ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2022-Q2

[Operator]

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited Q2 and H1 FY '22 Earnings 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, Retail; Mr. Alok Agarwal, Executive Director, Wholesale; and Mr. Lokanath Kar, Chief Legal and Compliance Officer.Please note that any statements or 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]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, MD, CEO & Executive Director]

Thank you, and good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard General Insurance Company for Q2 and H1. I hope you and all your colleagues are safe and healthy.I will give 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 and half year ended September 30, 2021.As we speak, the economic activity across the country is picking up. Various high-frequency indicators like GST collections, manufacturing PMIs, import of nonoil and nongold merchandise, electricity demand and railway freight traffic has shown sequential uptick, thereby showing signs of environment moving towards the pre-pandemic level. The upcoming festive season should give a much clearer picture of where we are headed on the recovery path and how the demand situation will pan out for segments such as motor insurance. Looking ahead, the rapid pace of vaccination is a positive and expected to minimize the risk of complete lockdown in the future.Turning to the GI industry. During the quarter, motor insurance saw a more moderate growth and the new motor vehicle sales were impacted due to chip shortages and underlying demand sentiment in the 2-wheeler segment. The corporate health and employer employee health insurance continued to grow, however, unlike previous quarters, the growth in retail health for the quarter was moderated due to the base effect. As far as commercial lines are concerned, the growth in fire segment was stronger in the second quarter while marine and engineering lines witnessed growth in momentum, mirroring the resurgence in the economic activities.Speaking of the performance, as per the GI Council report, the general insurance industry registered a growth of 12.8% in the first half of this year over last year, with the industry GDPI moving to INR 1,087.05 billion in H1 2022 from INR 963.90 billion last year. Excluding the crop segment, this growth would have been 16.9%. The overall growth and growth excluding crop was 12.1% and 17.5%, respectively, for quarter 2 FY '22 as compared to quarter 2 FY '21.The combined ratio of the industry was 120.5% in quarter 1 FY '22 as compared to 104.4% in Q1 FY 2021 based on available information from public disclosure. This includes 2 companies that are yet to disclose their quarter 1 numbers. Further, the overall combined ratio of private multiline general insurers was 116.9% in Q1 of FY '22 as compared to 103.0% in Q1 of FY 2021.Let's move to the claims behavior experienced by us during this quarter. The motor own damage claim frequency in the second quarter reached pre-COVID levels. On the health side, the overall COVID-19 claims reported for the industry for H1 FY 2022 crossed 1.6 million against 1 million cases reported in the whole of last financial year, of which roughly about 4.6% of claims were reported with us. In the second quarter, most of the COVID claims reported were in respect of admissions or incidents pertaining to Q1 FY '22 and earlier which was adequately estimated and provisioned for by the company.While the incidence of COVID claims went down, the non-COVID health claim frequency in Q2 FY '22 saw a sharp increase as compared to Q2 of last year. This can be primarily attributed to increase in medical acute cases such as dengue, acute respiratory diseases or on account of deferred elective surgeries. In addition, we are also witnessing an increase in average claim size. It is possible that this is due to additional precaution that which may have been taken during or post the second wave. We will have to monitor this trend for coming few months to assess if this is a temporary or a structural change.Moving to business impact this quarter. As indicated in our last call, we increased pricing on our corporate health portfolio by more than 15% to 20%. In spite of the increase, we were able to retain over 90% of the accounts of our corporate customers. In retail health, we saw fast -- we grew faster than the industry, thereby maintaining our market share. Retail health continues to be a key focus area for the company, and we expect it to grow in times to come.Our holistic insurance and wellness app, IL Take Care, has surpassed 880,000 downloads, enabling us to get closer to our customers by providing a unique platform for continuous engagement. This app has the potential to harness entire health care needs of our customers at their fingertips.Our motor business continued to face headwinds in form of supply disruptions, lower demand sentiment and competitive intensity. Going forward, we would continue to maintain cautious approach in certain subsegments that we believe can make our business unsustainable in the long run. As far as the commercial lines are concerned, we continue to see robust growth given the resurgence of the economic activity.Now as you are aware, in August last year, we undertook a landmark step and entered into a scheme of arrangement with Bharti AXA General Insurance Company. Over the past year, after receiving all the requisite approvals from the concerned statutory regulatory authorities, we are happy to share a milestone in this journey -- we share that the milestone in this journey has been achieved with IRDAI granting final approval on September 3, 2021. With all approvals in place, September 8, 2021, was the effective date of integration wherein both the organizations came together to form a single larger entity. In those few days, our 2 teams worked tirelessly and seamlessly to ensure a smooth transition.On day 1 of the merger: We transitioned over 16,000 distribution partners with minimal disruption, onboarded 3,000-plus hospital network and -- 3,700-plus hospital network and garages; smoothly transitioned over 60 applications, these are technology applications, including the connectivity, access, security and data aspects; onboarded over 3,400 employees and staff members; transitioned and rebranded over 140-plus branches of Bharti AXA.Over 30.5 million communications were sent on the merger to customers and partners to ensure uninterrupted business continuity and operational efficiency. We are excited with the progress made on operational integration of the 2 entities, and we expect to realize synergy benefits over the next 24 months. As we head into the second half of the fiscal, we are reasonably well placed, and I'm confident that we will continue to deliver long-term value for our shareholders.I will now request Gopal to take you through the financial numbers for the recently concluded quarter.

