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

[ Ladies and gentlemen, good day, and welcome to the General Insurance Corporation of India Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Christensen IR. Thank you, and over to you, sir. ]

[ Thanks, Rayhman. ] Thanks to all the participants on the call, and thanks for joining this Q3 FY '21 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 quoted on the stock exchange. In case if you have not received the same, you can write to us and we will 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 could 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 answer our 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 will be starting the call with a brief overview of the quarter gone past, which will then be followed by Q&A session. With that said, I'll now hand over the call to Mr. Devesh Srivastava. Over to you, sir.

Thank you, Binay. Good evening, everyone. I'm happy to announce the financial performance for the quarter ended 31st December, 2020. It is heartening to note that the negative impact due to the pandemic is reducing gradually. We witnessed growth in business volume during the quarter compared to the preceding Q2 FY '21. Our performance continues to get better, and we a foresee significant improvement in terms of underwriting performance in the coming quarters Let me now take you through some of the key highlights of the financial performance. The gross premium income of the company was INR 11,668 crores for Q3 FY '21 as compared to INR 11,539 crores in Q3 FY '20. The investment income increased significantly by 30% to INR 2,624 crores in Q3 FY '21 as compared to INR 2,018 crores in the corresponding quarter of the previous year. Incurred claims ratio declined to 89% in Q3 FY '21 as compared to 108% in Q3 FY '20. Combined ratio in Q3 FY '21 improved to 108% versus [ 130% ] for Q3 FY '20. The adjusted combined ratio by taking into consideration the policyholders' investment income works out to 89% for Q3 FY '21 as compared to 113% in Q3 FY '20. The company recorded profit-before-tax of INR 1,515 crores in Q3 FY '21 as against loss-before-tax of INR 1,065 crores in Q3 FY '20, and profit after tax of INR 987 crores in Q3 FY '21 as against net loss of INR 1,069 crores in Q3 FY '20 on account of better performance at the underwriting level and increase in investment income. Solvency ratio stands at 1.53 as of 31st December, 2020. Net growth of the company without fair value change account, recorded as INR 21,204 crores on 31-12-2020 as against INR 20,529 crores INR as on 31-03-2020. Net worth of the company, including fair value change account, increased to INR 45,952 crores as on 31-12-2020 as compared to INR 35,425 crores as on 31-03-2020. On the premium breakup, domestic premium for Q3 FY '21 is INR 7,428 crores and the international is INR 4,240 crores. The percentage split is domestic 64%; and international, 36%. There is a degrowth in the domestic premium by around 3%, while the international book has grown by 9%. We are seeing signs of turnaround and expect to improve our overall performance in the coming quarters. We are confident that underwriting performance will improve going forward, and we are already seeing positive signs of a turnaround. Having given the highlights now, we will open the floor for questions from the interested parties. Thank you.

[Operator Instructions] The first question is from the line of Ajox Frederick from B&K Securities.

Congrats on a good set of numbers. I have 2 questions. One on the health performance side. This time, the underwriting was pretty much -- very strong, in fact. And that -- I mean I'm just sort of asking you the reason behind that. The second thing is you are indicating about positive signs of turnaround. If you can just elaborate on where you're seeing those turnarounds happening, in what business lines? Those are my 2 questions.

Yes, sure. On the health side, obviously, I mean if there's no changing the fact that the pandemic has been unprecedented with the world coming under a lockdown. So if you see how the domestic market has progressed quarter-on-quarter. And in health, in fact, a huge part of the entire portfolio of the GIC health, almost 97% is domestic health. The progress has been that the first quarter, April to June, was very sluggish, obviously. Then as things picked up, so did the health portfolio, but the fear of pandemic made a lot of people buy health insurance. So there was a huge growth in the retail health sector of the domestic market, which to us is a very healthy sign that people are realizing the worth of insurance and getting into it. So that was a good sign. The another good point was that a lot of claims that would have normally happened did not take place, and planned operations were postponed because of pandemic. Obviously, nobody wanted to go to a hospital during those dreadful times. Things are easing out now. But we know that the claims that have been postponed are also going to be there. So we have reserved very prudently as well. And that is where our health sector, I mean health book stands. But health is something that we are looking forward to in a big way, especially with all the [ schools ] coming in and India having a huge population, and the government wanting to cover it all up. We are into the health sector. And we see that as one of our big ones in the near future. Now you talked about the turnaround that we spoke of in our brief statement.

