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

Ladies and gentlemen, good day, and welcome to the General Insurance Corporation of India Q2 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Binay Sarda from Christensen IR. Thank you, and over to you, sir.

Thanks, Denise. Good afternoon to all the participants on the call, and thanks for joining this Q2 FY '22 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 in the stock exchange. 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 achievement to differ significantly from what is expressed or implied by such forward-looking statements. To take us through the results of this quarter and answer 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, will be starting the call with a brief overview of the quarter gone past 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, Binay Ji. Good afternoon, everyone. I am pleased to announce the financial performance for the quarter ended September 30, 2021. We would like to assure you that we are continuously taking all necessary measures to improve our overall profitability. The combined ratio goes to remain at an uncomfortable range, and it has been a constant endeavor to bring down our combined ratio of below 100. Let me now take you through some of the key highlights of the financial performance. The gross premium income of the company was INR 8,374 crores for Q2 FY '22, as compared to INR 10,651 crores for Q2 FY '21. The investment income stood at INR 2,669 crores in Q2 FY '22 as compared to INR 2,767 crores in Q2 FY '21. Incurred claims ratio declined to 92% in Q2 FY '22 as compared to 101% in Q2 FY '21 due to our prudent approach. Combined ratio in Q2 FY '22 remained flat at 122.2%, an versus 122.1% for Q2 FY '21. The adjusted combined ratio, by taking into consideration the policyholders' investment income, works out to 104.4% for H1 FY '22 as compared to 102.89% in H1 FY '21. The company recorded profit before tax of INR 1,213.75 crores in Q2 FY '22 as against INR 412.28 crores in Q2 FY '21 and profit after tax of INR 1010.55 crores in Q2 FY '22 as against INR 230.05 crores in Q2 FY '21. Solvency ratio increased to 1.88% as on 30/9/2021 as compared to 1.63% on 30/9/2020. Net worth of the company, without fair value change account, increased to INR 22,691 crores as on 30/9/2021, as against INR 20,123 crores as on 30/9/2020. Net worth of the company, including fair value change account, increased to INR 55,088 crores as on 30/9/2021, as against INR 39,628 crores as on 30/9/2020. On the premium breakup, domestic premium for H1 FY '22 is INR 15,616 crores and the international is INR 7,048 crores. The percentage split is domestic 69% and international, 31%. So there is a degrowth in the domestic premium by around 12%, while the international book has decreased by 19%. We are seeing a gradual improvement in the external environment, and remain confident of improved performance going forward as we expect the combined ratio to going downwards in the coming quarters. Having given the highlights now, we will open the floor for questions from the interested parties. Thank you.

[Operator Instructions] We take the first question from the line of Sanketh Godha from Spark Capital.

Sir, the basic question which we have is a agree GWP in the current quarter is a negative number. So just wanted to understand why there is a derecognition of gross premium number with respect to crop in second quarter? And along with that, the -- another question with respect to GWP growth is that the health portfolio has seen a significant decline. And so is the fire segment. So sir, just wondering whether it is domestic market or overseas market led to the decline in these 2 line items. So that's my first question. And the second question is just trying to understand why the commission ratio is almost 30 percentage in the current quarter, which usually doesn't happen to us. So just wondering why it led to such a high increase in the commission ratio to 30-odd percentage?

Sanketh, as you would have -- you have been following GIC quite -- for quite a long while. You would have seen that our entire endeavor was to get the agri portfolio back on track because it was getting out of hand. We had too much exposures in agri, and that was also biting us. Now when we pruned our portfolio last year, there was a substantial amount of premium that we let go, which was not making sense to us. This year, what has happened is that because of the cutting down on the premiums last year, a fallout has happened. And that is the premium decrease, you see, of course, I'll request Mr. Hitesh Joshi, our General Manager, looking at agri to answer that. He can also pick up the health question because health is also his beat.

Sir, I understand it's a decline, but my question is why it is a negative number in the second quarter? So it is minus INR 328 crores in the second quarter, sir just failing to understand why it is a negative number in premium?

Yes, Sanketh, see, what happens at the beginning of the year in terms of, say, agri, first quarter bookings are essentially based on estimates, based on the treaties that are incepting on 1st April. So whatever are the premium projections of the companies for the current season, we try to apportion that in our premium recognition. As we enter the second quarter, we get to know the exact ground level registrations of the farmer. And we come to know whether the business projections made by the various cedents under various treaties, whether they are acute or not. So when we got this data from the cedent, there was an underachievement. We are correcting. Actually, you are supposed to look the 2 quarters collectively, because first quarter is an estimate, and we don't know what is the exact figure that -- that clarity visibility comes only in the second quarter. That is why there is a degrowth.

