ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2020-Q3

[Operator]

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Limited Q3 and 9 months FY '20 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; Mr. Sanjeev Mantri, Executive Director, Retail; and Mr. Alok Agarwal, Executive Director, Wholesale. [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.

[Bhargav Dasgupta, MD, CEO & Director]

Thank you, and good evening, everyone. I welcome you to the earnings conference call of ICICI Lombard General Insurance Company Limited for 9 Months of FY 2020 and Q3 of FY 2020. I would like to give you a brief overview of the 9 months and the quarter ended December 31, 2019, post which our CFO, Mr. Gopal Balachandran, will share the financial performance of the company.The Indian economy has been witnessing economic slowdown for the past few quarters. This has been characterized by lower GDP growth, sluggish movement in the auto sector and subdued earnings across sectors. Given this backdrop, the growth of the general insurance industry continues to be -- continues to remain healthy. The general insurance industry registered a growth of 15.5% in 9 months of FY 2020 over 9 months of FY 2019, with the industry GDPI moving up to INR 1,421.20 billion in 9 months of FY 2020 from INR 1,230.61 billion in 9 months of 2019 as per the GI Council report. Excluding the crop segment, this growth would be 13.2%. The overall growth and growth excluding crop segment was 13.1% and 10.9% for Q3 FY 2020 as compared to Q3 of FY 2019. The combined ratio of the industry was 116.7% in H1 FY 2020 as compared to 116.2% in H1 2019, based on available information with the GI Council. Further, the overall combined ratio of the private multi-line general insurance was 107.2% in H1 2020 as compared to 102.4% in H1 FY 2019.Let me turn to the key developments during the recently concluded quarter. Effective Jan 1, 2020, General Insurance Corporation of India, GIC Re has increased the prescribed minimum rates for most occupancies under the fire segment. You may recall that in March 2019, GIC Re prescribed minimum rates to be changed for age occupancies under the fire segment. Since GIC Re is a leading reinsurer in India, this development is expected to bring a positive impact in the fire segment over the long term for the GI industry and the company.Speaking of the company's performance, the GDPI of the company in 9 months of FY 2020, de-grew by 7.9%. Excluding the crop segment, the GDPI growth rate was 13.2%, which was in line with industry growth.Our GDPI growth was primarily driven by a focus on the preferred segments such as fire, marine, motor, liability and health. Consequent to the increase in minimum prescribed rates for certain occupancies under the fire segment, this segment registered a healthy GDPI growth of 39.1% in 9 months of FY 2020, thereby aiding the GDPI growth of our property and casualty segment.As indicated in our results presentation, the overall property and casualty segment grew by 18.6% in 9 months of FY 2020 over 9 months of FY 2019.On the retail side of the business, SME and agency channel and health indemnity continued to grow faster and remain our areas of focus.To harness the potential of these segments, we have been expanding our distribution network, so as to increase penetration in Tier 3 and Tier 4 cities. Our individual agents, including POS, were 44,539 as on December 31, 2019, as against 32,254 as on December 31, 2018.In addition to the bancassurance tie-up with Standard Chartered Bank that we announced in the previous quarter, we have now entered into a bancassurance tie-up with Karur Vysya Bank in Q3 2020.In conclusion, we continue to aim on growing our business by creating long-term value for all our stakeholders to focus on sustained profitability and prudent risk selection. As we look ahead, we remain excited about the long-term growth potential of the industry as well our business prospects. I will now request Gopal to take you through the financial numbers for the recently concluded quarter.

[Gopal Balachandran, CFO & Chief Risk Officer]

