GODIGIT — 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

GENERAL INSURANCE LIMITED · MS. JASLEEN KOHLI – CHIEF EXECUTIVE OFFICER –

MS. JASLEEN KOHLI – CHIEF EXECUTIVE OFFICER – GO DIGIT GENERAL INSURANCE LIMITED MR. RAVI KHETAN – CHIEF FINANCIAL OFFICER – GO

DIGIT GENERAL INSURANCE LIMITED · MR. TEJAS SARAF – COMPANY SECRETARY – GO

MR. TEJAS SARAF – COMPANY SECRETARY – GO

DIGIT GENERAL INSURANCE · CALL

CALL

COORDINATOR

MR. ANSUMAN DEB – ICICI SECURITIES Go Digit General Insurance Limited June 14, 2024

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Go Digit General Insurance Limited Q4

Questions and answers

Moderator · Conference Operator

The first question is from the line of Bhavesh Jain, an individual investor.

Please go ahead.

Bhavesh Jain

Hello, sir.

Thank you for the opportunity.

I just have two, three questions.

The first one is, can you provide the breakdown between in the health segment?

How much is retail and how much is group?

Kamesh Goyal

Ravi, would we be publishing these numbers of retail and growth with our annual disclosures?

Ravi Khetan

No, sir.

These are not published numbers.

Kamesh Goyal

So, Bhavesh, as of now, as I said, since we are not publishing, I would not want to comment on that.

But I can definitely say that most of our portfolio would be group.

And retail health insurance would be a smaller number.

If I remember offhand, this would be close to about INR60 crores or so for last year.

Bhavesh Jain

Okay.

So, sir, basically, the premise is that the group health insurance is basically considered a loss-making business for the insurance companies.

So how are you planning for the profitability in the health segment?

Kamesh Goyal

So, Bhavesh, as I said, I think in group business, we feel that this business is fast-growing.

Now, last year, it was already bigger than the retail business.

I think retail business has its own challenges in terms of what happens after the waiting period of four years is over to the loss ratios.

And a lot of new business, which is now coming, 50% of that almost in the industry is portability.

So, overall, I think health business is definitely under stress.

Group health, as you rightly said, is loss-making.

But this is too big a segment for us to stay away.

And since I was saying in the call that we didn't really have any data also in terms of how one can quote on this business.

So I think we have developed this business also from a perspective of gathering data because this data otherwise is not available in the market.

Going forward, I think on a quarter-by-quarter basis, we'll be able to see how the loss ratios of this segment of health care, etcetera, are developing.

Bhavesh Jain

Okay.

And, sir, one more question is regarding the solvency ratio.

So as you mentioned that our solvency ratio is different after the capital infusion, after the IPO.

So can you tell me what is the

Kamesh Goyal

So, Bhavesh, I think we will publish it as of 30th of June, but our sense is this will be more than 200%.

What exactly that number would be that we will know only on 30th of June, but we expect the solvency ratio to go beyond 200% definitely.

Bhavesh Jain

Okay sir.

And one more question is regarding the expenses.

There has been some change in the classification of the expenses and which you mentioned in the result PDF.

So can you tell me what are the classifications we have done?

What are the changes we have done?

Kamesh Goyal

Sure, Bhavesh.

Ravi, you want to answer that?

Go Digit General Insurance Limited June 14, 2024

Ravi Khetan

So Bhavesh you can look at the industry-wide financials.

There was a movement of the expenses from Schedule 4 to Schedule 3 and we are also aligned with the industry and the changes are in line with the overall industry approach.

Bhavesh Jain

Okay.

Thank you so much.

Kamesh Goyal

Thanks Bhavesh.

Moderator · Conference Operator

Thank you.

We have the next question from the line of Shubham from Investec.

Please go ahead.

Shubham

Thanks for the opportunity.

I wanted to ask what would be your combined ratio trajectory from here on?

And my second question would be we have seen that there have been significant reserve releases in the last two years.

So how will that work in future?

Kamesh Goyal

Okay.

So two things here.

One is that we actually don't have any guidance on this.

We as a company as I tried to explain earlier, we basically don't think there is an ideal LOB mix which one wants to look at.

Market is fairly dynamic.

So one will have to keep wait and see as to how the business develops.

Second I would say is that from a combined ratio perspective when we think about higher retention of premium, which leads to higher leverage or higher growth in AUM, the same combined ratio will give very different ROE from that perspective.

And you can also see that at our combined ratio and I'm sure you can compare it to others in the company, others in the industry that at our sort of a combined, what sort of ROE we are able to give.

