General Insurance Corporation of India (GICRE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to General Insurance Corporation of India Earnings Conference Call. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from ChristensenIR. Thank you, and over to you, sir.

Thanks, Aman. Good evening to all the participants on the call, and thanks for joining this Q4 and Full Year FY '20 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 exchanges. In case if you have not received the same, you can write to us, and we'll be happy to send it over to you. 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 viewed in conjunction with our businesses that would cause future results performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. To take us through the results of this quarter and the full year and answer our question, 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 company and the financial highlights of the quarter given by -- and the year given by Mr. Srivastava, 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. Thank you so much. Good afternoon, everyone. GIC Re announced the financial performance for the year ended March 31, 2020 at our Board meeting held in Mumbai on the 24th of this month. Despite the challenging external environment in the wake of the COVID-19 pandemic, GIC Re has managed to post strong performance in the recently concluded Q4 financial year 2020. Let me take you through some of the highlights. The growth in the gross premium of the company was 15.4%, with a premium of INR 51,030.13 crores for the current year, up from INR 44,238 crores in the previous year. The investment income has increased by 11.3% to INR 7,125.048 crores this year as compared to INR 6,401.034 crores last year. Incurred claims ratio increased for the year to 97.5% as compared to 89.5% in the previous year. The combined ratio, as you would have seen, has improved slightly to 114.37% for the financial year 2019/'20 from 115.76% for the 9 months ended December 31, 2019. There has been an improvement in the underwriting results for the quarter of January to March 2020. The adjusted combined ratio, by taking into consideration the policyholders' investment income, works out to 102.5% for the year ended March 31, 2020. As compared to loss after tax for the 9-month period ended December 31, 2019, amounting to INR 1,556.5 crores, there has been a profit after tax recorded in the fourth quarter of 2019/'20 of INR 1,197.41 crores, which reduced the loss for the full year 2019/'20. This turnaround has been led by significant profits in the fire and motor segments. The reduction in profit for the full year is on account of provisioning for investments, an increase in agriculture losses. Solvency ratio stood at 1.53 on the 31st of March 2020, which is above the minimum required solvency ratio of 1.50. Net worth of the company, without fair value change account, is recorded at INR 20,529.45 crores as on 31st March, 2020 as against INR 22,334.42 crores as on 31st March 2019. Total assets was INR 1,16,196.20 crores as on 31st March 2020, as compared to INR 1,18,883.57 crores as on 31st March 2019. We have recorded improvement in profitability in Q4 financial year '20 compared to the preceding quarters. I think all the other details, including the 3 months ended this year as compared to the whole year's performance have been shared with you. On the premium breakup, domestic premium for financial year '20 is INR 36,233.84 crores and the international business is at INR 796.29 crores (sic) [ INR 14,796.29 crores ]. The percentage split is, domestic 71%, and international, 29%. The growth in the domestic premium has been 17%, and the growth in the international book has been 11.5%. Having given the highlights, we will now await questions from the interested investors. Thank you.

[Operator Instructions] The first question is from the line of Deepika Mundra from JPMorgan.

Congratulations on a good result. Sir, I have a few questions. So firstly, on solvency, I can see that while the solvency has declined substantially since last year, sequentially, there has been a slight improvement despite the equity market correction or -- and some write-off for investments that you all have taken. So can you first outline as to what has driven the slight improvement in solvency? And do you think that you will need to raise capital anytime in the next year?

Ma'am, solvency for us is very, very important. And therefore, a lot of emphasis was laid on the solvency bit. Now normally, we do realize a fair value to boost our solvency. But since the markets was so down, there was no point selling Family Silver, and plus, we had improved performance by way of better underwriting and better results for the fourth quarter. Therefore, the improvement is what you see. But to answer your question, going forward about raising capital, the answer is an empathic no, right now, ma'am, because we are already adequately in a very good position right now. We don't need to raise capital right now. So I hope that answers your question, ma'am.

Right. Secondly, I just wanted to -- while we've clearly seen an improvement in underwriting, over the last few years, there has been quite a bit of volatility in the combined ratio. How is the company planning to bring down this volatility in combined ratio? And specifically, if you can talk about some risk management measures that are being adopted in terms of changes in excess of loss structures, et cetera? And particularly on crop, what are the measures being taken?

Yes, sure, ma'am. Obviously, as reinsurers, we don't want volatility. That is the name of the game. Now given the fact that the past couple of years have been bad, internationally as well, you want to have as smooth a balance sheet as possible, and that is the aim of ours as well, to take care of certain -- the way we are writing, we are monitoring our exposures in all areas and cutting down on places where the volatility is there. So for our international book, we are using a lot of tools, whatever treaties we write, we model them because we have a very robust modeling system. And after that, we come to conclusion and then write the program. Added to it is the fact that we did identify crop as something that was creating a lot of volatility as well. For that, Mr. Tripathy, who is the General Manager looking after crop, he is there on this line. He will add to what we have in crop and what our intent -- what is our intent going forward.

