ICICI Lombard General Insurance Company Limited (ICICIGI) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited Q4 and FY '23 Earnings Conference Call. From the senior management, we have with us today Mr. Bhargav Dasgupta, MD and CEO of the company; Mr. Gopal Balachandran, CFO and CRO; Mr. Sanjeev Mantri, Executive Director; and Mr. Alok Agarwal, Executive Director. Please note that any statements or comments made in today's call that may look like forward-looking statements are based on information presently available to the management and do not constitute an indication of any future performance as future involve risks and uncertainties, which could cause the results to differ materially from the current views being expressed. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Bhargav Dasgupta, MD and CEO, ICICI Lombard General Insurance Limited. Thank you, and over to you, sir.

Thank you, Nirav, and good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard General Insurance Company for Q4 and FY 2023. I will give you a brief overview of the industry trends and developments that we have witnessed in the past few months. Post this, our CFO, Mr. Gopal Balachandran, will share the financial performance of the company for the quarter and year ended March 21st 2023. The Indian economy is showing signs of resilience while the global economic uncertainty remains elevated. So basically, all the leading indicators are pointing to sustained momentum in the economic activity. However, persistence of elevated inflation in advanced economy, tightening financial conditions and ongoing geopolitical tensions may impact domestic growth going forward. For the quarter, as per data published by CM, the new vehicle sales continue to deliver growth year-on-year for private cars. However, the pent-up demand seems to have settled. Commercial Vehicle segments continued to deliver robust growth, while the 2-wheeler segment in terms of volume is still below the pre-pandemic level. Health insurance continued to deliver robust growth, the commercial lines witnessed growth in line with the current market environment. The overall growth for the industry was highest in the last 5 years. We remain optimistic that the industry will continue to grow given the favorable regulatory changes, low penetration and positive customer sentiment. Speaking of the performance, the GI industry delivered a GDPI growth of 16.4% for FY 2023. At the same time, the underwriting performance remained weak with the combined ratio of the industry at 116.2% for 9 months of this year as against 119.2% for 9 month FY 2022. For motor business, the combined ratio for the industry was 123.5% for half year of this year, which improved to 118.9% for Q3 FY 2023 as for public disclosures. While there will be gradual signs of improvement in the motor segment, the combined ratio remained higher than FY '22 levels, which was at 115.6%. We are sure in the current financial year introduced previous reforms seeking to expand the market and increase the penetration of insurance products. During the quarter, the authority notified expense of management and payment of commission regulations, proposing an aggregate limit at a company level with [indiscernible] April 2023. Moving to the business impact for us during the quarter. The company grew by 6.7%. Excluding crop and one-off transaction in the Motor segment, the company grew by 12.6% as against the industry growth ex crop of 17.9%. Coming to the growth of key segments.

Sorry to interrupt you, but there is a slight disturbance coming from the line. Yes, sir, now it's better.

Okay. So I'll just repeat the last line that I spoke. Coming to growth of the key segments during the quarter in the commercial lines, we experienced robust growth driven by growth of 15.9% in the SME segment. Further, during the year, we accreted market share across segments such as engineering, liability and maintain our market share in the fire segment. In addition to the above, another development in the Commercial Lines segment was the discontinuance of IRB rates as minimum wage in the reinsurance treaties due to a regulatory directive. Also the impact of global hardening on reinsurance terms, especially on natural catastrophe production was experienced by the insurers during April 1 renewals. We believe that although this may create short-term disruption in the long term, this is expected to be positive and bring in underwriting discipline. At the same time, for players like us who have capital brand and presence across multiple lines of business at scale, we should benefit from this. In motor, we degrew by 11.5%. Excluding the one-off transaction, the growth was muted at 0.6% as against the industry growth of 13.1%. We continue to focus on profitable subsegments using historical granular data and rebalance our portfolio resulting of TV mix at 22.3% and 2-wheeler mix at 27.8% for FY 2022. Similar to the previous year, the overall health segment continued to be the fastest-growing segment of the industry. During the quarter, we grew at 31.1%, which was higher than the industry growth of 29.7%. In group health, the entire employee segment, the change in underlying industry pricing sentiment results still in customers moving towards companies which have better underwriting and service capabilities, resulting in a group health segment to grow by 35.7% during the quarter and 43.9% for the year. As a result of our continued investment in retail health distribution, we have outgrown the industry for Q4 FY 2023 with a growth of 19.4%. And in the month of March, with a growth of 27%. This was driven by business source through retail health agency vertical, which grew at 30.9%. Further, in the month of February, we undertook a price increase in our retail health indemnity renewal book at approximately 19%. I would also like to share that our one-stop solution for all insurance and wellness needs ILTakeCare app has surpassed 4.6 million user downloads till date. The incremental download for the quarter was close to $1 million. For Q4 of FY '23, quarter-on-quarter growth of premium sourced through this app was 58.4%, which is over the previous quarter, Q3 of FY '23. That's contributing INR 55.1 crore to GDP. For Q3 of FY '23, this number was INR 347.9 million or INR 34.7 crores. For Q2, it was INR 27.4 crores. And for Q1, it was INR 10 crores. Our bank assurance and key relationship groups grew at 25.7% this quarter. Within this, IC distribution grew at 14.2%, and the non-ICT distribution grew 22.2%. -- post pandemic, the recovery in credit growth, along with increasing wallet share in distribution partners acquired through the demerger has been a key growth driver. Our business sourced through our digital one team grew at 19.4%. Overall, our digital focus has enabled us to increase our digital revenues, which includes the ILTakeCare app to INR 3.14 billion, which accounts for 6.3% of our overall GDP for the quarter. We remain on track and are focused on growth levers such as innovation, digital advancements, launching new products, strengthening our distribution engine and rationalizing costs while scaling up our preferred lines of business. I will now request Gopal to take you through the financial numbers for the recently concluded quarter.

