ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2023-Q1

[Operator]

Good evening, ladies and gentlemen, and a very warm welcome ICICI Lombard General Insurance Company Limited's Q1 FY '23 Conference Call. From the senior management, we have with us today Mr. Bhargav Dasgupta, MD and CEO of the company. Mr. Gopal Balachandran, CFO and CRO; Mr. Sanjeev Mantri, Executive Director; and Mr. Alok Agarwal, Executive Director.

Please note that any statements comments are made in today's call that may look like forward-looking statements are based on information presently available to the Management and do not constitute an indication of any future performance as future involve risks and uncertainties, which could cause results to differ materially from the current views being expressed. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Bhargav Dasgupta, MD and CEO ICICI Lombard General Insurance Limited. Thank you, and over to you, sir.

[Bhargav Dasgupta, executive]

Thank you, Nirav, and good evening to each 1 of you. Thank you for joining our earnings conference call for Q1 FY '23. I will give you a brief overview of the industry trends and developments that we've witnessed in the last few months. Post this, our CFO, Mr. Gopal Balachandran, will share the financial performance of the company for the quarter ended June 30, 2022.

During the quarter, the Indian economy continued to steadily grow towards the pre-pandemic levels with broad-based improvement across consumption, investment, credit growth of banking sector, et cetera. In spite of the headwinds of inflation, geopolitical tension and supply chain disruptions with into rural and strong urban demand, the optimism towards India's economic recovery remains intact. Amidst this, the GI industry performed reasonably well, primarily driven by segments such as Health Insurance and Motor Insurance.

As for the data published by CM, the new vehicle sales witnessed moderate growth for Private Car segment amidst continued supply gain constraints. The Commercial Vehicles segment grew robustly supported by underlying demand, while the 2-wheeler segment continued to remain slow compared to pre-pandemic levels.

Health Insurance, in line with the expectations contributed to the overall industry growth. The commercial lines witnessed growth in sync with the current market environment. Resultantly, the GI industry delivered a GDPI growth of 23% for Q1 FY 2023.

As for public disclosures, the combined ratio of the industry was 118.1% in FY 2022, excluding 1 company, which is yet to disclose the Q4 results as compared to 112.2% in FY 2021. We give this data with a 1 quarter lag because that's when we get the full information.

Moving to regulatory updates. The Government of India, where the Ministry of Road Transport and Highways in consultation with the authority on May 25, 2022, published revision and base premium for Motor Third-party insurance for various classes of vehicles effective from June 1, 2022. The rate hike is expected to be marginally positive. However, the rise is not commensurate with the loss experience and the inflation that the industry has been -- has envisaged in the segment.

And with the current need to increase insurance penetration in the country, the authority has recently announced several measures for the benefit of policyholders and towards ensuring ease of doing business for insurers. This includes reducing compliance burden on regulated entities by rationalizing regulatory framework, forming committees working committees towards distribution reforms, finance and solvency-based related provisions, product governance regulatory and statutory reforms and review of data and technology framework and organizing bi-monthly interactive sessions with the insurers for the suggestions for increasing insurance penetration.

Subsequently, on June 1, 2022, the authority prescribed the user file procedure for all Health Insurance products and almost all General Insurance products by moving from the current regime requiring prior approval for launching retail products to a regime where products will be launched without prior approval.

On July 14, 2022, user file was also extended for agriculture and allied services. On July 5, 2022, the authority permitted General Insurance companies to introduce the following tech-enabled concepts for Motor Own Damage as an add-on to basic policy. One, Pay As You Drive; two, Pay How You Drive; three, the floater policy for vehicles belonging to the same individual owner for 2-wheelers and private cars.

The company has launched similar products under the regulatory sandbox initiative in 2020, wherein there was a limitation of INR 50 lakh of premium or 10,000 policies, whichever is achieved earlier.

In line with the above regulatory change, the company has launched its motor -- floater add-on cover recently. It provides convenience to customers of having 1 policy document, 1 renewal date and 1 premium at lower cost.

Moving to business impact for us in Q1 2023. The company grew by 24.9% as compared to the industry growth of 21.7%, excluding crop and [indiscernible]. Coming to the growth for key segments during the quarter. For Motors, the company grew in line with the industry and has maintained its leadership with a market share of 11.3%. The company increased its proportion of CV mix to 24.5%. The electric vehicle segment continues to be a focus area for the company. The company continues to maintain its leadership position in this segment as well with an estimated market share of 14% for Private Cars and 64% in 2-wheelers.

Our investment in retail health has resulted in our agency channel premium growing in by 18.3% this quarter. As indicated in our previous calls, we continue with our investment in adding managers to grow our retail health agency business, and our current headcount stands, which includes new hires at 1,101. We expect the growth to accelerate in the next few quarters as the agency managers start getting productive.

I would also like to share that our one-stop solution for all insurance and wellness needs the IL Take Care app, has surpassed 1.7 million users -- user download till date. The incremental download for the quarter was 0.4 million.

Our bank issuance and key relationship groups grew at 14.4% this quarter. Within this, the ICICI Bank distribution grew by 30.5% and the non-ICICI Bank distribution grew by 65.1%. Post pandemic, the recovery in credit growth, along with the increase in wallet share in distribution partners acquired through the merger has been the key growth driver for us. Our business source to our Digital One team grew by 30.7%. Within that, the business on our website grew by 21.1% and business sourced through strategic alliance partners in the digital ecosystem grew by 170.8%. Overall, our digital focus has enabled us to increase our digital revenues to INR 2.1 billion, which accounts for 3.9% of our overall GDPI for this quarter. As far as the commercial lines are concerned, we experienced robust growth driven by 18.7% growth in the SME segment. We are optimistic with the recent positive regulatory developments would enable us to grow faster with emerging market needs.

We remain on track and are focused on growth levers such as strengthening our distribution engine, digital enhancements realizing synergy, rationalizing cost while scaling up our preferred lines of business.

I will now request Gopal to take you through the financial numbers for the recently concluded quarter.