But we the way we drive business, we don't really -- we are not really in a position to give any guidance and nor we want to give guidance because we don't drive our business from that perspective.

Shubham

And regarding the reserve releases?

Kamesh Goyal

So reserve releases, as you said I think we do it on the basis that what we think or our actuaries think is the best estimate when we are providing them.

Our attempt always is to ensure that we always provide for adequate reserving.

We also know especially in case of TP etc that court judgments etc can also have an impact in future as to how the claims actually develop.

Even in fire in some large cases we have actually seen that in case of business interruption, especially if companies have customers have taken business interruption policy in a large claim which are not very frequent one can actually see the claim amount increase even after a year, year and a half.

So the approach is to provide adequately for the reserves.

And each year we try and reflect as to what we think based on the information we have, what the reserves should be.

Now how would they develop in future?

I think we'll be publishing this number every year and that is what I can answer at this stage.

Shubham

Okay.

Thank you.

Go Digit General Insurance Limited June 14, 2024

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Prayesh Jain

Yes.

Hi.

Good evening, everyone.

So sir just one question on the distribution.

So our distribution is dominated by brokers.

How and how do you see this mix changing say in the next couple of years and what line of business which channel is something that you would be focusing on and what are the plans here?

That would be my first question.

Kamesh Goyal

Sir good evening and thanks for your question.

So broker actually is a very omnibus sort of channel.

So when we think about motor dealers they come through OEM brokers.

Corporate business obviously comes to corporate brokers.

Then you have a lot of retail brokers who do business, I would say on a state or on a city basis and then you have aggregators who work on POSP model who also come as brokers.

So, if you just look at these four examples all of them come through brokers, but all four are very different distribution channels.

Answering your question as to how we look at distribution etcetera I think we as a company are channel agnostic which basically means that we try and steer business through all possible distribution channels, looking at their own each channels, own loss ratio as well as acquisition cost.

And this is something our teams continuously look at to see where we can increase the presence or where with geographies we want to tap and like product mix there is no real channel mix which we steer towards to say in 2 years this is the channel mix which we want.

Because I think again, based on our understanding of business market changes very fast.

So one should not in our view steer business from a particular channel mix or a product mix perspective in 2 years to 3 years because 99.9%, the chances are that one would be wrong.

For just to give one example last year was very strong on new vehicle sales.

Now because of that OEM brokers have done a good amount of business.

Now, their proportion would have increased and as you can see our proportion of own damage premium increased substantially last year, but if you go back to the year 2021 where because of COVID and semiconductor issues there was very less or there was negative growth in the new vehicle segment the OEM channel would have actually not done that well.

So, without us doing anything, in one year we would have seen the channel not growing as fast while in one year the channel would have grown much faster, while our focus wouldn't have really changed much during those 2 years.

So basically this I think driving this in isolation without -- no we realized that the market dynamics and economic macroeconomics will have a very substantial impact on this.

So we try and increase our presence across all distribution channels based on our philosophy, but we don't really drive ourselves to a certain channel mix.

Prayesh Jain

Thanks sir that’s really helpful for the understanding purpose.

Our second question is on your motor business what's the mix today between commercial vehicles, two wheelers and passenger cars and any thoughts as to how this mix would pan out?

I know you said you look for profitable Go Digit General Insurance Limited June 14, 2024 pockets, but inherently all these three segments have their own structure wherein probably something like a CV is a high on loss ratio, but low on expense ratio so vice-versa in a passenger car.

So how do you think about the mix say from the next couple of year standpoint?

Kamesh Goyal

So, we don't think on that basis.

I think if you see about four years, three, four years back, in our first three years out of our six, seven years journey, first four years, we were substantially bullish on motor third-party business, while the industry was not as bullish.

Last three years, industry, a lot of players have become very bullish on third-party business, while we are not as bullish, and you saw that we actually degrew a third-party book in quarter 4.

So, here again, I would say we don't really drive ourselves to see this is the CV mix we should have, or this is the private car.

We can again look at where the opportunity is and which is a function of both the vehicle sales segment, as well as the competition dynamics.

And just to talk about quarter 4 specifically, if we de-grew in motor third-party, you can be sure that the de- growth would have happened more because of commercial vehicles, because commercial vehicles have almost 90% of the premium coming in from third-party.

So, in that quarter, the commercial vehicle segment would have de-grown.

But again, in the next quarter, in the next two, three quarters, if there is an opportunity for us to grow in that segment, we can actually immediately grow in that segment because the distribution plays already there.

