior to the implementation of the IRDAI order. So those numbers are -- return on net worth is not stated. Earlier, the company was absorbing the cost structure in line with the earnings pattern.
Now we are doing an upfront absorption. So that is where it renders the comparison -- different from what -- from the earlier numbers of FY '20 or FY '21. So that's the first clarification.
Second is at the end of H1, we are taking that at annualized is about 3.6%. And we have mentioned in an earlier call that at the current stage, what we are looking at -- as a sustainable, and we have also had a look at the combined ratios of competition. We would tend to think that in the short to medium term our return on net worth of anywhere up to 13.5%to 14% is what is possible in the near short term to medium term.
Just to add that there is no one-off this year. I just want to restate that point is that last year, we had this because we were taking the hit for the prior year long-term policies cost absorption opening balance. Whereas this year, it's becoming a normal practice. So there is no one-off this year. Just want to clarify that point.
So is it fair to assume that...
You were saying that we were talking about profit before tax of INR 350 crores to INR 400 crores, which we talked earlier, which I think we are still in course to that.
So you would expect to -- that the company has the facility to be making like INR 400 crores sustainable profit on a pretax basis even in the current year, given that the first half we've kind of not been able to achieve that?
Yes. I mean, I think let's give this H2 and then probably that will give us a far more strength to comment on that, let's give one more half for us to get to a firm footing on that.
Okay. So just one understanding, when you mentioned that earlier, we were booking our expenses commensurate to the revenue that we are booking on our P&L, right? And when this IRDAI change happened now, we are booking the entire expense upfront, whereas the revenue kind of gets -- comes over a period of time.
So let's say, -- is there something like if we were to, let's say, under IFRS, for example, or -- I'm just trying to kind of understand that from a cash flow point of view, for example, right, or from a more normalized ROE understanding from a point of view, how should we kind of analyze the numbers in that context, right?
When does this kind of adjustment go away or we'd like to kind of continue to live with this adjustment and, therefore, the reported ROE will continue to be lower, whereas the true business ROE is probably higher because of upfronting of expenses? If you could just kind of enlighten us a little bit on that.
There are 2 parts. First is in an IFRS context, the expense would get absorbed linked to the earnings over a period. So which means that the kind of ROE that we reported in FY '20 or '21 would be straightaway back. So that's the first clarification.
Second is, as Mr. Sridharan mentioned, what we are having is today, the value in the balance sheet. There are the cost structures and we know that all these long-term businesses are COR positive. The cost is all absorbed upfront. And then these do support very good loss ratios -- an indication of which is there even in the kind of loss ratios that we have put out on the personal accident front and all of that.
And these are sitting as values in the balance sheet to be unfolded. There are 2 ways by which the value will unfold. One is over a period of time, when they convert into earnings and there are no claims against our lower claims ratio against this. So it unfolds into the P&L.
The other is actually, if you were to do any reinsurance structures, which many players in the competition have done. So that is something which is a possibility which [indiscernible] of the Board as to whether we would want to adopt any such structures to bring P&L right into the -- which brings out embedded value right into the P&L -- of the respective period.
So this is a decision of the Board. You will find that if you had to compare the overall business retention levels of Chola MS with that of competition, we would find that our overall level is fairly higher.
Right.
So it's therefore a choice of whether you want to cede all premium back to reinsurers, recognize the commission and manage your COR or whether you would want it to unfold over a period of time. So that's a critical choice that the Board would make.
But from a business analyst point of view, we should like -- it should be fairly clear to us that the economics are superior than what they are getting reported because of this.
That is what Sury mentioned, there is an embedded value, which is sitting here.
Okay. Okay. Okay. Fair point, sir. And sir, last question. I think this must have been asked fairly a few times in the past as well.
In terms of -- Chola Holding has a very large holding value in CIFC and you have MS insurance. So as the holding company does not really fully reflect or recognize the true value of the assets that it owns, so any plans or any thought process on kind of unlocking this value?
So I think as we have been communicating is that as investors, you could see -- the current value that Chola Financial Holding represents has to have 2 compartments. One is an insurance value. And then there is an NBFC value with a holdco discount. So which -- whatever way each one would attribute, by better communicating the results of insurance business, and its prospects is one way of bringing an appreciation to the investor community and thereby getting a full value to that.