[Gopal Balachandran, executive]

Thanks, Bhargav, and good evening to each one of you. I will now give you a brief overview of the financial performance of the company for quarter 1 FY 2023. We have put up the results presentation on our website. You can access it as we walk you through the performance numbers. Gross direct premium income GDPI of the company was INR 53.7 billion in quarter 1 FY '23 as against INR 41.88 billion in quarter 1 FY '22, a growth of 28.2%. This growth was higher than the industry growth of 23%. Our GDPI growth was primarily driven by growth in preferred segments, given that our approach has always been growing business sustainably. The Fire segment GDPI grew by 10.3% at INR 11.43 billion in quarter 1 FY '23. That's against INR 10.36 billion in quarter 1 FY '22. As indicated in our results presentation, the overall GDPI of our Property and Casualty segment grew by 14.3% at INR 19.54 billion in Q1 FY '23 as against INR 17.09 billion in quarter 1 FY 2022.

On the retail side of the business, GDPI of the Motor segment was INR 17.82 billion in quarter 1 FY '23 as against INR 14.01 billion in quarter 1 FY '22, registering a growth of 27.2%. Our agents, including the point-of-sale distribution, increased to [ 94,559 ] as on June 30, 2022, up from [ 88,545 ] as on March 31, 2022. The advanced premium numbers was INR 34.71 billion as at June 30, 2022 as against INR 33.68 billion as at March 31, 2022. Resultantly, the combined ratio was 104.1% in quarter 1 FY '23 as against 123.5% in quarter 1 FY 2022. Our investment assets rose to INR 398.34 billion as at June 30, 2022 from INR 387.86 billion as at March 31, 2022. Our investment leverage net of borrowings was 4.18x as at June 30, 2022, compared to 4.23x as at March 31, 2022.

Investment income was INR 6.55 billion in quarter 1 FY '23 as against INR 8.89 billion in quarter 1 FY '22. Our capital gains was lower at INR 0.32 billion in quarter 1 FY '23 as against INR 3.27 billion in quarter 1 FY 2022.

Our profit before tax grew by 80% -- 80.1% at INR 4.65 billion in quarter 1 FY '23 as against INR 2.58 billion in quarter 1 FY 2022.

Consequently, profit after tax grew by 79.6% in at INR 3.49 billion in quarter 1 FY '23 as against INR 1.94 billion in quarter 1 last year. Return on average equity was 15% in quarter 1 FY '23 as against 9.4% in quarter 1 FY 2022.

Solvency ratio was 2.61x as at June 30, 2022 as against 2.46x as at March 31, 2022, continue to be higher than the regulatory minimum of 1.5x.

On the ESG front, we have [ voluntarily ] adopted the business responsibility and sustainability reporting for FY 2022, thereby strengthening our commitment to transparency and disclosures and also to promote a culture that embraces sustainability practices within our business processes. The company for the first time has also disclosed its GHG emission an independent external assurance provider has also provided limited assurance of the GHG emission accounting.

As I conclude, I would like to reiterate we continue to stay focused on profitable growth. sustainable value creation and safeguarding interest of policyholders at all times. I would like to thank you all for attending this earnings call, and we will be happy to take any questions that you may have.

[Operator]

[Operator Instructions] The first question is from the line of Deepika Mundra from JPMorgan.

[Deepika Mundra, analyst]

Sir, firstly, on the Motor Insurance products, can you talk -- walks us through little bit on...

[Operator]

Deepika, may I ask you to unmute your line and [indiscernible] question please.

[Deepika Mundra, analyst]

Hello, can you hear me?

[Operator]

Yes.

[Deepika Mundra, analyst]

Yes. So firstly, on the Motor Insurance fee...

[Operator]

Deepika, sorry to interrupt you, we are unable to hear you, may I request you to speak a little louder please and through the handset?

[Deepika Mundra, analyst]

I'll try again. Can you hear me?

[Operator]

Yes. Much better.

[Bhargav Dasgupta, executive]

Yes, much better, Deepika. Yes.

[Deepika Mundra, analyst]

Some trouble with the handset. Okay, so on the Motor Insurance piece, in terms of what are you seeing on claim inflation versus the pricing trend, both on OD and TP. I think on TP, you already very clearly mentioned you're running below what the inflationary trends are. So -- and overall, how do you expect this to impact the combined ratio this year given the fact that the volumes are on the uptake?

[Bhargav Dasgupta, executive]

So if I look at the OD side, what we are seeing is slightly higher claims frequency than what we had last year. Some of it was anticipated as utilization of vehicles has increased. But overall, even beyond that, we are seeing slightly higher frequency numbers.

Now normally, if you look at the ACS, it's kind of flat. We are not seeing any significant increase in average claim size. Overall, in terms of the pricing, the industry has also corrected our pricing a little bit on the OD side in line with what we discussed last time. But on balance, on the OD, the price, the pressure on loss ratio remains in line with what we've been saying over the last few quarters.

On the TP side, yes, while the premium -- the rate increase is not in line with the claims inflation. One of the things that we are hoping to see come through is now that the motor vehicle rules have been framed, we will see how the courts begin to adopt this -- the 6-month limit and the [ DAR ] process, the intimation process. If that comes through, that will be a positive. So that is, in a sense, something that we will watch very closely for the next 2 quarters to get a sense of whether it's getting implemented. If it gets implemented, that will be a positive overall on the TP side.

[Deepika Mundra, analyst]

Understood, sir. And all the new products, which are data driven, this -- won't it be largely disinflationary in nature. So wouldn't it cap premium growth to a certain extent? Or do you see the penetration benefits outweighing that significantly?

[Bhargav Dasgupta, executive]

So what -- it could be a mix of both. You're absolutely right. So if you price the exposure, which is, in a sense, people who drive less and those are the customers who end up buying the telematic driven products. that could be disinflationary. But what it does is basically price the risk better. And logically, the rest of the book, the pricing should go up. If that doesn't happen, then what you're saying may happen. We will have to see how big the penetration of piece is, because it's just early days. Our sense will take a fair amount of time for this to become a large part of the motor business. The second opportunity that we believe is there is that there is a large amount of business which is people buying only TP, which potentially can buy OD also. So if we can increase penetration, that will help.

[Deepika Mundra, analyst]

Understood, sir. And last one, if I may, in terms of the quarterly numbers, despite the scale up in volume, there seems to be no operating leverage. Could you talk about the investments, I think, that you're making on distribution or anything else that is contributing to that?

