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Ladies and gentlemen, good day, and welcome to the General Insurance Corporation of India Limited Q1 FY '24 Earnings Conference Call. 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. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Ernst & Young. Thank you, and over to you, sir.
Thanks, Raul. Good afternoon to all the participants on the call, and thanks for joining this Q1 FY '24 Earnings Call for General Insurance Corporation of India. Please note that we have mailed out the press release to everyone, and you can also see the results on our website as well as it has been uploaded on the stock exchange. In case we have not received the same, please write to us, and we'll be happy to send it over. Before we proceed with the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be due in conjunction with our business that could cause digital performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements.To take us through the results of this quarter and answer your questions, we have with us the management of GIC represented by Mr. Devesh Srivastava, Chairman and Managing Director and other top members of the management. We'll be starting the call with a brief overview of the quarter 1 part, which will then be followed with a Q&A session. With that said, I'll now hand over the call to Mr. Devesh Srivastava. Over to you, sir.
Thank you, Mr. Sarda. Good afternoon, everyone. I'm pleased to announce the financial performance for the quarter ended June 30, 2023. Over the past few years, our teams have diligently worked to refine our underwriting practices, and we are constantly focused on improving our combined ratio on the back of our unwavering commitment to enhancing profitability and posting sustained growth. We believe that the increase in combined ratio during the quarter is temporary, and we are funded at much lower levels in the coming quarters, led by a relentless pursuit of operational excellence, strategic initiatives and prudent risk management practices. While strategically managing risk and maintaining a balanced portfolio, we continue to position ourselves for long-term success. Let me now take you through some of the key highlights of the financial performance. The gross premium income of the company was INR 8,917.71 crores for Q1 FY '24 as compared to INR 11,021.83 crores for Q1 FY '23. The investment income increased to INR 2,454.94 crores in Q1 FY '24 as compared to INR 1,890.43 crores in Q1 FY '23. Incurred claim ratio stood at 95.1% from Q1 '23 as compared to 94.7% during the corresponding quarter of the previous year. Combined ratio in Q1 FY '24 stood at 118.47% versus 110.97% during the corresponding quarter of the previous year. The adjusted combined ratio, by taking into consideration the policyholders' investment income works out to 97.24% for Q1 FY '24 as compared to 97.01% from Q1 FY '23. Profit before tax stood at INR 935.18 crores in Q1 FY '24 as against INR 988.71 crores in Q1 FY '23. And profit after tax stood at INR 731.79 crores in Q1 FY '24 compared to INR 689.72 crores in Q1 FY '23. Solvency ratio increased to 2.88 as of 30. 06. 2023 as compared to 2.14 as on 30. 06. 2022. Net worth of the company, without fair value change account, increased to INR 32,984.27 crores on 30. 06.2023 as against INR 26,345.14 crores as on 30. 06. 2022. Net worth of the company, including fair value change account, increased to INR 69,650.29 crores on 30. 06. 2023 as against INR 55,341.65 crores as on 30. 06. 2022. On the premium breakup, domestic Q1 FY '24 is INR 5,547.35 crores and the international is INR 3,370.36 crores. The percentage split is domestic 62% and international 38%. There is a degrowth in the domestic premium by 33%, while the international book has increased by 21%. We firmly believe that the current market conditions, which is going through a hardening site, combined with our prudent risk assessment [ consisting ] underwriting practices and well-executed strategic initiatives will help us in achieving a more favorable risk profile and positioning us for sustained growth. We are optimistic about the future and confident in our ability to seize emerging market opportunities while navigating potential challenges. As we move forward, we remain committed to upholding our values, delivering exceptional service and achieving sustainable growth. As given the highlights now, we will open the floor for questions from the interested parties. Thank you.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Sanketh Godha from Avendus Spark, please go ahead.
Thank you for the opportunity. Sir, my first question on the growth. There is a significant drop in the crop insurance business. For example, last year, you did around INR 2,700 crores of business in crop. And clearly, you did only INR 650 crores in the second quarter. So it's more to give the timing difference of recognition of the premium or most part of the country has adopted a [ 80-110 ] rule and the for defer crop business has not come to reinsurance. So I just wanted to understand why it led to that shortfall.
Sure. We are happy to ask our CFO to give this. This is, as we mentioned in the notes as well, largely due to an IRDA circular in which there is a change in the way we have to estimate our premiums. And that is what led to this atrial drop. So our CFO, Ms. Ranade will take you further on to this, where you can understand where it's coming from.
