Cholamandalam Financial Holdings Limited (CHOLAHLDNG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Cholamandalam Financial Holdings Limited Earnings Call for Q1 FY '27 Financial Results. [Operator Instructions] Please note that this conference is being recorded. With that, I hand over the call to Mr. Rishi Jhunjhunwala from IIFL Capital. Thank you, and over to you.

Thank you, Swapnil. Good afternoon, everyone. Welcome to 1Q FY '27 Earnings Call of Cholamandalam Financial Holdings Limited. From the management side, we have Mr. Sridharan Rangarajan, Non-Executive Director, Cholamandalam Financial Holdings; Mr. Shyam Shankar, Manager and Chief Financial Officer, Cholamandalam Financial Holdings; Mr. Rajive Kumaraswami, Managing Director, Cholamandalam MS General Insurance; and Mr. Santosh Pandey, Chief Financial Officer, Cholamandalam MS General Insurance. I'll hand over the call to management for their opening remarks, post which we can open the floor for Q&A. Over to you, Mr. Rangarajan. Thank you.

Thank you. Good afternoon, and welcome to you all for the Q1 earnings call. You know that there are 2 major investments, NBFC and insurance, and NBFC is well covered through the Chola Financial call, and you also have the presentation uploaded. So we have with us Rajive Kumaraswami, MD as well as Santosh Pandey, the CFO of our insurance business. This call will predominantly focus on insurance, and I would request Rajive to make the opening remarks, and we'll open up for Q&A. Thank you.