Got it. Sir, even if I look quantity, the crop had declined 17 percentage, that is for half-to-half comparison. Sir, do we -- do you expect a similar even including Rabi, the decline will be of similar amount around 15 to 30-odd percentage?

Yes, I would say so as long as there is an intercompany interest rate balance parity in their market share. It may not be exactly like that, but broadly, it can be expected to remain same.

Have you lost market share in agri, sir?

Sorry?

Have you lost market share to overseas or foreign reinsurers?

No, whatever we have cut down on April, see, the domestic business is frozen at 1st April renewals. So then there is no further increase or decrease. That almost decides our market share. Barring the ground level higher or lower registration of the farmers. Does it help, Sanketh? Am I clear?

Yes. Now you can -- it will be great if you can explain it on the health part -- so health and fire part?

Yes. In the health, actually, I think it was broadly explained in the first quarter also that whatever was this stipulation by the IRDAI in regard to the discontinuation of the capital gearing treaties or fixed margin treaties, there was a major treaty, which was not renewed and it will continue to impact us for the next 2 quarters as well. Essentially, we did not renew a major contract on April 21 as vis-a-vis what was written at April '20. So it will have that lingering effect on all the 4 quarters. And that contract had a size of about 25% plus of our entire health portfolio.

So should I assume, it is [indiscernible], sir, because they discontinued the insurance treaty. Should I assume it is [indiscernible]?

Yes, yes.

Okay. Okay. And on fire, sir?

One second.

Sanketh, can you repeat the question on fire, please?

Even in case of fire, sir, in the quarter or even if I look at it on a YTD basis, in the quarter, it is a 32% decline. And it is a 16% or 17% decline in first half in the fire segment BWP where we have seen reinsurance rate hardening, domestic prices also moved up, economic activities improving. So we assume the fire will do well for the industry as a whole, and you will also benefit out of it. But for us, it is declining. So just wondering, the decline largely came from the overseas business because of our rating downgrade? Or is it largely driven by domestic business?

There is a slight fall -- it's happening in the domestic market, is also because some of the products introduced by IRDA are coming out of the IIB rates. There are -- some of them are being priced differently and as per the regulatory permission. So that's one reason. As regards the foreign, it could -- it's a bit regarding the consolidation of books where we have come out of some of the loss-making accounts. And you can see that has resulted in better solvency and improvement in the results.

Sir, can you touch upon on the part IIB rating? What -- which are exactly these products, whether these are large?

As the performance-based rating for the property risk, it is based on the statistics, I mean, released by the IIB. So there are 3 products which were introduced by IRDA for the [indiscernible], MSME segment. So that was basically government-driven where to give benefit to this MSME segment. The rates are more -- I mean, are more, you can say, more lenient and more favorable for encouraging business. So that can have a little bit of effect on the pricing over year.

Okay. So those products will be what percentage of our total fire segment?

Sir, it will be very difficult to say because when we do treaties, we won't get this breakup.

Okay. Okay. Fair enough. And finally, on the commission ratio, while the commission ratio was so high in the current quarter, which is almost like 29 percentage. Sir, just wondering what led to that increase in the commission ratio in the current quarter?

Sanketh, are you talking about fire or talking about the overall?

Overall commission ratio, which I calculate as the commission number mentioned in the result, which is around INR 2,161 crores divided by NWP number of INR 7,450 crores. The commission ratio comes to closer to 29 percentage. So last quarter, it was 18.6. And to the extent I know I never seen such kind of a high commission ratio in GICD for any quarter. So just wondering why the commission ratio has gone up because that is the single reason why the combined ratio came at 122 percentage despite loss ratio improved significantly.

You're right. Sanketh, if you see the results, the commissions have only moved from 19% to 21% up to the half year.

Yes. But for the second quarter, I'm saying, sir, only for the second quarter?

Right. So I'll request our CFO, Ms. Jayashree Ranade to say a few words.

Sanketh ji, there are certain adjustments in our fixed margin treaties regarding commission for the old years, which are closed -- finally closed in this year, and that's why those adjustments have given us increase in Motor Club, and those amounts are substantial, and that is why the impact is seen only in the second quarter. So these adjustments in fixed margin treaties commission adjustments in motor class in particular, have given us this increase in the commission.

Okay. And nothing to do with health contracts now then?

Health contracts are not very hugely impacted.

But entire pain with respect to the fixed income contracts are done in second quarter? Or we can expect the same thing to flow through Q3 and Q4 also?