And maybe I'll just take one more minute to explain this, that our industry is actually quite interesting because if you are growing fast, if you are growing 15%-20%, also 15%, one needs capital to provide for this growth because solvency is linked to the premium which you write.

And if one is writing this business at a loss, then again, you have to provide for the capital for the loss.

So, we feel that this mechanism will ensure that any company which is becoming aggressive in a loss-making segment, sooner or later will have to put in more capital.

And that capital will come with even lower ROE than what was available previously.

So, those market correction volatility can happen from a quarter-to-quarter.

But nobody can, on a continuously basis, write loss-making business.

So, we'll see those corrections happening.

And that's the reason I feel that at this stage, no, we're not in a position to tell you when exactly will that business grow?

We'll have to just wait and see when that correction happens.

Prayesh Jain

My last question is on de-tariffing.

If the motor TP business is de-tariffed, how do you think it would play out in the industry?

We've seen all the segments where it's the only segment which is tariffed today.

And it's been quite hyper-competitive.

At least the OD segment is quite hyper- competitive.

So, in that sense, do you think TP could, if de-tariffing happens, do you think that it can be under pressure of more competition and in that sense, more possibility of lower combines?

Yes, that would be my last question.

Kamesh Goyal

So, in TP, I believe the industry's focus has been that there has hardly been any increase in third- party premium rates in the last four years.

So, we believe that the General Insurance Council has been engaging with the regulator that this third-party increase should happen.

And the discussions have been going on.

Go Digit General Insurance Limited June 14, 2024 As far as I think the de-tariffing goes, our view is that sooner or later, one should have de- tariffing simply because this is the only segment where there is no free pricing.

Secondly, when the pricing is fixed, then people play on the commission, on the acquisition cost.

So, if pricing becomes free, like it is in, say, own damage and you gave example of that, then people will play on the pricing with a certain commission in mind.

In private car today, a lot of companies in a comprehensive insurance take into account the third- party claims experience and then give a quote overall on comprehensive business.

So, as of now, our understanding or assessment would be that with the free pricing, it's not essential some rates will go down, some rates and the commission will get adjusted a bit.

In some places, the rates will also increase because overall for the industry, if you look at last four years, the business has not been profitable on the TP side.

So, if the rates just go one way down, then the losses for the industry will significantly increase, which means industry will need even more capital and then again, that correction will happen.

So, overall, I think we would support anything which is towards freer pricing.

But the first priority, I think, for the industry has been, and rightly so, to engage with the regulator for increase in the third-party premium rates, which haven't really increased in the last four years.

Moderator · Conference Operator

The next question is from the line of Dipanjan Ghosh from Citi.

Please go ahead.

Dipanjan Ghosh

Hi, good evening, sir.

Just a few questions.

First on your strategy on the B2B businesses, which is more of fire, engineering, maybe group help.

Just want to get some sense of how you kind of see the businesses scaling up and what sort of reinsurance support would you require or how are the discussions going?

And also, do you want to retain more or kind of how should one think of the tiering ratio in these businesses?

So, the overall strategy on these businesses.

And also, in this context on the B2B businesses, just wanted to get some sense of, you know, what is the right to win in any of these businesses for someone who is, let's say, relatively smaller in scale?

Do you focus on product bonding or it's more of the relationships that you really build out, or is it just based on pricing?

My second question would be on the investment leverage, and how should one think of the trajectory of the investment leverage from here on?

And my last question would be on the retail health business in terms of your plans on scaling that segment up.

Those are my three questions.

Kamesh Goyal

Thanks.

So, let me start with your leverage question.

So, leverage obviously will go down this year because we have raised capital of about INR1125 crores or so.

So, our net worth will suddenly increase by one third.

So, the leverage will go down.

I think under normal circumstances and I'm not giving any guidance here, after this year is over, then again, I think the growth on the leverage increase should actually start happening again from next year.

We as a company believe in higher retention.

And in each area, we try and define whether for one event, which could be one single claim or one single event, which is a flood or earthquake, what the capital at risk we want to deploy.

And that is a function of what the net worth which we have.

Go Digit General Insurance Limited June 14, 2024 Now, I explained in this slide that last year was we saw four major events, plus one large loss, and we lost INR70 crores, which is very substantial.

I think if you think about 180 crores is a profit for the year.

And even assuming that 30%, one third of 40% of these losses are normalized, even then it has been very substantial on our bottom line.