[Gopal Balachandran, executive]

Yes. So Deepika, I think what we have spoken about is continuing to make those investments in health agency, digital and claim service. So that's something that is the continuing one, which is why if you recollect, I think while we have announced adding to add almost close to 1,000 health agency managers, which we had spoken about last year. Effectively by end of March, we had on-boarded about 750 of them. That number, if you speak, including the new hires, as at June 30 stands at almost about 1,100 and odd thereabout. So we are continuing to make those investments in health agency distribution.

Even digital for the matter of fact, again, when you look at the numbers, which is growth delivered through both our contributions coming in from website as well as the alliance partner tie-ups that we have. That number, again, has done quite well. I mean, which was put out even as a part of our opening remarks, that growth for us has been almost about 30%. So that's an area where we are continuing to make investments in increasing the sourcing of the digital channel as well.

And the third area, which will always continue to stay focused on is with respect to excellence in claims service. So those areas are continuing to kind of stay invested, which is why when you look at the aggregate, let's say, the growth in the management expense numbers. The overall growth for us for the quarter 1 this year has been roughly at about 28% or maybe on a gross written premium basis, it will be close to about 30%. Visibly that if you see the growth in management expenses has been about 28%. So in some sense, there is some element of operating leverage. But at the same time, obviously, there are those continuing investments that we are making, which will obviously play through as we speak over the next several quarters.

[Operator]

Next question is from the line of Hitesh Gulati from Haitong.

[Hitesh Gulati, analyst]

Sir, firstly, on the Health segment. We are seeing some slowdown for the industry in the retail health. What are your thoughts on that? And also if you could comment on what we are doing in the health segment exactly. For instance, in the ICICI Bank channel, we had highlighted that they have started selling some amount of indemnity products. So what is the progress there? What is the progress in the other HFC/NBFC who we wanted to do more benefit products there. In general, indemnity benefits, some flavor on that. I'll follow up with 1 more question after that.

[Bhargav Dasgupta, executive]

Yes. So in terms of what we are doing in health, 1 is -- your first question of the bit of slowdown. There is a bit of base effect for the industry. Last year, Q1 was very strong. So for the industry, retail health growth has got a bit muted. But for us, the growth is beginning to pick up. As we explained, the agency-driven business has grown by about 18% for us this quarter, even as the full distribution that we are ramping up is getting productive. So we believe that this growth for us will actually increase going ahead. So from our perspective, that's a positive.

The second thing is on the bancassurance side. If you look at the point that I made in my opening remarks, the question on ICICI Bank. As I explained, we had talked about this last quarter as well. That last year was a bit of a headwind because the benefit business that was hold as an attachment by the bank that had gone away. But the bank has started selling indemnity products as a group -- in a group format as an attachment to the mortgage growth. And that's driving the 30% growth in that channel that we are seeing. The other KRG partners, other partners, which is basically the new -- the existing relationship that we've had over the years, NBFCs, HFCs and other banks. As also the new bancassurance tie-ups that we've got through the merger with Bharti AXA, that channel has grown really well. And that number, that growth is roughly about 65%. So overall, the bancassurance business has grown by about -- roughly about 50%, 49.4%, split into 30.5% at the bank level and 65% at the other bancassurance partners. So overall, we are -- and within that, the benefit number has also grown very well because a lot of the attachment products that get sold by the HFCs and some of the other banks is a benefit product.

[Hitesh Gulati, analyst]

So that's what is growing the group other segment within health, right? This is the entire bank [indiscernible]

[Bhargav Dasgupta, executive]

Group numbers, yes, yes absolutely right.

[Hitesh Gulati, analyst]

Right. And sir, just on the crop segment, we have, I think, 1 of your tenders here. So we are again looking to grow crop, right? This is in addition to what we got from Bharti AXA because our reinsurance rates also look higher this quarter, is that correct?

[Bhargav Dasgupta, executive]

No, that is not correct. So what we are doing is we are kind of stick. So if you look at what we got from Bharti AXA, they had 2 states. One was Karnataka, the other one was Maharashtra. Maharashtra changed the scheme from the original insurance team as per [indiscernible] to a scheme where the loss range is capped. So it's a 80 to 110 scheme, where the loss issue is below 80 as an insurance company, we will refund the premium to the state. At the same time, the loss ratio is more than 110, the state will pay for that claim. So it's a fixed range product. which -- that's a replacement of the traditional peer as well. So what we've done is in Maharashtra in the -- under the new scheme, we've taken 2 clusters. So aggregate crop numbers for us will not be very different from what it was last year, maybe marginally a little bit here and there. But aggregate numbers very similar to last year.

The reason why we build from Maharashtra is because we have kind of indicated that we will observe how the scheme evolves and according to take a call. With the 80 to 110 model, our reinsurance cost for the stock loss that used to buy goes away, that's a big saving. If you remember, we used to talk about the fact that reinsurance cost is very high for a scheme of this nature, and that's one of the reasons why we stopped writing this. So the reinsurance cost goes up because the loss is capped at 110. And overall, we don't want to increase the crop exposure beyond a certain level. So we're staying in line with what we did last year in aggregate as a company.

Now there's been some booking difference. This year, some of that got booked in the first quarter. Lastly, a lot of them got booked in the second quarter. So there may be some timing differences, but aggregate for the year, we don't see too much of a difference in aggregate crop business that we will write.

[Hitesh Gulati, analyst]

Right. And just one last thing on Motor OD, some increase in claim ratio is due to higher CV business, right? And this combined will still be lower. Is that understanding correct?

[Gopal Balachandran, executive]

So Hitesh, what we had kind of indicated even if you collect in our earlier calls, we had said particularly on Motor, we would look at certain segments, which could be relatively high on LR but could be, let's say, relatively lower in so far as our cost of distribution is concerned. Because from an ROE perspective, those kind of business selections makes viable sense. So that's one reason why you also see maybe an increase in the OD loss ratios. And even if you recollect, when we had kind of announced numbers for the full year, at that point of time, we did indicate particularly for, let's say, Own Damage, maybe quarter 4 will be more representative of, let's say, what 1 could experience in so far as OD loss ratios are concerned so far as trend line is concerned.