I do not see so because we have closed these fixed margin contracts. And hence, the adjustments arose in the second quarter. So in the quarter. Hello. Sanketh ji?

Yes, ma'am. Can you hear me?

Even motor foreign, there has been -- yes.

Motor foreign, there is a significant growth, and that business is having a different cost structure and distribution aspect to it. So there is a higher cost attached to it. So that is what is contributing and it will at least contribute for the next -- until the end of the year.

The next question is from the line of Kailash Baheti from [ Kalpataru ].

Can you hear me?

Yes, sir, we can.

Okay. Sir, my first question is that what is the difference between market value and book value of quoted debt instruments, if you have that number handy as on 30th September?

Debt instruments, we do record at market value in our books of accounts. These are all held to maturity and is recorded at cost. We record our equity and mutual funds at market value, and we book it at the fair value in our balance sheet. So that value has increased to INR 45,085 crores as on 30th of September 2021. Book value of 11 -- INR 12,694 crores -- book value of equity is INR 12,694 crores, and market value is INR 45,085 crores.

Yes. I understand that, that number is, I think, otherwise available. Generally, the insurance companies would have a very large debt portfolio, and it is not uncommon that to give confidence to the stakeholders, the number of unrealized gain on debt is also disclosed at least to the investors or in investor presentation. I understand GIC does not follow that, but I just wanted to check if that number is handy and would you like to share it?

Kailash, what you -- the figure you asked for to give you an exact number would be difficult. We can, however, try to give you something in the vicinity of that. We give an approximate number would that do?

Yes.

Yes. Kailash Ji, it is in the range of INR 3,500 crores in addition to our book value. So roughly our debt instrument portfolio is INR 53,016 crores. In addition to that, the fair value is around INR 56,500 crores.

So INR 53,000 crores is book value and INR 56,500 crores roughly would be market value.

Cannot be exact, but it is around that figure.

I understand, yes. You have also mentioned about benchmarking with global peers, et cetera. So who would you generally benchmark yourself with, in global peers?

Kailash ji, you see we are already ranked 13. That means essentially, there are 12 reinsurers who are larger than us. When you benchmark yourself, you would obviously benchmark yourself in the top 5, top 7 players in the world. Because if you see the figures, the top 20, 25 reinsurers, amongst them have about 85% of the global reinsurance premium.

Yes, I understand. So if I ask a follow-on question, what would be the average solvency of these top the top 12, 13 or 15 or whatever number you benchmark against, what would be their average solvency, if you have an idea?

Kailash ji, you see a solvency is something that reinsurers tend to have because, in the Western market, for example, the solvency required is 1. You should have assets and liabilities matched. So minimum solvency, 1 is what is required. In the Indian context, the regulator here states 1.5 as the minimum solvency. Now be that as it may, generally reinsurers would tend to have a solvency closer to 2, 1.75 to and in the thereabouts because a very high solvency also means that you're not using your capital efficiently.

Yes, I understand. And if you would look at -- and if you were to book your profit on investment income, then your solvency will probably become 3, 3.5 or whatever. And if you look at your performance, then you should be looking at the performance of your total network and not the network, which is net of the equity. That's my understanding. And what is your view on that?

Kailash ji, you're absolutely right. The moment we get the fair value into account and in tune with the global practices where you do take the market value of your investments into consideration, our solvency jumps. Definitely, it jumps. But then here the law of the land stage that you will calculate and compute your solvency based on the book value of your investment. Now since we have a very good book, which is built over almost 5 decades, Obviously, you can imagine the fair value is considerable. But that is a notional thing for us as far as the regulator is concerned.

And what stops us from converting if I may ask -- and especially in the context, if I read the AM Best rating rationale, these guys are saying that your earlier business model was a significant amount of investment income and in view of the crash in the share market, the income from investment is uncertain, et cetera, et cetera. Of course, they have been proven completely wrong. But -- if you were to convert a part of your income into unrealized gain into income. Will that not help you significantly in your ratings?

See, Kailash ji, if you see -- you're talking about the AM Best report, which obviously was based on our book value or the market value at 31st March last year. Now last year when COVID started creeping in and India went into a lockdown, I think around the 22nd or 23rd of March last year when the Prime Minister announced it. It was not only India that was affected by it. It was a global downturn and every market worth its salt was down and out. So were we. But the point that you are trying to raise is that why don't we sell our -- I mean sell our equity to get that fair value out into our operations, the point being, would you do that and sell your family silver, we do sell and buy definitely, we do that, but only when we see good opportunities. What is the need for us to go into distress selling. There are absolutely none. Our balance sheet is as strong as ever and will continue to be so. We are in no -- we know that our solvency is always there, which we can encash, but there is no need for us to do it. When we see an opportunity, we buy. When we see an opportunity, we sell. And that is what is going to be our strategy even going forward. So there's absolutely no need for us to get into any selling just for the sake of selling.

