Niva Bupa Health Insurance Company Limited (NIVABUPA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Niva Bupa Health Insurance Company Limited Q2 FY '26 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman Deb from ICICI Securities Limited. Thank you, and over to you, sir.

Good evening, ladies and gentlemen. It's a privilege to host the management team of Niva Bupa Health Insurance Company Limited for their Q2 FY '26 results conference call. From the management, we have Mr. Krishnan Ramachandran, MD and CEO; Mr. Vishwanath Mahendra, ED and CFO; Mr. Ankur Kharbanda, ED and Chief Business Officer; Mr. Bhabatosh Mishra, Chief Operating Officer; Mr. Dhiresh Rustogi, Chief Technology Officer; and Mr. Vikas Jain, Chief Investment Officer. Without further ado, I will now hand over the call to Mr. Krishnan Ramachandran, MD and CEO. Over to you, sir.

Thank you, Ansuman, and thank you to every one of you listening in on this call for your time late evening today. H1 for us was a productive and eventful quarter. Given the accounting changes that happened in the second half of last financial year, to make sure that we are able to assess or review our results on a like-to-like basis, for most part, I will focus on our IFRS financials or without 1/N numbers specifically when it comes to things like growth rate. So in summary, for H1, we achieved an overall growth rate of 23% and a retail growth rate of 28% without 1/N. Our IFRS PAT for H1 improved to INR 132 crores, up from INR 60 crores similar period last year. And our combined insurance service ratio for H1 improved by more than 100 basis points to 103.1% down from 104.2% last year. And our retail market share, which is basis reported numbers and to that extent, have noise because of the 1/N accounting change, held steady at 9.9%. We continue to trend very well on a range of customer metrics. Our settlement rate -- our settlement ratio for Q2 on claims was 95.2%. And our weighted average NPS, to remind all of you, we measure this across 35 critical customer touch points, improved to 57 for H1. We continue to sell the right sum insured and products to our customers as evidenced by our industry-leading ATS at more than INR 31,000, and also close to 83% of our policies have a sum insured or -- have of 1 million or above. In Q2, we also launched what we believe is the next-generation retail health insurance product, ReAssure 3.0. It has found very good reception and is doing very well in the marketplace as we speak. We also made good progress on our health ecosystem or as Bupa calls it [ pay wider ] strategy with in H1 more than 13 million downloads. We have 5.8 monthly active users on the customer app and more than 51,000 health checkups every month and about 6,700 doctor consults every month using our customer app. Our product and distribution mix has been largely stable. We added one more city in our preferred provider network, which is our strategy to manage a great customer experience and claims costs at the same time. And about 17% of our claims in the cities where our PPN is present go through these PPN hospitals. We've also seen incidence rates and average claim size range bound and within what we call a stable trend. And also consequently, our retail health claims ratio H1 to H1 this year to last year is more or less flat. So broadly, that's been a summary of our performance. And I do -- before I hand over to Vishwanath, want to touch upon a topic that I understand has fired up our collective imagination, if you will, which is this whole topic of GST. And I really want all of us to step back and look at this change for what it really is, in my opinion. The first part is GST has come down from 18% to 0%. And I'll quote what the chairman, IRDA has stated, which is that food is at 0% GST. So at the highest level of policymaker -- policymaking, health insurance has been recognized as being equivalent to food in terms of how essential it is in the arsenal of financial services products that a customer should have. So I think this is an incredible win for the industry, having personally been involved year after year in lobbying for GST coming down. So I think 0% GST is an incredible step from the highest level of policymakers in our country. Second is we should look at it beyond maybe this quarter or next quarter for what it really is, which is that it is a drop in price. And one of the -- and survey after survey on health insurance has suggested that affordability is a barrier to purchase of health insurance, which is to say that this is a category where price elasticity demand does see a price elasticity curve as in many other categories. So to that extent, this should be a significant fillip to demand for the category. And indeed, as many of my friends in the industry have already commented, we, like many others, are seeing demand go up. As a case in point, October, in spite of being a Diwali month, which is historically a low season for health insurance, we have seen very, very good uptick in demand, but I'm sure my colleague Ankur can talk more about that. Now on the topic of ITC, what I can say is that today is when we processed commissions, we have passed on commissions. But I think using the term passed on commissions is not reflective of our philosophy of what this change means for every stakeholder. We truly feel or we truly believe it's a win for customers through lower price. We believe it's a win -- we believe and we will make this a win for our distribution. And we're confident that whatever income loss there is will be more than made up through increased volumes. And also, one of the other problem statements for the category is there is significant underinsurance. So the 18% fall in price, we should think about it in terms of what can we do to give customers more adequate insurance, both at the time of acquiring new customers as well as renewal. And all of these measures, we truly believe will make it a win for our distribution as well in spite of ITC being passed on. And in closing, before I hand over to Vishwanath, I mentioned this last time as well, there's been a lot of change in the last 12, 18 months and change necessarily has meant that all of our minds have been focused on the change. But I think now is the time for us to also step back and look at health insurance for what it truly is, which, in our opinion, it is one of the few secular multi-decadal growth opportunities in our country. As I stated last time, we are very, very excited about this opportunity and we are putting our investments where our mouth is, so to speak, right? So in distribution, for example, this year, we have increased our headcount by more than 1,000 feet on street. We have set up an AI lab to explore many of the exciting capabilities that Gen AI has to offer. And indeed, one of our customer projects got rated in the top 10 in the global ecosystem of Bupa. So this is something that we are very keenly invested in, focused on in terms of what it can do for our business, both from a sales, customer experience as well as cost standpoint. And we've also gone live along with the launch of ReAssure 3.0 with a modern microservices-based core system, which we believe will be transformational to us as we move along in terms of our ability to launch products and serve customers. So significant investments we continue in making as a company to pursue the opportunity of health insurance. Growth with profit has been our mantra and that's the journey that we've been progressing on and this year is no different. Over to you, Vishwanath.