[Gopal Balachandran, CFO & Chief Risk Officer]

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 2 and H1 FY 2022. We have put up the results presentation on our website. You can access it as we walk you through the performance numbers.As mentioned by Bhargav earlier, merger with Bharti AXA was formally consummated on September 8, 2021, with April 1, 2020, as the appointed date. The effect of the demerger in the financials has been incorporated in the form of opening net worth as on April 1, 2021. Further, the financials for the current year represent numbers of the merged entity. Accordingly, quarter 1 FY 2022 has been restated. The comparative numbers for the previous year in the financials pertains to stand-alone ICICI Lombard and hence are not comparable.The gross direct premium income of the company increased to INR 86.13 billion in H1 FY 2022 as against INR 64.91 billion in H1 of last year. The industry reported a double-digit growth of 12.8% on a lower base for a similar period. 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 was INR 16.1 billion in H1 this year as against INR 12.59 billion in H1 last year. As indicated in our results presentation, the overall GDPI of our property and casualty segment was INR 27.69 billion in H1 this year as against INR 21.13 billion in H1 last year.On the retail side of business, GDPI of the motor segment was INR 32.46 billion in H1 FY 2022 as against INR 27.51 billion in H1 last year. To harness the potential of these segments, we have been expanding our distribution network to increase penetration in Tier 3 and Tier 4 cities. Our agents, which include the point-of-sale distribution, has seen an increase to 78,035 as on September 30, 2021, up from 61,385 as of June 30, 2021. The advance premium was INR 36.86 billion as at September 30, 2021, as against INR 32.06 billion as at March 31, 2021.During our Q1 earnings call, we had indicated creating a provision of INR 6.02 billion in respect of COVID claims, keeping in view increase in reimbursement claims and anticipation of thick tail of claims. However, after considering the recent claim intimation trends, our overall assumption has been favorable for quarter 2 FY 2022. We thus revised our COVID claim estimate to INR 5.61 billion for H1 FY 2022 for the combined entity.Resultantly, combined ratio was 114.3% in H1 FY 2022 as against 99.8% in H1 FY 2021. Excluding the impact of flood and cyclone losses of INR 0.82 billion, the combined ratio was 113% in H1 this year as against 97.5% in H1 last year, excluding the impact of cyclone and flood losses of INR 1.07 billion.Combined ratio was 105.3% in quarter 2 of this year as against 99.7% in quarter 2 last year. Excluding the impact of flood and cyclone losses of INR 0.5 billion, combined ratio was 103.7% in quarter 2 this year as against 96.6% in quarter 2 last year, excluding the impact of cyclone and flood losses of INR 0.77 billion.Our investment assets rose to INR 371.95 billion at September 30, 2021, from INR 371.07 billion at June 30, 2021. Our investment leverage net of borrowings was 4.27x at September 30, 2021, up from 4.34 -- down from 4.34x at June 30, 2021. Investment income increased to INR 16.05 billion in H1 of the current year as against INR 10.91 billion in H1 of last year. On a quarterly basis, investment income increased to INR 7.16 billion in quarter 2 this year as against INR 5.92 billion in quarter 2 last year.Our capital gains was INR 4.71 billion in H1 this year as against INR 1.84 billion in H1 of last year. Capital gains in quarter 2 this year was at INR 1.44 billion as against INR 1.24 billion in quarter 2 last year. The expenses incurred of approximately INR 0.17 billion on account of the demerger has been absorbed in the P&L during H1 FY 2022.Our profit before tax was INR 8.52 billion in H1 FY 2022 as against INR 10.86 billion in H1 last year, whereas PBT was INR 5.94 billion in quarter 2 FY 2022 as against INR 5.55 billion in quarter 2 of the current year -- of the last year. Consequently, profit after tax was INR 6.41 billion in H1 this year as against INR 8.41 billion in H1 of the previous year, whereas profit after tax stood at INR 4.46 billion in quarter 2 this year from INR 4.16 billion in quarter 2 of last year.Yes. The return on average equity was 15.2% in H1 FY 2022 as against 24.9% in H1 of last year. The return on equity for quarter 2 this year was 21% as against 24.7% in quarter 2 of last year. Solvency ratio was at 2.49x at September 30, 2021, as against 2.61x at June 30, 2021, continued to be higher than the minimum regulatory requirement of 1.5x. The Board of Directors of the company has declared interim dividend of INR 4 per share for H1 FY 2022. As I conclude, I would like to reiterate that we continue to stay focused on building a profitable book and creating sustainable value creation.I would like to thank you all for attending this earnings call, and we'll be happy to take any questions that you may have.

