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

Yes, yes. Sure. Please go ahead.

So those are those states which is something that even we were very circumspect about, and we continued to be like that. So currently, GIC is not supporting these in a very big way apart from a small toe in the water sort of a thing to watch how it goes. But we are examining it. We are examining it. Currently, the PMFBY has stabilized for us. We are very happy with the way the agri portfolio has panned out because it was on a very set strategy that we set for ourselves, and that strategy has paid us huge amounts of dividend. So good that the way it's progressing, but we are very keenly watching the states and the way they are coming up with these new schemes. And we will definitely enter these schemes if it makes sense to us and take it forward from there.

Understood, sir. Sir, one more question was on the 100% combined ratio target that we've set for ourselves. So any indicative timeline of when we're targeting that? And more importantly, what is the mix of business that you're looking at going ahead to get to this 100% number?

Vikas, I think last year we had said sometime that we need about 6 to -- but this was before the COVID onset or maybe COVID was just a blip on the radar that time. We had set for ourselves a goal of about 6 to 8 quarters. We are largely on track there. Maybe it will get pushed by a quarter or 2, but that is more because of COVID and the impediments it has proved because life itself has become a challenge. So that is it. But we are -- all of us in GIC are pretty much working towards a bottom line approach and working to get our combined as close to 100. We have set for ourselves our internal guidelines. We have also set for ourselves where we want to be quarter-on-quarter. And we are following that with dogged determination.

Understood, sir. That's great. And also, if you could guide on any mix -- product mix differences that you see to get us to this 100%?

See, Vikas, largely, a reinsurer's book, at least for GIC especially, it is -- the 4 biggies are fire, agri, motor and health. This is about 80% plus of our book. So this portfolio mix is going to continue. Additionally, we are also going to look at our foreign and domestic divide, which is something that we are working on because rates internationally have also gone up. And an international portfolio for an international reinsurer like us, it gives us a very healthy balance. We are working on that also. And both the places, a cautious approach, but an approach to balance out of this while looking at the bottom line is what is being worked on and implemented.

Understood, sir. Sir, my final question would be on the investment strategy. Considering the provisioning scenario and the expectation that low interest rates might be a reality for some point in time, how are we adjusting our investing strategy accordingly? Because I mean, if our combined ratio is 100, real money that we'll make is of the investment book or the [ float ], right?

Vikas, your voice faded out for a bit in the initial point. What was your earlier point? Just state that again, please.

Yes. My point was that if the interest rate scenario continues to remain where it is, low interest rate scenario, then how are we adjusting our investing strategy? Because our -- if our combined ratio is 100, then the money we'll be making will be of investment income, right?

Vikas, yes. I mean the whole idea is to get your combined below 100 so that the investment is the icing on the cake. That is the strategy we are working on. But having said that, investment provides us with a huge amount of opportunities. We have a book that has assiduously been built up over 5 decades. So we have with us our Chief Investment Officer, Ms. Radhika. Ma'am, can I request you to come in and state a bit about how we are progressing.

Yes, sir, definitely. Mr. Vikas, I'm Radhika Ravishekar, the CIO. I would like to say that out of our profit of [ 1,763 ], nearly INR 644 crores is on sale of securities. We have a very good book, as our Chairman has pointed out. And in the lower interest rate scenarios, we will always be pushing it to those securities which offer a little more yield. So we'll have our investments. If you saw, out of the total investments, nearly 52 is on our sovereign and AAA-rated bonds. We are around 72% of that -- of our portfolios and fixed income securities also.

Understood, ma'am. So if I could just ask what will be -- what is the current proportion of debt and equity in our investment book by market value probably? And do you see that changing in investments?

Market value, sir, for equity is around INR 41,000 crores, if you see INR 12,000 crores book value. So the market value at present stands at around INR 41,000 crores and odd, INR 41,976 crores. And debt, of course, is around INR 50,000 and something and around INR 51,000. So we definitely have a good mix, sir, of debt and equity.

Right. And you don't see that changing materially going ahead.

No, sir, not very, very materially. We will continue it because we still get a good investment income from the fixed income, securities and also from the equity. We take every opportunity for the fall in market and -- as well as we come out during excess or overweight positions.

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

Sir, I have just 2 questions. One is on -- we are hearing a lot about global wildfires and floods this time. So your take on likely impact of it on the overseas book? We know that we are in a good cycle of rate hardening in international book. But this rate hardening what you have seen over the last year or so would be good enough for any of these kind of claims which can come and hit us? Or any initial comments you have on these events, which are really frequently happening at a global level?

Sanketh, surely. I'll request Mr. Hitesh Joshi to come in, please? He has been handling...

