ICICI Lombard General Insurance Company Limited analyst Q&A

We will now begin the question -and-answer session. The first question comes from the line of Shreya Shivani from CLSA. Please go ahead.

I have three questions, sir. First is on the overall growth outlook. So health book for us has done quite well since past two years; since FY 2022, the growth has been north of 25%, 30%, 40%, right? So, expecting some moderation in growth going ahead, what will be the key drivers for growth in FY2025-26, which segments would be driving majority of the growth and how much higher than industry growth can we deliver in the years to come, given that in the Motor segment, though there has been an improvement and discipline ha s come in, but it's still quite a high combined ratio for one to expect us to grow very fast in the Motor segment. So that's my first question on key growth drivers and how much faster than industry can we grow in FY 2025-26. Second is on the Motor TP segment. Looking at the reserving triangles for the Motor segment, TP segment specifically, so there has been a much higher reserve release in accident year '18, '19, '20, I mean the trend looks much better than the prior year trend. So how should we read this data -- does this also significantly add to your FY 2024 loss ratio improvement on YoY basis apart from more new cars being sold? Third question is on the combined ratio, we've done quite well on the combined ratio side, for the fourth quarter that has gone by much better numbers over there. So going ahead, what is our guidance on combined ratio? And one question that I had also asked at the analyst meet about considering natural calamities as business as usual going ahead, does that change our combined rati o guidance in anyway?

On the first one, if you look at it from an overall market perspective, as we have always been saying, we have always been looking at this business in the context of being a multi -product, multi -distribution setup. And therefore, to that extent, different segment of businesses present opportunities for growth, maybe at different points of time an d hence to that extent is where we have been able to put in place a model by which we are able to leverage the growth pote ntial. In that context , when you look at the overall year gone by, we have been able to have an outperformance relative to the market growth. And if you look at in terms of how we are heading into the next year, there's a lot of positive momentum that we see from an overall market perspective as well .One, of course, the slew of regulatory reforms that we spoke as a part of the introductory remarks, that augurs well both from a market standpoint and even from the opportunity that it gives for ICICI Lombard , it's very, very positive. Second, if you look at the thrust that the government is putting on in general, looking at significant thrust of infrastructure development, that obviously presents a lot more opportunities on multiple segments of businesses, whether you look at it in the commercial line space, maybe for example, thrust on engineering projects to begin with. Obviously, , it aids in logistics, transportation to again look at growth profitably, and more importantly, it is also expected to lead to, let's say, higher number of jobs. And therefore, as I said, augurs very well in terms of the opportunity that one sees. Specific to your point on health, as we have always said even in the past, the opportunity that one sees in the market, if you look at few years back, the market was significantly stressed in terms of the loss experience and more importantly whether you look at it from a combined ratio standpoint. Given that some of the players are a lready looking at reversing some element of pricing within Group Health and particularly on the Employer-employee side, it obviously augurs well and that's the reason why you see us continuing to grow disproportionately relative to the market, and even as we head into FY2025, we believe health for the industry as well will continue to be by far the one of the fastest growing segments. And within that even for ICICI Lombard, we see an opportunity on Health, both in the Group Health as well as in the Retail Health segments. Whether the growth will be continuing to be at 25%, will it slightly get moderated? We will obviously wait for things to evolve. But honestly, as we have said even in the past, I don't think from a market perspective, we will continue to see prolonged periods of 25% to 30% growth f rom an industry standpoint. So that's something that we will obviously watch for. The second question on yours in terms of the Motor third-party reserving triangle, it's good that the market is starting to look at the triangle disclosures from an overall market perspective. That again augurs well, because then every Company is being moved to appropriate level of scrutiny from a market perspective and hence, it again augurs wel l from our overall market discipline. In terms of some of the releases that you spoke about, if you ask us, the way I would respond to it is, is there any change in the approach of our reserving philosophy, the approach has not changed. And in line with what we have been speaking even in the earlier quarters, the way to look at on the third -party book as you rightly mentioned, is more on an annual basis. And in fact if you recollect even last time in the quarter's earnings call, we did speak about the range within which we see the loss experience play out for Motor as a category. And just to refresh that, we had said Motor own damage loss experience is something that we see in the range of 60% to 65% and Motor third-party as a segment we had said we would be operating at a range between 65% to 70%. And both of that blended is where we had said Motor as a category would run in that range of 64%, 65%. And if you look at the full year numbers both on Motor own damage as well as on Motor third-party, broadly the outcome of the book that we have been able to underwrite has been within that range that I just refreshed. Having said that, one of the key deliverables that we would obviously watch for which we put as a part of the introductory remarks is on Motor third-party pricing. Now as we speak, statement of fact is we have not seen the price change. So we will watch for development in that space and therefore the risk selection will continue to be driven by some of the factors that we see as we speak in terms of no price increase thus far. So hence we will be guided more by that in terms of how we see the opportunity. The range of loss experiences is a function of what I mentioned. Your last point on combined ratio.