But on the other hand, from a one year perspective, this is only 1% of our earned premium.

Now, as for reinsurance, etcetera is concerned, I think all I can say is, and this is more of market knowledge, that we have fairly large capacities on reinsurance.

And we also have decent freedom as to how we can, what sort of a business we can write.

And for each line of business, the premium retentions are actually disclosed.

So as of 31st December, for fire, motor or each line of business, those numbers are there.

And in the next 7- 10 days, the number for the fourth quarter would also be up.

So you can actually have a look at what the retention is in each line of business.

I don't want to give too much details on the reinsurance, because it's more like a confidential arrangement, which companies have with the reinsurance.

And as I said, you can look at those losses and see what sort of losses which we had on our net on this basis.

Lastly, on retail health, I think, as I said earlier, one has to keep in mind this two things.

One, obviously, is this waiting period of four years, the portability business, which is now becoming more and more, and the absolute fresh business is less.

First year commissions are also very high.

So while this is a business, which we have been growing, but this is not something which we see as a do or die sort of opportunity.

Getting a ROE of 15% on this business on retail health, even for some of the best players, is very, very difficult if we go by the numbers which we see.

So that's all I can say on the retail health side.

Dipanjan Ghosh

Sir, if you can just give a bit of some color on the first question on the B2B businesses, in terms of your strategies on those businesses, and whether it's relationship dependent or pricing dependent, or something else, and what do you think would be your right to win or scale up strategy from the 3-5 year perspective in the B2B businesses particularly?

Kamesh Goyal

So I would say it's a mix of all.

So first, obviously, is the relationship.

Second is your ability to understand a business as to whether you would want to underwrite that business or not.

And just to give you one example out of this, or two, maybe one business from the past, which we wrote, which was a satellite launch business, where we had written some portion of that business based because we saw that as a new opportunity.

Time spent on that was quite a lot to see what typically the failure ratio is of different countries, what the premium rates are, and things like that.

And on the other hand, we said no to a business which pertained to this weather exposure for cricket matches, where if not even one ball is bowled, you have to pay for the financial loss.

And we did not participate at all for that business.

So having an understanding of what the exposure is, what sort of a loss you can have is very critical in this.

Third is your reinsurance Go Digit General Insurance Limited June 14, 2024 capacity, how much you can actually write a business.

And can you write it as a leader?

Can you take a meaningful share in it?

And can you settle large claims?

So it actually becomes a mix of all of this.

As far as I think right to etcetera goes, as you rightly said, we are a small player in this.

But despite that, we did INR800 crores of property premium last year.

And I think if you look at overall market share of property, and our overall market share, this will be very similar.

And if you go back maybe three years, a market share in fire business would have been half of what it was last year.

So one has to keep trying based on these three, four things.

And you have to earn that right every single day.

Moderator · Conference Operator

Thank you.

Kamesh Goyal

You can take two more questions.

Moderator · Conference Operator

Sure, sir.

We do have two participants in the queue at the moment.

The first is from the line of Swarnabh Mukherjee from B&K Securities.

Please go ahead.

Swarnabh Mukherjee

Good afternoon, sir.

Thank you for the opportunity.

Three questions.

So first on the motor business, I just wanted to take your views on the growth versus the cost of acquisition piece of the puzzle.

So I mean, our growth rates have been very strong historically.

And of late, we have been hearing from other insurers that the competitive intensity, the pricing levels, etcetera, seems to be showing some kind of normalization.

So I just wanted to take your views that how are you seeing the market at this point of time?

Where can we see your cost of acquisition growing given the growth rates that you are putting in?

Or whether you are seeing a different picture and should we see some normalization in your number also in the motor business?

I heard your comment on TP that I thought I'd kind of take some more details from you regarding this.

The second question is on the, now that your investment group has also increased post IPO, I just wanted to understand how should we think about the asset allocation?

Should we be heading to a slightly riskier asset leading to a better investment income that can support the ROE?

And in addition to that, so if I understand correctly, the IFRS numbers, the profitability as well as the ROE would see some impact on the mark-to-market components of the underlying assets.

So there could be some volatility there.

So if I were to understand that for your business, what could be a core ROE number with normalized investment allocation?

Yes, these are my questions.

Kamesh Goyal

Thank you.

So let me start on the investment side.

I think every quarter will give you update both on our asset allocation as well as on investment yield.

I think you guys are more on the investment area.

You can actually decide for yourself what the trajectory on investment can be.

Obviously, data is available for all other companies.