I think I am not saying selling just for the sake of selling. My point was that as much as I understand of the insurance business and my understanding would not be that great. But still, when you are into competitive business overseas and if you are competing with reinsurers who are higher rated than you, can you obviously end up getting a business which is maybe have higher loss potential or lesser earning potential, et cetera, et cetera. And therefore, ultimately, the family silver, which should be yielding results, it's not yielding results. That's the point I'm trying to make. And the business of insurance is to earn money for the stakeholders or shareholders. It is not just keep the family silver, hidden. And there has been -- there has been disruption of shareholders wealth as you would kindly appreciate.

Sir, reacting to your point regarding encashment of fair value in order to get a boosting in our rating, the rating agencies do fully factor in the unrealized value of the equity and debt portfolio or whatever. So the encashment is immaterial from the point of view of rating agency. Even if we encash our entire unrealized fair value, it will not impact rating. Rating also looks at essentially 2, 3 factors apart from the balance strength. It also looks at the operating model, the profitability, the competitive dynamics and competitive strength of our company and the risk management of the company, and there are further subbranches and subtopics, which go into rating. So if it were this simple for us to realize the fair value change and get our rating back, we would have certainly done it quite some time back. But I told you fair value is fully recognized in whatever rating they have given to us, but it is operating performance. And let me know that the investment income, which is the peculiar thing in the emerging market context, which on a book value basis in double digit for us is not a very common phenomena in the world and AM Best rating model doesn't give full credit for that. Whichever countries are able to achieve underwriting profitability, they have not substantial investment income to cross subsidize, which is not the case with India. So there is a bit of peculiarity and what do you say odd man out kind of for the Indian economy and Indian insurance sector, which rating agency model doesn't fully factor in.

Rating agencies in India has been at longer hedge for a very long time. And even for the country, there is a problem with Moody's and Standard & Poor's, et cetera. But I'm specifically quoting from the rating rationale of AM Best. They are saying that the investment income is uncertain because of the fall in share market, et cetera. And when I look at the financials of the company or strength of the company 3, when we used to be to A minus to today, I think that we are better on almost every aspect. So what -- why are we not able to argue this out with the rating agency that you guys are stupid. And if they are hearing, I'm very happy that should hear and that our rating should be A minus or even higher and not where they have kept us.

Sir, as I mentioned, it is not only balance sheet strength, which is -- there are various parameters. And one of the important parameters, which they consider is also the country credit rating. So it usually acts as ceiling. Now, suppose if we go to another rating agency, almost any other rating agency that tends to be the ceiling. So I mean there are -- it is a multivariable situation. It is not merely balance sheet strength or encashment of fair value change or solvency or that is what is going to determine the rating.

So it means to say that our rating was downgraded because of India rated?

No. No, there were 2 aspects. There was more than 30% drop in our fair value change, which resulted into their consideration of our balance strength at a couple of notches down as compared to what it was before the COVID, together with the overall -- overall loss for the corporation for the year 2021.

No, exactly. That's the point I'm trying to make. That's what I'm trying to net that you are now at a very, very significantly higher level of fair value gain, which you never was.

Okay, I'll come to that. I'll come to that, sir. The point is that rating agencies are supposed to be forward-looking. They try to chart your path and they should be fairly convinced about your trajectory for the next 6 quarters. Before a better trend, you can -- you are probably seeing the offshoots of improvement, but they would like to wait longer, so that they are assured of the trend, and then there is no further -- there is no reversal. So they tend to react with a particular leg in terms of assuring themselves that there is a real trend towards improvement, though there are offshoots, but they would wait longer.

Understood. One or 2 other questions, small questions. One is that -- do we -- have we circulated any investor presentation before this call?

It is uploaded on the website. I think that is what we usually do by our rating agencies.

Yes, the investor presentation is always there. I mean it's.

We'll share with you separately, if we -- I mean there is no issue on that.

No. But I have been trying to get it from the Bombay Stock Exchange website. And as much as I understand of the legal nuances, you cannot circulate anything. Prior to circulating sending it to the stock exchanges, and it's not appearing on the stock exchange. And the stock exchange takes just about 0.06 or 0.08 second to upload what you would have sent to them. So certainly, you would not have sense to them. Otherwise, it would have been appearing. And even on our website, I find our website to be very, very investor unfriendly. And I have put this in writing to you earlier also. It is extremely difficult to find it. Usually, everything would be under the Investors. And I do not find this under Investors before and I have been trying to find it, how Sanketh's has got it a mystery to me.