Thanks, Bhargav, and good evening to each one of you. I will now give you a brief overview of the financial performance of the company for quarter 4 and FY 2023. We have uploaded the results presentation on our website. You can access it as we walk you through the performance numbers. Gross direct premium income of the company was INR 210.25 billion in FY 2023 as against INR 179.77 billion in FY '22, a growth of 17% against industry growth of 16.4%. Our GDP growth was primarily driven by growth in the preferred segments. The overall GDP of our Property & Casualty segment grew by 18.9% at INR 59.73 billion in FY '23 as against INR 50.24 billion in FY '22. On the retail side of the business, GDP of the motor segment was at INR 85.82 billion in FY '23, as against INR 82.8 billion in FY '22, registering a growth of 3.7%, excluding the one-off transaction that Bhargav reported, the growth was at 6.9%. Our agents, including the point-of-sale distribution count was around 113,000 as on March 31, 2023, up from INR 106,119 as of December 31, 2022. The advanced premium was INR 32.17 billion as at March 31, 2023, as against INR 32.79 billion as at December 31, 2022. Resultantly, combined ratio was 104.5% for the full year as against 108.8% in FY '22. Combined ratio for the quarter was 104.2% this year as against 103.2% in quarter 4 FY '22. Our investment assets rose to INR 431.8 billion at March 31, 2023, up from INR 414.51 billion at December 31, 2022. Our investment leverage debt of borrowing was 4.15x at March 31, 2023, as against 4.16 at December 31, 2022. Investment income for the full year was INR 29.77 billion as against INR 30 billion in FY 2022. On a quarterly basis, investment income increased to INR 8.17 billion in Q4 FY '23 as against INR 7.06 billion in Q4 FY 2022. Our capital gains net of impairment on investment assets stood at INR 4.53 billion in FY 2023 as compared to INR 7.38 billion in FY '22. Capital gains in quarter 4 FY '23 was at INR 1.59 billion as compared to INR 1.36 billion in quarter 4 FY '22. Our profit before tax grew by 25.5% at INR 21.13 billion in FY '23, as against INR 16.84 billion in FY 2022, whereas PBT grew by 39.5% at INR 5.73 billion in Q4 FY '23 as against INR 4.1 billion in Q4 FY '22. Consequently, profit after tax grew by 36% at INR 17.29 billion in FY '23, as against INR 12.71 billion in FY '22, whereas profit after tax grew by 39.8% at INR 4.37 billion in Q4 FY '23, up from INR 3.13 billion in Q4 FY '22. PAT includes the reversal of tax provision of INR 1.28 billion in Q2 FY 2023. The Board of Directors of the company has proposed a final dividend of INR 5.5 per share for FY '23. The payment is, however, subject to approval of shareholders in the issuing Annual General Meeting of the company. The overall dividend for FY 2023, including the proposed final dividend of INR 10 per share. Last year, it was INR 9 per share. Return on average equity was 17.7% in FY '23, as against 14.7% in FY '22. The return on average equity for the quarter 4 FY '23 was 17.2% as against 14% in Q4 FY '22. Solvency ratio was 2.5x at March 31, 2023, as against 2.45x at December 31, 2022, continues to be higher than the regulatory minimum of 1.5x. As I conclude, I would like to reiterate, we continue to stay focused on driving profitable growth. sustainable value creation and safeguarding interest of policyholders at all times. I would like to thank you all for attending this earnings call, and now we will be happy to take any questions that you may have. Thank you.

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

3 questions. First on the motor side. So I think recent -- in the recent conversations, you have mentioned that there has been some small but positive development on the pricing side in motor only. But despite that, I think what we are seeing in your numbers is that there has been growth in the motor premium. So just wanted to understand, sir, what is playing out there? And what has resulted is this a high base effect or anything else that we need to understand to factor in the deal growth that we are seeing in the [indiscernible] and also, sir, if you can highlight the reason for the mobility loss ratio being higher this quarter because I [indiscernible] there seems to be reserve release. So has there been any kind of adverse one-off impact that you have seen in the motor TP book or?

