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

Ladies and gentlemen. Good day, and welcome to the General Insurance Corporation of India Limited Q3 FY '22 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, Inba. Good afternoon to all the participants on the call, and thanks for joining this Q3 FY 2020 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 and presentation on our website as well as that has been uploaded. In case, you cannot receive 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 could cause future result 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. We'll 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, Binay. Good afternoon, everyone. I'm pleased to announce the financial performance for the quarter ended December 31, 2021. During the quarter, we witnessed higher claims in Agriculture and Fire segments. Moreover, Health and Life also continued to see an uptrend in terms of incurred claims. This resulted in an increase in the claims ratio and led to higher underwriting losses. We are taking all the required steps and continue to be selective with a role -- with a sole focus on underwriting profitability. Let me now take you through some of the key highlights of the financial performance. The gross premium income of the company was INR 10,240 crores for Q3 FY '22 as compared to INR 11,668 crores for Q3 FY '21. The investment income stood at INR 2,271 crores in Q3 FY '22 as compared to INR 2,624 crores in Q3 FY '21. Incurred claims ratio increased to 121% in Q3 FY '22 as compared to 89% in Q3 FY '21, due to higher claims in the agriculture, the domestic sector and fire in the international segment. Combined ratio in Q3 FY '22 increased to 126% versus 108% for Q3 FY '21. The adjusted combined ratio, by taking into consideration the policyholders' investment income, works out to 104% for the 9 months FY '22 as compared to 98% in the 9-month FY '21. The company reported loss before tax of INR 101 crores in Q3 FY '22 as against profit before tax of INR 1,516 crores in Q3 FY '21, and loss after tax of INR 28 crores in Q3 FY '22, as against profit after tax of INR 987 crores in Q3 FY '21. Solvency ratio stood at 1.80 on 31/12/2021 as compared to 1.53 on 31/12/2020. Net growth of the company, without fair value change account, stood at INR 22,605 crores on 31/12/2021 as against INR 21,204 crores as on 31/12/2020. Net worth of the company, including fair value change account, stood at INR 53,733 crores on 31/12/2021 as against INR 45,952 crores as on 31/12/2020. On the premium breakup, domestic premium for the 9-month FY '22 is INR 22,471 crores and the international is INR 10,432 crores. The percentage split is domestic 68% and international 32%. So there is a degrowth in the domestic premium by around 10%, while the international book has decreased by 19%. We expect overall performance to improve in the coming quarters, and we remain confident of improvement in the underwriting performance going forward. Having given the highlights, we will now open the floor for questions from the interested parties. Thank you.

[Operator Instructions] We have received a question via text from a participant. In the meanwhile, while we connect for the participants to rejoin the queue -- to join the queue. This is for the management member. Sir, the question is what has been the cause of deterioration in underwriting profitability?

I could take that question, but for starters, there were certain European floods that have hit our books. There was also the hurricane Ida, which plagued the U.S. Coast. We had the windstorm Uri and the Henan rainstorm in China. These were primarily the causes of big cat events that hit our books and increased the loss ratios.

[Operator Instructions] Our next question is from the line of [ Raghunand Chellum, ] an individual investor.

I have this question regarding the performance of GIC Re. If I remember right, in the -- during the last [ iteration ], you said that the focus will not be on the top line henceforth, but rather on cutting down on the underwriting losses so that you return to profitability soon. So by when can we expect GIC to return to profitability on the basis of its underwriting income alone rather than the investment? And secondly, when can we expect it to come back on the dividend list?

Thank you, Mr. [ Raghunand. ] Yes, that assurance given to our investors remains that our focus is on the bottom line only. That is why if you see we have been pruning our books prudently so that we can read out all the business that we have been writing, which is not making sense to us and therefore is damaging our bottom line. Now that focus has continued even in this quarter. That's why you see that marginal decline in premium as well. But having said that, the focus on the bottom line has, of course, remained. That is what all of us, in fact, are working at. But there have been a few losses that have plagued the international market as well, which hit our books badly because it was not a very benign year as far as these catastrophic events are concerned. And that is why we have shown these losses. Our -- I mean, of course, the whole idea is to come up top and then start making underwriting profit so that the investment income that we have is only the icing on the cake, and you have the benefit of our good investments on over and above the underwriting profits we make. We are working on that. But this quarter has been bad primarily for the reasons we have cited.