Sir, I cannot agree more. We are redesigning our website. Maybe in the next call, you will see different -- something different. You will straight land on the Investor page.

Yes, it's not there on the Investor page. And should there be...

We are redesigning, sir. We are redesigning our website.

And therefore, you are probably giving advantage to the analyst community or shareholders, which is I can tell you, if I put a complaint to stock exchange, you would have a problem. So kindly put our house in order, I obviously, being a shareholder don't want any problem for the company. But this is the minimum. And I have been saying that this is not the first time I've said this, I said this for -- in many of my e-mails to you.

Sure, sir, we're looking to it.

Kindly ensure that the information goes to shareholders first and then the analysts. And the stock exchange first. That's the rule. That's the SEBI rule. You cannot violate it.

We'll look into it, and we'll rectify. Thank you for your guidance and inputs.

The next question is from the line of Madhukar Ladha from Elara Capital.

I just wanted to understand on the motor side, also, we've seen a decline year-over-year in this quarter. And on fire as well, we're seeing a decline. How much of it is with respect to the international geographies, which we were any which way is exiting some of the onerous contracts? And how much of it is domestic? So can you split it between domestic growth and international?

Madhukar, as far as the fire portfolio is concerned, the domestic has almost being steady. There is not much of a change over the previous year.

So year-over-year is flat. So all of the decline is coming from international?

Yes, indeed, indeed. The decline in the fire portfolio is from the international book.

Right. And motor?

On the motor, there is a growth. In fact, there's almost a 10% growth over 30th September last year.

Yes, but that is looking at the first half number. If I look at the second quarter number, when we're seeing a decline of about 8.5% year-over-year and 2.6% Q-o-Q. And then talking about net written premium basis?

I think that there is -- what is happening is the effect of this capital gearing treaties, which were discontinued. So it is getting offset by the -- what is happening on the motor side in terms of the commercial vehicle demand. So there are 2 trends. One is this -- and then if degrowth is more significant, then I think it is getting reflected in the figures. So I think in first quarter, this degrowth of the motor segment was not so very significant, but it is becoming more significant in the second quarter.

In the first quarter, last year was quite bad. So there was almost a 50% year-over-year growth. If you look at it on a last year basis, plus almost 10%, 12% odd Q-o-Q growth again in motor last quarter. But this quarter, we are seeing a substantial decline, okay, may also be because of the base effect of last year partly.

Yes, I think we can agree to that, that there is a base effect.

There's a little bit of base effect probably, but maybe you can split it between international and domestic.

Yes.

Mr. Ladha, does that answer your question?

Is the split available between international and domestic?

Madhukar, I can give it to you for the half year. If you're looking at it on a quarter-by-quarter, I can -- we'll have to dig it out.

Okay, I'll take the half year number and then maybe I can get the quarter number later.

Okay. So the motor from 30th September last year to this year has moved for the foreign one now from INR 1,186 crores to INR 2,178 crores. And for the domestic book, it has moved from INR 2,671 crores to INR 2,170 crores.

And that you're seeing is because of the capital gearing treaties exiting even on the motor side in the domestic side?

Yes, yes.

And the international one is where you're paying the higher commissions?

Yes.

Okay. My final question is on this commission rate of 28% that we've seen in this quarter. Now what should be sort of the steady state commission ratio after taking into account some of the commission adjustments plus now you have the new motor treaty where you're paying slightly higher commission rates and also because you had some reversals in agri. My guess is that some bit of it is also -- yes, your net written premium has also come down because of that because of the agri reversal, right?

Agri reversal? So Madhukar, what exactly was your question?

So what would be sort of your commission ratio? If we were to exclude these impacts or going forward, what can we expect?

I think this question is fairly what you say it is very -- I mean, the range is very wide because it is a function of the composition of the portfolio in terms of proportional and nonproportional. So because proportional is commissioned, nonproportional is no commission. And what do you -- what you see is the aggregated figure. That is number one. Number two, we can have an upfront and fixed commission at a -- for a given class given contract, then it can likely to remain steady. As we try to incentivize the cedent to improve the performance and substitute fixed commission, with the sliding scale or what we call variable commission depending on the probability and incur in percentages, it can fluctuate quite a bit. So there is no clear answer as to say, okay, say motor, let us say, foreign is maybe 23% is the right commission level. Commission level is negotiated on each contract every year based on the -- on a rolling basis, based on the trend and the trends in ICR in incur claim ratio. So -- and then this will vary across classes across geographies for a given cedent for the market. So for example, if you are looking at Greece motor, then Greece motor industry -- insurance industry has a peculiar profile. So that will throw up some common commission percentage. And then that has to be tracked for the client experience, client contract structure and whether the profitability is assured or whether it is by of a sliding commission. So I think we are -- sorry, I don't think we can give you a very clear range for that matter because it will vary from class to class, contract to contract, geography, whether it is fixed or variable.