[Operator]

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

[Avinash Singh, Senior Research Analyst]

A couple of questions. The first one is more on strategy than quarter that you have chosen, I mean, profit over growth over the last few years. Now you have reached a point where, I mean, crop business is not your target segment largely. In motor also, you remain selective. So going forward, I mean, what is sort of your immediate strategy in terms of how are you going to sort of grow the top line? Because I mean you have been selective for quite a long time. And if I were to look, I mean the market in the segments where you are avoiding still remains very, very hypercompetitive. So what sort of growth strategy over medium term you are going to apply?Secondly, now in terms of, again, retail health, the regulatory arbitrage or the advantage that a stand-alone health insurance players have, that still remains. So what sort of plans do you have for this growing retail health book? Because I mean, at some point, if you go aggressive then again, the market will become in terms -- the profitability will be impacted. So yes, these are my 2 questions.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Thanks, Avinash. So on the first one, if you study the business over a long period of time, it's not unusual to see phases where there is competitive or there are aggressive pricing in subsegments at different points in time. Usually, they don't sustain. And our belief is that over a longer period of time, if you see history of general insurance companies that do well, they've always focused on underwriting. Having said that, at different points in time, as you rightly identified, more segments could be under competitive pressure.So for example, right now, because of the slowdown in motor and given the fact that new vehicle sales have been low, there is probably additional aggression that we are seeing there. Equally at the same time, what we are seeing is the commercial lines are growing much faster than what we had budgeted in the beginning of the year, and we are getting -- gaining market share ahead of what we had planned for. So the approach that we've taken is wherever we are seeing sensible pricing in any case we've built some amount of competitive advantage, we will kind of gain market share there.The second area that we are focusing on is that as we've talked about in the last quarter also is the health indemnity piece. On the health side, there is one of -- a bit of a base effect that we are facing, which will get over this year. The base effect is largely given the fact that one of our large bank partner has reduced their distribution business on the insurance side. That is affecting us.But that effect plays out -- plays through by end of this quarter. And from next quarter onwards, we anticipate growth to come back. And on health, as we talked about in the last quarter, we are adding a significant amount of distribution. That's an investment call that we are making, and we are going to go ahead and do -- in a sense, invest for the long-term growth.And that brings me to your second question in terms of health. Yes, there is some regulatory arbitrage on the distribution side. But at the same time, there is a POS license that has been given to multiline companies that helps us in terms of address that to some extent. What we are also doing is with the distribution, there is many other things that we can do in terms of the fact that we can provide multiple products to the same distribution, et cetera. So we have our own advantages.On the cost side, we have some advantages, and we are still going ahead and adding agents at a pace that you've seen in the last quarter. So we are being able to add agencies. That's not been that big a challenge. So overall, the health side remains a trust area for us, retail health indemnity. On the benefit side, the base effect is largely getting played out this quarter. And from this quarter onwards, that should start coming back.Lastly, on the motor segment, yes, we've been a bit cautious in the last couple of quarters. We are also looking at certain subsegments where we are growing faster than -- in aggregate numbers, it doesn't show. But in certain subsegments, you are growing faster than what we had anticipated.When you cut down on certain segments, that cutdown happens more sharply, when you add, it takes a bit more time to build up. So we are reasonably confident that we will be able to recover the motor business in a matter of time because our also -- our sense is that these kind of aggressive behavior doesn't sustain for too long because people start realizing the cost of the aggression very soon.

[Avinash Singh, Senior Research Analyst]

A quick follow-up. And what's the strategy or outlook on the so-called online broker or web aggregator platform? Because you have been sort of shying away from that reform.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. There is no change in that. Our approach is that we would rather invest in our own B2C channel rather than pay online aggregator for getting business through that. Because at the end of the day, customer ownership is more valuable. And our B2C business is growing reasonably well. No change in that strategy.

[Operator]

[Operator Instructions] The next question is from the line of Abhishek Saraf from Jefferies.

[Abhishek Saraf, Equity Analyst]

I have just 2 questions. Now with the merger with Bharti AXA, so now crop segment has become around 7%. So if you can just reiterate what our strategy will be going forward? And what are the trends that we are witnessing in crop segment, which can affect our strategy?And second is on the Motor TP price hike. So it means it has still not come by. So when do you think that, that can come through? And what could be the quantum that one may be expecting? There's these 2 questions.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. So on the second one first, the -- as we said in the last quarter earnings call also, we wouldn't anticipate increase this year because we are half way past the year. We will also need to see the new leadership in IRDA. At the same time, it's the fact that for 2 years, we've not got a price increase. So that is definitely affecting the industry. So we are reasonably hopeful that if you go back to the past every April 1, we used to get a price increase. So we are hopeful that coming April 1, we will see a price increase.In terms of quantum, it's very difficult for us to anticipate what exactly the percentage will be. But if we just look at what the exposure draft talked about in March of 2020 before the first lockdown happened and hence that was deferred, that roughly meant roughly about 7% increase on a weighted average portfolio basis for the industry. So maybe that is an indicative number because that used data of the previous year or previous period to come up with that estimate. But that doesn't necessarily mean that we will get a 7% increase. I'm just giving you what the past indication was.Coming to crop. So the new crop business has come in. As our usual practice, our reserving on the crop, if you remember what we used to do in the -- when we used to write crop, we reserve at company as it being no profit, no loss till the actual picture emerges. So even this quarter, we've as you know full 100% loss on the crop book.And in terms of where we are seeing it, as of now, I think the [indiscernible] performance of the crop has been pretty good till now. Future, we'll have to see how it goes. What we said is that we will observe the crop business closely with the new team and see how that is playing out, and we will then take a call. We anyway have to continue for a couple of years because these are 3-year commitments. So we'll honor that commitment and then see how the environment changes for the crop to take a final call.There is also the possibility that the scheme itself, if there are some changes which addresses some of the concerns that we've had in the past, that would definitely help in the call that we take.