So the first one, Swarnabha, on the motor own damage growth numbers, I think in line with what we have been talking about, why we continue to be a bit cautious given the fact that the competitive intensity of motor stays elevated. Having said that, you're right, we did talk about maybe some bit of gauging in pricing that one had expected to kind of play through on the motor segment, which is why when you look at the industry combined ratios for the half year, the industry combined was up about 124% if you look at that number for quarter 3, that number was about 118%. So clearly, I think there seems to be some signs of a bit of easing in so far as the industry participants are concerned. In so far as ICICI Lombard, I think if you recollect what we had said was, obviously, we continue to write the motor segment through a combination of both new as well as the relatively older segment. And as we have been explaining, we have been also looking at segments which are slightly older, which typically comes with a slightly higher loss experience and the relative cost of acquisition for that particular segment is relatively lower. So hence, from an ROE perspective, it made a lot of sense for us to look at writing that part of the business. And hence, to that extent, you would possibly see maybe the loss ratios slightly elevated. Having said that, I think what we would always urge is to not look at maybe any numbers on a quarter-on-quarter basis, but rather look at it more on a full year basis in terms of the opportunity. So that's one. On motor third-party loss ratios, again, we will continue to make the same stance, which is to say that in a given quarter, there are a lot of factors that influence the loss experience. And therefore, insofar as if you ask us whether there has been any change in our reserving philosophy or approach, there has been no change in the reserving philosophy or approach. And Motor TP being unlike some of the other segments, which are short tail in terms of loss development, as we know, it's a relatively long tail of place. And there, again, I think we would again urge all of you to look at numbers more on a full year basis. If you look at it on a full year basis, the motor third-party loss ratio for the current year [indiscernible] so that's a better reflection of the loss experience as compared to looking at the numbers on a quarter-on-quarter basis.

Just to add one more point to what Gopal said, when you compare Y-o-Y numbers, last year, Q4 for us was a very big quarter for -- in motor business. That base has played out in terms of the growth numbers for us this quarter. But otherwise, in terms of pushing price increases that we are actually taking, we've pushed through some price increases. We will see where the others follow.

Okay. Got it, sir. Also, I mean, in terms of the overall cost structure, sir, I mean, ideally, I understand that Q4 is generally a retail heavy quarter and hence, our commission outgo is generally much higher. But this time, the net commission ratio is somewhere around [indiscernible] in our number. So is there any impact of the one-off transaction in this? If you could highlight the reason? And also the one-off transaction of how you triangulate the numbers somewhere in the P&L, how should I look for it?

So commission, so far as the net commission is concerned, I think there is some -- there's definitely nothing which is more one-off. We obviously see cyclicality in some of the outcomes when you see on a quarter-on-quarter performance. Particularly, for example, on some of the commercial line portfolios, we get to see the experience of how good or bad the portfolio outcome has been that gets demonstrated at the end of financial year, particularly in quarter 4 and hence, to that extent, you will possibly be able to see some element of maybe profit commission that typically gets recognized in Q4. But nothing there that thing which is like one-off. And in general, as we have been talking about on the commercial lines, our portfolio experience has been [indiscernible] profitable. And therefore, the terms of commissions that we get from the reinsurers is what has possibly resulted in maybe the net commission ratio, reflecting a different number. But otherwise, there is no one-off insofar as this particular recognition is concerned.

Sir I'm sorry to interrupt you, I request to join the queue again for a follow-up question. The next question is from the line of Avinash Singh from Emkay Global.

2 questions. First is more on the regulatory side, where regulator has sort of bring in, I would say, way clause saying the benefit of a direct distribution to be passed on to the policy holders. Now here, my question is that is the regulators sort of saying to you or the industry to, you have to have a kind of a direct version of the same policy? Or if not, I mean, I'm saying simply that, okay, what if a health policy, retail policy customer coming for renewal. Now are you supposed to pass on that if the customer is willing to pay to your brand to your portal directly. Are you willing -- or are you required now to pass on this dicommission difference? I mean, I are talking about renewal where, I mean, there is definitely no -- almost no cost in terms of direct. I can understand the cost on the new issuance. But when a customer is coming for the renewal directly forheld I mean virtually there is no distribution cost involved. So I mean, are you going to pass on [indiscernible]? That's number one. And second, on the expense of management side, I mean, of course, the new regulation has come, but even for the existing regulation perspective, I mean for U.S. scale, the 31% kind of a reported expense of management, it looks -- I mean there is something -- I mean, the operating leverage is kind of a bit evasive. And to add to that, if I see the P&L, there is some close to INR 900-odd crores or like close to 4% of your gross premium that is being charged with shareholders account, whereas the ratio says 31%. So why is -- I mean, at least from the ratio does not appear you have breached expense of management by that kind of amount. So what's the sort of connection I'm missing here.

Thanks, Avinash. Gopal will take the second question. Let me answer the first. I think the direction that the regulator is taking is making the regulation more principle-based and leaving independent companies with a lot more flexibility to manage their business in the way they think appropriate. Everything that they're doing, at least our read of the matter is there giving insurance companies a bit more choice than what we had in the past. So even when it comes to the fact that you can give a lower commission, that is also a choice given which in the past, we were not explicitly given. As a company, we still have been giving a lower price in the online policies by 2.5% to 5%. So that's a practice that we've been doing, and we will continue to do that. Coming to what will happen because of this, I think it's just too early to comment on how market would adjust to these changes. But as I said, my sense is that it is giving a lot more flexibility to us and different companies will plan out what they want to do with these flexibilities. -- you do remember that the -- in certain products, the agent, even if, let's say, customer reduce online, sometimes agents do play a role in recommending that and driving that behavior. We don't be true for everything, but a lot of times that is how it is. But as I said, more importantly, it's a choice given to insurance companies to plan their business strategy.