Good evening, madam, and good evening to all the listeners. This is S. Tripathy, GM Crop Agri Department. If you look into our agri portfolio, at the gross written premium of INR 15,470 crores for the year ending 31st March 2020, where we have a net premium of around INR 13,838 crores. For the year 2021, that is for the coming year, we have taken drastic steps in cost correction as far as agri department is concerned. Our capacity for the next 3 years, now this scheme has changed for a 3-year period. Earlier, it used to be 1 year for the PMFBY. For this year, we revised PMFBY. We have taken it for a 3-year period. So our consolidated capacity to the market at this part of time stands at INR 7,800 crores, down from INR 13,900 crores of earlier year, a drastic change of close to 40% in the market. In addition to that, we have been able to garner the better side of the crop business this time. So this year, the number of cedents have come down. We have managed to return 11 cedents to whom we write of which around 8 cedents we are leading. And for us, the percentage of business in the better quality business has actually increased. In addition to that, in our treaties, we have improved the conditions for some of the companies which have not shown results, a loss cap starting from 90% to 120%, which will be fair. And beyond 120%, the company will bear full amount of the loss to their account. It is for those accounts, which have not yielded good results for us, and there, we have reduced our capacity drastically. Then coming forward, as far as the pricing is concerned this year. Overall, market pricing for crop insurance has seen a significant rise of around 15% to 20% across the broad. You would be aware that this year, at least 4 states have showed their unwillingness to participate in PMFBY. So the overall countrywide gross return premium will come down from INR 29,000 crores to around INR 21,000 crores. Of that INR 21,000 crores, we should be writing something like INR 7,800 crores at this point of time, which is less than the earlier 44% that we are writing countrywide. Our exposure to the whole premium in the country is now to the tune of approximately 30% and less. In addition to that, even in -- it is a 3-year contract, we have kept a review clause after every year for crop results. The results will be reviewed for all companies after 1 year, and all will be taken again as to what needs to be tightened for those companies for the subsequent 2 years. So we feel that with this amount of written premiums for our coming year, we are firmly in the saddle and have a total grip on the crop business at this point of time. And this is going to be a part from the overall balance sheet size. It was already occupying 30% and will be at least less than 20% from this year onwards.

Got it. So firstly, you mean that the mix of crop in the -- will be significantly lower next year? And secondly, you will have tightened the loss corridor as well?

Absolutely, absolutely.

And can I just know, sir, previously, what was the -- you mentioned it 90% to 120%. Can I know what was the previous loss corridor for crop?

See, previous loss corridor -- actually, the loss corridor, actually, what happens is differs from company to company depending on their pricing strategy. Now depend -- for the last 4 years, where the companies have shown a poor results, for those companies, before giving the capacity, we gave a condition of 90% to 120% loss corridor this year. It is not for all, it is for those companies, which have not got the desired results. Earlier, yes, it used to be, again, from 85% to 120% or it could be 90% to 130%, it could be like that. But this year, it is across the companies. So as the results are poor, it is 90% to 120%, then 120% to 150%, again.

Okay, sir. Understood. And the 15% to 20% increase in pricing, which you mentioned, that is effective from when?

It would be effective from this year kharif, which has already started from 1st of April.

The next question is from the line of Keshav Binani from Axis Capital.

Two questions. First, on the fire side. Can you quantify what has been the price hike on the balance 291 occupancies, which has gotten effective from 1st of January?

Keshav, if you have a look at the figures that the GI council, which is a body of the IRDA that -- it releases figures every month, April and now May figures are also out, you will see that the fire portfolio is one that has shown a 40% growth.

But that is again a factor of volume and pricing. I just wanted to get a sense of pricing only, if could quantify what...

Yes. So -- but pricing -- so I'm just coming to that. That if you take 40% hike in the pricing that the direct companies are seeing, the effect that will trickle down to us, which obviously will happen after a lag, will be between 25% to 30%.

Okay. And these will be largely, what, 65%, 70% of industry volumes? Is that the right understanding, the first 8 occupancies were about 30%, 35% of volume. Is my understanding correct?

Right. See, Keshav -- no -- well, yes, partly you're on the track. But see, the whole thing comes from the tariff advisory committee, which had the fire tariff long back before the market was de-tariffed. That time, it defines these 300 occupancies. So having done it for 8 occupancies, which were actually the preliminary ones that were going wrong every time, that 8 was extended on the 1st of January to the balance 291. So with this, the entire market is covered now. All occupancies in the market are covered.

Right. Can you please name a few of the rate occupancies where the price hikes were taken in the first round?

Keshav, from what I recall, it was tires, paints, chemicals, plastics -- the usual suspects.

Okay. Okay. So this was first. And then the life reinsurance fund, we've been hearing a lot that the reinsurance rates have increased materially for all. So again, any sense of what has been the price hike for your portfolio? And from when is this effective?

Keshav, see, life forms a very small part of our portfolio...

I agree. I agree.

Yes, yes. So we have with us the general manager who looks after life, Ms. Suchita Gupta. She will throw some more light on the pricing for this life portfolio?