Go Digit General Insurance Limited June 14, 2024 That's a good part of our industry.

Of other, you can look at four or five companies, what sort of a return they have, investment yield they have, and what sort of asset allocation they have.

On the IFRS number, if you look at our slide, we have actually given all the data points, whether it is change in unrealized gains, whether it is discounting impact, whether it is default acquisition.

And I would leave it to each of you.

I think you guys are the analysts who know this more than us as to what you should take into core ROE, what you don't want to.

And everyone can have a different view.

I think our job was to publish these numbers and how to interpret that, I would leave that to you.

On the motor business, on the competitive intensity, etcetera, my sense is that business is competitive.

I think that's the nature of business in India typically.

But secondly, as I said earlier, we have to just keep this in mind that if any company decides to grow in motor TP, motor OD, health, fire, every business aggressively, what will happen to the loss ratios?

And what sort of capital requirement would happen or would come because of growth as well as because of your writing business at a much lower profitability.

So over a period of time, all these things automatically find the normal level because there is no free capital available which is ready to come at seemingly even lower ROE, etcetera.

What we see our job is that we run the business from a long-term perspective.

We would not write any business at a loss.

If we know this business will be loss-making, we will not write it.

We don't want to drive ourselves that we have to grow so much irrespective of what the market conditions are.

If market conditions are good, we can grow like hell in that segment, which is obvious from our TP, the way we grew TP initially.

And if we feel market conditions are not good, we will de- grow that segment also.

So, we don't put those sort of constraints on us to say, we have to have so much in this line of business or this product or this channel and we have to grow so much in a particular quarter.

We don't drive ourselves to that because business by nature, any business by nature is uncertain and we don't want to unnecessarily pretend that we will drive it in a certain way.

Every quarter, we will be showing you loss ratios and the growth rate of each segment.

And as I said earlier, we look at own damage, health, loss ratios on a yearly basis or last four-quarter basis rather than just one.

And TP and Fire more from a 3 year perspective than just one, because in TP, you have to see how the results are developing, how the extent your loss ratio is developing.

And in Fire, obviously in 3 years, it gets normalized for large losses and some NAT-CAT events.

So, that's how we look at business and that is how exactly we have tried in this presentation to show you data points, which we look at closely in terms of what we think is important.

We have time now for one just last question.

We actually have an external visitor coming in at sharp at six.

Moderator · Conference Operator

Certainly, sir.

Thank you.

We will take the last question, which will be from the line of Raghvesh from JM Financial.

Please go ahead.

Raghvesh

I wanted to understand on the motor business.

In the OD and the TP, what is the share from the dealerships and the online?

The assumption is that online would be largely third-party and OD Go Digit General Insurance Limited June 14, 2024 would be from the dealerships.

Can you give a better sense of this?

And in terms of the CEO, the combined ratio, is our digital business, both our own website and to third parties, already at par with the offline business?

And if not, at what scale would it be at par?

Kamesh Goyal

So, thanks for that.

So, one is that we don't, I think, use these numbers externally for the reason that, as you said, our channel which, etc. can change substantially.

And we feel that at this stage, we don't want to really discuss quarterly trends as to which channel we are focusing on or which channel is better.

These things can change and do change very fast.

As for the channel steering, as I mentioned earlier, we are channel-agnostic.

We look at loss ratio and acquisition cost together when we look at profit equity.

In the motor business, we normally…

Moderator · Conference Operator

Sorry to interrupt you, but this line is not very clear sir, at the moment.

Kamesh Goyal

I was saying, in case of motor business, normally we look at it on a yearly basis, as far as combined ratio goes.

In very exceptional cases, we might see it from an 18 month or a 2 year perspective.

But we normally see motor business from a yearly perspective on acquisition cost.

Raghvesh

And how better is it, better or worse is the digital own website and third parties as compared to the offline?

Kamesh Goyal

So, I don't, again, want to get into this, but our experience is that online channels attract the best of customers and the worst of customers.

So, we are not in a position to generalize that online customers are bad or online customers are always good.

Raghvesh

Okay.

Got it.

Thanks.

Kamesh Goyal

Thanks a lot.

And I just wanted to thank everyone for joining for our first call and I also want to take this opportunity that a lot of you have supported us in the IPO.

We are really, really thankful for your support and we'll do our best at all times to repay the trust that you have put in us.

Thank you so much.

Moderator · Conference Operator

Thank you very much.

On behalf of ICICI Securities, that concludes this conference.

Thank you all for joining us.

You may now disconnect your lines.