Good morning, Sanketh. This is Jayashree Ranade. Actually, if you see in our notes under ten, we had mentioned that there is an overall -- we have modified our accrual the policy, based on the IRD secular. This circular mandate that you can estimate only for a quarter. Let me – nobody is permitted. And at the same time, it has to be equal for all the portfolios. I mean, portfolio-wise you cannot variate it. Now crop being a different kind of insurance -- insurance bigger. We earlier used to take it on the basis of our estimated premium income in the treaties, et cetera. But now that even obligatory, we have to consider certain benchmark figures given to the GI Council. So based on that, we calculated crop insurance premium for this particular quarter because history the statement of accounts will be received later. There is a drop shown in this quarter. I'm sure going forward, these figures will increase based on the forming of these figures, which are the base for our accrual premium calculations to match the IRDA regulation. So this time, there is a drop which is shown, but roughly around INR 800 crores plus is -- because of this change in the methodology in the profit shift.
Okay. So sir, you need to say that if you would have the whole method of accounting of crop, that number would have been closer to INR 1,400 crores rather than being at around INR 600-odd crores that you have reported. That's the way I should understand now.
Yes. It could be slightly even more than that, but we have made a conservative calculation of those numbers. And it will be in the range of INR 1,500 crores, INR 1,600 crores. But since we changed the methodology for crop, this is what it is. In fact, if you see in note #10, we have told that we have given the disclosure also. Total impact of this change is INR 1,560 crores across all the clusters, mainly domestic. So hence, yes, going forward in the next quarter, this crop figures will percolate into GI Council figures. So my obligatory will also go up. Even our SOA will come, which will give me the 100% figures right now, these are the modernity of our business, how the accounts are being like taken into the books. So this figure will match up which is last year's SOAs.
Sir, which means that from a full-year point of view, last year, we did around INR 5,000 crores of crop business. So if a number you can expect to be continued for the FY '24, sir?
Sanketh, this is Devesh here. I think it not have explained the major driver of the figure is premium estimation policy. The second important factor is the change in the market structure in terms of some of the states moving to alternate supply [indiscernible]. Apart from that, there is also a softening in the market. I think part of the reason is the consumer are encouraging some items to benefit from the way the UN stimulation used to be returned by IRDA. Given the softening and the size of the market strengthening, there is some stepback by GSE. So it is a summation of all these factors together. The first thing is the premium ST the movement of stakes. Third is the softening because of UM. And fourth is the pricing has become attractive or at step back by GSE.
Okay. Got it. Perfect, sir. So which means that compared to last year, given the market is not conducive and also the market size for the reinsurer has shrunk because states have adopted [ the 80-110 ] rule. And then, can we expect this number to be maybe decently lower compared to the last year not like if you have done INR 5,000 crores last year, this year number could be from a senior point of view, I'm saying this number could be lower as low as INR 40,000 crores or much lower than that, sir?
I think what you mentioned, these were a different figure. It can be lower by 15% to 20%.
Got it. Perfect. And this accounting rule is not just only limited to crop, it is applicable to all products, right, sir? That's the reason we see a decline in most of the products except for the motor business in the current quarter.
Yes. [indiscernible], yes. It is applicable across the portfolio, domestic as well as [ foreign ]. So that modified methodology is applicable to all portfolios.
And then is there any reason why motor has done such a strong growth, 25% year-on-year?
Motor in foreign is growth.
Okay. It's more to do with the foreign business rather than the test business.
Yes.
Okay. The second question which I had was -- if you can quantify the combined ratio deterioration because of [indiscernible] in domestic, we already had 1 [ talent ]. And in overseas also, I see loss combined ratio to be meaningfully higher compared to what we had as a combined ratio in last year in the same quarter, around INR 119 becoming INR 131 and domestic, it has marginally decorated from INR 108 to INR 111. So should I read it is more due to the client event or if you did just and what is the combined of loss, what you have booked?
Sanketh, one reason for foreign portfolios combined ratio increased is basically around INR 400 crores of the [indiscernible] due to exchange No, of course, it is not there. Last year, there was an exchange profit. And this year, there is an exchange loss of INR 60 crores. This is one reason for domestic little worsening of that combined ratio. We have the INR 400 crores. [indiscernible] domestic portfolio. Domestic is a small variation is there from INR 108 to INR 111.
Okay. Yes, ma'am. But the Gujarat floods, did it impact any numbers without it say not flat. In fact, any impact you want to quantify it to the iteration comment?