The other models are not, at this point in time, explored. So we would continue to communicate the best possible precision of the business prospects that the insurance business has got. And NBFC is well covered. So one can bring in some of the parts, and we don't want to come into the valuation methodology, we leave it to the respective investors to take that into account.
[Operator Instructions] We're having a question from Sanketh Godha from Spark Capital.
Sir, if I look at the loss ratios, I clearly see -- in case of health, the loss ratios have deteriorated compared to what we have reported in Q1. So just wanted to understand what led to that number? Because from [ 65% ] has come to 71%. So that's the question number one.
And if I -- and the second question which I have is related to motor. Probably you alluded to the point, but I'm just asking it again. In fourth quarter, we had a motor only loss ratio at 83%, which improved to 76% in first quarter FY '23. And now it is closer to 71% in the second quarter. So if I look at the trend, it looks like a 5% delta improvement every quarter. So it is fair to assume that what is leading this improvement to? And by end of the year, current 73%, what we expect the number to play out? That's on the loss ratios.
Then I have a question on a few other numbers, but it will be useful if you can explain this, please.
Yes. So thanks, Sanketh. On motor loss ratios, OD, yes, we have been seeing this improvement coming in. It's largely due to the portfolio mix choices that the company has made, in terms of emphasis on certain product categories and deemphasis on certain product categories.
But I would tend to think that from here on, given the competitiveness in the market, and the related pricing effects. So the maximum that it can go down from the 70.5% level is perhaps by another 2.5%. So we are not going to see that 62% or 57% that we have seen in the earlier periods, that's unlikely. So that's the clear clarity on the motor OD part.
On the health loss ratios, yes, Q2, we did have a higher health loss ratio, primarily coming in from our business from the public sector banks. We, in some of our products, we have effected a price revision in the quarter 3. So it should help us turn down our loss ratios as we go along.
Okay. Got it, sir. And the -- is it also because of the fact that, in health, the mix has moved in favor of indemnity over benefit base? Is that reason to some extent we can -- can you attribute it, sir? Or you can tell me the indemnity contribution compared to -- compared to 1Q in the current quarter?
Yes. We are stepping on our indemnity proportion, the [ Cadila ] I have even mentioned it in earlier calls that the loss ratio tends to go up. Presently 39-61 -- still indemnity is at about 39%, and the benefit would be at about 61%. The company who aim to reach a 50-50 level. But then, yes, I think there were largely onetime losses that we had during this quarter arising from some of these and then the general monsoon-related fever and substations. This should improve in Q3. I can say that now that I have the benefit of the month of October before me, we are already seeing that trend there.
Got it, sir. And the month of -- another question is, if I look at just pure OpEx from a ratio point of view, maybe not in [indiscernible] growth. It has improved from 39.4 in Q1 on the backs of commissions cost I understand. And that improved from 39.4 to 36.4. It's a 300 basis point improvement, which is an improving trend. But I just wanted to understand whether this number on sequential basis will improve. And if our loss ratio hold up at 72 -- around 72% for the subsequent quarters, can we see the [indiscernible] combined to go back to less than [ 110 ] kind of a number by third quarter? Or what do you believe this number will be in FY '23 and probably you want to achieve in FY'24, sir?
Sanketh, you should understand that the first quarter, our growth was 43% on the backdrop of a COVID environment. Q2 growth was 20%.
So naturally, when you do an upfront absorption, when the growth moderates from 40% to 20%, it brings down the upfront absorption cost element. So while H1 is 30%, yes, the 40% to 20%.
But I suppose that we would be more or less near this growth rate even as we go along. The numbers for October are out in the market. We have grown in line with the industry at about 17% in the month of October. So that change in growth rate will definitely bring down that loss ratio. That is one.
Second is that [ certain ] businesses grow more in H2 and our retention levels are higher. When I do my COR computation on the basis of net written premium -- naturally, the COR and the cost absorption ability, when you measure it against the NWP, will be better as we go along. Which is really the scale benefit that is coming through. Which is where I said that the 2.5% over COR is largely only from the expense front with loss ratios being the same.