Yes. This is a very interesting question, Sanketh, in terms of the developments of wildfires in the Western U.S. and the flood events in the Western Europe. This definitely impacts materially the assessment of underwriters, in terms of [indiscernible] expected. It was around -- between '15 and '17 that whatever [indiscernible] expectations of the reinsurance and insurance community, which underwent a change. So these recent events of U.S. wildfire adds more weightage to the sustained increased frequency in the forthcoming future. The floods in Europe also materially would impact the underwriters' assessment and the market perception of the climate change. Together with this, there is a record flood event in China. So all these events are definitely posing a challenge for the reinsurance community in general, which has seen [ a huge ] pressure on the return to investors during the last 5 years. Since these figures are yet to come in, how will it play out, I think, we need to wait for our quarter. I think as the figures crystallize maybe towards the mid-November or end November, when the reinsurance and the insurance community will be formalizing the strategy for January renewal, I think we will have a better idea as more data about the exact estimates of these losses to the industry comes in. Did it help?

Yes, sir. I got it. But are we exposed to any of these areas where these events are happening in a meaningful way, which can deteriorate substantially our international loss ratio?

Since the wildfire events of '15 to '18, we have been extremely careful, and we have been avoiding wildfire because wildfire is a risk, which is under modeling development. It is not as established as, say, flood. It is under kind of development. So we would say we are not materially affected by the wildfire of U.S. As far as European floods are concerned, again, we need to assess. But impact is less because of our reduced market share during the last one year in the European book -- European market.

Got it. Got it, sir. Sir, finally, anything you have heard on revision of our rate hardening -- sorry, rating change. Sorry, not rate hardening, rating change with respect to invest. Anything you have heard on it? And the second thing is, just wanted to understand the -- in international book, even in June repricing cycle, how the rates -- I mean, if you have seen the rate hardening cycle even in the current environment or not in June cycle. Those are my questions.

Hitesh bhai, can you take up the AM Best, please?

Yes, sir. So we are in dialogue with AM Best. And towards the end of this month or maybe next month, they will come back with the rating advice as to -- if there's any change or they are maintaining. That we'll come to know in the next one month or so. So dialogue is going on, and we are engaging very actively.

Okay. Got it, sir. And on June...

Yes. On the June thing, see, Sanketh, for us as reinsurers that almost 90% of our book is treaty and just about 10% is facultative. Now the treaty season is largely over for January for international and first April for the domestic market. That leaves us largely with the facultative book, where, of course, on the back of the international rates prevailing and the truncation of capacity, we are looking at the risks that are coming our way very objectively with both deductibles and rates being negotiated and given appropriately so that we have a good book that we -- I had spoken about earlier also.

The next question is a follow-up question from the line of Vikas Agarwal from AAA Investments.

One more question that I had was on the pricing discipline in the domestic market. So I know we've been speaking sporadically across different business lines about how pricing is becoming a little more conducive. But can you, like, just elaborate on that a little more versus your experience of 4 or 5 years back, given that a large number of players that are now listed and having to report results to investors, do you see any material ease in terms of passing on higher prices?

Vikas, see, pricing, I mentioned earlier also to you that the bulk of our book is fire, agri, motor and health. Now motor and health, again, as stated earlier, is largely an obligatory book, with not much scope for a reinsurer because these are largely retail and any insurance company will be able to hold it to its book. The fire and property, these are the 2 sectors. So last year, according to a very set strategy we worked on the agri portfolio, which has stabilized, has shown the results, and we are very happy, as I said earlier. On the property book, definitely, the idea is to go with cedents who are not [ mavericks ] and are not trying to get into a rate-cutting mode. So we are looking at the cedents who are going to be with us in long-term partnership and, therefore, will be, I mean, good for dividends, in the sense, dividend for them as a company and dividends for us as a company as well so that both of us earn money and it's a win-win situation. We have madam Madhulika Bhaskar, who is the Director and General Manager. She also heads up the property vertical. Ma'am, can you just come in here?

Can I come back to the question, please? It's regarding property, right?

Yes, ma'am. I just wanted to understand how pricing has moved in property and whether you are seeing an even [indiscernible] higher prices overall in this...

Sir, this will be answered by the property section.

Yes. Yes. Radhika, ma'am -- no, no, this was intended to be with Madhulika ma'am.

Okay.