Sateesh Bhat here, not much because we have not yet received much of the information. There are 2 things: one was the [indiscernible] cyclone and Uttarakhand floods. So we have made an implicit provision. So maybe in the Q2, we will have a clearer picture as to how much is attributed to that. But yes, to answer your question, we have slightly increased the loss ratios for property portfolio. But that is not the main reason why the – slightly higher. That could be one of the reasons why your incurred loss ratio is higher for domestic portfolio.
Okay. But that would be okay to quantify the provision that you have made for older reported cash in the quarter one?
No, we have not done any explicit provision. See, what happens is to make a provision, you need information that you should be flowing from the sedan. So in the absence of any information, what we do is that the loss ratios that we consider for reserving, we do a markup on that, maybe 3%, 4% a markup on the loss ratios to ensure that we have made some provision in Q1 itself in the absence of any information flowing from the field. So we will be able to quantify it only in the next quarter.
Okay. Got it, sir. Perfect. And on the exchange loss, if you -- it's notional, if the currency behaves properly by end of the year, then you -- this combined ratio of 131% in the overseas business, this will not remain to that extent, right?
Sanketh, yes, this is one factor for which the loss is increased if you see the activity. Apart from that, motor and cargo has given the increased losses in foreign portfolio. Yes. But going forward, by end of the year, if exchange, there's a small like difference, 22-point-something and 82-point-something. That is where the loss has come. So because it is appreciated in the [indiscernible] appreciated. Going forward if it is, again a little bit this depreciation will again -- exchange will be taken care of with that calculation.
Yes. The reason why I'm asking this question is that we have been highlighting that our overseas book has seen a decent amount of price hard. We highlighted that point in the first quarter too -- sorry, last quarter too. But the plan testing seems to be encouraging, at least in the overseas business from first quarter number. So that's the reason I was just trying to set it's only because of the currency or even we can see a better combined ratio in the overseas business eventually?
I guess the thinking that all the liabilities for the claims for all the period total [indiscernible] and IBNR get [indiscernible] the new exchange rate. So though we benefit for, say, January renewal on the change in our business for the period. The cumulative liabilities get reassessed at a new rate, and it definitely creates a huge impact. Second variation can be attributed to the fact that even though more variation, see a 2% variation on a given quarter, given the small premium base gets announced on the given quarter. I think we have consistently maintained a stand that given the seasonal nature of the GIC book and certain seasonal bookings and the catastrophe being seasonal, it is not desirable to look at quarterly results. Quarterly Results we set in 10 years.
Got it, sir. Perfect. And last 2 questions from my side. One, I just wanted to understand how do we lead the current increase in the commission ratio in the quarter related is much higher and 22% as a percentage of net rent. So I just wanted to understand why is it the case? Is it because the old site contribution has gone up compared to compared to the last year, in number? Or anything else we need to be degrade? And second question is on bookkeeping. I just wanted to break down your investment book into capital gains and other income, other income dividend-interest income.
On the first one regarding the higher commission level, I think we have discussed this earlier that on the U.S. book, we have set that. But due to when you saw legal aspects, second bookings were delayed and the protest, which we walked and had a higher commission level. So because of the delayed bookings, there is an delayed impact trailing impact of these particular contracts, which is impacting the current quarter. We hope that it should soon reward to the only commission level.
Okay, sir. And lastly, on the investment income breakup.
Regarding interest income?
Yes, yes. Breakup into capital gains and interest and dividend income.
Yes. The interest income was INR 1,255 crores as against INR 1,069 crores of the previous year. Dividend is INR 208 crores as against INR 133 crores of the previous quarter 30 June 2022. And profit of INR 802 as against INR 589 crores.
The next question is from the line of MW Kim from JPMorgan, please go ahead.
Thank you so much for this opportunity. So I have a question. The first question is about the list management. So I noticed that overall, the underwriting looks not really a good stage compared to the other global lead insurers. So I just want to understand about your list management to practice. So in this year's renewal, did you make that a bigger increase of the main excess over lot limit to make the potential to tail left to manage better? So that's my first question. And then the second question is about the overseas motor underwriting. So based on my understanding, the overseas motor is considered the good underwriting strategy due to the low correlation with the natural catastrophe that in general. So I just want to understand that will be more the big spike on the claim ratio and also that the outlook on that is the overseas motor. Thank you.
On the risk management practice, what exactly are you wanting from us? We were not really clear on that.
Yes, sure. I want to know that whether you increase that excess of loss point in the case that the overall in a big mega event, you can make that your underwriting, if not really have the big comp. So that's my question.