Hello. Good evening, everyone. I'm Suchita here. I look after life also. So as to your question about the general market, what is -- we have seen many of the insurers are having a price hat. A hardening is there in the market. But right now, I can speak for our portfolio is -- our portfolio has grown mainly because we have come out of mainly the PMJJBY, which was -- we were having losses in that, and my portfolio was jading. So we have come out of it. And now we have entered with a few insurance companies, we have gone into PMJJBY but with a high grade, not with the one which the government was giving them, they are giving us at a higher rate than -- and they are giving a little out of the focus than what they are receiving. And most of -- many of the banks, some of the insurance companies have tie ups with this bank and banks have merged and because of which my volume has increased to a large extent. You can see a 75% growth in Life Re mainly out of the PMJJBY, which I've shown you an increase of nearly around INR 200 crores for the present year. Also, we have entered microfinance and some more overseas business. How the other reinsurance companies are increasing the price? We wouldn't like to comment on that. As far as we see the portfolio, we see what risk is, and accordingly, our actuarial risks are priced, which was given to the cedents and if they accept it, we take the business.

Sure. Sure. But for the industry, the price hikes are effective 1st of April this year?

No, no, no, it has nothing like that. We don't have risk. In life, we don't have sort of renewals like what the nonlife sector has on 1st April. It is case-to-case basis. Yes. And so whenever any proposal comes to us, we give our rates.

The next question is from the line of Madhukar Ladha from HDFC Securities.

What was the reason for high losses in the agri segment, even in the fourth quarter?

Yes. Actually, the fourth quarter you have to see that during the kharif '19 season, there was unseasonable rain which actually continue much beyond the monsoon season. Normally, in states like Maharashtra, Gujarat, Rajasthan, MP, the monsoons should be ending by 15th of September, but we had rains up to November, and there were some excessive rain situations which actually caused larger damage in Maharashtra and in MP. Second, this was a very typical kind of loss because already the crop was being harvested and harvested, and this led to a kind of post-harvest loss situation. Keeping that in view, we have taken substantial provisioning in our books as far as all these stakes are concerned and the companies are concerned. That is why the amount of loss that you are seeing in the fourth quarter is arising out of the loss for which provisions have been significantly made in this last quarter. The subsequent results for rabi season has been good, and we believe that, that result will sit in the balance sheet going ahead.

Understood. And so even on the aviation side, there's an underwriting loss in the fourth quarter, which is substantially high. Any particular reason for that?

Madhukar, there was one crash, which the name is KSP right now. That was there. But otherwise aviation now is turning around because worldwide the premiums are looking up north. Of course, most of the planes are grounded right now. So you have a decrease in exposures as well, but there will be some premium refunds also that are aligned with that. So there would be premium refunds, but the exposures are down and you have a better margin base. So aviation is in for a turnaround.

Sir, there are no loss of profits on aviation if the flights are grounded?

Yes, Madhukar, so that is something that we do not cover. You'll remember that Icelandic volcanic eruption, I'm forgetting the icelandic -- sorry, the name is such a tongue twister, I wonder if anyone remembers it. That also had ash cloud that went out over Europe. I think this was 2010 or '11. All the airports in Europe were closed. Heathrow was closed. Everyone was closed. Charles de Gaulle in Paris was closed. So all the planes were grounded. But then these are losses that the aviation sectors' insurance policy does not cover. So it will not come on to our books at all.

Understood. Can you quantify the absolute amount of gross and net NPA?

Okay. So we have Mr. More with us, who is the Chief Investment Officer for GIC. Will ask Tripathy to take it.

Tripathy will take the NPA.

Okay. Okay.

Am I audible, sir?

Yes, sir.

At this point of time, the gross NPA in our book stands at INR 1,754 crores. And the net NPA, we have already provided, therefore, majority of the provisions, and we have already provided for around INR 1,501 crores of NPA we have provided. The gross NPA percentage is 4.42% and the net NPA percentage is 0.66% in our books right now. We have led additional provision of INR 868 crores this year. For the year ending 31st March 2019, we had total provision of INR 844 crores. At this point of time, we have INR 1,754 crores.

Got it. Can you -- so quarter-on-quarter, the gross NPAs have risen. Are there any new names?

No, there are no new names. We have actually gone ahead and provided 100% for the unsecured stress assets that we had, that was in the nature of DHFL and who have provided significantly for the secured portal. In DHFL, we have provided fully 100% for secured and unsecured. And for Reliance Home and Reliance Capital, for the unsecured person, we have gone ahead and provided 100% and for the secured person we have started with 15%. So we are taking elevated provision as far as this asset -- space assets are concerned. We have these 4 debentures, which are classified as stressed assets in our books.

Sir, how much is the ADAG secured and unsecured portion?

Just 1 minute. ADAG, we have Reliance Capital secured bonds INR 270 crores on which INR 41 crores have been provided. Unsecured amount of INR 94.70 crores is fully provided. For Reliance Home of the INR 94.95 crores, we have provided fully for the unsecured amount of INR 69.95 crores. And for the INR 25 crores of secured amounts, we have provided 15%. For ILFS and DHFL, we have fully provided 100% as of now. Except these 4, we don't have any stressed assets as of now in our book and don't envisage also.

The next question is from the line of Anand Laddha from HDFC Mutual Fund.

Hello. Am I audible, sir?

Yes, Madhan, you are.

This is Anand Laddha. Sir, you had given breakup of the gross premium in terms of domestic and international. Can you give the breakup of the claim ratio for the domestic business and international business? Also, can you share the combined ratio for the domestic business and international business?