But having said that, I think the way to look at the OD segment, will be to -- obviously look at both the loss ratios, plus the cost of distribution put together. And on that basis, is how we are looking at selecting the portfolio. So you could see some periods where you would see possibly an increase in the OD loss rations given the fact that we would want to select certain segments, which could be higher on loss ratios, in which case, you may see periods of increase in loss ratios. At the same time, possibly, we will see a moderation in the overall cost of distribution. On an aggregate basis, I think we would want to kind of stay disciplined in terms of the risk selection that we do.

[Operator]

Next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Two questions from my side. Firstly, you did explain in the previous question, the reason for the lesser retention in this quarter. crop was not the reason and what was the reason for lesser retention in this quarter?

[Gopal Balachandran, executive]

So Prayesh, if you're comparing the net retention ratio vis-a-vis the full financial year, and quarter 1 of this year, then obviously, it will not be a like-to-like comparison because a large part of quarter 1 business is largely driven by the commercial line of businesses. So particularly, let's say, fire, engineering multiple corporate. They will kind of have the [indiscernible] coming through in quarter 1 of this year, where relatively because of the size of the risk is bigger, you tend to have an element of risk in it. It's more towards, I would say, quarter 3 and quarter 4, where bulk of the retail business, particularly Motor and Health will largely get driven and book in so far as business group is concerned, where as we have explained earlier, both on Motor and Health, we kind of leave aside the obligatory minimum, which now for the current year is at about 4%. By and large, we tend to retain rest of the risk on the net account. So hence, whatever retention that you're seeing of the 65% number for quarter 1 vis-a-vis maybe a 70% or 72% for the full year. It may not be a like-for-like comparison, as I said, because of the corporate renewals that happened in the first quarter.

[Prayesh Jain, analyst]

Okay. Got that. Secondly was on the investment yield. So it seems to have dropped sequentially quite a bit. Any explanation on that?

[Bhargav Dasgupta, executive]

Could you just repeat that, sorry, please?

[Prayesh Jain, analyst]

Sir, the investment yield on the -- if I calculate on the investment book, that seems to have dropped sequentially materially in this quarter. Any reason for that?

[Bhargav Dasgupta, executive]

Largely driven by capital gain stock, if you look at the Q1 of last year, we had almost INR 300 crores of capital gains. This quarter, that capital gain number is down to about INR 32 crores.

[Prayesh Jain, analyst]

I'm just comparing Q-on-Q, which is compared to Q4, compared to Q4.

[Bhargav Dasgupta, executive]

So I'm comparing Q1 to Q1. Q1 last year, we had about INR 327 crores of capital gains that we had on the investment book. This quarter, it's about 31 -- INR 32 crores. If you compare sequentially, last quarter, that is Q4 of last year, we had about INR 136 crores of capital gains. This quarter, we over INR 32 crores. So even sequentially, it's dropped a lot. It's largely due with the market context. And these are times as a long-term investors, we see these markets as opportunities to invest rather than worry about the fact that for this quarter, we had a capital gain from.

[Prayesh Jain, analyst]

Okay. Got that. Got that. And last and could you give an explanation as again, possibly this is NEP to NWP ratio. Did you ever assume that in this quarter, there should be an unwind that would happen from Q4 and that NEP to NWP ratio should be a positive number but it should be greater than 1 number, but anything that you can guide or help me understand that.

[Gopal Balachandran, executive]

So nothing specific, Prayesh. At least so far as recognition of earnings is concerned, pretty much it remains the same, which is earnings get earned over the policy contract. What you see is the gap between, let's say, growth in, let's say, premiums or NWP and NEP is largely a function of the growth coming back in this quarter, which will possibly start seeing unwinding happening towards the next 2 or 3 quarters. So it's more a catch-up of the growth that we see coming back in this quarter vis-a-vis, let's say, if you would have looked at Q1 last year, for example, the growth for us was low single-digit number. In terms of aggregate revenue. So vis-a-vis that if you see for quarter 1 this year, as we explained as a part of the opening remarks, we had a growth in GDPI of almost about 28%. So this unwinding of earnings or maybe the gap that you will see between NEP and NWP will start [indiscernible] to maybe over the next several quarters, of course, subject to what we get to experience in so far as growth in revenues are concerned.

[Operator]

The next question is from the line of Madhukar Ladha from Elara Capital.

[Madhukar Ladha, analyst]

Most of my questions have been answered. But what's happening on the commission line. So I see like a drop in the commissioning ratio, what explains that? I'm guessing it's something on reinsurance that you would have earned some commission. That's one thing. And again, the management expenses that have also gone up a lot. So I'm talking not insurance-related expenses, but the expense of management that's gone up to about INR 19.8 crores. So why is that happening?

[Gopal Balachandran, executive]

So I think on the first one, Madhukar, I think and so far as commissions are concerned, yes, you're absolutely right. When you look at the net commission ratio, it's a function of both what commissions that we pay as the cost of doing business. And obviously, the element of reinsurance commission that we earn as a part of reinsurance ceding that we do to the reinsurers.

As we have been explaining, particularly on the reinsurance side, given the outcome that we have exhibited to the reinsurers, we talked about even in the last quarter to say that the reinsurance programs that we have been able to renew for FY '23 has got 2 positive changes. One is we have been able to strengthen the panel of reinsurers, which we have been able to operate with. That's positive from a credit risk standpoint, given that we are working with high-quality reinsurers. The second aspect that we kind of exhibited also was given the fact that, as I said, we have been able to exhibit a positive outcome to the reinsurers. In terms of commissions that we have been able to get from the reinsurers have also been relatively better than what we had seen for FY '22.

And as I said, quarter 1 typically form bulk of the corporate policy renewal cycle. And hence, to that extent, you will always find in quarter 1, the extent of reinsurance commission is coming to you at that time when the businesses are booked. And that's the reason why you see possibly the commission ratio reflecting a relatively lower number than what we had seen in the earlier period. So that's in response to the commission ratio point that you made.

On the management expenses, as I explained, I think if you look at it vis-a-vis the growth in revenues that we have had, as I said, either if you look at it on a GDPI basis or even if you look at it from a GWP standpoint, we have seen a growth in revenues of almost about 28% or 30%, whichever the way you look at it. Vis-a-vis that, I think if you look at the growth in management expenses, which includes both commissions that we incur for cost of distribution, plus, let's say, the operating expenses that we incur, both of them put together has grown by -- has grown at about 27.8%. So hence, I think whatever increase in numbers that we are seeing is relative to the growth in revenues that one has seen. At the same time, I think what we have been explaining, we continue to see, let's say, relative competitive intensity continuing in the market. And hence, to that extent, that's also a factor that is playing to with respect to the management expense number.

