GICRE — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day, and welcome to General Insurance Corporation of India Q1

As there are no further questions, I now hand the conference over to management for closing comments.

Devesh Srivastava

So, thanks, everyone, for your time today in the afternoon.

As is very evident, we have been working on a very well thought of and chartered path, wherein we intend to get our combined within controls, get it as close to 100% in the shortest possible time.

And going forward, we shall continue to make our portfolio healthier so that you have a more solid balance sheet for GIC, which is what a reinsurer is all about.

And in the long term, we emerge as a much more healthier and a much better company than we were yesterday.

This endeavor shall continue, and thank you again for your time today.

Goodbye and take care.

Moderator · Conference Operator

Thank you very much.

On behalf of General Insurance Corporation of India, that concludes this conference.

Thank you for joining us, and you may now disconnect your lines.

Questions and answers

'f',~""'1<!T-.ll~ · Research Analyst

“General Insurance Corporation of India Limited Q1

Devesh Srivastava

Thank you, Binay ji.

Good evening, everyone.

I'm pleased to announce the financial performance for the quarter and full year ended June 30, 2022.

We would like to reaffirm that we are continuously taking all necessary measures to improve our overall profitability, and it has been our constant endeavor to bring down the combined ratio below 100.

We continue to be selective with the sole focus on underwriting profitability.

Let me now take you through some of the key highlights of the financial performance.

The gross premium income of the corporation was Rs.

11,021 crore for Q1 FY '23 as compared to Rs.

14,289 crore for the Q1 FY '22.

The investment income stood at Rs.

1,890 crore in Q1 FY '23 as compared to Rs.

1,794 crore in Q1 FY '22.

Incurred claims ratio stood at 94.7% in Q1 FY '23 as compared to 104.3% in Q1 FY '22.

Combined ratio in Q1 FY '23 decreased to 110.97% versus 123.36% for Q1 FY '22.

The adjusted combined ratio, by taking into consideration the policyholders' investment income, works out to 97% for Q1 FY '23 as compared to 112% in Q1 FY '22.

General Insurance Corporation of India Limited August 17, 2022 The company recorded profit before tax of Rs.

988 crore in Q1 FY '23 as against loss before tax of Rs.

1,166 crore in Q1 FY '22, and profit after tax of Rs.

689 crore in Q1 FY '23 against loss after tax of Rs.

771 crore in Q1 FY '22.

Solvency stood at 2.14 as on 30/6/2022 as compared to 1.74 as on 30/6/2021.

Net worth of the company, without fair value change account, stood at Rs.

24,744 crore as on 30/6/2022 as against Rs.

21,285 crore as on 30/6/2021.

Net worth of the company, including fair value change account, stood at Rs.

53,741 crore as on 30/6/2022 as against Rs.

50,673 crore as on 30/6/2021.

On the premium breakup, domestic premium for Q1 FY '23 is Rs.

8,247 crore and the international is Rs.

2,774 crore.

The percentage split is domestic 75% and international 25%.

So, there is a degrowth in the domestic premium by around 21%, while the international book has decreased by 28%.

We are seeing gradual improvement in the external environment and remain confident of improved performance going forward as we expect the combined ratio to start moving downwards in the coming quarters.

Having given the highlights, we will now open the floor for questions from the interested parties.

Thank you.

Moderator · Conference Operator

We will now begin the question and answer session.

The first question is from the line of Arjun from Spark Capital.

Please go ahead.

Arjun N.

Sir, just wanted to understand that we have seen a sharp decline in the crop segment.

If you can point out the reason for this.

Is it because of the new Beed model that is being implemented?

How many states are adopting to this model?

What would be the impact?

First, your reason as to why the decline and the impact of Beed model and adoption, et cetera?

Your commentary on that would be helpful.

Devesh Srivastava

Arjun ji, I will just like to give first overview and then I will request the General Manager in charge of crop to step in.

If you recall, about 4 or 5 quarters ago, crop was a very heavy percentage in our portfolio, and the demand was that we should trim it, get it to more manageable levels and contain the high combined ratio that crop was facing.