All right. Okay. Maybe when I meet you off-line, I can have a better discussion to understand this a little better.

The next question is from the line of Avinash Singh from Emkay Global.

Two questions. On the first 1 is on Life. Of course, in your overall scheme of things, you are more of a general reinsurance player, general insurance than Life, Life for segment. But majority of your Life book is domestic India. And if we see this year, it has sort of a cause significant damage, of course, it is COVID backdrop. So I mean what sort of retrocession you had utilized there? And what sort of a corrective steps you have taken or you have directed your -- the insurers in terms of the repricing using those contracts? And also what sort of price increases you have seen? And what sort of the competition you've seen the domestic range, that's number 1. Second is more not to do with quarter half, again, sort of a repetitive in nature. If we were to look at the value creation and if I just go back to the IPO, look at the FY '17 numbers, it was like net worth x share value gains somewhere close to INR 18,000-odd crores and INR 29-odd thousand crores of fair value gain. Even today, it's like a net worth is INR 22-odd thousand crores and fair value gain INR 33-odd thousand crores. So -- and in the meantime, because you fair value gains is largely on equity, equity market in these 4 years would have close to double. So in this backlog, it's very clear that over the full year or whatever sort of a dividend you would have paid is being paid more or less from that the fair value gains that you've realized. And overall for more than 4 years -- in the net-net the operating or I mean, the underwriting has continued to do sort of a negative contribution. Now how in this sort of environment, it 4 years or 4.5 years, it's a pretty long time. So how do we see that rolled ahead? I mean how are we going to see that? Again, I'm not saying a 20% ROE or like -- but a profitable growth because this growth is definitely not profitable. And if you look at 4.5 years, almost -- no value creations in terms of underwriting. So these are my 2 questions.

Sure, Avinash. For our Life bit, I request our General Manager and are appointed actually for life. Mr. Vikash and Girija ma'am to take on the life question first.

So the Life department is actually contributes 23% to our entire GWP. And the claim ratio is high because of COVID this year. We've had unusually very bad claims ratio because of COVID death. And that is even now being reported for the COVID second wave, even now we're getting the COVID claims. As far as the retrocession part is concerned, we do not have any specific retrocession in place because we write only to our appetite. But we have an earlier agreement with Hannover Re, where we had shared the business with Hannover Re. That was for an older period. We don't have any current retrocession protection in place for Life, and we don't intend to have one going forward.

On that front, is that it -- I mean, again, I understand that your extent of balance sheet, but isn't it a risky strategy because, I mean, of course, COVID has been damaged across the globe. But lastly, I've been saying that, okay, you're largely -- largely are you saying, your part of on the Life side is mostly India centered. So that -- you have a very high geographical concentrate and you don't have a geographic diversification like many of the other global insurance will have. In that context, if we're not opting for retrocession, is that like, okay, -- you are putting your separate like 1 in 10 years or so?

You take it.

So right now, as ma'am has pointed out correctly, there is no retro-session arrangement. But yes, there's an order agreement with Hannover Re, where the Life Re does have a reinsurance outward as well as reinsurance inward arrangement. Retrocession can be looked at in the future. Right now, it still would be a bit difficult to find out the turret price and enter into a retrocession arrangement with reinsurers in the event of such adverse experience that we have faced. What was the other question, sorry?

Yes. Related to this, I mean, so what steps have you taken with your domestic life insurance, I mean, have you sort of increased your insurance prices for the new treaties what sort of market development you are seeing?

Yes. So wherever action can be taken. We are taking actions, for example, wherever GIC still has an agreement where new business has been written, rates are being modified on a treaty to treaty basis to take care of the adverse experience. Unfortunately, for treaties, where GIC no longer writes new business. Unfortunately, we have to wait out this period of collaterality because the rates for life insurance contracts are guaranteed for the longer term. This is applicable to individual products. On the group side, where we like mostly 1-year business, when the group some up for renewal or we receive new quotations under group stomach for renewal or we receive new quotations under group , the rates right now are currently at quite a high multiple to what GIC was quoting earlier. So there are steps being taken on the rate side to ensure that the rates do increase. However, the rates definitely would not increase to the extent of the losses that we have seen in COVID because once it wears off the actual impact of COVID or in other words, the impact of COVID on the life expectancy of the Indian population can be found out. Right now, it is slightly volatile to make an exact and accurate prediction on how the future is going to be.