Thank you, sir. Good evening, everyone. So following some of the financial highlights for H1 FY '26. GWP for H1 is INR 3,983 crores, registering a growth rate of 23% over last financial year on like-to-like basis, which is without 1/N impact. The profit after tax under IFRS more than doubled from INR 60 crores in last financial year to INR 132 crores this financial year H1. Combined ratio for H1 FY '26 under IFRS has improved by 105 basis points to 103.1%. While there is increase in overall loss ratio by 1.2%, this has been more than offset by reduction in expense ratio by 2.3%, resulting in improvement of combined ratio. The retail loss ratio, which was slightly elevated in last quarter, has also moderated to last financial year level of H1. IFRS basis retail loss ratio for first half in current financial year is 68.1%, which is in line with last financial year H1 loss ratio of 68%. There is year-on-year improvement in expense of management ratio to the tune of 3.7% with H1 AUM being 36.3% as against last year of 40% same period. This is mainly on account of following factors. One is decrease in gross commission as a percentage of GWP due to change in mix, et cetera. But most importantly, because of operating leverage with expenses have gone up by low single digit, GWP has gone up by 23%. For first half, the allowable AUM ratio comes to 35.8%. So actually it is above allowed by 50 basis points. We are confident of bringing down AUM ratio within regulatory limit in the current financial year as per glide path submitted to the IRDAI. Annualized investment yield for H1 FY '26 is 7.3% with AUM of INR 8,482 crores. Solvency ratio is at a healthy level of 2.85x as on 30th September 2025. So this was an overview of H1 FY '26. Happy to take questions.

[Operator Instructions] Our first question comes from the line of Supratim Datta from Jefferies.