So, this is the point where we started doing a lot of pruning of the portfolio, and today, we are at a point when our crop portfolio is about 25% of our total book in the Q1 that we have closed, which is where we would want to be.

Now obviously, there have been changes in the scheme as well.

PMFBY has also become the Beed model as you talk of.

So, I will let Mr. Hitesh Joshi to step in now so that he can also chip in.

Hitesh Joshi

So, sir, here, it is not really anything in particular about the Beed model because even with the same model, different states, different districts, different clusters can be priced in different ways by different market participants.

So, the price adequacy can be present or absent despite the kind of model that is chosen by a particular state government.

As sir said, it is our pruning of the portfolio which is leading us to degrowth in the agri portfolio.

We have been far more selective in supporting the company in terms of the capacity extended and the terms that we offer.

That is General Insurance Corporation of India Limited August 17, 2022 the reason for the significant degrowth.

I think we are at the absolutely right spot now in terms of agri profitability, and this is supposed to be a U-turn.

We don't expect any more degrowth to be there, and we expect that portfolio will keep on improving going forward.

Thank you.

Arjun N.

Sir, just one more question from my side.

Sir, the overall decline of GWP, what would be the 5% to 4% cession.

Because of that, what would have been the impact?

Is it because of the mandatory cession came down?

Because of that, what would have been the impact?

And what is the overall general trend, which would have been otherwise contributed?

Devesh Srivastava

See, Arjun, sir, if you look at the way we have gone about pruning our portfolio, this was done as per a very decided and pointed strategy.

We wanted to write healthy business on our books and do away with all the business that had been hurting us over the years.

That is why the degrowth has been witnessed.

But as Mr. Joshi very correctly mentioned, we are at a point of inflection now.

And henceforth, the corrections that we were intending, has largely been carried out.

So, now, it is a time to look forward and look upwards.

Now about the 5% to 4% that you speak about.

Well, obviously, I mean, if you take our portfolio of the total Indian non-life insurance market which is about Rs.

2,20,000 crore, the 1% will clearly be about Rs.

2,000 crore.

But on the same breadth, you must also consider that this is a high-growth market.

If we see the June figures, there has been a growth, and a growth that is upward of about 20% year-on-year.

So, that is also compensating.

So, there are various ways and means.

So, obviously, the decrease will affect our top line to a certain extent.

But fine, there are enough ways for us available to make up that shortfall as well.

Arjun N.

If I can just squeeze in one more.

Do you foresee this entire mandatory cession going away?

And in that case, how the impact would be or how would you react?

Just a hypothetical question.

Devesh Srivastava

Arjun ji, as we just said, see, there was a time when the mandatory cession was 30%.

That time, the market was young and everybody needed the support.

But as markets mature, which is in India now about 20 years that we have spent in the private setup and private companies were also allowed, the obligatory cession have come down 20% to 15% to 10% to 5% to now finally, 4%.

So, by that trend, going forward, yes, there will be a day when the obligatory cessions will come to a naught.

But until that happens, it will continue to be something that will come to GIC, and there will be other ways because capacity is required.

The way the market is growing, capacity will certainly be required.

The way the risks are now being identified and ways and means being sought to mitigate it, insurance and reinsurance will be required.

So, this market will require support and GIC is geared very much to provide the support to the cedents.

Moderator · Conference Operator

The next question is from the line of Yazer K.M., individual investor.

Please go ahead.

General Insurance Corporation of India Limited August 17, 2022

Yazer K.M.

Sir, I’m having 3 questions.

One, regarding the provision for investment loss.

What steps will be taken by the company to reduce these values because still it is in a higher rate, right?

Then regarding the second question, this is regarding the net commission ratio.

Compared to the competitors, I think it's really high because some of the competitor I look, it's just about 5 percentage.

And finally, regarding the performance of company for the investor.

What steps will be taken by the management to increase the valuation?

Devesh Srivastava

So, Yazer, your first question pertains to the investment bit.

Now what exactly was it?

Can you specify it again, please?

Yazer K.M.

Sir, regarding the provision for investment loss, right, last quarter, it was thousands of crore.