The Q4 numbers on the combined ratio which leads at 102.2 % and thereabout. The overall commentary in terms of what we have spoken tailwinds available, sector al reform which are being initiated by the regulator, we see a play and we do see that we can have overall 50 basis improvement further to what we said we will achieve as a team by Q4 of next year. But again, we will keep revisiting and absolutely we'll ke ep communicating, but we do see green shoots and that an improvement can come in overall for us as an entity.

So what you're saying basically by FY2025 we were targeting 102%, that can be 50 bps lower at 101.5 % unless there is some other? And what about the catastrophe events, are we still watching it or have we come to a conclusion on how we should be dealing with?

Gopal also in the past has been mentioning that the frequency of catastrophic event on an annual basis has increased and do we factor that when we speak about it? Yes, there is a level of factoring, but like last year was an exceptional one which was more than the factoring and that's why we keep stating in terms of what would have happened if those CAT events would not have been in terms of quantum. We are in the business of writing risk at a fundamental level, do we watch, do we factor, all of that is part of the process, but the extent of the event is something which we all await. We will keep you updated on that part, but there is some element which obviously is baked in when we see that we are overall expecting an improvement of 50 basis points.

We have the next question from the line of Sanketh Godha from Avendus Spark. Please go ahead.

I have two key questions. One question is with respect to the regulation. My understanding of that new obligation norms on Motor TP seems to be more stringent than it was in the previous regime. So just wanted to understand whether we would be confident to fulfill the obligation of Motor TP in the new norms, is the point we wanted to understand and how we will achieve it? Second strategy question which I want to understand is that you have highlighted about One IL. But if you want to quantify the number, due to One IL, what are the synergies you are expecting to see either in the form of GDPI growth because you are now aligning agents across the business segment or distribution across the segments, so you expect synergies, and quantify the number in terms of GWP, additional GWP or maybe an additional improvement in the expense ratio because of these synergies? Lastly on data keeping, if you can share Retail and Group Health loss ratio? Gopal, if there is no TP price hike, are you still confident that 65 to 70 Motor TP loss ratio is achievable or not?

So I'll take the first two and then the other data that you're seeking in the last question Gopal will come in and give it to you. In terms of the new TP regulations that have come in, see, I mean, in the insurance industry, the authority has clearly said that they are looking for insurance for all by 2047, and for that some initiation has to be done. The contours of how this will emerge for all of us still has to emerge, it's work-in progress, but that being said, we have multi -line, multi-product, well distributed franchise with so much of retail, I mean the number of TW we do as an entity is humongous . So we are present. We would definitely back ourselves to achieve the objectives that are set by the regulators, but we wouldn’t be speculating beyond a point as to where we will be placed, complete clarity in terms of what's expected from us. So that's point 1. Under ‘One IL One Team ’ that we have been talking about a nd really emphasizing, quantification fundamentally comes with the quarter results that you will see us announcing and we would refrain from attaching finite value because the overall performance is subject to scrutiny which we keep announcing to all of you. Are we excited in terms of seeing both top line and cost getting controlled in a relatively better manner? The answer is yes, definitely, and we do believe coming quarter we will accrue, but we would not be culling it out and calling that this has happened because of this. Overall, the efficiency of the Company will be reflected in how we perform as an entity and there are multiple other aspects that come. We may have some genuine savings. We may choose to reinvest also that. So we would not like to dwell on those aspects.