[Abhishek Saraf, Equity Analyst]

Sure. Sure. That's very helpful. Just one final clarification on this. So on the crop side, whatever business we are having, this is basically flow-through of the earlier contracts or connections that we have had and there would not be any new ones in the recent times with Bharti AXA? Or is there also new ones could -- also be there?

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. So these are basically contracts that Bharti AXA had signed. As I said, most of the contracts are 3 years. So that is continuing right now in 2 states. That's what we are continuing with. There is nothing incremental that we are adding.

[Operator]

The next question is from the line of Neeraj Toshniwal from UBS.

[Neeraj Toshniwal, Analyst]

So there was supposed to be a onetime tax benefit on the estimated losses. Have we captured that in this quarter? Because I couldn't run through in the press release.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So Neeraj, as I mentioned as a part of our opening remarks, the appointed date for the scheme is from April 1, 2020. So hence -- and given the fact that the tax returns for the financial year 2021 is yet to be filed, we have already kind of done a special purpose financial statements for the previous year ended March 31, 2021.And as a part of the returns -- tax returns that we will file for that year is where the entire tax benefit of carryforward losses would be available to us. So to answer your point, I think the entire benefit of the tax on the carryforward losses of Bharti AXA will be available for us as a part of the tax return that we will file for the financial year 2021.

[Neeraj Toshniwal, Analyst]

Okay. And how much would the quantum be, if you can disclose that? Or usually straightforward, it should be 8 years of losses from 2020, right? I mean not before that 8 years before 2020, right? Because the appointed date is 1 April 2020.

[Gopal Balachandran, CFO & Chief Risk Officer]

So if you remember what we had even at the time when we announced the transaction, we had kind of indicated the amount to be about between INR 675 crores to INR 700 crores. That amount pretty much remains the same. That's the amount of tax losses on which you will be getting a benefit of 25%.

[Neeraj Toshniwal, Analyst]

Okay. Got it. This is helpful. And on the COVID mortality -- [ morbidity ] claims, [indiscernible] feasible outcome on the resolution date. But actually, the amount of actual cases were higher than probably what we have estimated. So does this actually come down? So really I mean that could have got the differential in terms of the favorable outlook. How one should read that?

[Gopal Balachandran, CFO & Chief Risk Officer]

So Neeraj, I think so if you look at even in quarter 1, when we had reserved for COVID claims, the actual incurred at that point was -- point of time was about INR 3.78 billion, and we had carried about INR 212 crores as the IBNR anticipating the thick tail of claims for the -- in the subsequent quarters, which is what we had also put out -- which is what we have put out as a part of our opening remarks. In line with what you see at a national level and which is true what you get to see for the overall sector as well, I think clearly, we are seeing a declining trend insofar as number of COVID claims intimations are concerned.And quarter 2 specific, I think clearly, we have seen a significant decline in number of intimations corresponding to what we would have seen in quarter 1. And which is why against that INR 602 crore number, that number was, of course, for losses for ICICI Lombard and our stand-alone basis. But on a merged basis, when you look at the numbers for the half year, that number of INR 602 crores plus whatever would have been attributable to Bharti AXA for quarter 1, both of that put together stands revised to INR 561 crores.So in effect, in quarter 2, I mean, that number for Bharti AXA was roughly about INR 26 crores. So in quarter 2, we have seen a benefit of over INR 67 crores of COVID claims reversal on account of the trend -- that trend line that we are seeing on decreased intimation of cases.Going forward, I mean, what will happen is anybody's guess because I think -- but clearly, if you see what we have been talking about in line with what we are seeing in some of the other markets, wherever, let's say, vaccination rates have significantly increased, clearly the extent of hospitalization cases are kind of seeing a declining trend. So maybe a similar thing could possibly happen even in -- maybe in our markets. That's something that we will wait and see insofar as any possible third wave. But otherwise, as things stand currently, I think there seems to be a declining trend in intimations on COVID cases.

[Neeraj Toshniwal, Analyst]

Sure. That was helpful. Last question. On the synergies on the time of 24 months, can we further break it down into how we are actually planning every 6 months or what kind of review we will be doing and how much we can actually benefit out of it?

[Gopal Balachandran, CFO & Chief Risk Officer]

So Neeraj, what we have been doing is, I think if you remember what we have been taking over the last couple of few quarters is from the time the transaction was announced, we had already engaged integration consultants who would help us as a part of the, one, the operational day 1 integration, which is what we have been able to successfully get it, in that sense, effective. I think now it's the time for us to kind of get some of the benefits of synergies. The tax is something that I already spoke about, which we will be able to realize it in FY 2021.For the rest of the synergies on the cost side and, let's say, on the revenue synergies, what you would possibly get to see is a large part of the cost synergies is something that will play out over the next, I would say, 9 months. The benefit in the form of revenue synergies, again, in line with what we have been talking about, something that we will start to see over the next 18 to 24 months.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Neeraj, in terms of revenue synergy, what we mean by that is, obviously, the businesses that you see, the aggregate numbers that you're seeing, obviously, that benefit is straightaway coming in. But with the distribution, the thought process that we had was to see if we could increase the depth and the products that we have with the same distribution partners. We have more presence across the country. We have more product capabilities. So that's what Gopal is talking about in terms of incremental benefit out of the same distribution.