Thank you, Bhargav, and good evening, everyone. I will now give you a brief overview of the financial performance of the company for the 9 months and the quarter ended December 31, 2019. We have put up the results presentation on our website. You can access it as we walk you through the performance numbers. The Gross Direct Premium Income of the company stood at INR 101.32 billion in 9 months FY 2020 as compared to INR 110.03 billion in 9 months FY 2019, a de-growth of 7.9%.Excluding crop segment, our GDPI increased to INR 100.58 billion in 9 months FY 2020 as compared to INR 88.83 billion in 9 months FY 2019, registering a growth of 13.2%. This was in line with the industry growth. On a quarterly basis, the overall GDPI largely remained flat. Excluding crop segment, the GDPI growth was 8.3% in quarter 3 FY 2020 over quarter 3 FY 2019 as compared to the industry growth of 10.9% for the same period.Combined ratio stood at 100.5% in 9 months FY 2020 as compared to 98.7% in 9 months FY 2019, primarily on account of long-term motor policies and losses from catastrophic events in the previous quarters. Combined ratio stood at 98.7% in quarter 3 FY 2020 compared to 95.9% in quarter 3 FY 2019. Our investment assets rose to INR 248.45 billion at December 31, 2019, as compared to INR 239.99 billion at September 30, 2019.Our investment leverage, net of borrowings was 4.16x at December 31, 2019, as compared to 4.09x at September 30, 2019. Investment income increased to INR 14.41 billion in 9 months FY 2020 as compared to INR 13.41 billion in 9 months FY 2019. On a quarterly basis, investment income increased to INR 4.27 billion in quarter 3 FY 2020 as compared to INR 3.87 billion in quarter 3 FY '19. Our capital gains was lower at INR 2.24 billion in 9 months FY 2020 as compared to INR 3.70 billion in 9 months FY '19.Capital gains in quarter 3 FY 2020 was lower at INR 0.17 billion as compared to INR 0.49 billion in quarter 3 FY '19. Our profit before tax grew by 5.9% to INR 13.26 billion in 9 months FY 2020 as compared to INR 12.53 billion in 9 months FY '19, whereas PBT grew by 8.1% to INR 3.9 billion in quarter 3 FY '20 as compared to INR 3.61 billion in quarter 3 FY '19. As stated in the previous quarter's earnings call, the company has elected to exercise the option of lower income tax rate. The effective tax rate was 31.2% in 9 months FY 2020 and 24.6% in quarter 3 FY 2020. Consequently, profit after tax grew by 11% to INR 9.2 billion in 9 months FY '20 as compared to INR 8.22 billion in 9 months FY 2019, whereas profit after tax grew by 23% to INR 2.94 billion in quarter 3 FY '20 as compared to INR 2.39 billion in quarter 3 FY 2019. Return on Average Equity was 21.8% in 9 months FY '20 as compared to 22.7% in 9 months FY '19. The Return on Average Equity for quarter 3 FY '20 was 20.3% as compared to 19% in quarter 3 FY '19. Solvency ratio was 2.18x at December 31, 2019, as against 2.26x at September 30, 2019, continued to be higher than the minimum regulatory requirement of 1.5x. As we conclude our address, I would like to summarize that we ended 9 months FY 2020 and the quarter FY 2020, with a diversified product portfolio and healthy financials. The company continues to focus on prudent underwriting while improving its competitive position. We continue to build our distribution with a focus on sustainable growth.I would like to thank you for attending this earnings conference call, and we will be happy to take specific questions that you may have. Thanks.

[Operator]

[Operator Instructions] The first question is from the line of Harshit Toshniwal from Jefferies.

[Harshit Toshniwal, Equity Analyst]

There is a large amount of debit for the provision this quarter. One, can you elaborate on that? And maybe I'll ask the 2 questions simultaneously. The second one is that when I look at motor OD business, the loss ratios have improved significantly Q-o-Q. So can you give some color on how the pricing environment has been over the last few quarters? And the third one is that I want to know strategic health insurance because clearly retail is slowing down, but we have been growing very fast in the SME health business. So how the loss experience has been trending in that SME health business? It will be interesting to know that.

[Bhargav Dasgupta, MD, CEO & Director]

I'll ask Gopal to cover the first question, and then we'll get into the other ones.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes, sure. Harshit, so far as the provisions for doubtful debts are concerned, in this quarter, this is in accordance with the provisioning policy that we have, wherein if there are any outstanding receivables, whether it is with respect to policyholders or reinsurers or co-insurance receivables, in accordance with the policy, if any of those receivables fall due beyond a defined period, it's not that we foresee any kind of credit risk associated with collectability of the premium, but just in accordance with the policy that we have put in place, these are amounts that are provided as a part of that particular policy. So in this quarter, there were certain reinsurance receivables, which had exceeded the defined period as per our policy. And in accordance with that is what you get to see the provisioning for doubtful debts going up in this quarter relative to what you would have seen in the previous quarter.

[Harshit Toshniwal, Equity Analyst]

Okay. So this is nothing linked to the stressed corporate asset or what we are seeing. This is largely the reinsurance receivable.

[Gopal Balachandran, CFO & Chief Risk Officer]

That is correct. So we -- this is not on account of any particular stressed investment assets that we have on the portfolio. As you rightly said, it is only on account of the reinsurance receivables, which has exceeded a defined period. And in accordance with the policy, we are required to provide for those receivables.

[Harshit Toshniwal, Equity Analyst]

And there we can see the policy, is that a part of the notes or if you can share the policy itself briefly?