So Avinash, on the second point, I think the number what you are seeing of 31.4% is basis for quarter 4 based on regulatory stipulated way of computing the expense of management ratio. So there, if you see the denominator as what is being put out on the footnotes, it's based on the gross direct premium income. Having said that, the threshold on the expense of management works on the basis of gross return premium -- so when you kind of compute the numbers on the basis of gross written premium, that 31.4% will stand revised to, let's say, 29.5%, which is within the threshold of compliance. And so far as the limits on expense of management is concerned, the same number on a full year basis, what you are seeing of 29.6%, which is again based on gross direct premium income, in line with the requirement of the regulation, which is on gross written premium, that number will be looking like 29%, which is again within the threshold on limit that has been laid down by expense of management. So that's one. To your second point on there seems to be an amount of, let's say, close to about INR 900 crores, which is reflected as a part of the P&L disclosures. What the regulator is also under the earlier regime, which is valid until March 23 had also stipulated One, compliance is at an aggregate level, which is what I explained, we are well within the limits laid down with the regulation. 2, as you know, they have also laid down limits for individual lines of businesses. And in case if there are any line of businesses where possibly the limits on expense is slightly elevated, then to that extent, from a disclosure perspective, so much of the excess is required to be separately disclosed as a part of the P&L numbers. But when the computation of the combined ratio happens, it factors in for all the operating expenses that we incur as a company. So it's more a disclosure that is stipulated by the regulation as compared to the fact that it is not a case where at a company level, we have exceeded the limits on expense of management. We are well within the threshold.

A quick follow-up. -- different one. On the reinsurance side, if I see there are 3 kind of changes happening. One, of course, the global hardening in the reinsurance market. The second thing I see that kind of a regulator nudging the primary insurer like, okay, go ahead without any sort of a reissuance prescribed or floor rate, that was a kind of a practice in commercial line, so far, that's the kind of a second impact. And thirdly, with the new UM regulation coming on the GWP basis, probably, I mean, the way some primary companies or even the reinsurance companies soliciting or starting [indiscernible] businesses, where commissions might be -- I mean, get a bit disturbed, that kind of [indiscernible], they would be paying because now this I guess, new EM will be applicable in all. These 3 things that a bit of this location commissions that have driven floor rates not really mandatory others trying to choose. And thirdly, the global resale market hardening all this net debt, how is going to sort of impact that yours or the industry behavior at the commercial line or kind of a heavily reinsurance back line are concerned?

So no, you -- that's a great point, Avinash, -- and we've been talking about the fact that in commercial lines, there will be a fair amount of change even in the last quarter before these things were explicitly clear, we were talking about the fact that some of these changes would have impact. Of course, we couldn't anticipate the rate handling on the reinsurance side until that time, but that's now evident. So the point that you're making is very absolutely valid. So globally, if you look at rates in certain markets, it's gone up by 50%, 60%. In our market, it's also gone up by 45% to 60% for most players in the market. That's an input cost to us, largely the -- on the nonproportional side, the cost has gone up. The commissions that reinsurance give on the proportional side has gone down. So it's a significant increase in cost. The second is, as you rightly said, that pricing is largely not mandated to be in line with the building cost of the industry. So individual companies can charge whatever they want to. And hence, there is a risk that the pricing can drop. Our sense is on [indiscernible], of course, is there, but at the end of the day, finally, it's within overall combined and we see it as a very positive development in the sense that it's expected from the regulators that companies will reduce their expense management, even if they're below the threshold and those around the threshold have to bring it down to 30% in 3 years. So that should drive positive behaviour in our anticipation. So that [indiscernible] as a negative in this instance. On the first 2 perspective, I think the way we are seeing the market as the first month or the second issue in terms of rates coming down. [indiscernible] 1 or 2 rates have come down. But on aggregate, the rates haven't come down as much as we would be worried about. It's come down a little bit, but nothing material. Our sense is that usually, April is a big month gives a sense of where the market will pivot. And in future also, we are not anticipating a major drop in commercial rates in the market, simply because the industry cannot afford to. As you rightly understand on one side, the cost has gone up. And it's not as if the combined ratio for the industry was very healthy. So I don't think the industry has too much of a wherewithal to reduce prices much. Maybe there's 1 or 2 [indiscernible] that will happen, but not at scale. The last one that I'll make is that if, let's say, certain companies go very aggressive on the property side and in effect, end up burning their 3D, the reinsurance market with this hardening that we are seeing and the attitude hardening, which is the insurers don't have appetite to give treaty capacity which you can keep burning. And that's what you've seen in the market this year, right? So if that happens, if any company does that, our sense is in the next year, they will find it very difficult to get proper treaty capacity. I think this year itself, some companies struggled, more will struggle if that happens. And if that happens, I think we are on a better wicket because we have the capital and the solvency and the size to continue -- and the quality of the book that we've been writing and the distribute on underwriting, we should stand to benefit. Our experience or our estimate for the year, we've been giving a guidance as a company that over the next 2 years, we want to bring it down to 102 -- we are not changing the guidance in spite of this cost increase on the reinsurance side.

The next question is from the line of Prayesh Jain from Motilal Oswal.

2 questions from my side. Firstly, could you highlight as to when this one-off transaction happened in February, there would be some income and which line item does that income sits in. Secondly, is there a seasonality in motor TP loss ratios because in the past 3 years, we've seen Q4 being far more elevated than Q3. And then one of the -- I think if I recollect well in one of the both quarters, you had mentioned that, that was because of adverse judgments adverse judgment in that case. And thirdly, we've seen a sharp -- a good decline in terms of absolute cost for advertisement and publicity sales promotion, employee remuneration. The recent decline in terms of sequentially. So what is the kind of run rate that we should think about from a full year perspective of next year?