Thank you, sir. Good afternoon, everyone, and thank you for joining our earnings conference call for the quarter ended June 30, 2026. This being my first call after assuming charge on 1st of June. I take this opportunity that I'm looking forward to engaging with you as we progress during the year over the next few quarters. Also take this opportunity to wish all of you a very warm Independence Day coming celebration. May this occasion inspire us to continue to have pride and unity and a shared commitment to India's continued progress, and we, as part of the insurance sector, provide the requisite protection and risk management to the corporate sector as well as the whole of India. I will begin with an overview with the industry environment, followed by our performance highlights for the quarter. The general insurance industry recorded a growth of approximately 8.3% in quarter 1 as compared to 8.9% in the corresponding quarter last year. The growth continued to be driven by motor and health, while commercial lines, especially fire remained under pressure due to the intense pricing competition, resulting in a significant industry-wide decline on growth. The operating environment continues to be shaped by evolving regulatory developments and the competitive intensity across product segments arising from claims inflation in both motor and health remained to be challenging. Against this backdrop, Chola MS reported a GDPI growth -- premium income of INR 1,860 crores, registering a growth of 2.6% over quarter 1 last year. The GWP on the other hand, grew by about 6.7% at an absolute number of INR 2,130 crores. While this growth has not been in line with expectations, the performance has been also impacted by lower volumes in commercial business and in motor and a highly competitive market environment in fire and the health portfolio due to pricing issues and the overall combined ratio for the group health business. The motor segment, while it saw good tailwinds since September '25, helps us also maintain motor being our largest line of business, and our motor portfolio grew by about 5.7% in the quarter. This growth was led by the commercial vehicle segment, and we continue to remain cautious and disciplined towards other segments where profitability remains under pressure. We continue to take corrective portfolio steps, targeted pricing interventions, enhanced NCB sourcing and tighter underwriting controls. We are also continuing to take corrective actions on the claims management. These positive impact -- the measures of these impacts should likely to emerge over the coming quarters. In terms of our mix, the private car portfolio is 48% of our business. The 2-wheeler book is about 9.5% and the commercial vehicle segment is at about 42.5% of our portfolio. In the Commercial Lines segment, on the back of robust reinsurance capacities that we had sourced at the start of the fiscal. Despite a sharp competitive market and industry-wide pressure, we performed relatively better than the market with the growth rate being driven by marine, engineering and liability. The commercial segment, while it reported a decline of 8.6% in quarter 1, primarily due to the pricing pressure in fire, the April renewal cycle and the aggressive market pricing, which has continued has resulted in rate reductions. Consequently, the fire line of business recorded a degrowth of about 28% in quarter 1 for the industry. As against this backdrop of 28% degrowth, our degrowth was limited to 15.5%, outperforming the industry decline in the fire segment. Although the competitive intensity remained high during the quarter, there is signs of moderation emerging towards the end of the period. We hope with the nat cat events that have hit the industry in the month of June, we are hoping that there would be a little more discipline on pricing as far as the property lines of business in the coming quarters are concerned. Health continued to remain the fastest-growing segment within the general insurance industry, contributing to almost 47% of the industry premiums. The growth is driven by increasing awareness on health and protection needs, expanding distribution and ongoing product innovation across the sector. Within our health portfolio, growth remained moderate as we continue to prioritize the portfolio quality and profitability over volume expansion. To address the current challenges and strengthen business performance, we've initiated several corrective measures, including product redesign, pricing revisions across key accounts and migration of select group portfolios into retail platforms and also looked at enhancing our presence in the SME segment, where the intensity of pricing is not as elevated as the large groups. These initiatives are aimed mainly at improving portfolio quality and long-term profitability, and we would need to do significant work to build a sustainable, profitable and health portfolio over the medium to long-term while maintaining the underwriting discipline. 99% of our claims on the health side are paid within 30 days with an NPS of 73%, demonstrating a strong satisfaction levels amongst our customers. The overall combined ratio for the industry on an overall basis deteriorated to about 117.8% for FY '26 as against 112.6% for FY '25. Chola MS' combined ratio stood at about 115.2% for financial year 2026 as against 110% for FY '25. The industry continues to operate in an intensive competitive environment, placing significant pressure on underwriting performance. The underwriting ratio -- combined ratio for the motor segment has deteriorated to 128% as compared to 123% in FY '25. On the claims front, Motor OD continues to be an area of focus for the management. We continue to strengthen the underwriting and claims control, improve fraud detection capabilities and enhance settlement efficiencies. In Motor TP, we maintain our claims management approach and try and focus on compromise settlements, improving exonerations and continue to undertake reserve strengthening actions across all cohorts of the TP portfolio. Within our Commercial Lines segment, we maintained a disciplined and calibrated approach. While we've reduced the degrowth as compared to the industry, what I can give comfort is this is through calibrated risk participation across larger industrial segments. So it is more that we've enhanced the spread rather than writing individual risk so that when the market turns, we would have the ability to participate in the pricing increase that happens over a period of time. On the commercial lines, we are also focusing our presence in the SME sector, which is leveraging our entire distribution reach. For the quarter, our net earned premium stood at about INR 1,671 crores, while the claims ratio has been elevated at about 85.6% as compared to 81.3% in the corresponding quarter last year. The combined ratio is at 120.4%, reflecting the impact of the higher motor reserving, elevated Motor OD experience as well as a large fire loss that we were part of during the quarter. The operating profit was INR 71 crores and the profit before tax stood at INR 116 crores for the quarter. The investment portfolio remains at a very robust level of INR 19,000 crores, generating an investment income of approximately INR 380 crores during the quarter. We have done some active portfolio management and portfolio rejig in the quarter, and we've improved the portfolio yield to 7.31% while continuing to maintain a prudent investment strategy with strong liquidity positions. The solvency is at a robust level of 1.93x, well above the regulatory requirement, reflecting the underlying strength of the balance sheet of the company. From an overall forward-looking perspective, there are several transformation initiatives. We've completed the BaNCS rollout for our motor issuance platform, and we are working on now making some new changes on the workflow on the motor claims, which should help improve efficiency. We've also strengthened customer service initiatives, and we are working towards our readiness towards the Ind AS, RBC and the DPDP implementation. In the near-term environment, while the market remains challenging, particularly on the motor OD, health and the commercial pricing, we will remain focused on profitable growth, disciplined underwriting and efficient claims management with the technology being the backbone in what we do. With that, I conclude my opening remarks and invite questions. Thank you.