Sanjeev, if you have a 5 0 basis points better guidance than what it was last year, so is it because of this One IL One Team?

I get where your excitement is coming from. This would be one of the contours. We have always maintained th at the industry sentiments also has to move in the positive direction. We have always maintained the fact that we would be an output of where the overall industry growth is and how our own placement is. So is this an element that comes in and binds us together as an organization? 110% answer is yes. But to quantify from this output, this much has come because of One IL One Team will not be fair is all I'm saying. So there are multiple things. For the other two questions, I will ask Gopal to revert to you.

Sanketh, on the health loss numbers, again, I will give you Q4 numbers first and then I will give you the full year numbers. Q4 on the GHI which is the employer -employee segment, this is for Q4 of last year, which is FY2023, that number is at 93.2%. That number for Q4 of this year is at 88.1%. And on a full year basis for the same segment, the range that we have spoken about is to operate in the range of 94%, 95%. If you look at FY2023, the overall loss ratio on the GHI side was 95.2% and this year we are at about 93.7%. On Retail Health, again, just to refresh, what we have talked about ev en in the past several quarters are we are comfortable operating in the loss ratio range, which is between 65% to 70%. In that context when you look at the Q4 FY 2023 numbers, retail, which is on the indemnity side, that loss ratio was about 61%, that number for Q4 of this year is at 64.6%, and on a full year basis, last year number was 64.1% and the current year number is at about 65.4%. That's in response to your second point on the health loss numbers. Your last question is whether the range that I spoke about of 65% to 70% in the context of Motor third-party. So again, that's the range that we have largely operated at. The only factor that I would say is in line with again what we have been speaking even in the past few quarters , as in to say that, what we are seeing on ground is also maybe an increased preference of the courts to start giving compensation in favor of the victims of the insured. So that's the trend that we will obviously observe. The other factor which we have again spoken of , which should be directionally positive is also this whole six months’ law of limitation in terms of how that gets played out. Last year, of course, we did see some developments. And finally, as we have been saying, the matter is presently at the Supreme Court. Once the verdict comes out, we will again have to see in terms of how that gets played out on ground. So hence there are again balancing forces in terms of ones that could possibly see or reflect an increase in the loss experience. Then it's up to us in terms of what risk selection do we do. And the second is more a positive benefit at least for ICICI Lombard from an overall RoE accretion standpoint. And hence that should aid us in terms of maintaining the loss ratio range of 65% to 70%. So there are a lot of moving parts. Now at this point of time we would want to stick with the 65% to 70% range and of course we will see some of these factors in terms of how that gets played out through the year.

The next question is from the line of Nidhesh from Investec. Please go ahead.

First question is on IFRS. So any update what are the timelines on the expected implementation of IFRS and what will be the impact on our P&L and balance sheet?

Again in line with what I had mentioned even in the last earnings call, we had said that we are pretty much progressing well in terms of doing the impact assessment, making sure that we get ourselves ready for the implementation which is effective from FY 2025-26 financial year. And even last quarter, we did say that we will come back in maybe a couple of quarters time frame. So honestly internally while we are doing all of those and also watching for the developments in terms of all the necessary guidelines and standards getting issued in the context of the IFRS transition. So therefore, at this point of time, too early to call out, but as I've always maintained, we have clearly spoken about three or four key areas or aspects, which is where we would likely to see the impact of transition play out in the context of IFRS. So that doesn't change, whether it is in terms of acquisition cost, whether it is in terms of discounting of reserves, w hether it is in terms of mark -to-market and the investment book. And maybe for a few set of companies which have issued, let's say, stock units or stock options, so there will be an element of cost through the earnings. So those are three or four key areas where one would see an impact of the transition play out. Specifically, to call out, we will come back and obviously keep all of you updated in terms of where we are on the IFRS transition.