So Prayesh, on the one-off transaction, which we have been kind of explaining, that's something that has happened in quarter 4. And this is, in that sense, something that we did in line with what, let's say, other market participants have been possibly doing it in the current year or maybe in the earlier years as well. So hence, to that extent, it's a commercially viable transaction that we have kind of undertaken. And hence, to that extent, the outcome of the transaction will be reflected in the overall underwriting result when you look at the aggregate numbers. In so far as your motor third-party loss ratio trend line of seasonality between quarter 4, there is -- in that sense, not any specific seasonality that typically gets attached. So for example, if you recollect 2 years back, which is in FY '21, at that point of time, when we had possibly seen elevated levels of motor third-party loss ratios being higher, we kind of talked to the market to say that we did see at that point of time incrementally new Supreme Court judgments that had come through in terms of defining the basis on which compensation will get paid to victims of accidents. And hence, to that extent, when we kind of evaluated that particular book, we obviously wanted to make sure that we did not know in which direction that would take shape in so far as future settlements are concerned. But having said that, given that we have always followed a prudent approach to reserving, we obviously wanted to strengthen the reserves at that point of time. And hence, to that extent, you would have possibly seen maybe an elevated quarter 4 motor third-party loss number. The last year, again, it's more a function depending on how things have come back in terms of normalcy because last 2 years typically has been periods where we have seen in different quarters, Covid experiences play out. And hence, to that extent, the scale of operations will possibly also be a function of what kind of loss experience that one exhibits. And thirdly, as we keep saying, one should always look at particularly long-tail line of businesses experiences more on ideally over longer years, but definitely not on a quarter-on-quarter basis. You should look at it -- look at more on annual numbers as compared to, let's say, looking at quarter-on-quarter 10. The last point of yours, I think as we have kept saying -- we do kind of look at productivity and efficiency in the overall means of doing business. And hence, is where we had kind of spoken about what Bhargav just mentioned, that clearly, the direction that we want to take is to bring down the overall combined from the current levels of [indiscernible] that we have been operating down to, let's say, 102% over the next 2 years. And within that, we are extremely focused on looking at every element of cost, whether it is the cost of doing business or even any other investments that we're kind of looking through. So in that sense, it is not that there is any significant change. We continue to make investments in the health agency platform that we have spoken about. We continue to stay invested in digital. And in line with our recent digital day that we had, which we kind of shared with all of you, we continue to stay invested in these various technology transformation projects as well. So hence, to that extent, that is how we should look at in terms of the loss in terms of the expense ratio trend line, nothing specific that is there as a one-off in so far as the quarter 4 numbers is concerned.

The next question is from the line of Shreya from CLSA.

Most of my questions are answered. I have one doubt basic doubt. That the reinsurance that is added to the gross direct premium and eventually becomes gross premium written is high for fourth quarter seasonally or because even last year fourth quarter, it was a higher number this year [indiscernible].

So that's -- so nothing unusual, Shreya, in that sense. I think we look at any -- again, the reinsurance invert is again an opportunity that once is depending on how we are able to get businesses for a particular period. So in general, yes, there could be some kind of a seasonality attached to it. For example, you would see on the corporate side to be significantly heavy in Q1. Let's say retail to be significantly heavy in Q3, you may see Q2 and Q3 seasonality attached to crop. So therefore, different businesses exhibit and maybe retail health for a matter of fact, to some extent, I would say, attached to some seasonality in Q4 as well. So hence, there are different lines of businesses that exhibit seasonality. And hence, to that extent, the reinsurance inward could also be one of them. But at the end of the day, whichever segment that we are talking about, we obviously look at it from the ultimate lens of profitable growth.

So in fourth quarter, this is heavy because of health in a because commercial is mostly first...

Not necessarily... all that I'm saying-- all that I was referring to is different segments of businesses could have seasonality attached to it. As an example, I'm not staying in the context of reinsurance invert. Even on the direct side, on retail health, you will possibly see Q4 to be a slightly seasonally higher quarter. Reinsurance inward could be a mix of business across different segments. It need not be necessarily only felt...

Next question is from the line of Nidhesh Jain from Investec.

3 questions. Firstly, on the combined ratio, what is the impact of this one-off transaction on our combined ratio of 14.2% for the quarter. Secondly, what is the health agency GDPI in absolute terms for FY '23 and Q4 for '23? And lastly, [indiscernible] access to HDFC Bank and AXA Bank. If you can share how is the progress there? What is the business which we have been able to source from these channels in FY '23 or Q4 for '23 these are the 3 questions.

So let me let me take the third one. I think we are quite happy with -- as we said in the covering remarks, most of the distribution channels that we got through the merger with Bharti, we are quite happy with the progress that we've made in those specific partners that you're talking about, the large banker partners that we've got in both these relationships, we've increased the share of wallet, in fact, month-on-month, quarter-on-quarter, even during this year vis-a-vis when we had announced the transaction to now, there's been a significant increase in share of wallet. I'll ask Gopal to answer the first 2 questions.