So sir, when can we expect some -- this whole process? Will it take -- because I remember you telling me that it might take 6 to 8 quarters for you to start showing underwriting profits. Does that still hold good?

[ Mr. Raghunand, ] yes, that still holds good to a very great extent. I mean that 6 to 8 quarters when we had promised it that runs out in September this year.

Okay.

We are working on that, definitely. The trade of reinsurance is a bit slow in reacting because we are, after all, a B2B company. And there is a definite lag in whatever the direct insurance company does or whatever the market behave and the way we account for it in our books. So that lag is certainly there. Plus, given the fact that also that our book is largely treaty-driven, and the treaties renew either on the 1st of April or on the 1st of January. So it gives us a very short window to make corrections. I mean there are other businesses that keep on flowing around the year, but they are not the bulk of our business. Now given these constraints, we are definitely working on it, but on my part and on part of the entire team here at GIC, what I can assure you is that business that is not making sense that is not going to give us a healthy bottom line is not being written by GIC. That...

Good to hear that, sir.

That phase is definitely over.

Okay. And one related question. I did read in the newspapers about the retrocession being afforded to GIC coming from 5% to 4%. What sort of an impact will it have on the profitability or the business going ahead?

Okay. [ Mr. Raghunand, ] you're talking about the obligatory cessions that the government has mandated that average.

Yes, yes.

5% of business is to come to GIC. So this is not a new thing, [ Mr. Raghunand, ] really because at a certain point of time when -- I mean, the market had just opened up, the obligatory cessions to GIC were 20%, which was a large number, and that is the time because the market had opened up for everyone to have a level playing field and assurance was given by the stakeholders to the stakeholders that over a period of time, this obligatory cessions will come down. So from 20% to 15%, 15% to 10%, 10% to 5%, we have witnessed these obligatory cessions coming down. So next year onwards, it will be 4%. Now if you look at the impact on our books, it will not be something that is going to harm us very badly because the market is also growing. So that 4% will be on an enhanced market growth of the insurance -- direct insurance business, which will largely cover up. So we do not think as if it's going to do us a big dent. No, it won't happen.

And what about the effect of the other reinsurers. They're already present but there is a chance that a lot of the impending business -- reinsurance business might be directed towards them. Going forward, do you think GIC will be able to handle this aspect well?

[ Mr. Raghunand, ] there are 2 parts to your answer. First is that reinsurance by its very nature is a cross-border trade. So even in those 20, 25, 30 years ago when GIC was the sole reinsurer in India, and there was nobody around, even then we did not write 100% of the market. The big players that you know of, you hear the names of Swiss Re and Munich Re, they were present even then. 3 decades, 4 decades ago also they were present. They continue to be present even today. We've been a different avatar because now they have a branch here. But having said that, one thing that is still very clear is that GIC still enjoys the right of first refusal. So by which [indiscernible], we can write 100% of the market. The fact that we choose to write about 70% is because we do not want a huge volatility in our books. Because as I said, we are -- I mean the trade is cross-border and diversification is the key.

Fine, sir. Got your point. And when do you intend starting business at the Gift City, because I was reading somewhere that your Dubai operations will be wound down and shifted to Gift City.

[ Mr. Raghunand, ] the Gift City has been in operation for almost 3 years plus now, and business has been going on from there. With the Dubai office having closed, in fact has been run off now, we have shifted that business into Gift City because Gift City makes a lot of sense to us in our business. Being all the freebies it offers, the tax concessions it has, the ease of doing business from Gift City. So it makes a lot of sense and the business will grow. We will try and channelize more and more business into the Gift City.

Good to hear that, sir. Sir, my only last plea if I might say that a lot of us individual investors who invested in the IPO are now sitting on huge losses of more than 50%, if I might, and I would request you to sort of resume dividend distribution at the earliest.

[ Mr. Raghunand, ] thank you. Thank you so much. That point is taken on board. Yes. Buh-bye.

[Operator Instructions] Sir we also have received a text question from the participants. It says, something or the other keeps impacting the underwriting performance. So what are some of the concrete steps that you have taken to overcome these challenges to ensure that these ongoing issues will not impact underwriting profitability?

Can I request Mrs. Madhulika Bhaskar to take this question? She's a general manager and in charge of the property underwriting.