Okay. Okay. And just quickly on this one. So if I say that, okay, you would have many treaties for individual protection business with the life insurers. Broadly, your experience has been uniform for COVID across the treaties or has it been like without naming? Has the experience been sort of very diverse in different treaties as far as COVID is concerned?

Not necessarily, the experience has been mostly uniform. Unfortunately, what we can call as COVID deaths would be the death claims reported by cedents where the explicit cause of debt is COVID. However, what we have observed, there are a lot many claims which have been reported with multiple causes of death such as respiratory problem and et cetera, et cetera, which might be COVID. So that has probably comorbidities are fitted with COVID, but the cause of death is not -- is recorded COVID.

Okay. Okay. So yes, so overall death experience -- overall death experience, let's put all the death together over this last H1. So has it the experience -- uniform across treaties like a wide divergence you have seen? I mean I just want to understand that if at all.

Cedent and across treaties whether it is individual or group, the experience has been adverse, it would be difficult to pinpoint a particular treaty where we have observed that the experience has been quite good. Experience has mostly been uniform. Obviously, there is a range, but the range is not that material for us to call a particular treaty to be performing as per expectation.

Got it. Got it. Okay. So now the second question on that is what is the road ahead because last 4.5 year almost sort of no profitability or rather negative profitability, whatever profit has come because of the gain booking. So what's the road ahead?

See, Avinash Ji, it is a fact that because of the investment on that the Indian market generates, most companies have been operating at a combined ratio of more than 100, which means it is their investment income that is subsidizing their operations. Now post listing and in every investor call that we have had, the investors have very clearly requested and asked GIC to work towards a model where you start earning money from your operations. Exactly what your point also is that as a sustainable model, that is the way forward. So as we said in our opening remarks as well, we are working towards it. Loads of steps have been taken for our underwriting. So that our underwriting becomes profitable. And the investment income that we have is only the icing on the cake thereafter. So we are taking steps on it. We have made good progress. We have tried to, especially the domestic market, where we are a very dominant player, we have tried to bring in a lot of measures to ensure that the treaties that we write are profitable. Those efforts are ongoing. They are unrelenting. And we have set for ourselves a certain target by which time we have to get a combined close to 100 and then below 100. So that is something that is on already.

Okay. Okay, sir. And in the backdrop, I mean considering that, okay, like cross has been sort of it has come as a big sort of growth, but at the same type of pressure profitability. So I mean, do you foresee -- I mean that, okay, you would be completely experienced from sort of in the core or direct certain instructions or program of the government because, I mean, not really Ayushman Bharat because that had a little bit relatively smaller, but particularly like the crop insurance. It has been a challenge for you. I mean, we have given you top line growth, but profitability from that would pressure over the many years. So in that context, I mean, do you see realistically that will be completely spared from the government interventions?

Avinash ji, if you look at Ayushman Bharat that you spoke about, we have been very, very selective in whatever we have written.

Yes, sir, that's very small. That's why it's I said. But I said like crop. Crop has been a big underwriting profit sort of, I would say, a drag over the last 3, 4 years.

Yes, yes. So in crop insurance, we have, as I said, we have taken a lot of measures to streamline the portfolio and make it crop insurance is a prime example. A portfolio that was very large, had a huge exposure on our books was hurting us, and we have taken all the measures we could. And today, when you look at it, the crop insurance has a combined almost close to 100 in our half yearly closing. This is all a result of whatever we have done to prune the portfolio. We have shared back premium. And now even within that, when we see that there are certain areas that are bad, which can lead to losses, like states like Tamil Nadu, which have given -- have been giving us losses year-on-year. We try to avoid that. And we have successfully avoided it.

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

Just 2 follow-up questions. One is the combined ratio or loss ratio, what you have reported on 92 percentage in the current quarter. How much was it impacted by the CAT events across the domestic and the overseas market and likely impact of Chennai floods in second half numbers. So that is my first question. And the second question is that is it fair to assume that incrementally entire motor fees and health fees in domestic market will be only obligated business because given the capital gearing treaty is now completely discontinued?

So Sanketh ji, for the first part, I'll request our non-life actuary to answer. And Sanketh, you said the Chennai and what else, what other things did you say?

No, no. I just wanted to take out of the 92% loss ratio that you reported in the second quarter. How much was due to -- or what is the contribution done from some CAT events, both domestic and overseas?