Yes. So in so far as maybe I will take the second part first. In terms of the split of health GDPI that for the full year is at about INR 47.82 billion. that's for FY '23. And for FY '22, that number was INR 34.87. On the point on the impact of combined ratio Nidhesh, the fact that it's a commercially viable transaction is why we have done that. And hence, to that extent, in terms of -- it did not have any material impact insofar as the overall combined ratio is concerned.

So there's minor positive impact on combined ratio, you should -- that is the way we should look at it...

That is correct.

And sir, on the health agency, I was talking about health agency GDPI for FY '23 or FY '20. So INR 47.82 billion is total health duty agency GDPI, it was the hedged agency GDPI I was looking for.

So the hedged agency GDPI for the full year stands at about INR 5.6 billion.

Next question is from the line of Madhukar Ladha from Nuvama.

First, on the regulatory chain side, the expense of management now allows the differentiate between the SAHIs and the general insurer as far as the Health business is concerned. So SAHIs are allowed 35% and -- but the general insurers on an aggregate level are allowed only 30%. Does that create some sort of uneven playing uneven field for the industry and for you guys? And second, I see that your investment income has improved considerably in Q4? And also, if you look at the Q3 balance sheet versus Q4 balance sheet, the unrealized gains have dropped significantly from about INR 550 crores to about INR 213 crores. So has there been an increase in realized gains in this quarter, which has resulted in strong investment income performance. Those would be my 2 questions.

Yes. So Madhukar, if you look at the EUM ,I mean, I think principally, any difference in our arbitraging regulation is not something that is useful. But having said that, I think SAHIs a genuine problem in the sense that they are single product company. So we can defray cost across multiple businesses, they can't. When we look at the fact that as a multi-end company, we write different types of businesses where the cost of distribution is lower. We don't see a big disadvantage because SAHIs is at 35%, and we are 30% because we have other products where the cost of distribution would be lower than, let's say, the health business. Even for us, the health business would be higher, but we have some advantage in the other lines of business. On the second question on the investment side. Gopal, you want to take that?

Yes. So if you look at on the mark-to-market side, the drop in from INR 550 crores to, let's say, INR 200 crores. And in that context, the point that you asked as to whether there is a significant increase in capital gains for this quarter vis-a-vis, let's say, quarter 4 of last year. So there is -- in that sense, there is not a significant increase. If you look at Q4 of the current year, the capital gains stood at about 1.59 as compared to INR 1.36 billion, which was the capital gain that one had seen in quarter 4 of last year. To your other point on the quarter-on-quarter increase in the overall investment income, that is exactly what we have been talking about to say that any increase in the interest rate regime obviously augurs well for us given the fact that as the portfolio starts to get rebalanced in terms of mix of investment assets, which gets invested in a relatively higher yield, you will start seeing on an incremental quarter, maybe the interest income isn't getting reflected appropriately. So that's the only reason why you see possibly the increase in investment income. Otherwise, there is nothing else that is attached to those numbers.

Just one more point to add to what Gopal said on the investment side. I think we were probably we were correct in expecting the increase in movement in the market. At this point in time, it seems to be a current decision where we increased the division of our portfolio in the first half of the year, and that's also playing out. Because of the interest rate change that Gopal has talked about, we've been able to take advantage because we increased the division of the portfolio in the first half of the year.

Next question is from the line of Supratim Datta from AMBIT Capital.

So I have 2 questions. One, on the health retail health side, could you talk about the investment opportunities that you are looking at going forward? Also, would these investment opportunities include an acquisition to drive the retail health and channel faster? That's first. Secondly, on the [indiscernible]. And if I look at it on a compare to the net written premium, then that ratio comes out to around 56% for FY '23. Basically, it has been around 58%, 59% previously. So it seems like we are booking more revenues in FY '23. So how should I look at it? If you could give some clarity around that, that would be very helpful.

I'll take the first 2, and I'll request Gopal to take the last one. In terms of health retail, as we've said that this is an area that we want to sustain our investment. We've talked about the man power that we've added during this year. And we also said that we wanted to see the productivity gain come through. Clearly, the signs are very, very positive. If you see our second half growth in retail health business, we generally outperforming the market. Having said that, we don't think there be the true level of productivity that we expect them to be. So there is still some traction on the investment that we've made in terms of improvement in the top line from that channel that we've added. What we've decided to do is as we go through the year, we would look at how -- where we are reaching with that investment, and we will opportunistically add more resources to see that -- to ensure that the investment focus remains on building the distribution. As we've said over the last few years, our retail health market share is much lower than an average. And our plan is to endeavor is to over the years, build it up. So that focus remains. With regard to acquisition, I don't want to get into specific conversation about any one segment or one specific company. I think we've always been saying that if there are viable opportunities in the market where an opportunity which gives us access to a new distribution on a new business as also comes with a reasonable price, we are always open. But there is nothing specific that we are looking at, at this point in time.

And to the third question on the URR, I think URR as we have been explaining, even in the earlier quarters, it's purely a function of earning the premiums over the contract period. And hence, to that extent, depending on -- again, as I was explaining in response to an earlier call, there are certain lines of businesses which could possibly defit, in some quarters, maybe a faster earning. So for example, you will see maybe the crop insurance segment typically operates for particular seasons. Not that we're writing a very large proportion of that particular book. But in terms of any impact that one would see on the net earned premium, you could see some cyclicality attached to it. But otherwise, URR is purely a function of the way the portfolio gets earned over the contract period. And yes, if you had to see last year, for example, in FY '22, the overall growth was only about 2.7%. Whereas if you look at our growth for the current year, it's at about 17%. So that's again a factor that one will have to take into consideration when you look at earnings of URR over a period of time. There is, in that sense, nothing one-off, which is there at the part of the unexpected [indiscernible] numbers.