Yes, sure, Anand. For the domestic business, the claim ratio was 94.8%. For the foreign business, the claim ratio is at 86%. For the combined ratio, domestic is 112.7%, and the foreign bit is 118.5%.

Okay. Okay. Between the claim ratio and the combined ratio, the expenditure is only because of the operating cost. If I had to look at the domestic claim, which was at 95% and combined ratio at 112%, do you mean to say the difference is because of the only operating cost?

It is the cost of procuring the business and your expenses of management.

Perfect. And sir, how do we see the growth for next year, both in domestic business and international business? And what is internally, how much of -- like, from a how much combined ratio we are targeting in both these businesses, domestic as well as international?

See, Anand, obviously, the COVID situation is something that the world is battling with. So there would be -- the companies would be stretched to meet their targets. And since we are providing capacity to the companies. If they don't meet their targets, we also go down by a smaller amount, not as much as the company would be. So that would bring down the premium to a certain extent, but not very much because in the way we are in India, a whole lot of these insurances are not something that we purchased but they are available to you because you have either taken a loan from a bank or in the motor, for example, you have the third party. So we are not really seeing much of a down in our premiums going forward. And you -- the combined that we are looking at right now -- so combined ratio is something that you have a long-term vision on a combined and we want to bring it below 100%. Obviously, this year has been bad, and we're not the only one. In fact, even when you see the biggies, Lloyds has clocked 103%. Swiss has clocked 108%, Munich Re, the Q4 for the Munich Re was 112.5%. So it has been a bad year, but the good thing is that the rates have hardened because of this. So it is going to be good. And as we had said even last -- at the closing of the last quarter, in about 6 to 8 quarters, you will see the difference in -- the combined will move to something that is below 100%.

Okay. Okay, fine. And sir, is it fair to assume next year, we will have a degrowth because the agri business, which was INR 13,000 crores for us, would decline to INR 8,000 crores...?

See, Anand, it works both ways. You're talking about the premiums going down here, but then there's an increase in rates as well. As Mr. Tripathy said that you are looking at a 15% to 20% hike in rates in the bidding that's taking place right now for the kharif season. So a bit of it will be offset. But you degrow because, a, the COVID situation, and secondly, when you try to prune your portfolio and work towards a better combined, some degrowth is always there to be.

Okay. And sir, lastly, if you can tell me, sir, what is breakup of the investment book into debt and equity? And on the debt part, if you can give how much is invested into G-Secs and bond and what could be the average duration in the yield on the book?

More is here.

Yes, sir, More.

Mr. More, please go ahead.

Have we lost him, is it?

No, no, I'm there. Sir, I just want to understand the breakup of the investment book into debt and equity. How much is equity book now, how much is debt? And within debt, what proportion is into G-Secs and what portion into corporate bond, yield on the same and the average duration of the book?

Yes. Actually, total -- if you see total book, 67% is fixed income. And around 19% is equity and around 12% to 13% is all money market instruments. And if you see, FD also, FD, actually central government and state government securities, it is around 47% and 21% is in corporate bonds.

Sir, this 19% equity is on book value or on the fair market value basis?

It's a book value.

Book value. And what could be, sir, proportion on fair value basis?

Fair value basis, then it will increase to, say, around 35% -- 30%, 35%.

So on fair value basis, 30% will be equity and 70%. Okay. And then 70% will be divided between...

It will be around 35%.

Sorry?

35%.

35% will be equity. And 65% will be between fixed income and money market.

Then ratio will change and then it will be 53% fixed income and then around 10% money market.

Okay. Okay. And sir, what could be the yield on the...

Yes. Consciously, we have increased our exposure more in central government and state government securities over a period of time.

What could be the average duration of the fixed income book and the yield on the same?

Fixed income book, average duration is, say, somewhere around 7 to 10 years, but we are now increasing for central government, we are increasing that also, 10 to 15 years, also. And this year, actually, it is around 8% that we are getting in government securities. Hello?

Yes, sir.

8% is in government securities. You can say -- hello?

Yes, sir. I'm sorry, I didn't hear you, sir. The yield on the investment book is 8%, you said, fixed income book.

No, fixed income. But if you see yield overall, then it is 12.15%.

But sir, INR 7,000 crores of gain, which we booked this year, how much was equity gain and how much is the equity gain in that, sir?

Equity, actually, I told you INR 2,900 crores was equity in that. And dividend also around INR 580 crores. The rest was all fixed income.

[Operator Instructions] The next question is from the line of Srinath from Bellwether Capital.

Sir, just wanted to understand what is the pandemic impact on the property casualty portfolio in the sense of loss of business or loss of profit claim separately for the domestic market and separately for the international market?

Mr. Srinath, for the domestic market, the general insurance council, the body of IRDA that I mentioned has already taken out a message saying that the BI claims because they are not arising out of property damage are not tenable. So the domestic sector is clearly ruled out. Now we come to the international book, the international book, we are obviously having exposures in the countries where the BI claim -- there are governments which are pressing for a BI claim because of a pandemic shutdown, which obviously, the insurers are resisting. And in fact, there was a study at our reading that if the governments compel and everyone has to pay out, 50% of the reinsurance capital of the world will be wiped out. So it is still a gray area. Even London, the courts of London are looking at it. It is something that is very much a gray area right now. Nothing concrete has come out of it.