I have 3 questions. The first is on the October demand. And like you rightly pointed out that the demand has been fairly strong. Wanted to understand if you could break it down what is driving this growth? Is it new products, new demand coming through? Or is it existing customers taking higher sum assured? Or is it greater rider attachment that is really driving growth here? So if you could break it down into what has been the key factor behind the stronger growth we are seeing in October, that would be very helpful. Secondly, on your comments around GST and the growth offsetting any loss of commissions for distributors, while I do understand that, would you be taking a one-size-fits-all strategy here or it would be more nuanced and depending on the type of distributor would this strategy play out? That's one part of that question. The other is how much of this impact would you be able to offset through a price hike? And given the GST has just played -- have taken place, would you be able to take a price hike in the next 6 to 8 months? That's the other question or we would like to understand. And lastly, on your retail health loss ratio, it has been stable, that's great. But insurers who have reported till now have shown an improvement actually versus last year to this year. And even if I look at on a IFRS basis, quarter -- second quarter versus second quarter last year, it's broadly flat. So wanted to understand why is there a difference? Or should we look at you versus peers differently? So those are my 3 questions.

Thank you very much. Ankur Kharbanda. So a few -- first, let me take the first 2 questions, which is on October performance in GST and I will ask my colleagues to talk about the rest 2 on the pricing and the retail. First, on the October performance, very happy that one thing which we were pushing for on the GST side, lowering on the GST side from last few years is now a reality. One is it has become a reality, and it has -- for the month of October, which was a Diwali month, has given us substantial results. The numbers which are coming on the retail side are more than 50% growth for the month of October, which clearly talks about that this is really playing out well. It has -- what it has done is if I just give you numbers on the -- one of the platforms which we look at is how are we doing on the queries coming on the Google side. That has gone up drastically. The conversion has also gone up drastically. So both in terms of queries and the conversions, both are -- both have gone up for us and I'm assuming that's the case for the industry as well. The second thing which it has done is the per person buying in terms of the sum insured and the adequacy of the sum insured has also gone up. The proof for that is the ticket size. And for us, the ticket size for the month of October versus H1 is on the retail new business is plus 15%. That's the big difference which it has made. That's on the new business. But even on the renewal side, our ticket size has gone up. So one of the things which people are realizing is 18% lower GST means that there's a cushion of 18% for us to sell. We have gone up with our analytics model straight away from 1st October in terms of understanding which customer payability, et cetera, et cetera. And we have seen that there is a massive growth there as well on the renewal upsell, both in terms of sum insured and in terms of adding a rider. Both of them have really, really worked well for us. And let me now get on to your second question on GST. As we know that GST exempt helps the citizen of India, everyone to get closer to our universal health coverage as well. And to ensure that we give full benefit to the customer, we have passed on the GST impact to the distributors. And our distributors have also understood this that overall income will go up. And October has shown them as well that the overall income has gone up because the number of people buying insurance is going up and the number of people also are taking a better cover there. So my point and the answer to it is we have done it for all and distributors have also understood this. And just to relate a mutual fund industry in 2016, '17 when this came in, in 7 years, mutual fund industry is 3x of what they were earlier. Same thing happened, a cut, et cetera, happened. But the real thing was the customers were getting a better value. And this is also happening in our industry. When the customers are getting a better value, distributors understand that overall sales will go up and which would mean that overall their income will go up as well. I would ask --

On the point on price revision, Supratim, given what we have seen and what Ankur said around volumes, we do not intend to take in a revision at least this quarter. We'll monitor how things are and as needed to manage overall portfolio economics, we'll review it at the end of the quarter only, Ansuman. And on your question on loss ratio, I'll defer to Vishwanath to address that.

Yes, Supratim, so on loss ratio, for H1, we have seen same as last year and last year was also kind of stable loss ratio. It was not too elevated. So it is at same level. Q1, it was higher 2.5% to 3%. This year, Q2 is lower. Similar range. Trend perspective, yes, we're also seeing loss ratio on better in recent months. But for whole H1, it is at the same level.

Our next question comes from the line of Varun Palacharla from Kotak Securities.

My first question is again on the claims ratio part. So last quarter, if I remember correctly, we had provided a higher amount for claims which are outstanding. And as they run down, there should be some benefit coming in this quarter, right? If we include that benefit, how much is the claims ratio increased by in 2Q? That's one thing I wanted to ask. And second is with regard to the auto adjudication system. Last time, we had some disruption with regard to IT supplier. So are we doing any changes on that front? Or are we still continuing with the same IT service provider?