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

I wanted to understand what exactly you are going to do with the crop insurance business in FY '24 because this year, you shared with us last year for the AA business what you acquired. So given the UOM rules are around, and if you intend to focus more on retail business, which are OpEx intensive, do we go a little aggresive on the [indiscernible] business in the current year? That's my first question.

Yes. So let me answer that. So are we going -- will we go aggressive on crop business just because of flexibility? The answer is no. We had said at the beginning of -- or even last year, last couple of years that post the acquisition, we have said that we will continue to have some exposure to the crop business now given that overall market has improved, there are new schemes which are coming in and the capacity in the market, which is the total number of players in the market have reduced -- but we have been clear that it will be -- it is up about 4% to 5% of our business. That narrative does not change. We are not changing any of those objectives just because of UOM.

Got it. And given the reinsurance market, as you highlighted, has hardened and probably the commercial lines potentially could see a lower profitability in the current year because of the rule ranges rooms. So the glide path, what you have mentioned that 104% combined gradually improving to 102% by FY '25, despite competitive intensity increasing in few profitable lines, you still continue to maintain that 102% by FY '25 will be achieved or there could be a deviation.

So that's what we said earlier in the first. Our objective hasn't changed. Yes, while in commercial lines, the profitability may not be in line with what we have in the past. But at the same time, we've taken a lot of costs during the year, which will play through in the future with our expectation. The actions that you take now helps you in the next year. So we are reasonably optimistic, and we will continue to deliver on that right part that we've talked about. When it comes to commercial lines also, I think one of the things which happens on the ground is that -- there's a lot of calls that are taken at a client level profitability. So if you're making a bit of money in fire, you may be a bit relaxed in pricing your group health or marine because you're looking at our overall portfolio of profitability. So if let's say fire profitably comes down, group of profitability should -- or rather the aggression on the group should reduce. So those are the expectations that we had -- that we have and some of those changes we've seen in the group field side as we see. We've not seen an improvement in the main rate as yet. But overall, we believe that we will continue to manage the commercial line business profitably. The combined ratio may deteriorate a little bit, but that's something that we'll make up from the other lines of business whereas this year was very stressed here in terms of combinations in some of those lines. Lastly, the health investment that we made -- that was a cost which I think Gopal has been talking about as I recall. As that channel becomes more productive, we will get some benefit there. Some of the channels that we got from Bharti AXA integration, there were early days of investment into -- including some of the large distribution partners. Those are all beginning to come within a reasonable numbers in terms of combined. So all put together, we are reasonably confident about the numbers that we're talking about.

Got it. And last one, if you can give the retail health to loss ratio and group health to loss ratio for the quarter and for the full year. And given the price hike you have taken 19 percentage, I believe it is both for new and the renewal part. When can we expect a significant improvement in the retail has loss ratio because 19% hospital inflation will look a little unlikely, so sir, the benefit will be based in FY '24. -- is it safe to assume that way?

So the first part, Saket, as usual, so far as quarter 4 health GHI loss ratios are concerned, that's at 93.2%. And so retail indemnity loss ratios for the quarter is at about 61%. And if you recollect, even in the last quarter when I think you had only asked what has been the loss issues, we had kind of talked about saying that the group will possibly end the year with a loss ratio of closer to about 95%. So if you look at a full year basis, the GHI book loss ratio stands at about 95%. And the retail indemnity loss ratio stands at about 64%. So that's the breakup in so far as the loss numbers are concerned. To your second point on the increase in the pricing, the increase in pricing is with respect to the renewal book. It's not that it's on the entire book. That's one has applied the increase in pricing. But having said that, yes, to some extent, there will be an improvement in the overall loss experience. But at the same time, as you rightly mentioned, there is always an element of health inflation that one case. And going ahead in FY '24, we obviously will also have to see what kind of a business mix that one is able to source -- so there are various factors that would influence the overall loss number. As we have said even in the past, in general, we believe the retail health indemnity book should kind of operate at a loss ratio range, which will be between 65% to 70%.

Next question is from the line of [indiscernible] from Apex Management.

Just one question from my side. So for the investment work that we have, what's the average maturity? And also, what's the difference roughly between the yield that we are realizing on the investment book right now, excluding capital gains and the incremental yield that we can invest by maintaining the same average duration.

So the duration of the book at the end of the year FY '23 was 4.9%. This was slightly lower duration than what we had at the end of 9 months because in the month of March, we had very good inflows into the portfolio, largely because the market numbers from a business perspective are positive and also the corporate business, some of the premium comes in. So that money obviously was not invested. We didn't have enough time to invest in the long division bond, so that's sitting on cash. So hence, the division of portfolio was slightly lower than what it was as of 9 months. So it's about 4.99%,roughly about 5%. [indiscernible] portfolio is carrying an yield of about 7.2%.

Next question is from the line of Neeraj Toshniwal from UBS Securities.