In our INR 14,000 crores of international premium, where -- what is the value at risk of the companies that are -- companies that are actually thinking of including pandemic for loss of profit. If you could kind of taper what is the risk that we hold in our book on the international business?

Mr. Srinath, it was -- going forward, every TT that is being renewed is having a pandemic exclusion clause. Of the ones that we have already written earlier, where, at least for the domestic, obviously, is very clear, and we also had the pandemic exclusion clause there. The international book, it depends on the area where you're operating. Certain U.S. states have said that you have to pay, but that is not a very large bit of our book.

Okay. But any ways you could quantify what is the value addressed because since it's such a sensitive area to just get a feel on what kind of risks are we holding.

Mr. Srinath, for your property book only that you are talking about, right? There, the exposure that we are envisaging is not much. I would not be able to put an exact number but I can tell you what we have done in our syndicate, which also has substantial exposure there. The syndicate is around their budgeted around GBP 2 million. So that should give you a fair amount of idea where we will stand.

Okay. My second question will be on motor book. Then that for 2 months, no large -- none other vehicles like -- and we would have across-the-board presence in the India motor in third-party pool. Would there be kind of windfall again in the coming April and May that -- so the current financial year that we would make on third-party policies. And would that reflect in underwriting profits in Q1 and Q2?

Mr. Srinath, again, the motor book, see motor being a retail business is -- doesn't get much of reinsurance. There's not much of reinsurance involved in motor. So we are not very big in the motor reinsurance business. But we do get the 5% obligatory from the market, the Indian market, which forms about 80%, 85% of our entire book. Now obviously with no motor cars plying across length and breadth of the country, claims are not being reported. So that is one big plus that we are looking at. Mr. Tripathy is also heading the motor vertical. He can add to whatever I have said.

Yes, Mr. Tripathy, just wanted to understand that would we have very substantial gains to report in the first 2 quarters, given that motor third-party claims will be significantly lower.

We lost him. Mr. Srinath, I can continue with that. So there would be definitely...

Am I visible, sir. Hello? Am I audible.

Yes, you are audible now.

I don't see any significant amount of value addition in the first few quarters as far as motor is concerned. Yes, it is a fact that motors are -- vehicles are not plying and even commercial vehicles plying is also on a very lesser number. But the amount of value that will flow into the balance sheet will not be very significant impact to our business. It will be much better than earlier, yes. But yes, it is not significant I would say. Coming that -- it is only coming from the obligatory side of the business for us.

[Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital.

Sir, in the fourth quarter, we have seen international business growing by almost 26%. So can we quantify that number? How much was due to hardening of the reinsurance rates and now because of the better volumes in the geography? I mean just wanted to understand how January renewals played out in the year.

Yes, yes, of course, there was hardening -- a perceptible hardening of the market. Mr. Hitesh Joshi is also from national business. Sir, are you there? Hello? Hello?

Yes, sir, you are there. We can hear you.

No, Mr. Hitesh Joshi?

Yes, sir. Yes, Mr. Sanketh, the thing is that after 2 years of CAT losses globally, which has stretched out this alternative capital and the collateral has been locked. So there has been some slowing down in the capital flow from the alternative market. Due to the COVID impacting the global capital markets and creating more volatility, alternative capital is also now seeking higher return as compared to the case which was there for the year '18 and '19. We were keen to reap the benefit of the little bit of hardening of the market following the record catastrophe losses of 2017. So this COVID is playing up the cost of capital, and there is a dent, and there is a higher expectation from this alternative capital markets And the -- because some of their capital is also trapped by way of collateralization. So if one looks at the Japanese renewal, which happened after the last quarter results, which is capital renewal. There was a hardening ranging from something like 10% to 30%, depending on the nature of the account in its lowest history. What is later on seen is presently just as we are talking, we are concluding the July renewals of the U.S. market. So again, COVID and this alternative capital is making a huge impact. Even within the alternative capital market, the CAT bonds are demanding a much higher price. And given this COVID scenario, which is likely to play out much longer and the fear that there can be second round or maybe third round also, the expectation of higher capital cost is getting factored into the reinsurance pricing as well. And it is expected that this hardening, which is mirroring the hardening following the world trade center loss in 2001 of a similar magnitude, and it is likely to continue in 2021.

Sir, but can you just quantify renewal hardening and this U.S. market expected hardening to happen. You said that Japanese it is 10% to 30%. But the Jan renewals were at what rate broadly and how much that was contributed to 25% growth for the fourth quarter. And July renewals, which you are seeing in U.S. market, what kind of rates you can expect for the full year -- to be hardened by, I mean, from somewhere range would be useful?

U.S. market hardening is, again, something like 10% plus to going right up to something like 50% plus. The percentage will actually depend on whether the account has a east coast exposure and Florida and hurricane exposure. On top of that, there is kind of a very little-above normal hurricane activity forecast, which is also playing on the mind of the global reinsurer and retro reinsurer capacity. So all found that there is a significant hardening, and it is likely to continue.