If I may include a bit before we go to that question. That's a follow-up on the health fee. Sir, so the benefit came through because of the lower claims and not because of higher prices. So is that how I should read that? On health.

I think no, not really. You see there is, as we have always maintained, that there is a lag of a quarter or maybe 2 quarters between a direct insurance company and a reinsurance company. So currently, the claims have got up, started coming in, in a lower number because, obviously, the first quarter, there were hardly any change. Second quarter, they grew gradually. And then when the health policy started being sold there was a price increase also registered. And over and above the fact that a lot -- many people, lot more many people were buying health insurance. In fact, Bombay emerged as the health capital of the country, with the number of people buying retail health. So the increase in the premium of health policies will be coming in, in the subsequent quarters also. I mean there would be a ticking down in the -- in this one as well, but not very much, as we could expect in the subsequent quarters.

Understood.

If that is fine, then I'm talking about the turnaround?

Yes, sure.

As we have always maintained that our entire emphasis was on getting on to a bottom line. Obviously, for the reasons best that, that is the most sustainable way of our company to mean that you start making profits in the area of our operations. So our entire focus of the management was towards having a better combined. And with that, we have been writing much more prudently. We have actually hived off our portfolio the one that were not making sense, and taken a lot of internal measures as well, having stricter underwriting controls and so on, and every underwriter having been given the fact that he has to get to a much, much lower combined. So obviously, in the reinsurance sector, nothing happens overnight. Things take a lot of time, not a lot of time, well, they do take time. It is not an overnight thing that you have. So those things have started happening now. And we are seeing the green shoots. And that is why we are very hopeful that going forward, we are on the right track and that we are doing what we had set out to do.

[Operator Instructions] The next question is from the line of Madhukar Ladha from HDFC Securities.

Congratulations on a good set of numbers. And I wanted to understand what's happening on the agri side. Even this quarter, I think we seem to have underwriting losses. Yes. And this is despite the price hikes that have been taken.

So first, thank you, Madhukar, sir. Much that I would like to speak about agri, but then we have the man of all seasons, Mr. Tripathy is there, who heads up the agri vertical. I request him to comment, please?

Sure, sir. Am I audible, Madhukar?

Yes, sir.

Okay. Regarding agri, I have to say that if you see the 31st December, 2019 gross premium for agri. We were having something like close to INR 14,830 crores of premium against which this year, on December 2020, we had a premium of around INR 8,860 crores. But that incur claims of the earlier year are also standing in the books. Majority of them have been settled and still there are claims from the year '18/19 that has developed a little bit -- deteriorated a little bit, which we are holding at around 99% has gone up to around 104%, for which we have provided. And despite the Kharif season of this year, 2020 being 1 of the best years, we continue to remain very conservative on that. While I would speculate to say that the overall Kharif claims will be something at around 75% or less. Going ahead, we still maintain a gross loss provisioning of around 83% in our books. Plus the Rabi season, which is going quite well at this point of time without reporting any kind of claims or adverse season, we continue to have the same kind of provisions that we have provided for Kharif. So when we come to March and we take a final call as to how the Kharif and the rubbing crop cutting season will be over by that time, how these reasons have finally panned out? I'm absolutely sure that claims that the combined ratio for agri, which is hovering at around 104%, will be below 100%. We could have made it -- I mean maybe less provisions also, but Rabi sometimes brings some surprises. That is why we have continued to maintain it at the same level as Kharif and have gone at [ rupee ] provisions. I'm absolutely sure that when we come to March, our book will be absolutely below 100% as far as the agri combined as to is concerned.

This is very helpful, sir. Just a follow-up on this. So Kharif, crop cutting season is almost...

Over.

Almost away. It's completed right now? And there, now we know that the actual loss ratios

Yes. We know.

Are only about 75%.

Yes, yes.