[Operator]

The next question is from the line of Nidhesh Jain from Investec.

[Nidhesh Jain, Lead Analyst of NBFC and Insurance]

Post Bharti AXA merger, can you elaborate about how is the experience with the 2 banks, which we have got post-merger? That is the first question. Second is what is the -- what will be our digital strategy going forward? Because if I look at the online premium products, it has been quite stagnant for last 3 years. How do we see that number panning out? And what is the strategy to scale that number?And third is that we are seeing increased competition from some of the new age players who are private equity driven. That sort of competition probably we have not seen in the industry in the past. They are probably they will not worry too much about near-term profitability. So in that context, does our focus on 20% ROE remains steady? Or do we do we plan to change that similar focus on 20% ROE? These are the 3 questions, sir.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. So I think a great bunch of questions. So in terms of the distribution that we've got from the Bharti transaction, we've very happy to see the progress that is happening on those. As of now, all the banks that were there, they are continuing with us. And in fact, vis-a-vis their numbers last year, there has been good growth in the first 6 months in most of these banking partners, including the larger ones that you talked about. So that one is -- that is fine.The second, in terms of our online business, you're right, in the last couple of years, we've not grown, but that's also to a large extent because of 2 reasons. One, we had a very large share of travel business that we used to do online. That business effectively disappeared, which is beginning to come back. So that's a positive story. Second is 2-wheeler business post the 5 plus 1, that had some impact in that -- on the online business because pure OD for 2-wheeler distributing in a sense, marketing or say trying to do digital marketing, the cost was not -- the cost was too prohibitive. That's the second thing.But in terms of the current numbers, we are growing reasonably well on the digital -- on the B2C side.On the B2C side, there's another aspect, which is the partnership with the digital players, the ecosystem that is evolving in this country. That business has done well. The approach that we've taken in that business is to address the third question that you had. We basically kind of internally carved it out into a separate almost like a digital arm virtual company, whatever you call it, with its own advisory board with external advisers and some of us being there with a lot of flexibility and freedom in terms of what they do. And we believe that increasingly, that business will grow faster than the overall business that we have.In terms of the competition, you're right, it's a very different set of competition. We obviously can't be bleeding and operating at such high combined ratios. But at the same time, we have to look at life cycle value of a customer and see whether we -- over a long life cycle, we create value for our shareholders. And accordingly, we'll have to take a calibrated call. In the long term, if it means that we have to get a bit more aggressive in the segment, we will have to because we don't want to lose that segment for the long term.

[Operator]

[Operator Instructions] The next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, Research Analyst]

Sir, firstly, on the health claims, could you guide us as to what kind of exit rate would you have seen in, say, the month of September, where possibly the higher claims could have been front-ended in the quarter? And so a more normalized run rate would be a September month. And if -- and in case the wave 3 or something that doesn't turn out during the September kind of loss ratio run rate maybe sustainable from a medium-term perspective.

[Bhargav Dasgupta, MD, CEO & Executive Director]

So I'll ask Gopal to give some more details. But just from a headline perspective, if you divide this into COVID and non-COVID, COVID, if there is no wave 3, then whatever we are holding, we should be very comfortable. We have some IBNR still kept for ourselves. So if there's no wave 3, we should be fine. But as Gopal explained, it's very difficult to credit, whether there will be a wave 3 or not. We are hopeful based on experiences that we've seen globally based on vaccination. So that's to answer your question on the COVID.And the run rate has come down significantly. So we are reasonably confident of the COVID numbers. At the same time, the non-COVID claims have gone up, both in terms of frequency has gone back to -- it's gone higher than -- last year it has gone back to the previous year, in fact, slightly more elevated because this year's second quarter, we've seen a lot of medical acute cases that I talked about in the opening remarks.The second thing that we've seen is average claim size increase. I mean, over the like-to-like, over 2 years, it's almost a 10% compounded growth in average claim size. So that could be because of, as I said, more precautions being taken in the hospitals in terms of additional tests, an RT PCR test just to start with more PPEs, et cetera, which could also be structural or temporary. That time will tell. But Gopal, you want to add anything to that?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So Prayesh, I think in line with what we mentioned earlier, I think if you look at the overall health loss ratio experience for quarter 2, that number would be roughly at about 78%, unlike, let's say, the significant increase in loss ratios that we had seen in quarter 1 because of understandable reasons of higher COVID cases.But even when you look at this number of 78%, as I said, it's a part of our -- one of the responses to the earlier questions, we did talk about, in that sense, a reversal of almost about INR 67 crores. So which, in that sense, I would say, is one-off reversals, what you get to see in quarter 2. So hence, when you look at this loss ratio of 78%, you will have to factor in for this release that you have seen on account of COVID claims.Having said that, I think to answer your point in terms of how could this loss ratio trend up, at least when you look at, let's say, maybe the subsequent couple of quarters, as what Bhargav mentioned, clearly, we are seeing the number of intimations on non-COVID cases to be on the higher side. And therefore, from a trend line, clearly, the 78% loss ratio is something that may not be necessarily sustainable as we look forward, particularly when you look at, let's say, quarter 3 or quarter 4.Having said that, I think the benefit of the increased pricing that we have effected on the corporate health portfolio, which has been upwards of 15% to 20%, and we have been able to hold on to, let's say, more than 90% of those corporate customer accounts. Those benefit of increased pricing will start to play through over the next, I would say, 3 or 4 quarters. So in the immediate quarters, you could see some increase in the overall health loss ratio numbers. But as we kind of look forward, maybe over the next 3 or 4 quarters, the benefit of increased pricing that we have effected on the portfolio will start to play through.