So for the safer side, can we assume that around 20%, means, on weighted average, which is a 20% rate hardening could happen in overseas business for the fiscal year, sir?

I would put in mid-teens rather than 20%. Every country and every region has its own dynamics. So essentially, of course, because of the integration of the markets, there is a cascading effect. But what we see, the hardening in the U.S., it may not be to the same extent in, say, China or Turkey or, say, Greece or Europe. So there is a bit of dilution as you go further away from this particular hurricane-exposed territories and like that? So every region as its own dynamics.

Okay. Okay. Perfect. And sir, I just wanted to understand that when the Wimbledon event was canceled, there was a payout made to that event by the reinsurers or insurers. So now given we had a series of Olympics canceled and all those things, do we have any exposures to these event cancellations and we made a payout as a claim to these companies, to these events or they are in the contention zone kind of a thing because of the COVID-19?

No. So Olympics, we had no exposures. In Wimbledon, yes, we did have local -- from our London branch. That payout will be around GBP 4 million from the figure that I recall, but I can confirm the figure to you.

[Operator Instructions] The next question is from the line of Vinod Rajamani from HSBC.

So the first question is on these locust attacks. So I was reading somewhere that they will not impact the insurers as much because the crop was -- it was their mid-season. So the -- it does not cover under insurance. Is that the case? So the locust attack will not be covered by the insurers?

No. See whenever crop insurance claims are met, that is an field-based system. If the locust attack is there, we have to wait for the harvest season and see how much yield has fallen for that particular insured area. Only then the claim will be paid. It is not that till the locust has come, it has attacked a particular area and has gone ahead and can it spread next time. The current situations are all claim exercised claim that unless it is a localized claim, which needs immediate attention, this locust attack and other will have to wait for the harvest season to see how much yield has actually fallen.

Okay. So it is covered under insurance. So it will be covered under...

Yes. Any loss arising out of the locust attack will definitely be covered.

Okay. So that is one. And the second one was this investment income, which is there on your -- which you have declared for the full year, I just wanted to split between how much is from the sale of investments and how much is it from your general -- how much you earn in terms of the investment yield and so on?

Hello? Yes, yes. Hello? From sale of equity, actually, the income is INR 2,900 crore. And rest is from all fixed instruments, government securities, money market instruments.

The next question is from the line of Nischint Chawathe from Kotak Securities.

Right. Most of my questions have been answered. Just one on the solvency side, I missed the reply that you gave because you're at a very low solvency. So what is the plan [indiscernible]?

See, as I mentioned earlier, solvency for us is the Holy Grail. And with the regulator specifying 1.5 as a minimum, we always want to be a healthy above that. So obviously, we had come down profitable to 1.51, which is now on an upward track. You have the option of realizing the fair value and buffering up your solvency. So when the market improves and the market looks up, we will be getting that money in as well. But the more important bit is to make profit in your own business and increase your effectiveness where your combined ratio comes down because that is the real money for you in the area of your operation. So there are a slew of measures that we have taken for our underwriting that is being put in place. So we mentioned about what we've done in agri and how the rates have been increased by almost 40%, 50% in the domestic market by the endorsement that we had passed. So these being the big portfolios in our kitty, these will ensure that we have better operational profits, which will also help us get on to a better solvency.

But does affect your ratings or anything of that sort?

No. See, rating is never on just one aspect of your working, and the rating has already come in, and we are -- we have managed to retain our ratings for what we had in all these last 10 years and sorts. It doesn't -- so obviously, the solvency is something that is taken into position, but it's not the final word. Mr. Hitesh?

I believe the March numbers are considered in the last rating exercises.

Yes, yes, your annual numbers will definitely be considered. Yes, yes . Mr. Tripathy is there who takes care of the rating as well, he can chip in.

Yes. As far as rating is concerned, it takes into account the whole business perspective that we operate, whether domestic, whether in foreign countries. Solvency, though, is a major path. And in no way, we are saying that the solvency comes down, rating will be retained. We -- the rating rationale if you go through, you will find that the rating agencies have always ascribed us a very strong financial background. In none of the cases where we have got rating, whether it is for our plane paying ability or for the overall business, the overall financial strength is taken into account and solvency is only a part of it. Plus we have been able to convince the rating agencies that the state that we are taking to shore up the solvency is purely driven by our business strategy. We are not going to go for additional capital requirements or seek capital from the market to shore up our solvency. We will drive this business based on our perception of the overall strategies that we have, and we are reasonably confident that -- and the rating agencies also are reasonably confident we will be able to manage the solvency and the overall business profitably going ahead. So that is the reason why they have maintained our earlier rating, even for the year that has just ended. And for this year when the ratings happen, that will be probably around November, December, we should be able to convince them again.

And if I just may add to it, see the solvencies that we currently calculate is based on the book value of our investment. What internationally the practice is and which you investors are also well aware of that you have a mark-to-market valuation there. And when you do that for our portfolio, then our solvency is almost touching 2.7 or 3, I don't remember the exact numbers, Mr. Tripathy can possibly fill in there also.

Sir, it will be in excess of 3.

Yes. So that is where we actually stand.