So in terms of IT service provider, we have taken assurance for Infosec risk, et cetera, from third party. And after that only, we have started with that. So we are very comfortable. And that was the reason it was -- outstanding was on a higher side. So if you see whole H1, it is at the same level. As I was mentioning, 2%, 2.5%, it was higher last quarter. The same is lower this quarter. Now quantifying exactly how much is coming from last quarter versus this quarter, that's not something which I have handy. But broadly, for the H1, we are very comfortable. And the trend perspective also is comfortable downward trend.

But the trend would be upward, right, then if we include that impact, likely like 120 basis points, whatever up we are seeing in the first half basis, largely a similar impact would be in 2Q. So it's actually an uptick in claims. Is it not?

Okay. I'll just explain. So in terms of this trajectory loss ratio has, there Q1 is lower, Q2 is higher than Q3 again lower and Q4 lower. That's the kind of curve. It is following the same curve. It's not that Q2 is lower than Q1. It is more like the trend is lower than last year as we speak in recent months.

Okay. And with regard to the long-term ROE guidance, so now that you've had more of a handle, so are you able to change your guidance? Or would you want to just reiterate the long-term guidance?

We stick to long-term guidance, which is, let's say, FY '29 mid- to high teens ROE. We stick to that.

Our next question comes from the line of Prayesh Jain from Motilal Oswal.

The first question is on the GST front, where you mentioned that the commissions you have kind of passed on to the distributors. So you are saying that the ITC impact would not be there at all for Niva Bupa. Is that the fair statement? Or you passed on partially and there is some still impact, which would come on the books for us? And if so, what would be the quantum on that?

Yes. Yes, we have passed on entirely to the distributor. And as I explained, the distributor has also understood this that this is ultimately benefiting him because his income is going up. His income is not going down because the volume is going up, ticket size is also going up.

Right, right. And second is, again, Vishwanath, again, on the loss ratio front, if you adjust for that first quarter kind of one-off, this seems to be much elevated than what we would have expected, right? So is that the benefit -- is there some pockets where the loss ratio have come in higher in some cohorts? Or is the group business working against or -- I'm talking about the overall loss ratio for the company level. That's what I'm asking. So do you think that the group business or any other place where you've seen some higher loss ratios?

Sure, Prayesh. So in terms of retail, as we explained, it is at the same level as last year. Group, of course, is higher because of mix change. We talked about one large group we have written, which has very, very low expenses -- expense ratio. So in terms of overall, there is a 1.2% increase and largely, it is coming from group and group is because of mix change, where group has gone up by 5 percentage points. So in that sense, you're right, this 1.2% is driven by group. And that is again more than offset by a reduction in expense ratio. That's why combined ratio is lower by more than 100 basis points.

Prayesh, while analyzing loss ratio, it's best to split it between retail and group because they have very different combined ratio profiles because of cost [indiscernible]. Retail, as Vishwanath said, is flat compared to H1 last year. And group has gone up because of certain large corporates, but obviously, there's been a relief on the expense side because of which the combined ratio has come down overall.

And it is fair to assume that the second half there will be a significant improvement in loss ratio as a group business because under IFRS, there should not be any change. But on the reported accounts, would that change?

Yes. Under reported in Q4, the loss ratio will be on lower side because that business was written in the Q4 last financial year. But that is, yes, only reported. IFRS, they will not be.

IFRS will be steady. And if you go to the -- we actually have a bridge this time in the investor presentation because that was also something that many of you have. So this time, we have put out a bridge explaining the difference in loss ratio. And clearly, as Vishwanath mentioned, by Q4, you should see it swing on the positive -- in a positive way.

Our next question comes from the line of Shobhit Sharma from HDFC Securities Limited.