[Prayesh Jain, Research Analyst]

That's helpful. And from a pricing perspective, is there any scope to increase the pricing on the retail side of the -- and how soon can you take it? And so that will be second question.

[Bhargav Dasgupta, MD, CEO & Executive Director]

So retail, if you remember, we had talked about this. We had actually taken a decent price increase in January of -- in November and January of this year, November for the new and January for the renewal book. That was based on the data of the past because in retail health to get a price increase, you have to again present an actuarial picture to the authority and get their buy-in. So we have done that. That has actually helped us in terms of the retail book. We will study this number. As we said, we are not sure about this average claim size increase, whether it's a structural or a temporary phenomenon. We will need maybe about a couple of months -- more months to form up our views on that. Based on that, we will take a call. If it is more temporary in nature, then we may not need the price pricing.

[Prayesh Jain, Research Analyst]

Okay. And the last question is again on the rate book. What is your reinsurance strategy for the overall health book for you? And how do you -- and I've heard that the pricing on the reinsurance of resales has also increased substantially. Is that true? And how will you plan to counter that?

[Gopal Balachandran, CFO & Chief Risk Officer]

Prayesh, for us, if you look at particularly on the retail indemnity book, predominantly, we have always -- we have never operated with the reinsurance structure. I mean leave aside the 5% obligatory that is mandatory for every risk that you write as a company. On the indemnity book, we kind of pretty much retained the entire 95% of the risk on the net account. So hence, to that extent, any dependency on reinsurance is something that is not there, at least on the indemnity book.On the benefit construct, which kind of pays for those coverages of critical illnesses, that historically, we have always operated through a reinsurance structure. And that's something that we will kind of continue to do so even as we kind of look forward. But on the indemnity side, clearly, there is no dependence on reinsurance given that we retain 95% of the risk.

[Bhargav Dasgupta, MD, CEO & Executive Director]

And then unlike in the life side, we've not -- as of now, we've not seen any pressure on the reinsurance markets.

[Operator]

The next question is from the line of Chetan Thacker from ASK Investment Managers.

[Chetan Thacker, Senior Research Analyst]

Just 2 questions. One is on the number of claims to which this INR 551 crores of COVID claims pertains to. And second is what is the difference between COVID and non-COVID average pay?

[Gopal Balachandran, CFO & Chief Risk Officer]

So Chetan, if you look at the number of COVID intimations, what we had said was, in quarter 1, that number was roughly at about 46,000 and thereabouts in terms of number of intimations. If you look at quarter 2, the number of COVID claim intimations that we have got is roughly at about 26,000 in numbers. So for the half year, that number will be about 72,290 and thereabout, which corresponds to this number of INR 561 crores.

[Chetan Thacker, Senior Research Analyst]

Sure. And sir, the average claim size of COVID and non-COVID.

[Gopal Balachandran, CFO & Chief Risk Officer]

And to your other point on average claim size COVID and non-COVID, COVID claims will -- I mean will generally kind of average between about 85,000 to 90,000 thereabouts, and non-COVID health claims will be slightly in the range of about 60,000 to 65,000.

[Chetan Thacker, Senior Research Analyst]

And that includes the 10% CAGR inflation that we would, on the non-COVID side?

[Gopal Balachandran, CFO & Chief Risk Officer]

That's correct.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Only caveat that I will add is that these numbers change depending upon the type of claims that you get, right? So if you have more these dengue or malaria cases, it could be lower. If you have elective surgery, it will be higher. So it's not advisable to use that number and project.

[Operator]

The next question is from the line of Sanketh Godha from Spark Capital.

[Sanketh Godha, Vice President]

I have 2, 3 questions. So one -- first question is on the ILFS, DHFL, Reliance Capital exposure of Bharti AXA. So the numbers what we see is fully provided or there is some things need to be provided? I think they had an exposure of INR 85-odd crores when the deal was announced. So just wanted to understand how the provisioning is there?

[Gopal Balachandran, CFO & Chief Risk Officer]

The entire amount has been provided for Sanketh.

[Sanketh Godha, Vice President]

Okay. Perfect. Perfect. And second, Gopal, the question was on the tax benefit, which you have said on accumulated losses. It will be rated through P&L or it will be adjusted in the net worth itself, whenever we take it?