[Madhukar Ladha, analyst]

Got it. So this commission ratio part of it, should it -- is it more like a quarter 1 phenomena? Or do you think it will normalize during the [indiscernible] or I'm guessing some portion of it, there should be some further reduction in the balance part of the [indiscernible] I don't mean -- Yes. I don't mean on a quarter-on-quarter -- I don't mean from the 2.2% that we're seeing right now. But on a year-over-year basis, there should be some reduction because of what you mentioned right now.

[Gopal Balachandran, executive]

That's right. So again, it's a function of how do we see, let's say, growth coming back. I think why quarter 1 has been good, let's say, from -- even from some in from a retail standpoint. So that obviously involves an element of commissions, expenses that we have to incur for doing the business. So over the next 3 quarters, we will have to see how that growth momentum plays out, which will also have a factor in terms of the commission ratio numbers.

Two, over the next 3 quarters, definitely, you will see the extent of reinsurance commissions that we would have earned in quarter 1. That number will definitely see a relatively declining number as we move towards quarter 2, quarter 3 and quarter 4, given the fact as I said -- and maybe Q2 and Q3, Q4 also, to some extent, the cycle comes back in terms of reinsurance commissions because some of the companies which follow the January to December cycle, they will have their renewal period starting from January 1. So there again, you will see an element of reinsurance commission that will play out. So there are multiple factors that get attached to this number. So obviously, we'll have to wait and see how the growth plays out on the retail side. And equally, as I said in terms of the renewal cycle that will happen in Q4 will also be a factor that will drive the reinsurance commission numbers as well.

[Madhukar Ladha, analyst]

And any particular lines of business...

[Operator]

[Operator Instructions] The next question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

So first question is more from a strategic perspective, I mean, you are well capitalized or rather overcapitalized. And commercial lines, typically, you have your sort of, I would say, strength as well. So I mean, how is the pricing environment? Because I think in commercial line, you are more or less maintaining your market share to slightly feeding in some lines. So I mean, why not certainly because you have advantage on the reinsurance side as well, you have sort of your capital effect. Why not sort of go a bit aggressive on commercial line especially in the back drop when the retail lines are seeing high-end competition, I mean, ongoing. So that's one. Then I will come up with the follow-up question.

[Bhargav Dasgupta, executive]

That's a great question, Avinash. And if you see the last 3 or 4 years, we've consistently gained on the commercial segment. Our expectation is that even this year, we will gain. It is just that in the month of April, we always find that the -- because it's a big month for commercial business, most companies renew, there is a lot of pricing aggression that happen just in that month. And we are usually a bit more cautious in that month and then gain during the rest of the year. So our anticipation is that even this year, like in the last 3, 4 years, we'll gain on the commercial lines of business.

Also, one of the points that we made is the SME business for us has been growing. We are even more sustaining that effort in the emerging markets -- more in the -- more distributed markets of the country, and we hope to see some traction there. So your point is absolutely right, and that's what our plan is. We hope to increase our commercial lines market share even this year, like the last 2 years.

[Avinash Singh, analyst]

Okay. Okay. Second maybe again, kind of that -- you again, it's a bit of, I would say, irritating. I mean the [indiscernible] capital continues to pour in. And we get the profitability of some of the metrics you quote and we see, still are not very impressive. I mean, of course, we have been working for some pricing synergy to return in some of the retail lines but we feel...

[Bhargav Dasgupta, executive]

Avinash, the voice is a bit -- not very clear. I think you asked a question about new capital coming in? Is that the question?

[Avinash Singh, analyst]

Yes, I'm saying [indiscernible] capital continue to chase. I mean, growth in this sector. When the pricing basically already not coming back, I mean how long this -- I would say, a worse pricing cycle, particularly in the Motor OD to continue. I mean, regulator, of course, I know regulator has given you a benign high, but regulator cannot be giving a hike in the TP line when the players are not sort of exhibiting basically on the OD line. So just I want yourself that, okay, when do you expect some synergy to come back in the Motor OD pricing environment?

[Bhargav Dasgupta, executive]

Yes. So I think that's, again, a good question, Avinash. So -- and you're absolutely right. We cannot seek too much of an increase in PPE if we don't see discipline in the OD beyond the point. Though honestly speaking, when you look at each segment of risks, each risk should be appropriately priced, that's the ultimate principle. But having said that, your larger question about when we see discipline on the OD side, I think this quarter, we've seen some discipline coming in terms of some rationalization by a few players, not all. But I think the larger issue is that if more capital comes into a sector, there will always be aggressive behavior by some players. And unfortunately, a lot of investors mistakenly believe that the valuation of our company is a price to GWP multiple, which actually makes no sense.

Hopefully, given the change in the overall macro environment, for more sensible investment valuations, we will see some of those changes. But till that happens, there will be some -- that pressure. So I mean we've always been saying that Motor OD normally rationalizes very -- within about 1.5 years. So we had -- we expect it to happen this year. but we'll have to watch for it. I mean, the first quarter was small signs in that direction. At the same time, as I said, unfortunately, the claims frequency was a bit more than what I as the industry anticipated. So on balance that canceled each other out, but we'll have to see how that goes ahead for the next 3 quarters.

[Operator]

[Operator Instructions] The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities.

[Rishi Jhunjhunwala, analyst]

A couple of questions from my side. Firstly, on Motor TP, I guess, has the rate hike been effective from 1st June. And if that were to be the case, then in the quarterly Motor TP loss ratio, given the price hike will come through fully in 2Q. If everything else remains similar, we should expect improvement there going forward, right?

[Bhargav Dasgupta, executive]

Rishi, TP loss ratios as we've always been saying, look at on an annual basis, don't look at a quarterly basis because there are -- and in fact, last year, end of the year also, we had indicated that look at the annual rate for -- our annual loss ratio rate for TP because there could be quarters based on the actual models there could be releases for the quarter, there could be -- in another quarter, they will not be related. So our recommendation has always been to look at TP loss ratio at an annual basis rather than a quarterly basis.