Okay. On that count, our deductible has remained the same from the previous year. There is no change at the point at which we purchase retro insurance. So that has remained the same. Does that answer your question?
Yes. So in case of the -- now that the weather is a little bit different compared to the history, maybe too hot and then more frequently flooding, et cetera. So I just want to understand that compared to the debt underwriting, do you have the more the corticated underwriting to manage that [ tallest ] which may happen in every 100 a year or every 250 year or you have the -- on the internal model to managing their list then?
So that, of course, you see our pricing strategies are at work in our pricing teams on us, of course. But if you're talking about the change in the weather pattern that we have seen, we had taken care of this in our previous quarter ending when we built up a catastrophic reserve, which was a healthy amount that we started with, and that is going to hold us in good stead as we move forward. So in the event of any release of nature that fits our book, we will have that reserve that it comes to our rescue. Does that help?
Yes. Thank you so much, that's very clear.
And on the motor book, yes, motor does give you the diversification. So essentially, it is just one contract that we are speaking about and with me Mr. Sateesh to explain it further.
I think we have mentioned maybe 2 or 3 quarters back that given the experience of our U.S. book, we decided to step back and we are reevaluating our position and will be again emphasizing the motor book. And as you rightly pointed out, it does offer a good diversification, but we are taking a pause for the moment in a particular market.
The next question is from the line of Supratim Datta from Ambit Capital, please go ahead.
Thanks for the opportunity. I'll start up with the product price long. So in life, I can see that on the domestic side, the combined ratio has increased significantly from 82% last year to around 10%. I just wanted to understand what is driving this? And could this result in another cycle of hard link when it comes to insurance rate next year? That's question number one. Question two, would be on the combined ratio outcome that you expect combined ratio to improve at the company level from the next quarter onwards. Just wanted to understand what gives you the confidence given the losses that we have seen due to flood in Northern India and selling during this quarter in July. So what gives you this confidence? And finally, what kind of claims run rate and which categories are you seeing losses being developed due to these clubs? That would be question number two. Third question, we would be that given we have already seen 2 AXA events this year, do you see the reinsurance rates on the general insurance side hardening again next year? So those are the 3 questions. Thank you.
So let me start with an life. There is a definite results strengthening that is impacting the higher combined ratio and a higher ICR. But we expect that over the period of time, it will get fairly muted.
So this does not require any pricing action, I understand that closely.
Yes, to the catastrophe, I think the entire oil is watching in terms of what is happening on the climate change side, and it is getting more and more headlines in different parts of the world. So the broad consensus presently is that climate changes year to stay. It is much nearer than we had thought and planned for. And presently, despite some additional capacity, which has come forth, we expect that the earning of the reinsurance right, particularly cap rates will continue to be solid. The market discipline is for July renewal continued to be there despite some increase in appetite of the risk carriers has also more retention by the students. Market discipline is held up for July end and we expect it at least to continue for one more year.
And on the outlook for combined ratio for this year that you expected to improve. So they want to give you that confidence given the flood and if you could let us know that initially where you are seeing the impact from the plants.
I think we expect there on our various underwriting measures and discipline and process improvement that we have created out that we will be improving in our underwriting performance year-to-year. This is, of course, subject to no major [ credit event ] which is fully exposing our net treating the results. So given the trajectory that we have charted out for ourselves, we do expect that year-on-year, there will be [indiscernible].
[Operator Instructions] The next question is from Anirudh Agarwal from ValueQuest Investment Advisors, please go ahead.
Thanks for the opportunity. My first question was on the international book again. So if you could share ex of the ForEx impact and the U.S. book impact that you saw higher commission, what would the combined ratio have been in the [ foreign ]?
Yes, Mr. Anirudh if you see in fact of foreign book as combined ratio is somewhere around 131%. Of which approximately from the last year, if you see, last year, there was an exchange profit of INR 350 crores. This year, there is a loss of INR 59 crores. So this is a major change. So if you reduce INR 59 crores, that will be a small impact. Apart from that, the claim ratios have increased a bit by 10%. As explained by Devesh, the commissions for both contracts, which have gone up, which has some impact. So these are the reasons for foreign portfolio is like increase in the combined ratio.
Right, ma'am. The question basically comes from we have been saying that there has been a 20% to 40% hike in international prices in the January renewal, and that was expected to significantly bring down the combined ratios from where we were operating earlier. But as I understand from your point, there is not a very significant impact of the ForEx loss for the old contracts in this 10%. So claims, of course, have gone up, but ideally should in that price increase have countered that benefit and the loss ratio should have remained relative instead of going back.