[Gopal Balachandran, CFO & Chief Risk Officer]

See, it varies differently for different segments of receivables. So in case if there are standard outstanding receivables from policyholders, there would be a defined period within which we provide for. In case if there are receivables which are due from the government that would carry a different period beyond which we start providing for it completely. And the same would true also with respect to any kind of coinsurance receivables that we may have beyond a defined period, we would kind of provide in accordance with that particular outstanding dues. So it would vary across different segments of receivables that you may see on the balance sheet. As I said, so far as this particular quarter is concerned, the primary increase what you see relative to the earlier period is only on account of reinsurance receivables, which have fallen due besides -- beyond the defined thresholds that we have under the policy.

[Bhargav Dasgupta, MD, CEO & Director]

Okay. The other question that you had one on motor own damage, as we always say, the quarterly loss ratios may not be truly reflective of the underlying business. So you should look at loss ratios over a period of 1 year simply because we keep looking at our actual numbers every quarter. And there could be some increase or decrease in terms of vis-à-vis any of particular quarter. So you could get some volatility in terms of the quarterly numbers. So if you look at the 9-month motor own damage loss ratio compared that with the 9-month of last year, that is more reflective of the underlying pricing pressure in the own damage segment. I think the last 3 or 4 calls, we've been saying that on the own damage side, we are seeing very, very high competitive pressures on -- and resulting in pricing pressures largely because of -- with the implementation of the long-term PP policies, there is the price aggression that we are seeing reflecting the OD side. So if you see the 9-month number for us, it's a significant increase in loss ratios. That's truly reflective of what is happening on the ground.

[Harshit Toshniwal, Equity Analyst]

Okay. And any incremental update on that part that -- so versus Q2, have things stabilized or have the plans become more aggressive in the pricing or it's similar to what it was...

[Bhargav Dasgupta, MD, CEO & Director]

It's been -- it's similar. We've not seen improvement. There's maybe a little bit movement -- slight improvement here and there, but not a major deterioration. It's kind of flat. There is no major change in terms of the underlying pricing on the OD side. If you look at the industry loss ratios also, you'll see the same picture reflected on the OD. We don't have the 9-month number. But H1 numbers also, if you compare, you'll see a significant deterioration in the motor own damage loss ratio. With regard to health, and I'll ask Sanjeev to jump in whenever he wants to. I think the overall -- the health portfolio is really picking up well for us. You've heard us talk about the fact that we've been focusing on this segment as a strategy, you'll also remember that we've explained that there is a issue in terms of classification that has happened this year. So B2B2C policies, which are basically bancassurance business, but largely retail business done through a group structure. Those earlier were called retail, classified as retail. This year, under direction from the regulator, we've classified them as group. So the group number looks artificially high. In reality, group numbers are not that high. If you look at the total number again for 9 months, the total health overall number for us, the growth has been about 24.1%. If you look at the -- for the quarter number, retail as -- is -- as we used to earlier classify as in the group retail, which is for B2B2C plus normal retail where we use agents to sell, that number has grown at about 38.1% for the quarter. So we are very happy with the growth that we are seeing on the health side. Our strategy in terms of adding distribution, focusing on new products, adding a lot of service features in our app for our retail customers, all of that is continuing. The last thing that we've talked -- that I want to touch upon is a couple of quarters back, we've talked about the fact that we are now trying to get into the outpatient care side, that's also early times are pretty hardening.

[Operator]

[Operator Instructions] The next question is from the line of Hitesh Gulati from Haitong Securities.

[Hitesh Gulati, Analyst]

I had a couple of questions. Firstly, can you quantify the number -- the balance sheet amount of advanced premium from long-term policy?

[Gopal Balachandran, CFO & Chief Risk Officer]

That number, Hitesh, is about INR 27.21 billion, INR 2,721 crores as at December 31, 2019.

[Hitesh Gulati, Analyst]

Okay. And sir, just secondly, reading on the investment yield, sir, so one part of the yield that we see is that capital gains that we have booked is lower. But we are also seeing impact from lower interest rates in the environment. So is that understanding correct?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. I mean, obviously, the incremental float that we are garnering, the investments -- there are 2 things that are happening. One is, given our interested view, we are not -- we are trying to keep the duration low. We believe that interest rate will be range bound. So we are kind of holding puts on taking any long-term position on interest rate.So if you see our duration, average duration for -- at this point in time, has dropped to about 3.73, one of the lowest durations that we've had for a long time. Last year, as in March year-end, the duration was about 4.76. So one is the duration is smaller. The second thing is the fact that we are interest rate environment for the new float is, obviously, the interest rate regime is lower. So those are, in aggregate, the reason why the yield is lower. We are also keeping a bit more money in cash and liquid assets so that we can deploy when we believe the timing is right.