This quarter also, we have hundreds of crore for the provision loss, for the provision for investment loss.

So, to reduce the value, any steps taken by the management?

Devesh Srivastava

So, I'll request our CFO, Ms. Jayashree Ranade to step in here.

Jayashree Ranade

Yes, this quarter also, we have recorded around Rs.

163 crore of provision for investments.

This is basically the provision which we are incorporating for equities, which are consistently below the book value for over 3 years.

So, this is a mechanism which we are bringing it into the book, so that kind of prudent provisioning is done.

It doesn't mean that our investments have really devalued or any such thing.

Going forward, definitely whenever the opportunity comes, based on the market movements, the stocks which rise above the book value will be liquidated or will be replaced with the good stocks.

So, that is one of the strategies which we have adopted.

Making a provision is kind of a sound accounting practice and so we are adopting to this.

I'm sure as the market goes up, this provision will also have a reversal effect going forward.

Have I answered your query, sir?

Yazer K.M.

Okay.

Then the second one, regarding the net commission ratio.

Because the competitors are having very few, like 5% or something, but I think the HRA having at around 18%, right?

So, it is a normal or I don't know what it is.

So, please can you clarify?

Devesh Srivastava

Yazer, I really doubt if there can be anyone who has a commission ratio of 5%.

I'm not very sure where you're getting the statistics from.

Yazer K.M.

I looked for this one, ICICI Lombard last time.

Last 2 quarters, I was checking it, it's around 5%, it’s like that.

Devesh Srivastava

You see, reinsurance commissions are very different from a direct insurance company's commissions.

So, a real apple-to-apple would be to compare reinsurance commissions of company A with reinsurance commissions of company B, or with GIC for that matter being a reinsurer.

So, there, if you see, our approximate outgo of 17% to 18% is in fact, quite good, I would say.

It is a good commission ratio to have for the business that you are procuring.

Then, General Insurance Corporation of India Limited August 17, 2022 it has been quite steady over the years.

It hasn't fluctuated or gone up or down much.

That is pretty standard for us.

And with regard to your third question, it's about the investor value.

See, the fundamentals that GIC has, the balance sheet that we have, our inherent strength that we have, the intellectual capital that we've built over the years, I think it's a testimony to the fact that GIC is a very, very solid company.

There may be a gap between investor perception and what the company is all about, but see, nobody can deny the fact that today the Indian market is driven by GIC.

And that is something that we take a lot of pride in, and also something that we take as a lot as our responsibility towards the market.

So, it is now for the investor to see these aspects of the working of GIC.

Yazer K.M.

But as an investor, we are having a different situation, right?

So, I am asking that one.

Devesh Srivastava

Yes.

I mean, if you go purely by the share value and the market, yes, there is an erosion from the initial years.

But I would always talk about the future that GIC has to offer, looking at our current very strong credentials now.

Moderator · Conference Operator

We have a question from the line of Arjun from Spark Capital.

Please go ahead.

Arjun N.

Sir, the impact of floods have already been factored in this loss ratios which happened across states in this last 2 months or will it be in the next quarter?

Devesh Srivastava

The impact of floods?

See Arjun ji, the IBNRs already take care of this.

When we close the quarter, the actual valuation is done about the IBNR, which is incurred but not reported, and an additional reserve is made for incurred but not enough reported.

And they take into consideration all the events that have taken place which may affect our book, and reserving is made for that accordingly.

So, the figures that you have are inclusive of the IBNR and IBNER figures.

Arjun N.

Sir, the foreign loss ratios or the incurred losses that we haven't disclosed has improved significantly.

If you can give light on what has happened in the foreign book, where we see positives, or whether it is because of the rates hardening?

That would be helpful.

Devesh Srivastava

I'll just request Mr. Joshi to comment.

Hitesh Joshi

I think it is a mixture of everything.

It is the rate hardening as well as pruning as also our being more selective.

So, it will gradually be more apparent in our results going forward.

That is what we expect.

Moderator · Conference Operator

The next question is from the line of Deepak Sonawane from Haitong Securities.

Please go ahead

Deepak Sonawane

So, my first question is on growth, basically on foreign book.