Wanted to know our thoughts on into motor vehicle limit. Are we experiencing but getting shorter? And that so are we going to release reserves and that is considered into our target combined ratio?

The answer -- short answer is no. It's not factored in our target combined ratio. We are still not assuming any change in the underlying pattern. As we spoke last time, the -- what's happening on the ground kind of remains the same. We've had different judgments in different high courts, some judgements in the favor of insurance industry, some judgment is not so far in favor of the industry. So what we are doing is we are observing the trends. There are certain months where it seems like it is accelerating certain months, the data is not very clear. So as we've been saying, you have to watch this data for some time. I think what we'll have to see is cases that has got reported with beyond the 6-month period. Obviously, we are contacting all of that. We will have to see in report how that plays through. But we are not assuming any benefit, though we remain reasonably hopeful that in the longer term, this will come -- the court will rule in favor of the insurance industry because there is a lot of the land. But at this point in time, we are not factoring anything in. The second thing that you will remember in PP is that we've not seen a price hike, right? And in PP, we assume a certain claim administration as a norm as a company. And that came in fashion increase is something that we are continuing to assume and we may even for the coming year. So not only are we not taking a benefit. We are also assuming inflation in the PP claims, which is what we've been doing over the years.

Got it. So when is the hike in your discussion with the industry body, which will happen, and there were some media articles of change of formula towards new pricing?

Yes. So let us wait for that to come Sir because this is, of course, something that the Central Ministry are not [indiscernible] still have to give. So we have to wait for something to come -- so as of now, we have no clarification about the increase or any formula sales.

And second, my question is more on OpEx. Though optically, it looks to be much lower given the fact that [indiscernible] have been there. So fourth quarter last year, so we had a lower OpEx on NWP. -- do we -- how should we think about it in absolute amount that is actually lower. So is it sustainable? Or do we think that the [indiscernible] jump up or the fourth quarter phenomenon? Any color on that would be...

I missed Neeraj, which element are you referring to?

On OpEx, I wanted to know in terms of subsidies given the fact that it has gone down both absolutely there in terms of percent. Personally, I understand it's my understanding tht it would be lower given the high reserve so might have been optically looking lower, but wanted your thoughts on the sustainable amount in terms of absolute numbers?

No. So [indiscernible], as we keep saying, you should again look at more the combined ratios of the overall operations because different segments again, will exhibit breakdowns of that combined differently. I mean there are portfolios which could be higher on LR but relatively, let's say, lower cost of acquisition and conversely, the other way around as well. So obviously, we'll have to wait and see how the portfolio buildup takes place in FY '24 -- but as we have said, clearly, the objective is we would want to kind of stay on that guided path of combined coming down from 104% to 102%. And secondly, what we are seeing is obviously encouraging signs is some of the investments that we spoke about, particularly on the retail health agency franchise. Those are starting to play out. As you would have seen in, let's say, most of the recent months, our growth percentages have been even faster than even the stand-alone health companies. So clearly, those signs are getting exhibited. But having said that, we continue to stay invested in building that franchise, which will again mean expensing of cost upfront and the benefit of revenues coming through over a period of time. So a better trajectory just to look at more the combined ratios rather than looking at just the, let's say, expense of management number on a stand-alone basis.

Got it. So can we expect this volatility should to happen in the coming quarters as we because it has been much higher compared to what the shop is building in. But obviously, as you mentioned that this is more to look at on the annual basis. Just wanted to understand how one should I look at it? Are you 22% from the ISA?

So in general, if you look at -- I mean, I'm just seeing a slightly broader range. I think if you look at the loss ratios, they have kind of stayed in the range of between, let's say, 70% to 75% in that kind of threshold. So again, as I said, that's again a function of depending on what segments of business is one able to see as an area of opportunity. And hence, I mean very difficult to kind of tell you as to what could be the loss ratio number that we would be kind of working with. What we are largely targeting is the combined ratio threshold to come down to 10 over the next 2 years period.

Next question is from the line of Nischint from Kotak Mahindra.

I'm looking at the advanced premium figures. And for last couple of quarters, this has actually not been going up. So it's come down a little bit over the last 2 quarters. This is despite the fact that you have actually been growing faster than not. So I'm just curious as to how should we look at the spread...

So if you look at -- so Nischint, if you look at, in general, I think the relative growth for us on the overall motor has been kind of slightly lower than the market as what you have seen from public data. And relatively, if you see the growth on third party, a large quarter third-party growth for us, again, which is a thought-through approach of increasing the commercial vehicles portfolio. And there, obviously, the commerciality portfolio is not a long-term third-party book. It's more on private car and 2-wheelers is where the portfolio typically has a longer-term tenure, commercial vehicle portfolio in the current context operates in a 1-year term. And that's primarily the reason why you possibly do not see, in that sense, a significant change in the overall advanced premium numbers. As and when, obviously, we see the market coming back as what we have seen some early signs on next say, on the private card side, we should definitely possibly get to see the advanced premium numbers may be increasing.

Thank you -- sorry to interrupt your question. Ladies and gentlemen, we'll take that as the last question. I will now hand the conference over to Mr. Bhargav Dasgupta for closing comments.

Thank you. Thank you, everyone, for joining the call so late evening and look forward to engaging with you over the next few days. Thank you again.

Thank you very much. On behalf of ICICI Lombard General Insurance Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.