[Rishi Jhunjhunwala, analyst]

Okay. And the other thing is, can you give us some sense of how much of your Motor book currently would be coming from new vehicle sales? And how much would be on the Motor TP side from long-term TPs?

[Gopal Balachandran, executive]

So Rishi, for the first quarter, the business mix in terms of new and renewal is about 40-60. 40% of the business is business is new, 60% of the business is renewal. And this number, if you look at for quarter 1 last year, that number was about 35% was new, and the balance, 65% was renewal. For the full year, pretty much it was similar. We had almost about 1/3, roughly about 33%, which was new and the rest was renewals.

[Rishi Jhunjhunwala, analyst]

And within Motor TP, the long-term TP portion would be?

[Gopal Balachandran, executive]

We don't have the number separately kind of put out, but I would say that I think the advanced premium numbers is what we kind of put out. I think if you look at that number for the quarter ended June 30, is roughly at about INR 34.7 billion. This number at the end of March '22 and what 33 point -- almost about INR 100 crores higher than what we had towards the end of last year.

[Operator]

[Operator Instructions] The next question is from the line of Nidhesh from Investec.

[Nidhesh Jain, analyst]

Two questions. Firstly, on the Health insurance. On the retail health insurance, the data which comes in, as you mentioned, [ continuously there ] we have not been able to make any impact despite hiring so many people in the last 12 months. Our market share has not changed. So any comment on that? That is one.

Second is, if I look at claims experience data of FY '22. Our claim reputation ratio claim, reputation as a percentage of claims intimated in health insurance -- retail insurance, we're around 20%, which is similar to other companies. So how do we think about customer experience on the handling -- because I think last year, a lot of companies -- a lot of customers had a pretty bad experience with respect to health insurance settlement across the sector. So in that scenario, how are we differentiating ourselves with respect to customers -- customer experience on claim settlement?

[Bhargav Dasgupta, executive]

So Nidhesh, on the first one, as we indicated, so our retail health numbers had businesses that we are sourcing from retail agency channel as also some businesses that we are selling through banks as a retail health business. So if you look at the agency channel, the number that we gave out, we grew at about 18% for this quarter. Our sense is given that these agency managers, agents are getting more used to our systems processes and getting more productive, that number this quarter, we should be able to deliver higher growth in this quarter. The aggregate number for retail health was a bit lower because one of the banks which were selling things as a retail policy has converted that business to a group format. So it's kind of shifted from retail health to a group help, but underlying business is the B2B2C customer base. But as I said, the retail health channel that we are investing in, it grew at about 18%. We expect the number to grow higher in this quarter.

Coming back to your question on the claims experience, you're right. For some companies, this was an issue last year, and I believe the regulator actually asked them to reopen their claims and pay more subsequently. That happened for a few companies, not for us. We had paid whatever we believe was relevant and that was fine with -- in that sense.

I think the approach that we've taken is that the entire journey of claims has to be as much as possible on our IL Take Care app to increase engagement and service experience. What we are seeing is increasingly a cashless is always directly done to us, but even reimbursement claims with that's a corporate, we are seeing almost 50% of the reimbursement pain coming through the app now. And we believe we have service experience is significantly superior. And that's been the approach that we've taken in terms of the claims experience.

What we also watch is the number of complaints of customers and we track all complaints on whether they repudiate the claim to the customer goes to a Lombard's [indiscernible] and when it goes to a [indiscernible] court, what is our winning ratio. So we track all claims which we deny for what we believe are valid reason. Do we end up losing those cases in the court. So we track all losses until that end. And our experience and all of that has been quite positive. Our win-loss ratio in the legal court in Lombard's [indiscernible] is very high.

[Nidhesh Jain, analyst]

Sure. Sir. Sir one follow-up on Motor insurance. In Motor OD is it reasonable -- is it right to expect that we have been losing market share in the new vehicle while probably we have been gaining market share on the renewal book, given the change in strategy, which we articulated last quarter?

[Bhargav Dasgupta, executive]

To some extent, yes. I mean, if you look at our new market share, it's lower than what we were last year, while Gopal gave you the mix because of the overall new vehicle sales have been higher given the strategy that we articulated, given the overall cost of [indiscernible] in some of these channels, we are kind of calibrating the book. And our share in new hires come down a little bit, in Private Car that is. But in CV we've gained in 2 years, we largely held up. This was in line with what we talked about in April.

[Operator]

[Operator Instructions] The next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Am I audible?

[Bhargav Dasgupta, executive]

Yes. We can hear you, Dipanjan.

[Dipanjan Ghosh, analyst]

Sir, just one question from my side. On the group employer/employee health insurance policies. Earlier, historically, we have seen both Lombard and the industry case which are being on the higher side and probably the pricing on the large corporate has been significantly higher than the SME side. So just wanted to make some sense of how things are kind of turning out in that sector? How the pricing is? And how SME mix has been changing within that overall book out there?

[Bhargav Dasgupta, executive]

Dipanjan, I think one of the changes that we are seeing on the group health side is we are seeing at least with all of the players, we are seeing a bit more discipline coming in. Obviously, last year's losses have hurt the industry. We are seeing some discipline coming in. One of the things that we had talked about last year from the July quarter onwards, we had talked about the fact that we had been increasing premium per life by about 15%. But we have seen continued retention of our customers, given our service proportion that we had, that story continues. Even this year, we are seeing roughly about 15% premium -- per premium -- per life premium increase, which should help in terms of the loss ratios. The other point to keep in mind is in group health, the cost of distribution is very minimal, particularly for us because we do a lot of business directly. So overall combined, even if the loss ratio is in the low 90s, the combined works out well for us.

[Dipanjan Ghosh, analyst]

Sure. And just a follow-up on that. Is there metric that you track on how much of group customers have you been able to cross-sell? Or is that even a focus area?

[Bhargav Dasgupta, executive]

It is a focus area. So if you look at the approach to cross-sell was largely triggered by the IL Take Care app that we talked about 2 years back. So what we are saying is that almost close to 50% of the employees of our corporates are downloading the app. And that number is increasing quarter-on-quarter. We are seeing them using the app, give the point -- the data about them finding reimbursement claims through the app. And our thought process is as you get more engagement, you will then look at cross-selling. And it's only last year that we started the sales process on that app.