So we do see possibilities of this reducing further as we go along in Q3 and Q4.
Got it. Got it, sir. But sir, as we move into FY '24, when you get NEP benefit of the long-term policies, what you have written in current year and probably with the better denominator, the loss ratios should improve better than the 72%, what you are putting today, then how confidently you are that in FY '24, against 110 kind of a number by exit quarter of the current year, whether we can see that number to play out to [ 1 to 7 months. ] We just wanted to understand the thought process of better NEP realization and probably loss ratio delta improvement will drive the combined to be better in '24 going ahead, sir?
I agree with you. Directionally, I think we should be working towards that number.
Okay. Got it, sir. And the last data keeping question, if you can tell the advanced premium number for September, that would be great.
Our long-term premium that we are carrying forward, which is largely relating to the motor piece as of September is about INR 1,330 crores. March, it was INR 1,198 crores. INR 1,198 crores in March. So now it is INR 1,330 crores.
Got it, sir. And maybe a final one, if I can squeeze in. Sir, the leverage investment [ dividend ] is 6.6x today. So motor vehicle has benefits coming in -- I don't know, assuming that, that improvement in loss ratio in motor TP doesn't spin into higher competition in OD -- I'm making that base assumption. Both industry remains sane and then doesn't happen [ in that rate. ] Then what do you think the improvement in loss ratio and leverage to come off and, therefore, the ROE, how it could get reflected? That's the final one.
Yes. As I shared earlier, in our portfolio, the TP loss ratio is a large determinant of the overall loss ratio, given the weight of the TP earnings. And I talked about how we are, in fact, built in an inflation-linked additional provisioning of about INR 47 crores, which number was very similar even in Q1. And I had also mentioned that, that translates to about 4% of the COR.
We would [ not ] really expect some benefit to flow from the Motor Vehicles Act. That implementation is what is going to give us a benefit over the long term. And plus any possible future price increases. We know that price increases have been fairly low over the last 3 years, especially in the commercial vehicle space, where Chola MS has been having a 40%, 45% market share -- of our composition, not market share. Of our composition part [indiscernible]. As that improves, that loss ratio can also come down because it will blunt at least our inflation assumptions that we make within the company.
Got it. But any lead on leverage and how it will play out with the MV Act?
See, we are in a free market where every day we see changes happening in terms of price discounts and then all of that. Therefore, yes, we believe that the kind of business mix that we are driving, we should see a toning down of the [ large ] as we go along. So that's the intent.
We have a new follow up question from Devansh Nigotia from SIMPL.
Yes, sir. Sir, in case of motor TP, when you look at the loss ratios, not only for us, but even for other players in the industry, they are significantly below pre-COVID levels. So there was a frequency level settlement and courts were very slow. So where do you see that in comparison to pre-COVID levels where they are right now? And what do we expect it to be going forward?
Yes. Our -- in fact, compromise settlements actually peaked during the COVID period. We were able to start to say -- take advantage of the nonfunctioning of [indiscernible] courts during the period because compromise settlements mean the victims and beneficiaries get the money faster. So we were able to take advantage.
And therefore, to an extent, blunt the kind of inflation that you would normally see in [indiscernible]. That effort continues, and I'm sure we should be able to step up. The company continues to have a fairly large proportion of compromise settlements, which in -- on an average, it varies between 78% to 80% of all TP claims get settled on a compromise settlement basis over fairly large periods of time.
Okay. But I mean, so where I'm coming from is that motor TP claims ratio used to be upwards of 100% 3 years back before March '19. And then there is a business piece in that we have tilted towards PV and two-wheelers.
So we have got into two-wheelers in a big way from '18, '19. And with the long-term two-wheelers, long-term cars also coming into play, naturally, the insured base gets bigger. The level of uninsured vehicles and two-wheelers, definitely a slip down from the earlier leads us to the current situation. But that, I don't think we have still taken the full benefit of that development because we would like to see the way our own portfolio evolves. We are a fairly new comer in the two-wheeler space. So we would wait for -- our actuaries would wait for actually the actual development and look at our experience.