Yes. Domestic property portfolio has been good. But only on foreign side, we had to actually keep some reserve for certain international events. So that is the hurricane Ida, the Henan floods from China and the European floods. So that is the reason that foreign portfolio, we are seeing a higher incurred loss ratio. But we hope that because this is a quarter where you have not -- the premiums have not come in and you have actually kept a higher provision. So -- by December, this loss ratio should actually come down. But this is basically for the fire. I mean, the property foreign portfolio and domestic portfolio has been good. It has performed by similar in similar lines with Q1.

Okay. And likely impact of Chennai flood too early to say, but if you can give a fair idea of what earnings because now our excel starts at INR 500 crores. So just wondering, we can expect a similar kind of a number to hit our P&L or it can be lower than INR 500 crores.

Sir, it's too early to say what will be the impact of Chennai flood because we have the information yet not yet not started trickling in.

Sir, to the previous question -- previous response that Ida floods, U.S, China floods and European floods put together combined what is the net impact on the profitability for first half or second half?

We have kept to the tune-up about 100 million, that is INR 760-odd crores as a reserve for these CAT events, international CAT events.

And how couldn't you are that this will be sufficient? Or do you need to provide more of these is a likely release, sir?

The confidence comes from the fact that we have been reviewing these events that are happening. So we have a -- we actually reserve for them separately. So it's most likely that it will not exceed this -- the numbers, the reserves that we have kept. So it's likely that going forward, if the reporting is not happening to that extent, we will be releasing this. So we have about -- in the last 4 years, whatever international CAT events have occurred. We have about 20, 25 numbers, which we track. So we actually also look at the territory where that has happened and what is our exposure in that territory. So there are multiple factors that we look into. So we are quite confident that this reserve should be sufficient to actually take care of the claims that may flow in.

The center 760 was provided in Q2 only, right? or 1H number?

No, this is an extra reserve that has come in Q2 this time, this quarter.

Okay. Okay. And the other question which I asked regarding how to model the incremental motor and health business in the domestic market. Should we limit our sense to the obligatory part given the capital gain in treaty are getting discontinued, and clearly, they will get to 0 in clinically. So we should assume that 5% of the obligation will be the only line item which we driving the motor and health domestic business?

Yes, that will be correct. By and large, these are classes which are not RI driven. There may not be a separate outside of obligatory requirement from the cedents. So predominantly obligatory. Just going back a little, you mentioned about retro at segment point being INR 500 crores. Now it is increased to INR 1,250 crores for Indian business.

Okay. So INR 1,250 crores, we will take the hit on our books and beyond but only it will go to the retro, guys, right, sir?

Yes.

Just 3 years period reach from 250 to 500, 500 to INR 1,250, right, sir? I remember last couple of years back to INR 50 crores. Now it is -- last year, it was INR 500 crores. Now you are saying it is INR 1,250 crores. So our skim in the game or our potential loss if there are big in the domestic market will be as high as 50-odd crore?

Yes.

So any rationale, sir, for doing so because that seems to be a little aggressive strategy.

No, it looks aggressive because the base is moving like that, but it also depends on the course that the premium that the market is charging for this cover. Because it is 2 primary what in our parlance, we call it is likely to get hit easily. Entire purchase that we have in place. So this is a cost benefit analysis that we carried out internally and decided to retain it.

How much premium savings you have done, because you move INR 500 crores to INR 1,250 crores?

Something like 45% of the premium? 750. So it will be something like INR 400 crores a premium savings outgo.

Okay, INR 400 crores.

INR 350 crores to INR 400 crores.

Okay. Okay. Okay. Fine. And finally, sir, a small update. We made some reserves with respect to business discontinuity claims, which could likely hit in European market because of the case of spending, I believe, in U.K., sir, just wondering, are we done with that or still it is spending?

COVID U.K., is it developed?

No, it is developing yet. It is developing.

And we have reserves of around GBP 100 million, if I'm not wrong?

It's not pound, so it's a dollar. So we have about 700 -- so that is basically -- we have about INR 760 crores. So that comes to about USD 100 million.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

So thank you, everyone, for the interest shown. As is fairly evident, we have worked hard, and we are making incremental gains as well. So we are prepared for the future, we are working towards the plan and the indications that we get from our figures, it's very hard thing for us. We will continue to charge this part, and we look forward to having more such interactions. Anything that you would want further from us, please feel absolutely free to write to us, to give us a call to mail us, we'll be happy to respond and answer your queries. Thanks again for your time today. Thank you.

Thank you very much. On behalf of General Insurance Corporation of India, that concludes this conference. Thank you for joining. You may now disconnect your lines.