So, like 2 or 3 quarters back, we were quite optimistic on foreign motor, right?

But in Q4 and even in Q3 FY '22, we were kind General Insurance Corporation of India Limited August 17, 2022 of cautious on that, specifically in U.S. motor.

So, is this trend continuing even in Q1, I mean, the 21% degrowth we have reported?

Is it from that angle should we look at?

Devesh Srivastava

Deepak ji, it's not the motor alone, there has been a pruning in all the portfolio.

Motor certainly has contributed to it.

It has come down by about 20% from the quarter 1 of last year.

So, what you're talking about, the U.S. motor, is something that obviously is continuing.

I would request Hitesh ji to add something to it.

Hitesh Joshi

It is the same thing.

Essentially, we are taking a step back in preparation for taking a step forward.

So, a bit of consolidation, we are getting familiarized with this particular segment of the U.S. market, which is a very peculiar model in terms of the way underwriting and distribution takes place in that market.

So, it is kind of a preparation for more growth in that market.

Deepak Sonawane

And my second question is on the underwriting losses that have been reported on the health side.

If you compare our underwriting losses and compare it to what all other non-life insurance have reported for Q1, we see there’s some kind of mismatch because they have reported kind of a strong improvement, especially in claims ratio.

And compared to that, are underwriting losses I'll say still way behind.

So, is there any lag effect are we experiencing in terms of claims settlement or in terms of any underwriting changes you have done for the quarter?

Devesh Srivastava

See, Deepak ji, there will always be a lag effect between a direct insurer and a reinsurer.

So, because after the quarter gets over, only then will they submit their statements of account.

So, what is Q1 for them will be Q2 for us.

So, a better way of comparing how we have performed in this quarter is to look at the way the quarter of the previous year, that is 30/6/2021 has ended.

And there, if you see, the claim ratio has come down, the incurred claim ratio as a percentage of the net premium has come down from 129% to 109%.

Sorry, this is Health.

Right, so 104% to 94.9%.

Deepak Sonawane

Sir, 94.9% combined ratio is for health for Q1, right, this quarter?

Devesh Srivastava

That's correct.

As compared to 104% for the previous quarter.

The previous quarter means period quarter last year.

Deepak Sonawane

2021, right?

Devesh Srivastava

That's correct.

Deepak Sonawane

And what was that number for Q1 FY '22?

Devesh Srivastava

So, that's what I'm telling you that the Q1 '21, I mean, 30/6/2021, we incurred of 104%.

Incurred claim ratio of 104%, which for 30/6/2022 has come down to 94.7%.

Moderator · Conference Operator

We have a question from the line of Manoj Sah from Laxgov Investments.

Please go ahead.

General Insurance Corporation of India Limited August 17, 2022

Manoj Sah

My question is like as you said that, you had claims after a lag, are we done mostly with the COVID claims?

Or are there still to go?

As you said, normally, you get claims from the PSU insurance with a lag of 1 quarter or 2 quarters?

That is first question.

Also, as you said, you are repricing your premiums.

So, has it been done, it has taken effect?

Or with every quarter, we will see some improvement in the premium pricing?

Can you comment on this?

Devesh Srivastava

Manoj ji, the lag that we spoke about was true for the market.

It is not a public sector or a private sector thing, because when 30/6 happens and the accounts are closed for Q1, the private sector or the public sector put together, that means the non-life insurance market will report it 45 days from then.

So, that means those figures will appear to us in quarter 2, which is 30th September figures.

So, that lag is something that is a part of the way the business is conducted globally.

It's not something that is here in India, but globally, this is how it all happens, that the lag effect does take place.

Now about the COVID claim, see, largely, the COVID claims came from our foreign writing.

Because, as you know, in the Indian market, we were insulated by the GI council, which said that BI claims in the absence of PD is not tenable.

Now with a large part of our book being domestic, that was already taken care of.

For the foreign ones, we had been getting those claims, but they were already provided for in the IBNR and the IBNER, so it has already been taken care of.

We also have some claims in the life portfolio where I'll request our life actuary to just give his thoughts so that you get a better idea about how the whole thing moves.