The price increase that you are mentioning is essentially on the property side. So as a knock-on effect, domino effect on core passes, but then it is essentially on property side. Our result is presently majorly impacted by the motor foreign adversely impacting and motor foreign has its own dynamics. It does have an influence of the wider market, reinsurance market trend. But then that is not impacted, and it is not handling to the same extent as what the [indiscernible]. You see the improvement in our performance, the hardening of the rate at January, you need to look at property and not at work. Motor is when what we explained about a particular contract and of particular tailing and what do you say, one-off effect of the particular contract and delayed bookings, which I mentioned.
If you could share the quantum of that cost of that contract?
I think it is difficult for us.
But broad number at INR 100 crores to INR 200 crores, INR 300 crores, any sense you can give us?
If you can just superimpose motor feature from the current quarter over the previous quarter, we will get a good idea.
Got it. It. Okay, understood. And sir, on the domestic side, how are you looking at combined ratio improvement as we go ahead because obviously, on the domestic side, also, there is some amount of hardening that has already happened. And still, broadly the command ratio has gone up versus last year, right? So what is the part that takes us to a 100% combined ratio in domestic? Obviously, now some parts of the weather changing and [indiscernible] are going to be an everyday occurrence that the climate change is moving and so on. So how do we get to 100% combined ratio domestic?
I think whatever we have been doing, we have to continue on that same path. The only thing is that when the correction required was fairly huge. It could not have been done in a single year. And again, given the nature of the insurance business, where when the business is taken almost expects around 8 quarters on a proportional city to get the changes in underwriting getting affected in the financials. So it is the same thing essentially that entire world market, all riskiness, whether it is retrocessionaires or whether it's reinsurance or insurance, I think every single player in the risk management market is aligned to the challenge of climate change. If you have with recent taglines, I think from first [indiscernible], there is an increase of 25% loading on the STFI rating. So market is alive and reacting to this, though there was a relaxation on the main fire cover. There was a lowering on the cat component of the premium by 25%. So I think market will be reviewing the position all the cans will be aligned to the situation, and we correct it, sir.
I want to add to what Mr. Devesh just said, if you see our '22, '23 entire year results, our domestic combines are totally under control and within 100. Even in this quarter, we see that our combined for the domestic is below 100. So domestic is not totally under control. It is a foreign book that we are working on. And as mentioned earlier, there have been these 3 contracts that are not recent earlier contracts, which are now coming to a certain stage of maturity. And those figures are what is paying the party pooper so to say.
Got it. And sir, these contracts, Q1, we have taken all the impact or there is more to come in the next 1 or 2 quarters?
Largely the contracts, we're taking the call it's only that the bookings are now maturing and therefore, there is a lag. There is a delay in the booking of earlier years. That is why, that is the number that is being reflected now.
And some amount of bookings we are seeing will happen over the next 1 or 2 quarters as said that how I should think about that?
Yes, because the tail is a bit carrying order.
Understand. And any outlook on the investment income for this year given how equity markets have been performing?
Hello?
Yes. Go ahead.
Sir, this is I'm the CIO. Yes, equity income is still -- as the market will be on the right. So some more time, we will be booking some profits from the sale of futility will definitely be there. And we have a very stable fixed-income portfolio also. 53.9% is in sovereign securities and out of that 73% is in fixed-income activities only. So there will be a stable investment income also. So interest income is also likely to go up.
Understood. And finally, any update on the credit rating side?
So Mr. Agarwal, we had our rating exercise. We had come in the second week of July, and we had long discussions with them throughout the day. So let's see the toing and froing of questions is spring off and we should be getting to hear from them. We are optimistic because they also acknowledge the fact that a lot of work has been done and the numbers speak for themselves.
Thank you very much. [Operator Instructions] I would now like to hand the conference back to the management team for closing comments.
So thanks, everyone, again, for your time. And we are on a very set about part where we had made our decisions, and we just are hearing by them, moving forward on a win way forward and that is what is getting out the results. And this trending going to continue because as we had earlier also mentioned that it is a trend that you have to set in motion and then it takes time for it to actually translate into numbers. So whatever we did 4, 5, 6, 7, 8 quarters ago is now getting into action and those numbers are showing. And we hope to continue this trend. We have made a lot of cost concessions even in this time on the cost of April renewals, which will hold us in good stead as the year develops. So we look forward to continue to make our portfolio much healthier and deliver better results quarter-on-quarter. Thanks again for your time, and I wish all of you a very happy weekend.
Thank you very much. On behalf of General Insurance Corporation of India, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.