[Operator Instructions] We'll take our first question now. We have Sanketh Godha of Avendus Spark.

Can you hear me?

Yes.

So Rajive, the first question is on the motor TP claims. Just want to understand, given some companies have provided for that Supreme Court judgment with respect to housewives, have we made any additional provision in the claims ratio, what we have reported at 84.4% or this number, what we see is more business as usual? So that's my first question. And maybe related to that is on motor OD. I know that you mentioned in the call that you are taking corrective measures, but still, if you see the motor OD loss ratios, means if I look at FY '25, you were broadly in the range of 71%, 72% -- 72%, 73% kind of a number. It deteriorated to 80-plus in '26. Now it has further deteriorated in 1Q FY '27. So I know that you slowed down your 2-wheeler business, maybe you are now calibrated in cars too. So any visibility you see this number to improve going ahead? Or is it fair to say that given we will move to 4 years and 6 years in cars and 2-wheelers, people might further increase the discounting in OD and this number will not see any respite in the foreseeable future. So that's on the motor side. After you answer, maybe I'll ask questions on other segments, sir?

Thanks, Sanketh. So short answer, we've not taken any provision in the quarter for the Supreme Court judgment. We are monitoring given the matter is subjudice. As you would be aware that there is a review petition which has been filed. We are in the process of doing our analysis, and we would wait for the outcome of the judicial review process to which the GI Council is also a part of, and then we will take a decision on how to deal with this, depending on what the outcome of the review process goes. On the OD part, I would like to say that no, I don't think we would accept the current level of the ODLR. There are corrective measures that we are taking both in terms of sourcing. Sourcing in terms of, one, the mix of new versus the renewal/rollover and even in the rollover/renewal, the focus on the NCB part of the portfolio. So that correction would happen from a sourcing standpoint. The other one is that we are also taking some internal interventions to see how we can manage the ACS. While this always remains a challenge because there is the claims inflation that we need to look at managing, but looking at a more closer analysis on the repair versus replacement and how we can build in efficiencies on that is something that we are working on. This is a journey. It will take a couple of quarters for us to turn the tide, but we are not accepting that or stating that this level of 80% or 86% is something that we will sustain irrespective of the fact that the 4-year -- 4 plus 4 comes into play.

Understood, Rajive. So realistically, this 86%, do you see going back to at least 80% kind of a level or meaningfully the numbers what you used -- what company used to report in '25, around 70-plus. Any journey or any time path you have in your mind by when we can achieve that?

I mean, the way we look at it is if the leading private sector companies with a portfolio similar are able to achieve it, there is no reason why we should not be able to. Maybe a short answer, we would want to get to a number which starts with 7 to begin with, maybe the late 70s, and then we will see how we progress to the mid-70s.

Just adding to the Rajive point. Internally, we are working upon improving the mix of the new motor versus the old motor, which is also helping in terms of the average premium realization. Eventually, that will also help in terms of reducing the overall motor OD loss ratio. We are quite confident we'll be sub-80% in a given period of time. Yes, overall industry level, the motor ODLR is on higher front. If you compare quarter-to-quarter for most of the players, you'll find we are seeing an increase in terms of the motor ODLR. For us also, it is impacting. But yes, we'll be achieving a number sub-80%.

For a business line, Sanketh, which is 70% of our book, we cannot let this continue. So...

Yes. Actually, you are more exposed. So that's the reason I was more keen to get an answer to that.

Completely conscious about it, and we are working on it.

Understood. Understood. The second question was on your health, especially maybe you can say both group health and retail health. We understand that group health, there could be a pricing pressure and you might have chosen not to participate. But entire industry is showing a very strong or robust growth in retail health. But we have chosen a completely opposite path by reporting a decline. Anything we need to understand or you are revisiting the entire strategy and that's the reason why our retail health is reporting a decline compared to why the industry is reporting very robust growth there.