Okay. Sure. Sure. And just next year, anyway you would see some kind of -- I mean, in all possibilities, some kind of a decline in medium income, that sort of helps itself so that [indiscernible] from a solvency point of view.

If we are doing good business and you're making -- talking with mind of less than 100, then it doesn't really matter because you are making profit out of that.

[Operator Instructions] The next question is from the line of [ Manoj Shah ] from [ Laxco Investments ].

My question is with respect to the claims ratio. Like in fourth quarter for the domestic business, you have close to [Technical Difficulty]. So what -- can you give some guidance where it will stand for the year FY '21 and going forward? And also, if you can comment on net commission percentage would have slightly increased for FY '20 from 15.7% to 16.1%. And also, like the price revision for the various segments, like what has happened in case of fire, health. And as you said, in motor, you don't do much retail, it's only the obligator business of 5%. That's all.

So I think we spoke about all these topics that you've touched upon. In property, we are seeing a substantial rise in premium most of the endorsements that GIC passed. In crop, Mr. Tripathy also mentioned that we are seeing an appreciable rise in the rates being quoted. Then health is much a mirror of the same, it's a retail business largely, so not much of reinsurance is involved. A large part of our portfolio is obligatory.

Okay. regarding the claims ratio and net commission percentage, if you can comment on that?

Right, so Net commission is very marginal, the difference -- I mean, commissions is what you pay for procuring the business as well because what contributes to your combined is your outgo and outgo's claims and your commissions and your expenses with management. Now our expenses of management is almost nothing, it's less than 1%, which is phenomenal. I think it's one of the lowest in the world. So that leaves essentially your claims outgo and your commission. And your commission is what you pay out for procuring the business. There, you can't turn the screw much. So this is just a small difference here and there.

No, for the fourth quarter, the domestic business, the claims ratio has increased as compared to the 9 months of FY '20. So do you think it is -- you can sustain at these levels, close to 90%? Or you can improve from these levels for the current official year?

Going forward, the steps that we have taken in broad basing our domestic fire portfolio and the agriculture portfolio, the claims ratio should definitely come down.

Okay. And in agri with the good monsoon and water levels, so do you expect that the claims to be lower as compared to the past year? Past year, you have good lot of claims for the agri business?

That would be extended monsoon. Yes, Mr. Tripathy will cover it.

Every year when the kharif season starts, we always pray that it will be a very good season. The earlier rainfalls are very good and the sowing is progressing very well. But all these things, in agri, can go topsy turvy in 15 days or 7 days time, as we have seen last year. There are cases of quick weather phenomenon that is happening. But we are absolutely now confident that considering the kind of business that we have written this year and the quantum of business that we have written this year, agri itself will not have much negative impact on the GIC balance sheet going ahead. And as for every year, we hope that this year monsoon, which has been predicted to be very good, as far as the long period average is concerned, should be giving us a good result going ahead.

The next question is from the line of Deepika Mundra from JPMorgan.

Sir, I just wanted to, once again, just ask on overall risk management. When you all are typically looking at maximum loss estimation, do you all look at it on per-event risk or as per your various segments?

Ma'am, it depends whether you are writing a facultative offer or is it a treaty. So if facultative, the PML will be defined and -- so you take the total sum insured, generally, 30% of that is the PML that's taken. So that is a well-defined formula on which you run. And it is something that is acceptable worldwide. Is that the answer that you're looking for? Or is there something beyond that?

No. So similarly because you all do mostly proportional business or treaty based business, how would you calculate your maximum loss, estimated maximum loss?

So ma'am, in a proportional treaty that you're talking about, we have even limits that in the -- if catastrophe was to strike, what is the maximum payout that you will have under the treaty? And that is how it is looked at. So there are event limits defined in every proportional treaty that we write.

Got it. Yes, that is what I wanted to know.

The next question is from the line of Madhukar Ladha from HDFC Securities.

So you mentioned that you have a loss corridor of 85% to 120% for agri. But still, if I look at FY '20, our sort of loss percentage is about 25.6%. So why is it going beyond 120%?

Hello? Yes. If you look into the year that has gone by, we have also taken into account that earlier claim for the year '18/'19, which has also significantly built up subsequently, has taken care of during this year also. When we say '19/'20 only, '19/'20 is also carrying over the earlier years plans which is developing still, if we close '18/'19, by the March 2019, if we have closed the year at a loss of around 88%, 89% that has developed significantly and has gone up close to 98% right now because of subsequent claim which has come up. So when you account for all those things, it builds up in your book as far as you're provisioning and all other things second together. So when you look into the combined ratio for agri, the combined ratio also takes care of, apart from the claim payment, takes care of whatever the retro payment -- I mean the protection that we are buying which has been made during this year, particularly for the earlier years, also is a factor into that. Plus, companies in the PSU sector have developed trade, which were earlier reported around 110% to 115% that has developed to something like 150% to 155%. So when you factor all those things, you will find that the claim as a percentage to the premium that you have moved right now is funding to something like 125%, 126% overall. So it is not that when the season is ending and you have provided for all those things. There is no question of it developing further. It developed again and take at least 2 to 3 years' time to fully being settled.

The next question is from the line of Srinath from Bellwether Capital.