And still we are maintaining that additional 8%, sort of?

We are -- around 8% we are maintaining because -- and some of the states also have a little bit of late reporting on figures and everything. So we maintain it around 6%, 7% higher, which I'm absolutely sure will come below 80%, close to 75% when we come to March.

And what would be the Kharif season premium collection?

Our understanding is that we are probably at around INR 7,800 crores of total business that we think for the full year. Kharif will be, for us, will be something like INR 6,200 crores to INR 6,300 crores.

Okay, okay. Got it. This is very helpful. Sir, also, if I may ask a follow-up. The underwriting losses are also high on fire and motor. Any comments of there would be helpful.

I can comment on motor. Motor, if you see, our combined ratio for the international market has been quite healthy. And it is below 95%, it's close to 92%. If I'm not wrong, it will be something close to 92%, 93%. And the domestic market, the lag effect, as we have been telling for so long, actually is taking it a little bit more. But I again, quite I would say optimistic that the combined ratio of which is coming totally at around 101%, would be below 100% going ahead.

So why is it taking -- why is there such a large lag effect? If you can explain that a little bit, that would be helpful.

It is not coming, see, the lag effect, I mean whatever was there in the September quarter. If you see, from September quarter, again, we had shown improvement in the December quarter. And even from the December quarter when we go overall to March, we will see the effect of what was there in the general market books in around September, will be there in our books in March. And this domestic -- international renewals which we have done on 1st of January is not yet accounted in the books. It will throw much more positive results when it is accounted for in the books by March.

Sir, you mentioned that the motor loss ratios have improved in December. But actually, it's my numbers suggest that from the September quarter to this quarter, we're actually, September quarter, we were at about INR 254 crores of positive underwriting profit. So -- and now we are at an underwriting loss of about INR 232 crore.

See, when I compare this, I compared with the 31-12-2019, okay, 31-12-2019 to this quarter.

Understood. Understood, sir, okay. And comments on the fire segment. I think of there, the international book seems to be leading.

Madhukar, I'll request Mr. Deepak Prasad, who is the Chief Underwriting Officer, and he heads up the vertical as well. Sir, if you can please come in?

Madhukar, I think when you look at the fire portfolio, both domestic as well as foreign have improved over previous year. However, international, they are still some cat events which have taken place, for which we need to provide as IBNR, though the estimations of claim has not been to that extent. But we have been conservative and kept this loss ratios there. It could slowly over as we go over to quarter-by-quarter, you'll see this coming down.

What cat events are these? Where is this exposure?

More. One is in Japan, and there are around 2 or 3 hurricanes around U.S. So these 2 have really affected us. And of course, there is a pandemic. I think we have kept a provision of USD 32 million for the pandemic.

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

I have a few questions. First on the crop insurance, when we give Rabi in the quarter 1, we see -- saw a decline of almost 35%. But in crop, the decline seems to be a bit little lower at around 8%. I just wanted to understand that we customarily believe that Kharif is a better crop from loss ratio or volatility perspective compared to -- sorry, Rabi is a better crop compared to volatility or the loss ratio prospect compared to Kharif. So. So we will be more focused on Rabi incrementally going ahead?

No, it is not like that. See, what happens, when you come to Rabi, the majority of premium actually comes from the Rabi paddy of Tamil Nadu. So if you have the major premium of the Tamil Nadu state is from Rabi paddy. It starts from the autumn season, and there are actually 5 different seasons for paddy during the Rabi itself. But we are not participating in Tamil Nadu state this year because of the arrangement they have, which is slightly different from the original PMA arrangements. And historically, Tamil Nadu has produced claims in excess of 100 continuously. So we have not participated in Tamil Nadu and Madhya Pradesh this year. Unfortunately, these 2 states will be reporting claims in excess of 160% this year, Kharif and Rabi combined. Rabi as such is a less volatile season, but it has the ability to show some kind of surprises because of health terms and unseasonal rain affecting wheat crop, which has not happened this year. So we are -- even Maharastra state, which has some volatility in Rabi, is not implementing the scheme in the Rabi season. So we are -- the states that are currently implementing Rabi season, the premium amount will be less, and there is no adverse report from anywhere in the country.

