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

Ladies and gentlemen, good day, and welcome to Q1 FY '27 Results of Niva Bupa Health Insurance Company Limited. Please note that any statements and comments made in today's call that may look like forward-looking statements are based on the information presently available to the management and do not constitute any indications of any future performance as future involves risks and uncertainties, which could cause results to differ materially from the current view being expressed. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman. Thank you, and over to you, sir.

Thanks, operator. Good evening, ladies and gentlemen. We are extremely delighted to host the Q1 FY '27 results conference call of Niva Bupa Health Insurance Company Limited. From the management, we have Mr. Krishnan Ramachandran, Managing Director and CEO; Mr. Ankur Kharbanda, Executive Director and Deputy CEO; Mr. Vishwanath Mahendra, Executive Director and CFO; Mr. Bhabatosh Mishra, Chief Operating Officer; and Mr. Vikas Jain, Chief Investment Officer. I now hand over the call to Mr. Krishnan, MD and CEO.

Thank you very much, Ansuman, and thank you to all of you who made time for our Q1 call this evening. I will follow the same format that I've done for a few quarters now, which is to give you a brief update on some of the important industry initiatives and a brief summary -- my summary of highlights of performance from a Niva Bupa standpoint. On the industry front, the awareness campaign continues a pace. I continue to update on this because I think this is critical to improving lives penetration in retail health insurance. And as you all know, the entire industry is collectively going to -- is collectively committing about INR 120 crores a year towards improving insurance awareness and about 50% of this budget is towards health. So we've had a very successful series of campaigns, very good feedback from a customer standpoint. And specifically, the audience metrics around awareness around health insurance need, the campaign itself has landed quite well. And in Q2 as well, we will see a repeat of a campaign as far as this is concerned. We continue to experience GST tailwinds. Retail health at the industry level grew 31.6%. And the overall growth as far as health is concerned, on a reported basis was 22.4%. Our own growth continues to comfortably outpace the market growth, but I'll come to that in a little bit. I think the other important update is that in Q1, we have fully transitioned to Ind AS. In the past, as you all are aware, we used to update our financial results on an IFRS 17 basis. Again, the regulator is notified, and we are one of the companies that have transitioned to the Ind AS accounting standard. We will continue to report parallel accounts as required by the authority from a public disclosure standpoint. And I think the last update I have from the industry standpoint is the work that's been done as part of the Health Insurance Committee, led by Dr. Prakash. Again, to update you all, this is -- this group is working on standardization, specifically around care pathways and physician statements. So in addition to the work that I updated you on last quarter around infections, robotic surgeries and modern treatments, there's also work and we expect to roll out in collaboration with the Association of the Ocular Group, our position statements on cancer, and we're also working at a fairly advanced stage as far as position statements on oncology is concerned. The common empanelment initiative continues to move a pace. And today, we have MOUs with more than 3,000 hospitals. So that's a very high-level overview of some of the important initiatives taking place at the industry level. As far as Niva Bupa's performance is concerned, on a like-to-like basis, overall, we grew at 23% on a reported basis at 31.7%. The same numbers for retail health are 35.5% and 47.1%. And our retail market share, which is only available on a reported basis, has moved up to 11.1% for Q1. Just a brief comment that we have seen a challenging pricing environment on the group side. So our group growth has actually been flat. I mean we have not had any growth on the group side of our business for Q1. And the pricing environment that we discussed last year as well, specifically towards Q3, Q4, we continue to face a challenging pricing environment on the B2B side. Our profit after tax improved from -- improved to INR 137.8 crores in Q1. Our combined Insurance service ratio improved to 100.2%, which is a significant improvement over the 103.2% that we had for Q1 last year. On people, for the first time, we have broken into the Top 50 Great Places to Work in the country. We were ranked 41st. We've also seen good traction and improvement on our NPS scores, 62 on a blended basis across, just to remind all of you, more than 25 pivotal customer touch points. So this number is up from 57 last year. And on a monthly basis, this represents the voice of more than 20,000 customers who give us their feedback on the various experiences they have of the company, whether that's issuing a policy, renewing a policy, experiencing a cashless process, experiencing a discharge process, what have you. Our claims settlement rate has also improved. In Q1, our settlement rate was 95.6%. We continue to execute quite strongly on our health partner strategy. We have 570,000-odd monthly active users. And in Q1, we had more than 62,000 people per month consummating health checkups, diagnostic services on our -- through our app and more than 6,600 doctor consults on a monthly basis on our app. We also continue to execute on our preferred provider network strategy, which is now present in 49 cities, encompassing 1,000 -- more than 1,000 hospitals. And in these cities to these hospitals, 22% of our claims flows in. Again, just to remind all of you, this is a strategic measure that we've been driving for a few years now to drive -- to guide our customers to the right care setup, which has the right quality and also the right cost. So these would be largely secondary care, secondary care plus hospitals. And I'd say the last comment from my side would be to say that we continue to make progress on intelligent automation and intelligence now incorporates Gen AI. And so we have gone well beyond the pilots that we updated you a couple of quarters ago. And we do have a number of Gen AI initiatives that are in production, both built -- these applications have been built in-house through our AI lab or we have deployed third-party products, as I mentioned in the past. So that's a very brief highlight about performance of Q1, and I'm going to hand over to Vishwanath, our CFO, to talk to you about financial performance.