So if over the next 2 to 3 years, what are the kind of claim ratios in motor TP we believe are normalized? Considering normalized level of court settlements -- in terms of the...
It is very difficult to predict the TP loss ratio because there are so many moving parts there. One is the price itself. So we are -- we have no idea as to how the government will view the price. That is one.
Second is there are court decisions. This particular business is determined -- the loss ratios are determined by the kind of decisions that courts take. So these are 2 large variables.
The only given element is that, yes, that the insured population increases, we can clearly expect a frequency reduction. That is the only given positive element. And of course, the trust that companies have to provide to compromise settlement to reduce the severity levels.
Secondly, come again on the frequency of court settlements, where they are right now? And I just missed out on that comment.
No. What I was saying was that the frequency of claims, even as per IRDAI publication and what competition we see, is -- that has been reducing over a period of time. And that is the first element.
Compromise settlements, it depends on the strategy of the company and Chola MS has always been committed and been following an aggressive compromise settlement stand in the marketplace.
Okay. Sir, because...
Sir, can you please join the queue for further questions?
We are having questions from Deepak Sonawane from Haitong Securities.
I have a single question on long-term premium. In the previous call in Q1 that we guided for, let's say, in FY '23, we'll be achieving around 8.5% of our GDP will be long-term premium. But by H1 itself, we achieved [ 12%. ] So what will be the next -- I mean, for H2, what would be the guidance for the long-term premium? I'm saying non-motor TP long-term premium.
See, we look at it more from an opportunity and whether the business is economically profitable without getting blinded by an accounting year consideration. So that is what we are looking at. If there is that opportunity to get a business, profitable business, which will be profitable over its life of 2 years, 3 years, 8 years, we would continue to go for it.
I think that has been the broader philosophy. So we will find that even in Q2, it is at about 11%, 11.5% or so. That is where we would want to do. We don't want to be driven just by the accounting period consideration.
Next question comes from Mr. Pritesh from DAM Capital.
Sir, our share on the CV composition has been coming down. So last quarter also, I think we mentioned -- or 2, 3 quarters, we have been mentioning that it has bottomed and will come back to 50% and higher. Despite growth happening in the system, we've not seen the improvement happening. Any case there why we will be losing a little bit of share there in terms of insurance?
CV is actually that it's a wider spectrum. You have the small tonnages, the medium, intermediate category and the heavy tonnages. Chola MS was particularly strong in the heavy tonnage categories by virtue of its market presence and channel relationships.
Now this particular segment is seeing heavy premium discounting. And, therefore, the LRs are quite high there. This we have to correspond with the kind of LR reduction that we are seeing and what we have demonstrated over the last 6 months.
So when do you feel or see that the discounting which is happening on the premium side could end? Or is the case that it will continue for the next few quarters?
Deepak, (sic) [ Pritesh ] your guess is as good as mine.
And -- so basically, any plans to diversify from the heavy category by more tie-ups into the medium category type of vehicles? So that the ratio...
It's not that we have not been in the other categories. It's only that the weight has shifted and reduced from the heavy categories. We have been a full-fledged player across segments -- all segments.
In fact, tractor and construction equipment has a considerable growth. Commercial vehicle also, there's different tonnages. And within that, favorable tonnages, we are growing.
Got it. And also, is it fair to assume that because the two-wheelers and passenger vehicle share is up, our loss ratios also have increased pre-COVID from last 1 or 2 quarters? Is that a fair sense? Or that is not related itself?
Certainly, especially in cars, we can say that generally, the loss ratios are higher.
So that's the reason we see that the share being up and the loss ratios being up as well?
Yes.
Now I hand over the floor to the management for closing comments.
Yes. I think -- thanks a lot for your participation. I think the key message is that I think growth is there. We have been growing better than the market and we'll continue this path. Lots of prior year issues have been addressed. The investment issues have also been addressed. I think we have communicated that our growth path will continue and we see a better mix coming up in the end of this year and the solvency is substantially improved, and we'll continue this growth path. We'll start seeing better results to come in the years to come. Thank you.
Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using [ Dusaba's ] conference call service. You may disconnect your lines. Thank you, and have a pleasant day.