[Hitesh Gulati, Analyst]

Okay. And sir, just one last comment from you on the multiple fines that the regulator has been imposing on a number of insurance brokers on the MISP piece. So is this something which will help the discipline come back to sort of broad industry level basis? Is that something that we can read into?

[Bhargav Dasgupta, MD, CEO & Director]

I think that's a great question. We'll have to see how it plays out. As you know, most of the brokers have appealed and gone to SAT. So we will have to wait for the final judgment before we conclude on how it will play out.

[Operator]

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

[Nidhesh Jain, Analyst]

Firstly, sir, on investment leverage. If you look at -- for last 2 to 3 quarters, it is hovering around 4.2x. So do we think it can improve? And what level it can reach over medium term?

[Bhargav Dasgupta, MD, CEO & Director]

So Nidhesh, to recollect, I think even in our previous calls, at the time when the long-term regulations had come through, we had said that over the -- over a period of 3 years, we should possibly get to see the investment leverage touching levels closer to 4.5. And even in the previous call, we had indicated that pursuant to the introduction of the amendment to the Motor Vehicles Act, wherein they have capped the maximum time limit to 6 months, one could potentially get to see the leverage not necessarily going up to the levels of 4.5 as what we had expected when the long-term regulations came into place. While the exact impact of how the 6-month time limit intimation on Motor Vehicles Act will play through, obviously, that's something that we will get to know over the next 6 months or so.Our sense is, at this point of time, the leverage should more or less continue to leave -- remain at the current levels as what you see, which is at about 4 point -- any number between 4.10 or so. If you look at the end of December, the number has been about 4.16. So that's the kind of movement in the investment leverage that you would see, which is a function of the amount of flows that we would see in the business vis-à-vis, let's say, there could also be equally faster outflows that could happen in the future consequent to the introduction of the Motor Vehicles Act.

[Nidhesh Jain, Analyst]

Sure. Secondly, on the Motor TP and motor OD, how should we look at the growth, given that you should also get a benefit of that last year premium getting accrued this year, especially in the Motor TP segment? If you can comment on the like-to-like growth for this quarter Y-o-Y on these 2 segments that would be very useful.

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So again, I'll ask Sanjeev to step in at a point. But if you see the growth that we've seen, given our focus on the risk selection, we've seen significantly higher growth this quarter and 9 months in the private car and the 2-wheeler book. So while the commercial vehicle book has not grown as fast as the other, in fact, we have degrown the commercial vehicle business, again, in line with what we've been talking about. So if you look at the mix in a comprehensive policy of a commercial vehicle policy, the TP component is very large. So if the CV group doesn't grow as fast, the TP book also doesn't grow in line with the rest of the market. Hence, our -- we have significantly outperformed on the OD side when you look at the aggregate, but underperformed on the PP side, simply because of the mix of type of business that we've written, but I'll ask Sanjeev to touch upon what we're trying to do on that one.

[Sanjeev Radheyshyam Mantri]

So overall, in terms of the motor, as you rightly said, on the own damage and third-party part, if you see the contribution to the industry, it used to contribute almost 40% plus, but now it's gone down to 36% overall motor to the GI industry. And on the own damage part, if you look at it, the contribution, typically when it was 40% plus used to be almost 20%, 22%, but the own damage contribution over the last 4 to 5 years gone down to almost 14%. So you can clearly see the pressure that Bhargav was speaking about in terms of what's happening on the own damage side. TP, fortunately, since it's regulated also has got a bit of hike on a regular basis except for the last couple of years where the TP hike has been moderate. We clearly see from an industry perspective that this scenario may not go through a major change. So we'll have to rely on the internal efficiency in terms of driving it. In commercial vehicle, in particular, where we have been always very selective in terms of driving segment, which makes sense because some of these -- the vehicles of this category can have high loss ratios, we've been selective. But now we have -- over the last couple of months, we worked on our strategy of operating on a usage basis, and that should see some decent traction in time to come.

[Bhargav Dasgupta, MD, CEO & Director]

So just look at the quarter numbers, if you see the private car growth for us, the private car growth was about 20.3%, 2-wheeler was about 15.4% growth in this environment. So I think on the retail side, the segment that we focused on, Sanjeev and his team have done a great job. On the CV side, we had a degrowth of over 39%, which explains the overall mix. But as Sanjeev explained, with a new Motor Vehicles Act, we are a bit more optimistic about the certain segments of the CV. So we are relooking at it at the segment going ahead.