Thank you, sir. We start with the Board has approved the formation of debt raising committee, and it has also passed enabling resolution to raise up to INR 500 crores in one or more tranches. As you know, we already have NCD of INR 250 crores, which was raised 5 years back. And the call option for that is during this financial year. And we're also looking at our growth plans for the next 2 years. And basis that, we will take decision to raise debt. Also, just to update you, our issuer rating was AAA by ICRA. They rated us some time back. In terms of financial highlights, the post-tax ROE for last 4 rolling quarters is 11.8%. Like I mentioned, combined insurance service ratio for last quarter has improved by 300 basis points to 100.2%. While there is a slight increase in expense ratio by 90 basis points, primarily due to mix change, that is more focus on retail health. This has been more than offset by reduction in loss ratio by 3.8 percentage points, resulting in improvement in CISR. Retail loss ratio has also improved by 90 basis points to 67.5% in Q1. The expense of management ratio has improved to 35.2% from 38% last quarter -- last year quarter one. The allowable AUM, including additional allowances comes to 36.2%. So we are well within regulatory threshold and there's a headroom of 100 basis points. Annualized investment yield for Q1 is 7.2%, not accounting for MTN gain on ETF, et cetera, with AUM of INR 9,963 crores on a book value basis and over INR 10,000 crores on a mark-to-market basis. Solvency ratio is at a healthy level of 2.25 as on 31st March 2026 against regulatory minimum of 1.50. So this was financial overview of quarter 1 FY '27. Happy to take any questions.

[Operator Instructions] The first question comes from the line of Shreya Shivani from Nomura Holdings.

I have 2 questions. First is on the loss ratio trajectory of this quarter. It's been quite strong on Y-o-Y basis, which is more comparable. What has been the trend that you've seen in the month of July? The movement is so fast that what is your outlook on the year to go by? That's my first question. My second question is on the expense ratio bit. I understand that because of the GST portion, your expense ratios were supposed to be slightly elevated in 1Q. However, a big chunk of it is coming from the net reinsurance expense line item. So if you can help us understand what's happening over there because the other operating expenses have sort of been lower -- that has also picked up, the net insurance -- reinsurance expense pickup is the sharpest. So, if you can explain that.

Sure, Shreya. So in terms of loss ratio, the July trend is in line with our expectation. Of course, the infection season will start in some time, and we'll be able to update you in next quarterly call how the infection is behaving. But otherwise, we have not seen any unusual trend so far in the month of July. Q1 loss ratio improvement Y-o-Y basis is driven by 2 factors. One, of course, retail, the new business, as we already mentioned last time. So that's one positive trend we are experiencing. Second, under group, since we have taken decision not to write any large group account where it is not as per our underwriting philosophy and focus more on whether it's group or SMEs. So that is the reason for group loss ratio improvement. In terms of expense ratio, the RI has -- basically, it is -- there is nothing structurally different this quarter versus next quarter. RI has a lot of things mixed up. For example, let's say, in some cases, the profit commission which is mainly on obligatory or voluntary quota share is booked in one quarter and sometime it is in next quarter. But otherwise, structurally, there is nothing which is unusual here. So as the year progress, you will find it is more or less converging with historical trend.