Fine, Vikas. I think ma'am is having some issues with -- but it is largely that, Vikas. So that is now -- see, the basis of writing reinsurance business is that you have to find your way around. Otherwise, there will never be any dearth of business for us as reinsurers. You see, as the world is progressing, people are realizing more and more the risks associated with that business, which is the raw material that feeds us. So there is never a dearth of business. And going forward, even more so -- as people realize more about the risks that are prevalent that has been escaping their attention, but now with a global village concept, we are learning about it every day. And you have a CRO in almost every organization, which was not the case earlier. So risk-wise, we are never short. We have a huge amount of raw material that feeds us. The whole idea of having a healthy book is to find your way around and find your way around profitably and in building long-term relationships with your cedents as well because that is how reinsurance business progresses. I mean if you see the European models, the reinsurers who have been on the books of a certain insurance company, they would have been there for 20 years, 25 years, 30 years. It's a very stable panel which doesn't change really. That is how the business progresses because you find your partnership exactly what even GIC intends to do going forward. We will be building a capacity to the ones who deserve it, who have been treating it with the respect it deserves and taking that forward. That is how the strategy of GIC has worked on.

Understood. And is there any update on the Lloyds' collaboration and how that has progressed for us?

Vikas, the Lloyds Syndicate that we -- that was the first one that any Asian country was allowed there, and it was really a feather in our cap. It has done exceedingly well. It's in fact -- it has been given a lot of importance by Lloyds' people themselves. It has progressed well. It is doing very well. And we are also having a lot of exchanges of intellectual property that comes with it because those are something that those -- these, what do you call it -- the way you -- the rating tools that have been developed by them is all available to us. We are making good use of it. And it has been a stable relationship that is progressing very well. We are very happy with the way the syndicate and GIC Bombay are holding hands and moving forward.

The next question is from the line of Arjun from Spark Capital.

My question is just to get a sense, broad sense on the life insurance segment. So we have been seeing incurred claims of around INR 1,200 crores last year, and it's almost INR 1,000 crores this quarter itself. But the overall GWP contribution from this line would be around INR 300 crores quarterly run rate. So I just wanted to understand as a strategy whether it will be -- going ahead, we'll be focusing more on life to make good the losses from this segment by growing this segment better? Will it become around 7% to 10% contribution in overall GWP? That is one question. With that also, you have the price hike of 4 to 5, right? So will this -- if you're going for a price hike, whether there is appetite in the underlying market to absorb this price hike?

Arjun, if you look at the life portfolio globally, I mean, for -- with the reinsurers. It forms a sizable part of their portfolio. And why is that? Because life business is a much more stable business. And that is why reinsurers prefer it because stability is the key for a reinsurer. Exactly, in the same manner, GIC also set for itself the life book, and we are growing it slowly but surely. Now what has happened in this year is one in a century event. I mean pandemics like this don't happen every other day. And the life mortality table is a very well-defined thing because we have so much of data going into it. That is what provides you the stability. So yes, currently, life is a small portfolio for us, but we intend to grow it because it will provide stability to the GIC book in the long run. But as our appointed actuary for life also mentioned that the rates have been going up, looking north, which gives an opportunity for us to recoup these losses but also build upon the book and get it the required diversification. And also the fact that life is also -- as I spoke about health earlier, life has also become something that people are now looking at with a great deal of interest. Life insurance business is growing, and that is a good sign for us. For some more detail, Vikash sir, can I request you to just give a brief overview of the life book globally and for us in GIC so that Mr. Arjun can have a better understanding of it?

Yes. If you look at even GIC's financials, the proportion of life insurance business over the past 2, 3 years has gradually been increasing. And that is what we would expect going into the future. But one thing also we have to remember is, the life reinsurance market in India is slightly smaller than the non-life market. So if you look at the total reinsurance premium that is paid by all life insurers in India combined together, I think that number would work out to somewhere around INR 4,000 crores to INR 4,500 crores. And that market keeps on growing by 15% to 20% every year. So similarly, our share also will always be a proportion to that. And we would not be able to exceed what life insurers taken together pay reinsurance premium -- sorry, what all life insurers pay as reinsurance premium [indiscernible]. So the life insurance reinsurance market in India is smaller in size, and that is why the growth will also be in proportion to that.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Hitesh bhai, can I request you...

Thank you, sir. As CMD sir mentioned, we have embarked on the journey of underwriting profitability and achieve the combined ratio of below 100 over next 6 to 8 quarters, with journey, of course, interrupted by the COVID pandemic. But we have embarked, and we will continue, and we are committed. The global events during last 3, 4 years, particularly even last 2 years have also impacted our journey in a very major way. Particularly, just a while back we talked about the wildfires in the U.S.; the floods in China this year -- just now; last year, the European floods. So these are the blips or maybe the ride is a bit bumpy. We are actively monitoring the competitive dynamics in the domestic market, particularly the health and motor, also the global developments in the context of pandemic and climate change. And we are considering all these factors and recalibrating our response on a continual basis, and we are -- we remain optimistic and fairly confident about achieving our journey in the timeline indicated by the CMD sir. Thank you.

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