Sir, you have this time in agri spoken about 2 loss corridors 50% to 120%, and 120% to 150%. So just wanted to understand how the -- are there a different loss sharing in each of the corridors? And for current year, I want to find out what has been the loss corridor we have levied on our customers? And what kind of law have they taken compared to the losses that we have taken?

Okay. I will talk about 2021. That is for the coming year where import loss cap of around 90% to 120% and 120% to 150%. For the year -- for 90% to 120%, the sharing of loss will be 60% to be cedent and 40% to reinsurer. From 120% to 150%, the loss sharing will be 50-50 between the cedent and the reinsurer. Beyond 150% loss ratio, the reinsurer will pick up 100% of its liability. This is the arrangement that is done for the year ahead. For the year we just ended, that is '19/'20, whenever the loss corridor is in force, whether it is 85% to 120% or 90% to 130%, that is 100% to be net of the cedent.

Okay. What would be the value that we have kind of -- we have suffered a INR 3,500 crore loss, what would be insurers have suffered because of the loss corridor, sir? Just want to understand how does the loss sharing work? Would they probably proportionally suffer INR 500 crores to INR 1,000 crores of loss on agri?

If we combine for all the -- see, I will tell you one thing. For the year '19/'20 of the gross written premium that we had written, 13% was under loss corridor. So companies for whom basically this loss corridor varies between 85% to 100% and 120% will be at least checking off close to 35% to 40% of the losses which are net. And I will tell you one thing, this loss corridor is not across all the states where they are operating. This will be specific to the clusters where their pricing has not met our guidelines. So if a company like United India Insurance is writing around 8 clusters in the country and there is loss corridor on 2 to 3 clusters only, then the loss arising out of those 2 to 3 clusters only will be subjected to this loss corridor, not the whole 8. So when we are imposing loss corridor, it is very, very cluster-specific, depending on how the pricing has been done for that particular cluster. And if it does not meet our trusted guideline, the loss corridor will come into picture.

Next question is from the line of Sanketh Godha from Spark Capital.

I have 2 questions. One on what is our loss corridor, that is basically loss corridor for the crop insurance, where we have bought retro for it? And has it changed compared to last year, given we have tightened the business? And second thing is, just wanted to understand the impact of capital gearing treaties being not allowed to be -- by the IRDA now. So how much portion of our domestic business comes from capital gearing treaty? And if the business is not written incrementally, what will be the PAT impact on -- because of those treaties because they work on fixed profit margin. So what will be the likely impact on the PAT because of that reason or PBT -- because of the discontinuation of operability?

So can I take the loss corridor one first?

Sure.

The loss corridor that I described is one that GIC imposes on its cedents. There is no loss corridor that is imposed on GIC by our retro partners. So we have to be absolutely clear that the loss corridor is a one-way traffic between GIC and its cedents. There is no further loss corridor on GIC by anyone else. And whenever the claims settlement happens, these losses that fall, supposing a company is showing a loss of around 120%, overall, if payments -- if a loss corridor is there for that cluster from 90% to 120%, claim payments will happen up to 90%. The rest additional 30%, the company has to take its net, as far as the earlier practice is concerned. From this year onwards, any loss, above 90% up to 120%, 60% is the cedent's account.

The next question is from the line of Vinod Rajamani from HSBC.

So in terms of this year, the growth in the domestic business is likely to be muted, something like single low -- mid-single digits. And on the international side, there are concerns around COVID and so on. So how do you view this current year? I mean the -- in terms of just the top line growth and also in terms of profitability, is it going to largely come from this better structuring on the crop side and on the fire side? Or is there some other -- is there scope in some of the other lines, such as health as well?

Yes, you said it with better underwriting for both fire and property, which forms a bulk of our portfolio, so that is what is going to bring home the bacon. Apart from that, as I stated earlier as well, that your top line will be certainly stressed because the insurance companies will find it difficult to meet their targets. And from their targets comes the premium for us as well. So the fitting down will be filled. And the second thing you said -- what else did you ask us?

Yes, just wanted to know, in terms of the top line for the domestic business, it's going to be single-digit-or-so this year for the primary business. So how do you view that for GIC?

Yes. So -- sorry, I just mentioned that's, the second point of you was health?

Yes, yes.

You spoke about -- so that's what I was saying that the direct insurance companies will be stretched to the limits to meet their APIS, and that is going to have a trickled down effect on us as well. And as for health, health, as I said, is also largely a retail portfolio, not much of it comes for reinsurance. So again, it will be a reflection of how the market performs. But if you have been seeing the figures muted out by the council on a month-to-month basis, in both April and in May, health insurance has shown an increase of about 10% plus. So people are buying more and more of health insurance.

Ladies and gentlemen, that would be the last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

So thank you. We are thankful for all the interest generated. It really warms our heart to see that people are taking so much interest in our line of business, which is a very niche area and being the only reinsurer and the Indian reinsurers in the country. We are proud of our status here and also the fact that we are having a very prominent global presence, which is what we have to build upon. So I guess, the journey has just started. And we shall grow from strength to strength, and that is exactly what the management is totally geared up to, and we are all putting our heads together, and trying to get on to a better and better tomorrow as we progress in this year. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of General Insurance Corporation of India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.