Secondly, in terms of solvency ratio, we are operat ing at significantly higher number versus the regulatory threshold and our ROEs have also now improved to 17% to 18%. So do you think of better utilization of capital going forward?

No, of course, that's obviously something that we always look for ward. one of the factors that you see, which also led to let's say, improvement in solvency and of course improvement in earnings over the last few years that’s been our approach to, as what Sanjeev has also been talking about, is to sustain profitable growth as a theme. And hence let's say relative to the market, we have been slightly going slow on some of the segments. And therefore, we have not been able to completely utilize the solvency capital. What we are seeing is what we put out as a part of the introductory remark which is, to say that on-ground we are seeing semblance coming back in some of the segments where we have bee n a bit cautious and therefore as we see, let's say, incremental growth play out in line with our approach to con tinue to grow as well as remain profitable. Obviously, there will be consumption of capital that one would see in terms of the way forward. And secondly, the approach or the philosophy that ICICI Lombard has always worked with is to be slightly more pruden t in terms of the level of solvency that we want to maintain given the fact that the Indian market still continues to operate on a solvency one regime. Thanks to the regulator, they have been significantly working on getting the market again transitioned t o a risk -based capital regime. Obviously, we will get to know more in terms of the firm date of transition. So hence that's something again that we will see in terms of how does that results into so far as the consumption of capital is concerned. So, while we do see growth opportunities and hence we believe we will continue to use the capital judiciously.

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

So firstly, just a clarification. When you say 101.5 as a CoR guidance, that is for the exit rate of Q4 of next year or it's for the full year? Secondly, on the Motor TP business on the obligation, if the share of CV goes up, do you still believe that 65% to 70% guidance can be maintained? And within that, Gopal, time and again we've seen Q4 loss ratios increased sequentially for Motor TP. Is it just because of the adverse judgments that come in Q4 or what is it that really gives that a loss ratio uptrend in every fourth quarter?

Maybe I'll take the TP loss ratio part first. whenever there is, let's say, a possible reduction in the TP loss ratio, the questions get asked the other way around. I have always maintained that this is the book which is much more long tail in terms of lo ss development. And therefore, given the nature of the business, you will always see cyclicality / fluctuations in the loss experience of the book in terms of its outcome. So therefore, which is why I keep harping on looking at the numbers ideally over longer term, but definitely not between the quarters, look at it more on an annual basis. And as I keep saying, again, there are various factors that influences the loss experience of the book. Hence you will get to see fluctuations in the TP loss ratios across quarters. On a full year basis is what I spoke about in terms of trying to maintain and operating at a segment loss ratio in that range of 65% to 70%. Now, coming back to your second part of the question in terms of linked to Motor third-party is t he obligation. Now obviously the obligation is something that is applicable to industry at large and therefore as a Company, I mean, we have to make sure that we meet those obligations and I'm sure we will have in place a plan by virtue of which we are abl e to meet the regulatory expectations. the thought process in terms of where the regulator is coming out with the need to bring about this change is again very, very positive. Because the whole thought process is to try and make sure that the industry comes under the ambit of insurance, and that's very, very positive. And as an industry, if you're able to work collectively and maybe bring the larger set of, let's say, uninsured vehicles within the ambit of insurance, that to my mind is a great positive. And hence, we would obviously work and make sure that we're able to meet those obligations on the third-party side. The first part on the combined ratio part, obviously, yes, directionally the length that we have ta lked about, Prayesh, is that we have been saying that directionally the trajectory for us is to bring down the combined over a period of time and obviously this has to be looked at in the context of how we see the market environment operate at which is why even as a part of the introductory remark, we did point out to say that the market is clearly showing signs of , at least from the reported numbers on a nine months basis, there is almost a 400 basis points improvement in combined, from an overall market perspective. And within that one of the key segments which has been a larger contributor of significant competitive intensity has been Motor. That's again a segment which has not just on a half yearly basis, even if you look at the Q3 numbers for the market, that's again shown an improvement of almost about 30 0 basis points. So which is why we say that there seems to be some a semblance coming back and that's also getting reflected in terms of the growth numbers that many of these players were exhibiting in terms of competitive aggression. Clearly, you can see a lo t many players are starting to pull back. So that gives us possibly some confidence in terms of how do we look at achieving the combined objective that we laid out. Even in the past, what we have maintained is, if the market environment is favorable, there is no reason why we would not be able to accelerate the expectations of combined and that is why we stand, and in all fairness, we hope to achieve the thought process that we laid out from a combined perspective.