The sales numbers on a month-on-month basis is growing quite well. If you look at the growth in the IL Take Care app download, I'll give you numbers from Q2 to Q3 to Q4 to Q1 this year on the group segment. In Q2 last year, about 38% of our employees in the group -- employee of group that we had insured they would have taken the IL Take Care download. That number has moved to about 48%. And I gave the number in terms of the usage of these apps. The sales and the cross-sell numbers are picking up month-on-month. As we speak for this month, the total sales on that app is roughly about...

[Gopal Balachandran, executive]

INR 10 crores for the quarter.

[Bhargav Dasgupta, executive]

For this month? Yes, for the quarter. For this quarter, the sales that we have achieved on that app is about INR 10 crores. [indiscernible] wasn't there.

[Operator]

Next question is from the line of Shreya Shivani from CLSA India.

[Shreya Shivani, analyst]

I have 2 questions. First, I think I missed your explanation on why the loss ratios in crop surprisingly better, like 63% versus historically, we've always seen like 100-plus percent ratio. First is that. And second, it's a bit more technical here, but I just wanted to get a clarity on the unexpired risk reserve. So for FY '22, the unexpired risk reserve also includes an adjustment for the merger, the impact of the merger around INR 10 billion on that INR 80 billion of URR that you have.

So when I -- but in the P&L, that adjustment doesn't flow. In the P&L where you have between the net earned premium and net written premium, there the change in reserve change in URR doesn't include that impact. So just wanted to understand in Bharti AXA, how is the reserving methodology? Is it different from ICICI Lombard. And then should I -- when I build my future numbers, should I take the reserving? How should I take the reserve going ahead? Like right now, your URR is at around 59% to 60% of your net gross premiums, how would it be going ahead? Will it largely be the same? Or anyway, Bharti AXA is not a very big chunk of the gross premiums, but just some clarity on that.

[Gopal Balachandran, executive]

So one, Shreya, the second question first. I think that I kind of explained so far as unexpired risk reserve is concerned, it's purely a function of earning the premium over the policy contract. So that is pretty much similar, whether it is for ICICI Lombard or whether it is for the incoming company Bharti AXA. And to that extent, there is no difference in methodology approaches in which earnings were done by both the companies.

Second, in terms of for you to model, what is it that URR could be as a percentage of net premium, honestly, very difficult for me to kind of give you a number for the simple reason, as I said. If you look at, for example, this particular quarter, which was in response to one of the other questions, the growth in revenues for us was almost close to about 28%, 29%. The growth in earned premium -- I mean maybe the change in earned premium was only about 10%.

That's primarily because, as we said, quarter 1 last year growth was relatively muted. Growth has come back to us in Q1 this year. So obviously, you will see, let's say, a relatively relative lower contribution of earned premium coming in from the policies that we have written in the last year. And the ones that we have written on an incremental growth in quarter 1 of this year will start to play out as we speak, which I mentioned over the next 3 or 4 quarters. So that's one.

And second also is -- I mean, over the next 3 quarters for the year, it depends on what kind of growth that we are able to exhibit in terms of businesses from different segments. That will also be a function of how the URR as a percentage of net premium could kind of play out. So very difficult to give a point number. But as I said, it's nothing but just earning of the premiums over the contract period. Predominantly, I would say a large part of our contracts are annual in nature. I mean barring some of the long-term policies that we may issue, which is not a very large proportion of our overall numbers. But given the fact that a large majority of the policy that we're writing are annual contracts, I think that actually depends on at what point of time we see growth getting exhibited and the earnings will happen corresponding therefore.

Better thing to look for will be more maybe which is what we keep saying, I think look at it more from an absolute final underwriting outcome in terms of the combined ratios or maybe the loss issues, which is kind of factors in both the element of earnings that has been done for the risk that has been underwritten and corresponding to that particular risk, which has been earned, what has been the claim experience there for. I think that would be a better measure to kind of look for across different segments rather than just looking at only unexpired risk reserve on an independent basis. So that's one in response to your unexpired risk reserve question.

On the first question of yours in terms of why crop portfolio has exhibited a relatively lower loss ratios, as we keep saying generally, quarters will always have aberrations in different lines of businesses in terms of loss experiences. And in the past, if you recollect, the approach that we have followed, particularly on crop has been that we obviously -- given the fact that we don't have complete information on the claim position, we tend to reserve conservatively on a no-profit no-loss basis. However, factoring in for the cost of reinsurance production that we take. As and when maybe you have evidences of claim getting factored in appropriately in terms of loss experience, we tend to kind of actualize those numbers. So hence, to that extent, you will always find in, let's say, in some quarters when the claim experiences are getting actualized you will possibly see a loss ratio which is relatively lower than what you would have seen at the time when we estimated the loss experience. So which is why in Q1, you see the loss ratio from crop at maybe at about 65%. But secondly, I think when you look at the crop earned premium for this quarter is just about INR 89 crores. So hence, from an absolute number standpoint, it does not have a material impact to the overall numbers for the quarter.

[Bhargav Dasgupta, executive]

So principally, the crop book that Bharti AXA had written, while we have provided higher earlier in reality, it's looking like a better book than what we have provided for. But the impact in terms of aggregate P&L is not material.

[Operator]

[Operator Instructions] The next question is from the line of Prakhar Sharma from Jefferies India.

[Prakhar Sharma, analyst]

So just a broader level question in terms of the direction of combined ratio and return on equity. With the acquisition of Bharti AXA, you had identified some areas where you can have some cost efficiencies, et cetera. So over next 2 years or so, what in your view will be the direction of these 2 line items? And what could be the critical assumption that you are building in towards improving return on equity from about 15%, which used to be plus 20%. And within that, the combined ratio, which FY '21 was a good year and 99%, 100%, but now we are at 104%. So if you could just give some direction over the next 2 years, where should we be expecting?

[Bhargav Dasgupta, executive]

So Prakhar, in line with what we said, simply because of the merger, we would have ended up with 104%, 105%. We saw the synergy benefits of roughly INR 200 crores that we anticipate for this year. We said we will reinvest that debt. And hence, we had said at the beginning of this year that our combined ratio will be elevated above our normal 100, 101 number that we had over the last few years. Elevated means it will be in this ballpark that you're seeing now. And over the next 2 years, we hope to bring it down gradually. We don't expect the number to go below 100 in this 2-year period, but the trend line would be gradual reduction.

