Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross premium income increased to INR12,405.68 crores for Q1 FY25 from INR8,917.71 crores in Q1 FY24.
- Investment income rose to INR2,758.99 crores in Q1 FY25 compared to INR2,559.31 crores in Q1 FY24.
- Incurred claims ratio improved to 89.8% in Q1 FY25 from 95.1% in Q1 FY24.
- Combined ratio improved to 109.6% in Q1 FY25 from 118.47% in Q1 FY24.
- Profit after tax increased to INR1,036.36 crores in Q1 FY25 from INR731.79 crores in Q1 FY24.
Negative Points
- Overseas combined ratio remains high due to legacy marine exposure, with some provisioning still affecting results.
- International book declined, primarily due to the cessation of a major contract in the US.
- Significant provisioning for recent catastrophic events like Taiwan earthquake and UAE floods.
- Domestic premium growth appears inflated due to changes in estimation policy last year, actual growth closer to 15-16%.
- Potential challenges in maintaining combined ratio improvements due to upfront acquisition costs and competitive pricing pressures.
Q & A Highlights
Q: Sir, my first question is on your overseas combined ratio. Last year, you highlighted that you largely provided for the marine exposure, which was old book. And -- but if you look at the numbers, even today in the overseas business in a marine line, which is cargo and hulk put together, it is more than 500 percentage, 600 percentage. So still some provisioning with respect to this business is left over, which is still haunting your overseas combined business? That is my first question.
A: On the overseas combined ratio and how marine is still hunting that. Yes, we have made our provisions. But if you see what has happened is, effectively, the premium has come down. Now we need to just understand this a bit. This [upfront] is a contract that we stopped writing in 2021. But yes, it is long tail. So what has happened is the claims have come later, but premiums have also been coming though not in the range that when we were actually writing it. This year, the premium was completely stopped, at least in the first quarter, we have not seen any premium from that particular contract, so which has basically affected marine and motor. If you see the marine and motor premiums, you would see that it has shrunk. Both are chunk and basically the reason is premium, which used to come from that one particular contract that we wrote in the US has completely stopped at least in the first quarter. And the moment the premium becomes negative, or the premium growth becomes negative and the claims continue at the same range, you would see that the combined would go up. And that is what we are seeing here. I think our provisions with respect to the contract is quite good, but we have paid some claims which we have reflected in these accounts.
Q: Sir, basically, if I look at the numbers, the health and agri give them meaningfully very well. How to read the numbers? Is it just a recognition change that the crop most return more in the first quarter itself, and that's why you recognized more or because last year, we wrote around INR10,000 crores of crop, whether a similar trend will happen or we have changed the strategy to take more crop exposure in the current quarter and equally whether it is true with the health business.
A: On the growth, but I would like to essentially tell you that when you look at the growth this time, essentially looks like a 40% growth, it's actually not. And I'll tell you why. Last year around the same time during the first quarter, IRDA has changed the estimation policy. Meant that we really had to adjust our book in the first quarter last year to take care of that, which meant the first quarter premium last year was quite low compared to what it should have been, which is why when you look at the premium today that we have shown for the current year, it looks as if we have grown 40% year-on-year. It's really not that. It is just because of the adjustment. And basically, to a great extent that adjustment was on account of agriculture, where the estimation was slightly higher, which we needed to scale down last year. And that is why you see, as of agri has grown. It's not really grown much. We continue to remain very cautious in agriculture, and we may possibly end up writing almost the same or maybe slightly more compared to last year. I don't see a major change there. And [different] story all together, health we have grown. And like I said in my earlier talk also, and maybe I would have talked about this during the May earnings call also, that we really do want to spread our books to ensure that we also move away from catastrophic business as much as we can and health has been a good area for us to do. Typically, retail health is something that doesn't come into the reinsurance market because insurance companies have the wherewithal and the capacity to retain it to themselves. But we have managed to get some good retail business this year, which we wrote on April 1, and you are seeing a part of that part of that growth in the first quarter as well. So yes, there is growth in health, but I don't think there is as much growth in agri as you thought. It's more an accounting thing because of what we had to do last year.
Q: Sir, in the follow-up with respect to the marine thing. So we are taking a hit of almost INR750 crores-odd in the current quarter. Sir, this is almost done away with, I mean, incrementally, you will not see that kind of a payment and therefore this INR126 crore coming, because all other lines have shown a kind of improvement in the overseas business. Only these two have been pain points. So sir, is it fair to assume that now it is done away with in subsequent quarters, you -- we can expect a better number, assuming no significant cat losses?
A: Yes, that is what we would love to believe the way we have provided and the way -- I mean there have been very detailed discussions with stakeholders in the US with whom we are dealing in this. But I'm just hoping that things don't deteriorate further there because motor, unfortunately is a bit of a long-tail class. We strongly believe that we are provided correctly for this book unless things change dramatically in that market. I think we can safely say that the worst is behind us.
Q: And the other question which I have is that your international book has declined. This is largely because of motor you discontinuing there or other line of business have done well? And that number optically looks weak. That's the case, sir?
A: So basically, yes, the international book has declined because like I said, the contract that we stopped in '21. I think whatever premium was left to come from there has stopped. At least in this quarter, we have not seen any premium. That's where we are seeing the decrease in the international book. Otherwise, every other business has kind of done the same thing that we did last year, because honestly we didn't grow our international book in the current year, typically, which would happen in the January 1, year, in January 1, '24. We didn't grow our book much simply because we still are waiting for our international credit rating to improve because only then would we be able to attract and write good quality business, which we want in our books.
Q: Got it, sir. And lastly, two things. One, if you can quantify your domestic cat losses and overseas cat losses in the current year, if there are any. And you indirectly alluded to the point but when we can hear about your rating change from invest.
A: On the catastrophic losses, I don't think we have very significant pain figures currently. But then, yes, there are provisioning that we have done. So one thing is on the foreign property, in this first quarter there have been a few events being reported
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