For the full year, right, that's the clarification I was looking at?

Probably we'll be in touch on this, Prayesh. We believe the exit overall with the 50 basis less. There are serious plans of investments also . We would continue to update as the quarters unfold because as Gopal said, these are early signs that makes us optimistic and seize the visibility of this. But there are multiple things that will unfold. As of now, in our mind, it would be probably exit b y Q4 is where we would see this and if it gets further accelerated we will come back and connect with you all by end of Q1 of this year.

We have the next question from the line of Madhukar Ladha from Nuvama Wealth. Please go ahead.

Investment yields have improved again this quarter and even if we exclude the capital gains, we're doing quite well. So what is the number that we should be sort of looking at in this and what is the duration, how are we driving this actually? Gopal Bal achandran: So Madhukar, again, I'm sure you guys know far better. obviously investments have to be looked at in terms of its return profile over a period of time. And hence is what we keep saying is to look at market opportunities in terms of having a ble nded mix of the right asset classes between both fixed income and equity . And that's what we have been looking at over the period of time in terms of realizing the opportunity. Now, specifically to answer your point on what led to, the increase in the interest yield or let's say the overall return on the portfolio, it is in line with the higher interest rate regime that we have seen. And obviously one leverages the opportunity and even if you look at historical past in terms of what mix of our overall returns have been in terms of interest accruals to capital gains, that mix has broadly been on the interest accrual side in the range of 75% to 80%, and on the capital gains side number that could range between 15% to 20%, aro und that a threshold. So hence is how we see the opportunity play out. And specifically if you look at our yield - to-maturity on the fixed income side, the yield-to-maturity currently stands at about 7.4%. And that's the opportunity that one was able to see in the market. And now can we sustain this? Obviously, we will have to wait and see how the interest rate cycle play out. There are expectations that you will start seeing some rate reduction cycle play through at some point of time. Again, we are positioned well even to capitalize that opportunity. But what could happen at those points is our ability to reinvest those realized flows, will obviously get invested at a lower return on the accrual side. But obviously we are well positioned to capitalize the opportunity from a capital gains standpoint. And therefore now to answer your point on the overall range of returns that we can operate with, again, if you look at FY2023, the overall return on the realized book was roughly at about 7.5%. This number if you look at for FY2024 was roughly at about 7.98%, closer to 8%. And the range, I mean internally the range that we run with is to give a return profile between 7% to 7.5%. Now that we are almost into 23rd, 24th year of operations, the return profile has been definitely better than that p articular range. So that's the range that we woul d be comfortable with and hence is where we would like to operate at.

We will now take the last question for today from the line of Aditi Joshi from J.P. Morgan. Please go ahead.

I wanted to understand on the investment intensity in the channel. So for FY2025, what is the outlook of the investments in the channel? In terms of the intensity, are you going to increase further or just wait for the investments in the last couple of years t o fructify and then just some guidance on that will be helpful?