Sir, my first question is on your group health business. So what is the strategy on that business now? Because we have seen we had a good growth in last year, first quarter was also good. But in the second quarter, we have seen some slowdown. And secondly, coming to the loss ratio, on the first quarterly call, you mentioned that we have provided for some 1.5% extra provisioning. So have we taken some reserve releases out of it or still we are holding on that? Now coming on to the expenses, there is some multifold increase in the business support-related expenses, advertisement and publicity-related expenses. How to read about it? Have we increased our spending on that? And you mentioned about the growth in the October month. So would you like to give some emphasis on which channels are driving this growth? And what kind of conversion rates and the renewal increase we are going to see because of the GST-related impact? And one important thing which I can note from your slide is the share of the direct business has come down by 2%, 2.5% on a Y-o-Y basis. So have we -- are we pushing more on to the more scalable, faster scalable channels? Or what's our strategy on that?

Let me take the first one which was on the group side. As you know, we have been selective. We have been looking at this channel as a -- wherever we find opportunity whereby the combined, we just don't -- on the group business, we don't look at the LR. We look at the combined ratio. Wherever we feel that the combined is within our side, we do that. And that's where you have seen last quarter, first -- last year, last quarter, we have taken that basis opportunity there. And this quarter, we have not done that much. So we have been very selective there. On your question on why is the direct business a little lower this one, this is largely an impact of 1/N. If you look at apple-to-apple, there's no difference, largely no difference between us because our strategy remains the same on this side of business. We want to grow our direct -- our digital business in a better way and we are really emphasizing on how do we grow that. And just to give you a good sense, our growth of business from our direct digital for the first half has been very good, almost 1.5x of our average growth of the organization. That's how we have been emphasizing on that. And one more question you had on...

On October.

On October, so channel-by-channel split, I would not get into the channel-by-channel split, but what I will tell you is this impact is in all channels, largely in agency and our digital business and digital partnerships. These are the 3 channels which has seen the maximum, maximum impact of this. Lesser impact in banks because banks we do a large portion of our business is as -- considered as booked under the group RUG rather than a retail, retail platform there. So these are some of the pointers which I wanted to talk about.

And Shobhit, on other 2 points, loss ratio is, we have largely released because now it's -- auto adjudication is there. So -- that's on outstanding. And other question on advertisement, it really depends. It's never smooth across sequential quarter. Last quarter, we had a new product launch. So we spend more on advertisement and publicity.

Okay. Just 2 follow-ups. One to the -- Ankur, if you can give us some color around the renewal rates. Have you seen renewal rates increasing because one of your peers have highlighted that they observed some positive traction on that side. And Vishwa, one thing on the loss ratio. You mentioned that we have seen improving trend going the recent months. So is it particularly because of the lower incidence rate which you have been observing? Or is it because of the lower average claim sizes? Yes, that's it.

On the -- let me first take on the renewal rates. Renewal rates have gone up for us. Specifically, last year to this year, it has gone up by 100 basis points more than that. Just for the month of October, this I'm talking about H1, but when I look at just for the month of October, it has definitely gone up much higher than that. Second point is it's not just about the renewal rate. It is also the ticket size, which is the GWP which is coming from a renewal side. That has further gone up. So both impacts put together, we definitely have a big upside coming from -- on the renewals largely because of the cut in GST.

Yes. On loss ratio, actually, it is coming from a mix of both. Average claim size, medical inflation is also benign. And incidence rate also we have seen on lower side.

Our next question comes from the line of Sanketh Godha from Avendus Spark.

Sorry, my question is again on group health. So group health, if you see without 1/N, for the half, it is 13% and for the quarter, it is 6% year-on-year. So naturally, it is little lower than typically what you used to report in the past. The slowdown is predominantly visible in corporate plans, that is indemnity plans, or it's more because of the benefit-based products, if you can clarify? And related to that, out of the total group, which you did around INR 1,173 crores in 1H FY '26, how much will be affinity-based products and whether the contribution has gone up or declined compared to last year?

I'll talk about the first part. This is largely on the corporate group, whereby, as we said that our strategy has always been be selective, wherever you are able to get a good client basis, the COR calculation, not the [ IRR ], but the overall calculation, then only we are picking that. That's the point there. But let me ask Mr. Krishnan to talk about the second question.