And from -- just a follow-up on the expense ratio portion. So from third quarter onwards, we should see these ratios stabilizing, right, as the entire GST portion goes into base. That understanding is correct, right?

Yes. Actually, in case of GST, as far as commission is concerned, which is the main line item that we have already passed on to distributors, any loss on ITC, input tax credit. For expenses, you're right, it is coming from -- it will normalize from Q3. After Q3, the results will be comparable Y-o-Y basis. But really, there is no sharp increase. In fact, if you see expense of management, it has improved from 38% to 39.2%.

[Operator Instructions] The next question comes from the line of Harsh Shah from HSBC Global Asset Management.

Just a couple of questions from my end is, one, I heard your opening commentary on growth. And again, I understand that quarter-on-quarter is not the right way to look at it. But from a trend perspective, is there any change that you have done to your internal strategy or philosophy which can lead to a sustained higher than your past trend of growth? And when the past trend, I'm comparing -- I'm taking the difference between what grows versus the industry growth. So is there any gap that you're trying to build versus the industry growth that we should be aware about?

I think structurally or strategically, and Ankur can add to what I'm saying. In terms of the levers that we have been using to drive growth, they continue to be the diversified multichannel mix. And last time I mentioned doubling down quite seriously on what we refer to as the Bharat initiative, which is to penetrate Tier 2, Tier 3 towns and beyond. And we continue to make the same run rate of investments in driving growth as we have now for 6 years. So this year as well, in terms of distribution expansion, those -- we continue to have the same level of investment, although incrementally, it's much smaller given the size of the company today. So that's broadly what we are driving. And we do expect to sustain 8 to 10 percentage points faster than market growth on retail health specifically. And some of the other engines around product, product innovation, products for segments, all of those continue a pace. Anything you want to add?

Just to add on a few more. We have continuously been adding our adviser network across this year also, we are continuously adding in the similar pace of what we did last year. We have added new locations as well in our -- as Mr. Krishnan also spoke about, the smaller markets is where we are expanding and locations also we are expanding there. One is new products. We've launched in the month of August last year, we launched a product called ReAssure 3.0. That has got a very good success in the market because that is very uniquely placed there. And last is, while we do on all of this on expansion, we are also working on AI-led capabilities to increase productivity of our advisers and of our employees. These are the few things which we are doing strategically to improve our growth and consistently grow better than the market.

And from a retail and group health mix, anything to read again from an annual perspective? Is there a range where the idea is to remain between 20% to 30%? Or do you think that retail can inch up further as you are planning to grow almost 10% to 15% higher than the industry?

Our internal one would be similar in terms of what we said earlier as well. Large part of it, which is around 70% would be retail and around 30% would be group.

Yes. And just to reiterate, we are not at all averse to group business. I think the only point is the threshold around economics, combined ratio, we have not been able to stay within that threshold for the last year as well as this quarter. But if we see the pricing environment improve, where there are opportunities, we'll certainly capitalize on that. And again, to remind all of you, within that, we are certainly doubling down on the SME opportunity, and that is actually growing 50% plus. But of course, it's not been able to fully compensate for some of the renewals that we've lost on the B2B side, largely on account of pricing.

Just on group perspective on your renewal business from pricing perspective, what is getting you comply harder I also may be applicable to other -- is it the expense ratio part of it or the claims ratio part of it?

I think the market is operating at claims minus in terms of pricing, annualized claims forecasted minus. Obviously, that makes no economic sense.

And last question from me is once everything normalizes as earlier participant also alluded, how does your look like from Q3 onwards on a normalized basis?