Again, if you look at, what we put out even as a part of the introductory comment is just to refresh again, we have always looked ourselves as a multi-distribution Company and therefore is how we see opportunity play out across different channels. If you ask us, would we stay entrenched with each of these channels? The answer is a clear yes. so far, as we see new Motor vehicle sales gaining momentum and therefore, obviously, we will leverage on the access/partnerships that we have been able to create historically of working with OEM more importantly the dealership touch points. And that's the reason if you look at across the years , the proportion of dealership access that we have had out of the total number of dealerships as a country, again, just to refresh that number used to be between 50% to 55% at the time when we did our listing. Currently, we have been able to reach that number slightly upwards of 65% in terms of the total number of dealerships. So that will continue to be an important channel of distribution. Agency, which encompasses between Motor, Health, SME, has always been an area of opportunity and that's a segment which obviously we have been expanding a lot more. And clearly we have seen benefits of the investments play out, whether you look at on SME, the growth rates over the last several years have been very positive. Even on, let's say, I would say agency motor, that's a segment where we have talked about trying to create a balanced mix between dealership, agency and let's say ou r direct distribution. So hence , obviously, we will continue to leverage on Motor agency specifically. And in specific, since we're talking in the context of agency, Retail Health is always a positive opportunity that one sees. And that's the reason why we put out that number of the headcount that we have on our own health agency managers, which is currently at about 1,600 and we would want to continue to see expansion in that particular space. So you will obviously see a lot more expansion initiatives being undertaken in the context of retail health and therefore that should logically translate into an improved market share in that particular segment. While even this year, we would have loved to have done better, but honestly, we have not been able to completely leverage the opportunity that one sees. But given the fact that we have been able to strengthen our leadership team as well, one would expect a lot more to happen in terms of expanding distribution, launching new products and obviously strengthening the technology deliverables. So the agency will continue to be a very, very important channel of sourcing. And Sanjeev, in the last earning call did speak about One IL One Digital channel and therefore that will again continue to be a very, very important channel of sourcing. And if you look at just from the current year standpoint, the overall contribution of the digital opportunity that spans across, IL TakeCare, Website, Alliance partners, etc., that contribution has been almost in the range of about 6% to 7% of the overall revenues. And that's again compounding well in excess of almost about 20% year -on-year. So all in all, it is going to be a combination of all channels. There is going to be thrust of investments in each of them. If you ask me which channel by far gained the maximum traction, obviously, Retail Health is an area where we would want to significantly leverage faster. And then of course, we have the digital opportun ity that one sees and then we will continue to leverage on the other channels. I did miss one of them, which is the bank partnerships. Again that will be a very important area of sourcing. And within that ICICI Group will be a very important contribution for us. And hence we would obviously want to leverage on each of these channels of distribution.

Can you please share your outlook of the health insurance pricing both in the retail segment and the group that would be helpful?

It's a function of loss ratio. And as we said, we will continue to be a prudent underwriter in both the segments. Most of the industry includ ing us have taken a hike on the retail health price last year. As things stand, we would like to operate in this range and while we will obviously keep revisiting in terms of frequency as well as the loss ratio that comes along with it, but that's what ret ail health is. The group health is far more dynamic and driven by multiple factors in the market. Is it holding up? Overall, yes, there has been some sort of a discipline that continues to exist and if that's what stays, then we would obviously stay relevant. If it does not work out for us, we would not hesitate to move away and let go that business if it's not making sense, that clarity we have. And again reiterate that profit pools keep moving and accordingly we have to be agile as an organization, we will take those calls because to the best of our effort, we want to ensure that we deliver what the market is expecting with us, with the multi-line multi-product Company like us.

Thank you so much for joining in. It's an auspicious day of Ram Nav ami and so some of you are in a holiday. It's always a pleasure interacting with all of you. The opportunity as it stays, the momentum that we have developed, we are excited about the opportunity ahead. Look forward to interacting with you in time to come and all the best, take care. Thank you so much.

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

Except for the historical information contained herein, statements in this release which contain words or phrases such as 'will' , 'would' , ‘indicating’ , ‘expected to’ etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward- looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward -looking statements. These risks and uncertainties in clude, but are not limited to our ability to successfully implement our strategy, our growth and expansion in business, the impact of any acquisitions, technological implementation and changes, the actual growth in demand for insurance products and service s, investment income, cash flow projections, our exposure to market risks, policies and actions of regulatory authorities; impact of competition; the impact of changes in capital, solvency or accounting standards, tax and other legislations and regulations in the jurisdictions as well as other risks detailed in the reports filed by ICICI Bank Limited, our holding company with the United States Securities and Exchange Commission. ICICI Bank and we undertake no obligation to update forward -looking statements to reflect events or circumstances after the date there.