Sanketh, on your -- in terms of overall group, roughly in the past also we have mentioned of the 30-odd percent that's overall group, roughly, it's 1/3, 2/3 in terms of the split. And that broadly maybe has shifted -- broadly it has been the same, although the growth has slowed down, but given some of the large corporate business that we wrote, that's broadly stayed the same from an earning standpoint, yes.

Krishnan, the reason I was asking is that if the mix remains broadly the same, then even your highly profitable benefit-based plans have grown in low teens. So that's the reason I was asking that question.

Yes. So I mean, we grew our business in those 2 segments quite rapidly last year as well as last. So the growth is off a fairly close to 40%, 50% growth last year and prior year, you would have seen those numbers. It's a double digit growth on top of a 40%, 50% growth rate last year, just to put that in context.

Understood. Maybe -- sorry to harp on that point. But just wondering whether the -- we know that multiline companies are paying on yen basis on commission, but we moved to 1/N strategy. So...

That has not impacted us. That's not had any impact. I can reconfirm that.

Okay. Perfect. Perfect. And can you quantify your group health loss ratio in IFRS basis for the current half and the previous half?

That's not something we publish, but...

I think you gave it last time, Vishwanath, that 61 percentage was 1Q FY '26 group health loss ratio and 68% was retail and blended, it was 66.8%. So on similar lines, if you can give the number, it will be useful.

You are saying overall group, not B2B and B2C...

No, no, no, overall group. Yes, yes, actually overall group, I'm asking, sorry.

Okay. Okay. So this H1, we have overall 65.9%, where 68.1% is retail and 60.9%, so roughly 68% retail, 61% group.

And in the last year, same 68% -- what's the number?

56. I'm just rounding. Okay.

Okay. So 56% gone to 61%, 68% is flat. That's the way I need to understand it?

Yes, yes, yes. That's -- got it.

And just to remind you, all our ratios include claims settlement cost.

Yes, yes, I understand that point. I understand that point. Yes. And just a fundamental question, see, IRDA probably allowed or in one of the circulars said that -- or master circular said that your pricing based on claim experience or discount given to the customer based on the claim experience can be implemented. One of your peers have implemented that to 30% of the portfolio. Just wanted to understand where we stand and whether the incremental pricing, what we do for the portfolio, whenever we'll do it, will we follow this approach consistently?

So Sanketh, as we have mentioned in the past as well, the regulations permit favorable claims experience discount. In our case, favorable claims experience and experience basis, for example, if somebody does on an average 10,000 steps daily and records it on our customer app, they become eligible for as high as 30% discount at the time of renewal. So we continue to implement both of these when we reprice our products or when products come up for renewals as the case may be.

Okay. But we don't have cohort-based pricing. Is it fair to understand? Basically, if it's an same age bracket, one has a little higher loss ratio and some other guy has a little lower loss ratio. So the price hike, despite suppose morbidities being same, will he experience a differential pricing or we don't have a cohort-based pricing? It's based on what you said, the softer points like steps covered and all those things?

And also favorable claims experience discount, right? I mentioned both. We have favorable claims experience discount as well as other health parameters. So it's not just the hospitalization parameter, but other health parameters to broad-base the kind of discounts we give our customers. Essentially, for people who have been healthy, the idea is to encourage them through premium discounts.

And will you be okay to quantify how much percent of the portfolio follows this approach of pricing?

We can probably take that offline, Sanketh.

Okay. Perfect. Perfect. And the last one, the retail health growth has been very solid for us compared to the industry being little muted even on yen basis. So just wanted to understand any color you want to give on [ porting ] policies and what percentage it contributes to total premium or total GWP in first half?

So broadly, the porting percentage has been stable, Sanketh, if anything, it's probably come down. I think in the past, we have guided between 20% and 25% is where our porting has been and it's actually -- it's been range-bound in that level only. And the growth has actually -- let me sort of address another aspect, right? So we said broadly our retail health has grown 28% for H1 in GWP terms. And I would say 6%, 7% of that has come from value growth and the balance has actually come from volume growth. So close to 20% of the growth has been lives growth and the balance has come from ticket size improvement.

Our next question comes from the line of Uday Pai with Investec.