[Gopal Balachandran, CFO & Chief Risk Officer]

It will be -- as I said, given that last year's FY 2021 accounts was already approved by our AGM. So the benefit of tax on the carryforward losses will be a part of the opening net worth.

[Sanketh Godha, Vice President]

Okay. Perfect. And this INR 561 crores of COVID claims, which has been revised down, so we are still carrying IBNR or it is actual paid amount and there is a -- if there is an IBNR, there's a possibility of release there too?

[Gopal Balachandran, CFO & Chief Risk Officer]

There is always an element of IBNR that we carry, Sanketh. Because if you see, for example, if one would have to slightly go back to, let's say, quarter 2 last year, when we were -- when we were at the peak of COVID cases, clearly, the extent of IBNR that we had to carry was far higher because there was always an element of uncertainty on maybe intimations coming through in the subsequent quarters.But as things started to kind of subside maybe in Q3 and more towards Q4, clearly, obviously, the number of COVID cases comes down and correspondingly, obviously, the extent of IBNR that we carry as a part of the book also tends to slightly get moderated. It's pretty much on the same line. Even today, when we speak, it's not that we have seen the end of, let's say, intimations of claims that pertains to, let's say, loss admission that would have happened in quarter 1 or even, let's say, for the matter of fact pertaining to the last year.But the extent of cases that could come for last year would be slightly lower. But clearly, at least so far as quarter 1 loss admissions are concerned, we continue to see intimations of claims that come through, given the fact that these are largely reimbursement cases. So hence, when we build the number, it's always building with an element of IBNR, anticipating a possibility of claims to come in the subsequent quarters. That's for, let's say, loss admissions till quarter 1. Quarter 2, still, there are cases that come under the cashless route, and there are cases that still come through reimbursement. So therefore, hence, when you look at it on an aggregate basis, we will continue to -- we will be required to continue to carry those IBNR numbers.

[Sanketh Godha, Vice President]

My question was more specific to COVID, whether we are still...

[Gopal Balachandran, CFO & Chief Risk Officer]

I'm talking of COVID. Specifically in the context of COVID, on quarter 2, we are anticipating certain cases to come through under the reimbursement route in quarter 3. And hence, to that extent, we have built in an element of IBNR as a part of the COVID claim numbers of INR 561 crores.

[Sanketh Godha, Vice President]

Sir, can you confirm of INR 561 crores how much is IBNR?

[Gopal Balachandran, CFO & Chief Risk Officer]

So I think it's -- if you look at the IBNR numbers, that number will be roughly anywhere between about INR 65 crores to INR 70 crores.

[Sanketh Godha, Vice President]

INR 65 crores to INR 70 crores. Yes. And one more thing, just wanted to understand the entire strategy on motor, especially with respect to the structural things which is happening with electrification of the vehicles. So are we -- just wanted to understand if there are completely new OEMs, not the existing OEMs, which operate on IC engine, so if new OEMs develop or gain market share in electric vehicles, so how are we placed in tying up with those OEMs?And in general, I wanted to understand your view. Maybe it's too early to comment, but just wanted to understand whether if most of the vehicles become over a period of time become electric, then the overall loss ratios either in OD on TP with respect to electrical vehicles, how it will play out compared to IC engine vehicles.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. Sanketh, again great question. To answer the first part of your question, obviously, we are clearly focused on whatever can happen in the future, and we are very active in the EV segment as well. In the 4-wheeler side, there is really 2 OEMs who are doing anything of consequence. And we are partnering with both. The real action is seen in the 2-wheeler side.And we are partnering with almost all of them. In fact, the one that -- which has been talked about a lot in terms of very large-scale launch, we were the first company that they tied up with. I'm sure they'll tie up with a couple of others, but we're already there whenever they launch it. So this is something that clearly remains a focus for us. We are, again, building a leadership position there also.The second part -- yes, the second part of your question, in terms of the loss ratios, look, there are 2 parts of the motor vehicle. One is a third party, the first, and the other is own damage. In own damage, yes, the traditional thought process is the number of moving parts are less. But the motor claims happen because of theft because of, let's say, in this case, maybe a theft of a battery or a physical damage to the vehicle when you're driving.So time will tell whether the losses are less or not. But as of now, we believe that there will continue to be losses. And the third-party claims anyway will continue to come. And there is probably new types of damages, maybe something through the software or some other liability risk that we'll have to cover in due course. That we'll discover as we go along.

[Operator]

The next question is from the line of Hitesh Gulati from Haitong.

[Hitesh Gulati, Analyst]

I just wanted to check how has been the traction on the non-ICICI Bank channel in the benefit health space. Because you did mention there is some base effect, but in general what has been the traction base?

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes. We'll just give you the number. Just one minute. Gopal will give you the numbers.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So in general, Hitesh, I think in line with what we have been saying, I think that part of the book has generally been kind of doing well. And with now, let's say, disbursements are kind of starting to come back, I think, clearly, we have started to see increasing trend of growth coming in on account of the non- ICICI Bank-related book. The growth is looking quite positive.

[Hitesh Gulati, Analyst]

Any range of growth that we can expect or take, for example, the mix we've used to talk about last year [indiscernible] 70 and benefit being 30. So is that what is broadly continuing this year as well?