Primarily, we have improved our underwriting, so which will take care of the attritional losses which come in. As regards nat cat, it is inevitable, and we are seeing climate change and increase in severity and frequency of cat losses. To counter those, we are trying to create a cat reserve, for which we have approached the regulator for approval so that we get the tax benefit and all. So that is one area, which is beyond our control, where the nat cat we cannot control. So the only way to counter that is through reserves. And as regards the attritional losses is improved underwriting. So both those measures have been put in place.

[Operator Instructions] We have a question from the line of Kailash Baheti from Kalptaru. Mr. Kailash Baheti, could you please unmute line and go ahead with your questions? Mr. Kailash Baheti? We'll just check the connection for Mr. Baheti and help him rejoin the question queue. In the meanwhile, we'll take our next question that's from the line of Hitesh Gulati from Haitong Securities.

Sir, on the agri losses, can you highlight which region, which geography this has come from in this quarter?

Mr. Hitesh, we have Mr. Hitesh Joshi, who is the General Manager from Agriculture Reinsurance. I will request him to take this question, please.

Mr. Gulati, there are quite a few states, which have got affected this year in this Kharif season. So I think our list is fairly very long, Rajasthan, Karnataka, Maharashtra, Odisha, Haryana. Haryana had, by market reports, a claim estimate of something like 140% plus. So this season has turned out to be bad for the entire crop insurance sector. So that is where we stand in regard to the Kharif.

Okay, sir. We had taken a lot of improvement steps last year. So this should be treated as a one-off, right, that it is just an overall impact that has come. But those steps that we have taken should hold us in good stead going forward. Is that correct?

Yes, sir absolutely.

Sir, also on the motor segment, obviously, we are not really active in the sense that we get average of the industry there. Sir, what are the trends that you are seeing? Because what we understand is motor own damage, the competition levels are very high. Is there any way that GIC can kind of like -- help like in the other segments of fire, agriculture, where we do intervene and kind of improve the prices? Is there any way that we can kind of do something in motor?

See, motor is not really facultative [indiscernible] basis not even requiring much of a reinsurance. It will continue to be driven by the direct market competition. But what we hear from the market is that this own damage segment is reaching saturation in terms of the competition because the profit margins are really under pressure. So now any further decline is getting arrested, and there is a degree of stability in the -- on the own damage side, which was a big driver of the competition on the motor segment.

And sir, on this new surety insurance that was kind of announced in the budget this time. Sir, is this something that can be a big thing for the industry and then for GIC also?

Mr. Hitesh, yes. The regulator has been working on the surety insurance for a while, and we have been party to all those discussions that have been taking place. So yes, it is something that we should -- we are also looking forward to. It won't be something that is going to come like a flood straightaway. It's going to be a trickle really earlier and -- in the early days. And then once it stabilizes, it can turn into something big.

Could you please help us understand how the mechanics of this will work from both a normal insurer and reinsurer kind of perspective, like on a generic basis?

Hitesh, to put it very simply, it is -- I mean what -- when a contractor takes up something, the person who is awarding the contract for him looks for some sort of a surety. Now that surety can also be generally -- is currently by way of a letter of credit or some other instrument given out by a bank, which obviously has a cost attached to it. Now the insurance company stepping in and offering that security on behalf of that contractor is a much better via media and much simpler as well in its entire -- I mean, the way it pans out, which is -- and it is acceptable to the person also who is being offered the security. So that is how it is -- it replaces the bank guarantee, is a bit cheaper and obviously much simpler to administer.

Sir, what are generally the reinsurance levels in this kind of segment? And is this a big segment globally?

It is a big segment in many parts of the world. In India, unfortunately, it hasn't caught on yet. But the fact remains that it is something that when the market matures, these things also catch up and is another financial product that is on offer.

[Operator Instructions] As there are no further questions from the participants, I now hand the floor back to the management for closing comments. Over to you, sir.

Thanks, ma'am. Thanks, everyone, for having tuned in and having shown interest in our company. We are, of course, committed to have our combined ratio brought down. And we are working towards it. And as we had said even earlier during this conference call, the whole idea is that our investment income should only be supplementing our underwriting profit. And that is the goal that we are working towards. And that journey is absolutely relentless. We will continue on that path and come back to you with a better story every time. Thank you.

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