Sorry, you said -- normalized? I mean there's no normalization required on that front?

Yes because it's all amortized. There is earning, which is on 165, there is amortization and debt.

And on that, we stick to our FY '29 guidance, which is what we have been indicating.

The next question comes from the line of Supratim Datta from Jefferies Investment.

My first question is on the growth side of things. If you could give us some color within the retail health piece, what would be your fresh business and what would be the renewal business and how both of them are growing, that would be helpful. And wanted to understand that, obviously, there has been GST tailwinds. You have been making investments in expanding the channels. But as you go into the second half of the year, the base becomes fairly elevated. So on that elevated base, how are you thinking about growth? What would be the key drivers there? And yes, if you could give some color around that, that would be helpful. Secondly, when I look at your presentation, the contribution from PPN cities, that has been going up. The network has obviously been expanding. I wanted to understand how does this impact the loss ratio? What kind of benefit are you seeing on the retail loss ratio because of this? If you could give us some color there, that also will be very helpful.

Sure. Let me answer the first 2, and then I'll ask Dr. Bhabatosh to answer the third one, which is on PPN. Our overall growth for this quarter on retail business is 46.5%, largely driven -- it's a mix of both renewal and fresh. The renewal grew by -- fresh grew by 41% overall. So both our fresh and renewal are growing. In terms of future, do we see growth coming in? July is also looking very good for us. I can't comment a lot in terms of overall forecasting this. But what I can tell you is that we want to grow better than the market as we have been doing, significantly better than the market, 8%, 10% over the market is what we want to grow. I'll ask Dr. Bhabatosh to talk about it.

Thank you. Supratim, the preferred provider network, just to reiterate, allows customers to have convenience and savings through free ambulance, discounted services, assistance through our SPO, et cetera. How does it help in claim ratio is these are, let's say, secondary, secondary care plus hospitals. And we do notice that a lot of people land up in coronary, tertiary care hospitals for what is classified or what could be easily be called as a very secondary care treatment like ecocystectomy, appendix removal, small surgeries, dengue, malaria, et cetera. The idea is by deploying convenience and exemplary experience and saving to customers. If some of these people can be transferred or choose a PPN network instead of a tertiary care or a coronary care setup, that results in a nearly 15, 20 percentage point lesser claim size -- average claim size than the same treatment available in the coronary or a tertiary setup. That's how it reduces. Secondly, we have better working relationship with SOPs with PPN hospitals, which ensures appropriate care is delivered. And a lot of times, you would come across that unnecessary abuse of ICU admission, not discharging patients in time, keeping them for longer, these advises are avoided. And both of these go towards a reduction of claim costs resulting in better claim ratios. Does that answer your question?

I'll just add one thing. In terms of translating this into claims cost savings, the answer is yes. Does it necessarily mean improving claims ratios? The answer is no because we may choose -- it just helps us be more price competitive because of all of this we deploy. We may still maintain or allow the claims ratio to deteriorate and pass back more of this to the customers. So I just want to make sure that we -- you may not necessarily see these, and we have had this discussion in the past as well. The claims ratio is also a choice driven by what -- by the repricing and the extent of repricing that we need to do. This gives us flexibility on that aspect.

Absolutely. I completely understand that point. Just one clarification. So on the tertiary -- could you give us the differential in loss ratio between a tertiary or PPM? What would be the differential in claim cost or loss ratio, however you are quantifying that? That's one. And lastly, on the fresh GWP, thanks for giving up the growth. What proportion of your retail GWP would be fresh, if you could let me know that, that would be very helpful as well.

Sure. Let me take the first question first. Loss ratio difference cannot be because it is competed on the premium and earning on the premium between a tertiary care setup and secondary care setup. The average claim size differential for like-to-like treatment between a tertiary coronary setup vis-a-vis a secondary care setup varies anything between the 15% to 30% point difference depending on which procedure or which segment we are talking about.

And on your question on the retail versus -- sorry, fresh versus renewal, 35% around that number, 35% of our business is fresh in retail and 65% is renewal on retail, around plus/minus 1% here.