[Gopal Balachandran, CFO & Chief Risk Officer]

I think that will take time. If you look at, I think, the extent of benefit mix to reach that kind of proportion in the past, in fact, 2/3 used to be benefits and 1/3 used to be indemnity. That mix underwent a substantial change post what we spoke about of one of our large bank insurance partner deciding to take the call from quarter 3 last year. So hence, the mix of indemnity benefit underwent a substantial change. But as I said, I think clearly, the expectation is with the levels of disbursements starting to pick up, I think the growth in the non-ICICI Bank distribution, I think, clearly is looking at upwards of growth in the range of anywhere upwards of 30% to 35% and above.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Yes.

[Hitesh Gulati, Analyst]

Among these, can you highlight which are the major ones that you are focusing on, non-ICICI Bank?

[Bhargav Dasgupta, MD, CEO & Executive Director]

Most of the banks now, Hitesh, in terms of the -- apart from the new partners that have come on board post the merger, we've also been there with quite a few of the other banks like private sector banks like Yes Bank, which is a reasonably new addition. IDFC Bank, again, reasonably new addition.We've added Karur Vysya Bank, again reasonably a new addition. So there's quite a few partners. Lastly, bigger opportunity that we see also is HFC, NBFC space, which -- where we used to have a very large share, but post-ILFS, their business came down. And now we are beginning to see them come back very strongly.

[Hitesh Gulati, Analyst]

Okay. So just one lastly. Sir, our motor OD in the last 2 years combined ratio for the industry has been bad. For us, it has been above 100%. But this year, do we think for us at least because we are moderating growth a little, combined ratios will come closer to 100% because we don't have a public disclosure for first 1H. The only claims ratio [indiscernible] combined ratios, you could give some trend.

[Gopal Balachandran, CFO & Chief Risk Officer]

Very difficult, Hitesh, to kind of tell. I think the endeavor is what -- I think we would look at the portfolio on an aggregate basis. I mean particularly for motor OD lines of businesses, you will find in some periods, possibly the loss development could be better than, let's say, what we would have expected, and therefore, you could see some periods of release in which case the loss ratios will look lower.But generally, the thought process is, as we have articulated, I think we would want to see on an aggregate basis try and price the portfolio in a manner, which will meet our long-term sustainable objectives that we have laid out, which is to try and see if we can kind of drive the business towards the combined ratios would be closer to the 100% threshold. I think that's largely the drive.But having said that, I think in the short term, given the increased competitive intensity that you're seeing in the market, I think there is clearly going to be some levels of stress on the OD loss ratios. Whether it will be sub-100%, I think honestly, very difficult to say.

[Operator]

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

[Madhukar Ladha, Analyst]

I have a couple of questions. First, on the OD side, I see that from 1Q to 1 first half, the loss ratio was down from about 68% to 64%. Just wanted to understand what is driving that?Second, when do these crop contracts that Bharti has end? So what sort of time period is left? I think you mentioned 3 years for 2 states. So what is the balance time period?And third, I just wanted to get the numbers right. So INR 602 crores was the COVID claim provisioning in 1Q for Lombard stand-alone. What would that number be, including Bharti? Because the INR 561 crores number is now Lombard plus Bharti. Is my understanding correct?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So let me answer the last one first, Madhukar. So if you look -- yes, your understanding is absolutely correct. As I had mentioned, the INR 602 crores number is for ICICI Lombard on a stand-alone basis. Bharti AXA had a number of about INR 26 crores. So both of that put together was about INR 628 crores. Against that...

[Madhukar Ladha, Analyst]

That's for the first half?

[Gopal Balachandran, CFO & Chief Risk Officer]

That is for the first quarter. So that number is INR 628 crores. Against that, for the half year, that number stands revised to INR 561 crores.

[Madhukar Ladha, Analyst]

Got it. Hence, the...

[Gopal Balachandran, CFO & Chief Risk Officer]

Which is why I kind of said the overall release in quarter 2 is about INR 67 crores. So that's the response to your question on the health -- COVID numbers. On the OD loss ratios, I think, again, when you look at the numbers, you're looking at, as I say, ICICI Lombard on a stand-alone basis, which was at about 68.2%. On a merge basis, in quarter 2, that number is kind of stands revised to about 62.8%. But again, when you look at these numbers, including Bharti AXA, I think Q1, the numbers on a merged business for OD would be looking like 65.3%, which is down to 62.8%.If you recollect, Madhukar, what we had kind of spoken about even in quarter 1, we have been not necessarily kind of taking the entire benefit of the reduction in COVID claims -- reduction in motor claim incidences. So that conservatism of reserves is something that is helping us to kind of see the relative reduction in motor OD claims ratios for quarter 2.

[Bhargav Dasgupta, MD, CEO & Executive Director]

And the last question that you had, Madhukar, in terms of crop, the contracts are there till next year, FY '23.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Bhargav Dasgupta for closing comments.

[Bhargav Dasgupta, MD, CEO & Executive Director]

Thank you all. We started late today. Thank you for joining this call, and we look forward to engaging with you during the course of the next few weeks. Thank you.

[Gopal Balachandran, CFO & Chief Risk Officer]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of ICICI Lombard General Insurance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.