I think you would have seen that there are these slides which have been put up new so that we are putting it out there in the open, which are the areas which we would need to work on. Health would be a kind of a grounds-up built. I'll probably address the group health part before one gets into the retail health side. On the group health, I can say that there are 3 large elements of the group health. One is cross-subsidy group health, which typically gets written with the commercial risk, which is the fire engineering. Now there is no cross-subsidy left. So there is a degrowth coming because the whole account, if it's not making any sense, there is no point writing the cross-subsidy health. When it comes to the stand-alone group health, the strategy that we've started adopting is that any stand-alone group health needs to make sense on its own merit, and we are trying to make sure that we drive group personal accident with every group health policy that we underwrite. Hence, there is a shrinkage. There is a slow growth because the focus is on all those single mandate multinational clients where they seek value rather than price as well as the SME book. There is enough and more business. We've seen some traction from channel partners who want to partner with us. We've got a very strong hospital network of -- while the book is small, given the fact that we do a lot of retail health with the public sector banks, our hospital network is already in excess of 13,000. The backbone is in place. We need to get the distribution engine to fire. The third part of the group health is the master policy route where you do a critical illness attachment or a GPA attachment. That stays as a robust theme, and we would want to continue to grow on it. On the retail health side, we will need to, Sanketh, honestly, invest in creating a SAHI within the company. As you know, it is a bit of a slow build, but we are looking at seeing how we can start doing more retail health with our bancassurance partners as well as some part of the retail or aggregated broking partners. The degrowth that you see is part of the pricing correction that we've done on the PSU, group platform book, which was a little bit of a concern from a profitability standpoint, while the bank per se gives us overall profitable business, but we are trying to see how we can address parts of the portfolio where there is loss leakage arrest that we need to do. The degrowth is essentially reflective of the corrective action that we've taken on the PSU bank portfolio, migrating some part of that book from a group platform to a retail platform.

Understood. Understood. Last one, maybe I'll come back in the queue again if time permits. This -- in your initial remarks said that you got better reinsurance treaties in place and therefore, your moderation in fire is relatively lower than the industry. Naturally, you have done well in other commercial lines like marine engineering. Is it fair to say that given your understanding of this particular segment in the past, too, this will remain a key focus area incrementally to drive the growth? Given your background, I just taking a liberty and asking that question that the reinsurance things will materially change compared to the past, and that will support these lines to grow a little faster for you relatively.

Absolutely. Let me actually hasten to come in that the reinsurance capacities were put in place even before I took charge. I'm just enjoying the benefit of the work that we -- Suri and the team had done. The capacities are, I can say, Sanketh, comparable to the leading private sector players, both on fire and engineering. The funnel is there. But obviously, when you go in as a challenger in a market which is seeing very, very severe pricing competition, we are gaining traction because obviously, both the shareholders have the reputation. There are people who want to do business with us. They did not see us much as a commercial player, but now we are getting traction. But just to give you comfort that we are not going in aggressively. See, typically, on the commercial lines business, writing large line sizes till you don't get the diversification can create an issue. Now what typically happens in this line of business is when you're going in as a challenger and you offer a 30% line, typically, the broker or the client will give you 15%. They are doing the line size management for you. A large part of the growth on the commercial business has come through increasing the funnel, getting better conversions. But I'd also like to mention that there is a part of the commercial, especially the fire book where we do enjoy an advantage, which is, one, the home book, the home insurance book where we have attachment long-term home with the banca home loan portfolio as well as a very large SME book, which goes with the public sector bank fire book, where the pricing competition is not there like the open market. That is where we are able to balance. Hence, one of the other reasons why you see that the degrowth is not strong is there are elements which are not subject to this pricing pressure. There are other parts where we are trying to gain more entry through sensible calibrated line participation. But yes, this will be an area of focus for us, whether it's conventional commercial, liability, credit, cyber, these are areas which we will definitely want to focus on.

Understood. Lastly, Rajive, sorry, you said one big loss in fire impacted the numbers. If you knock off that number or if you can quantify the loss, if you knock off that number, how your CR would have looked relative?

That was about INR 12.4 crores on the net account.

We'll take one question now from Rishi Jhunjhunwala of IIFL.