Okay. But in -- Rabi of Tamil Nadu this year we have not done, which we have done in the last year so the decline should help in more in Q3 the amount of business, what we have done, but it seems to be a lower decline versus what we have seen in Kharif. That's the reason I was asking that question, sir.

See, if you look into 31-12-2019 to 31-12-2020, the decrease in gross return premium for agri is 40%. Last year, December, our premium was INR 14,835 crores. This year, the gross written premium is INR 8,860 crores. So overall, the reduction for GIC is in to the tune of around 42% to 43% in agri on a pan-India basis, and we have reduced this size significantly.

Got it. Sir, last quarter, we had some kind of a premium not coming in, and therefore, the reversing of that recognition to take the -- to release the solvency. So just wanted to understand agri crop premium, how much is in the balance sheet as an outstanding premium receivable? And you are confident that the same kind of a similar number to what you saw in Q2 will not increase going ahead?

See, the IRDA requirement regarding addressable assets for the agri premium is up to 360 days. Beyond that amount, whatever is there is not considered for admissible assets for calculation of solvency, but we keep it in our accounts as we are sure that this amount, which is a subsidy amount of the previous year, will be received duly from the state governments. So from an accounting point of view, we continue to include it in our books, but don't take it for calculation of our solvency.

No, why I'm asking this question is, sir, that last -- in Q2, we had a negative number in terms of crop insurance because we largely derecognized the kind of a revenue, which we did not receive it. Or we believe that it will not come in, or people went under harvesting than what we initially anticipated it to be. So sir, something of that kind of phenomena because still the premium recognition is based on expected business. First, I just wanted to understand how confident you are similar things will not play out going ahead?

No, the payout will definitely happen. See when payout is already due from the state government, the central government money is already available in the escrow account. That due -- the authorities keep on pursuing the state governments for release of their share. And though delayed, we are absolutely optimistic that this amount, whatever is standing in our books to the amount of around INR 1,600 crores, will be received in due course.

And the other question is on health insurance segment for the quarter. It has almost declined by 29%. I just wanted to understand because the growth was better in Q2, it substantially jumped. But what in Q3, it has declined again 30-odd percentage, almost 30-odd percentage. Just wanted to understand what led to this decline, whether it's domestic business, surplus liquidity or are we slow down substantially in overseas business? Or what upfront specialize in Q2 and therefore, Q3 is weak in that sense.

Sanketh, I'll just request Suchita ma'am, who Heads up the health vertical to come in here. She is our CFO as well.

Yes. See the extra cash -- there is a slight increase compared to the last quarter, which you see in the gross premium. The only thing is overall there is but decreased because of the loss of this capital gearing, which was renewed not, and some of it which we lost, we lost around INR 1,000 crores -- around INR 900 crores was not which was in capital gearing treaties, was not renewed as normal. So that was our loss in that. Plus we lost some of the which we had this Ayushman Bharat which has gone the, instead of the insurance aid, they have gone the trust more. This is why it's only being our loss, not more than that. The rest we have what...

Ma'am, if I look at the disclosures, which you have given in the press release . If I back calculate the quarterly figure of Q3 FY '20, that number is INR 1,480 crores in health insurance segment. And if I do the same wise calculation for Q3 FY '21, that number is INR 1,056 crores. So clearly, a, there is a decline of around 28%, 29% in 3Q. I'm not speaking it from a 9-month perspective, I'm speaking only from 3 months perspective. but there is a declining third quarter aspect from September to December. So just -- sorry, from October to December, I mean to say mines. So just wanted to understand what -- let's say it is actually largely by gain treaty or something else?

That is what I -- my figure are not showing a decrease. That's why I can't substantiate now.

Maybe I'll come back in on the first floor question, maybe.

Yes, yes. Because it's showing you an increase. It's Is not showing a decrease from last quarter September '20. You're comparing September '20 to December '20, right?