At the same time, the focus for us, as we've been saying, is that we want to continue to grow some of these businesses where we are investing, particularly in health and digital and some of the other areas on the technology side that we are investing. That is something that we have to continue to focus on. What it translates to and because health business is relatively lower ROE than corporate business. It translates to ROE number, which is in the high teens. That's what we think we will be able to deliver over the next -- over these periods -- over the next 2 years.

[Operator]

Next question is from the line of Sanketh Godha from Spark Capital Advisors.

[Sanketh Godha, analyst]

I have two questions. One was, if you can give the breakup of health loss ratio broken down into group health -- retail health and PA. So just wanted to understand which segments drove the improvement in the loss ratio compared to the previous quarter.

And second question was with respect to the commercial vehicles, we had a year-end target to achieve at around 25% of the total book to be to be commercial vehicles, which we seem to be have achieved in the first quarter itself. But how do we see this [indiscernible] as a book will become a meaningful part that it will go beyond 25% by the end of the year? And whether it is new led or renewal led, is the part is I wanted to understand the [indiscernible]

[Gopal Balachandran, executive]

On the first one, Sanketh, I think and so far on the health split on the loss ratios are concerned between corporate and retail indemnity book, the corporate loss ratios for this quarter stands at 91%. And on the retail indemnity book, the loss ratio is at about 78%. This, if you look at vis-a-vis last year, honestly, it may not be a relative comparison because that was a year where we had those impact of COVID losses, both on the corporate book as well as on the retail indemnity book. But numbers what I gave you is for the current quarter 1 of this year.

[Sanketh Godha, analyst]

Sir, but the retail health loss ratio 78% is looks a little higher compared to given we have a little newer automation to the entire [indiscernible]. Sir, I just wanted to understand what led to that retail increase because last year, fourth quarter, we had some sub-60% kind of loss ratio.

[Gopal Balachandran, executive]

So Sanketh, as we keep saying that, again, I will keep maybe repeating this point. quarterly loss ratios have got many elements attached to it. And therefore, to that extent, 1 may not necessarily be representative of what loss experience is for the book that we are underwriting. So hence, to that extent, comparing a Q4 number with, let's say, Q1 of this year, may not be like-to-like comparison. I think a better thing will be to start looking at loss experiences over annual cycles, which will be far more better reflection of the portfolio that 1 is underwriting. So that's one.

The second and more important thing is if you recollect, even what we had spoken during our annual earnings call in April, we did indicate that possibly -- particularly in this quarter 1, one could possibly see some still increase in non-COVID health intimations. That's something we are continuing to see. In this quarter, we did exhibit a relatively high print number of claim intimations, which has happened on the non-COVID health front. The question for us is whether is it again just a bunch of cases which has happened in quarter 1, or is this trend line likely to be more structural in terms of intimations to continue in the next few quarters? So we will wait for a couple of -- maybe a couple of -- particularly quarter 2, we will observe how the intimations are happening in so far as non-COVID health claims are concerned. And two, even on the ACS front, I think we have seen maybe a slight increase in the average claim size as relative to what we had seen in the earlier period. That again is something that we are doing a watch to see whether is it more structural? Or is there we could possibly see let's say maybe reduction as we look at in the subsequent quarters. So these are things that we'll have to kind of watch out for and maybe we will be able to come back with a better estimate of what direction the loss ration could take. But in so far as the portfolio that we are underwriting, as we explained, I think we are looking at writing a book on the retail indemnity side, which from a steady-state standpoint, both new plus renewal put together, we would want to see the portfolio running with a loss ratio in the range of 65% to 70%.

[Sanketh Godha, analyst]

Got it. On the CV question?

[Gopal Balachandran, executive]

Yes. On the CV, we believe our range will remain in the 20s. We reached about 24-odd percent in this quarter, but the range will remain in the 20s. That's the plan.

[Sanketh Godha, analyst]

But it will be new led or renewal led.

[Gopal Balachandran, executive]

Sorry?

[Sanketh Godha, analyst]

It will be new business led or renewal business led.

[Gopal Balachandran, executive]

It's a bit of both. We've gained in the new share also in the CV side, but the larger focus is on the agency channel. So it will be more old.

[Sanketh Godha, analyst]

Got it. And the last one, in the OpEx side, the sales and promotion expenditure, which almost doubled year-on-year, maybe have declined quarter-on-quarter. So exactly what is the nature of this expenditure because I just wanted to understand, it is more business expenditure done to get the higher business? Or how do we read this number? It should be linked to the top line incrementally [indiscernible].

[Gopal Balachandran, executive]

So Sanketh, every expense that we encourage in connection with sourcing of businesses. And so that action, which is why I think when we look at the numbers, we always look at it both from the management expense ratio standpoint, which is -- which includes both the commissions that we are required to kind of pay for the cost of doing business. And at the same time, some of the other operating expenses, which we incur in order to kind of run the business on a sustainable basis. So there, if you look at the -- which is why I gave out that management expense change or the range between quarter 1 last year and quarter 1 this year, that vis-a-vis the growth in revenues, if you see, just to kind of repeat, our top line has grown by about 28%, 29%. The management expense growth has been about 27.8%. So that's the way we look at the numbers because end of the day, whether it is commissions or whether it is, let's say, operating expenses, all of them go into, let's say, cost of doing the business.

This would also include maybe some of the investments that we are doing, particularly, let's say, on the digital side, for example, when we are required to do a lot of marketing and other related promotional efforts. Those also gets into the sales promotion-related costs. So hence, the better way to look at it is more the expense ratio numbers, which is the management expense ratio number rather than looking at the line item on a stand-alone basis.

[Operator]

Ladies and gentlemen, we'll take that as our last question. I will now hand the conference over to the management for closing comments.

[Bhargav Dasgupta, executive]

Thank you. Thank you guys for joining, and it's pretty late in the day. And we are very happy to take any questions that you may have subsequently. Look forward to meeting you during the quarter. Thank you. Bye-bye.

[Gopal Balachandran, executive]

Thank you so much.

[Operator]

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