No. Okay. Maybe my math error, maybe I'll come back after the questions. And to answer, when you answered the previous question on health insurance, the underwriting, if you ended up reporting underwriting profits in the current quarter. But when I look at your combined ratio disclosure for domestic and overseas, then it seems that bulk of the benefit came from overseas segment rather than from the domestic segment because health ratio for 9 months FY '21 is health still remains at around 119% combined ratio, while overseas sharply improved to 72%. So but given said that maybe 5 to 5% is contributed by overseas sales, so of the underwriting profit improvement seems to be -- I mean it doesn't explain the math probably.

So for me, a very small portion of it is from overseas business. Largely, it is all domestic only, and that also obligatory business for me. I mean if you can come back to me on your numbers separately, I'll be able to help you out on this. Somehow they don't match.

And finally, 2 more questions. Just wanted to understand your general renewal trends in the overseas market? And also, how are you seeing the April pricing to behave in domestic segment? That is 1 question. Second is basically on what loss can you anticipate from the glacier plug which happened in Uttarakhand or something if you have exposure to after a new year wave tsunami or quake has hit them.

Sanketh, again, I'll request Mr. Deepak Prasad, who is the Chief Underwriting Officer. And who also handles your foreign inward portfolio to come in, please.

Yes, Sachin, I think there are 2 questions that you have raised. One is about our January renewal, how it has gone for the foreign? And the second 1 is about this Uttarakhand loss.

Yes, yes. And the third 1 is how you see domestic pricing shaping up in the current year? I mean you had the last 2 years continue price hike in fire. So a similar kind of a trend is still visible or how you are seeing that pricing to behave going ahead?

So I'll address all the three. The first 1 is about our January annual. As you know, we had this rating downgrade for the year, so this -- so there has been some loss of business to the extent of around 18% of the foreign book. However, it's much better than what we expected. And the factor remans that it gave us an opportunity to churn around and see what was not desirable to get away from it. So we did get away from some business and we lost something. On a total, there is a decline of around 18% in the gross written premium. Coming to..

Pricing trend. Pricing trend. This is lost in the business because of the rating downgrade, but have the rates hardened globally for the January renewals? And if so then...

Is it has hardened quite a bit. But not to the extent that we were looking at, I think there was a lot of talk about hardening of rates. But yes, there was around I would say anywhere between 8% to 15% of hardening that has taken place in the market depending on the geographies and loss ratios of various companies. So there has been a hardening, but then, yes, we have had a loss of renewals as well. Coming to...

Sorry, just to conclude this part, we are saying that we lost business, 18% is because of the rating downgrade. But to the extent of business, we have retail, across the geographies, we have seen, depending upon the geography, a rate hike of around 18% to -- 8% to 15%. That's the way, right?

No, that is the rate increase in the market. However, taking into account the rate increase and what we lost, at the end of the day, we have lost around 18% of market that we were holding. Now coming to the Uttarakhand loss. I think the -- there would be very minimal impact to GIC coming specifically from PTS to some extent, though we have checked up on all the major writings that we do, we do not seem to have been impacted with this Uttarakhand loss.

So it will not trigger your retro, right, sir, INR 500 crores retro?

No, not at all. Not at all.

Okay. And if you can comment on domestic pricing, also, it will be great that given we had 2 rounds of rate hikes in FY '19 and FY '20 -- sorry, FY '20 FY '21, almost -- a similar commentary would be helpful.

Okay. I mean in the first phase, I think there were 9 occupancies which were taken up where we said we will go by the burn cost decided by IIB, and we would not accept any business below that. In the second year, we took all the 250 or so occupancies and said here also, we will not accept anything below the burn cost. So that has stood the test of time till now. Most of the companies have followed in. And we see an increase in fire portfolio by nearly 34%, which is driven by basically price increase. Because as you know, during the pandemic, most of the work was -- had come to a standstill. So we should have seen a decline. But in spite of pandemic, we have seen a growth of around 33%, 34%. So I guess the price rise that happened has stood the test of time. We are getting into the fresh renewals in April for the domestic market. We are trying to make sure that there is no decline in the pricing.

Any expected price hike, sir, there?

No, now this year, likely not. What had happened last year, that will continue to flow in. Now the whatever hike takes place would come from the growth of business.