[Sanjeev Radheyshyam Mantri]

And overall, our market share in motor has moved up from 9.8% to 9.9% on a 9-month basis.

[Nidhesh Jain, Analyst]

And because -- I was looking at the sales promotion number also, which has grown quite a bit. And while our motor OD growth was not that high, but I think the sales promotion is linked to payouts and everything. So that's why I was just -- if you can give some color on the sales promotion, why it has grown.

[Sanjeev Radheyshyam Mantri]

So sales promotion, we also had -- as we had also briefed in the previous quarter, our own corporate campaign, which is also part of the similar expense that comes in. So it is not that there is a major change on what is getting exhibited in the market, it is multiple expenses that we have incurred by doing our corporate campaign, which typically we end up doing once in every 18 months to 24 months. That is the frequency when we do it. We did that in quarter 2. By virtue of that itself, we've seen the overall expenses going up.

[Operator]

The next question is from the line of Gurpreet Arora from Aviva Life Insurance.

[Gurpreet Arora;Aviva Life Insurance;Analyst]

You spoke about the competition in motor OD being more or less stable as compared to last quarter. If you can highlight or bifurcate between 2-wheelers and cars? I mean is there any striking difference there? Second question is, can -- and I'm sorry for this if you've answered this in the previous calls. Can -- what can prompt you to have a relook at the crop insurance segment? And my last question, coming back to the motor insurances that -- under regulatory sandbox, we are looking to do a motor OD floater policy. So if you can share some insights about the commercial metrics or how are we looking at it?

[Bhargav Dasgupta, MD, CEO & Director]

Okay. So I just gave these numbers the last question in terms of what's happened for us in these -- within the 3 segments. For the quarter, our private car growth is 20.3%. For the 9 months, that number is about 22.3%. Again, for the quarter, our 2-wheeler growth is about 15.4%. And for the 9 months, it's about 12%. And as I said, our CV for the quarter is negative. For the 9-month also is negative. So the segments that we've been kind of focusing on, we've seen good traction, and this is across channels. It's not just in leadership. It's also in terms of the agency investments that we've made, the virtual office investment that we've made. All of this is contributing to this growth. In terms of your question on crop, look, our stance has been consistent in terms of the way we look at business. We are -- we look at segments of business very frequently. There are times that certain segments of business do not make adequate return on our capital allocation. So at those times, we may reduce exposure in those segments. In crop, what, as you know, has happened is the reinsurance market rates have significantly hardened against the direct companies. If things change we will always look at it. But as of now, there is nothing that indicates that those rates are changing. So I don't foresee a change in the near future on our crop strategy. The -- and at least the way we look at crop, given the kind of volatility in business, you could be very lucky if you were in a state where fortunately the crop was fine. You could also lose a lot of money, unfortunately, if you are in a state that you were present in. And if you don't have a portfolio diversification, it could create huge volatility for your -- to your business. That's apart from the fact that the cost of reinsurance has gone to a level where it does not make sense from a return on capital perspective at this point in time.The last question that you had in terms of the regulatory sandbox. I think what we're really happy about is that if you look at the entire industry, we've got the maximum number of products that has been approved by the regulator for us. We've got 5 products approved. There are 2 of them in telematics-driven motor insurance policies. And one, in terms of the floater policy that you identified. And similarly, we have products in the health segment, which are pretty unique that we are quite excited about. In terms of the motor floater, it's a new concept in the market, the whole idea of sandbox is to test a new concept and see if it works for clients, for customers. And if it does, then we believe and we expect the regulator will give us approval to write that business for the long term. So we are -- at this point in time, now that we've just got the approval a couple of days back, we are working out our planned go-to-market strategy, and we should launch that product very soon.

[Operator]

The next question is from the line of Avinash Singh from SBICAP Securities.

[Avinash Singh, Lead Analyst]

Two questions. The first one is on your sort of medium-term trajectory of profitability. So I mean, we are currently, I mean, hovering around 100% combined ratios if I look at 9-month basis. So going forward, I mean, which parts would you see that combined ratios can see some improvement? Or do you think that, okay, you need to stay stable because we have certain regulatory changes in place, also the impact of the long-term Motor TP policy, all this is playing and also your product mix changes? So I mean if you were to look at claims ratio, expense and the commission, which part you can see further improvement or you see sort of appraisal? So that's question number one. Second, on crop, I mean, of course, kharif is the major season, rabi just fell apart. But if you look so far -- I mean, this rabi season, we've seen the prices have increased materially. I mean, at least, if you just simplify the premium percentage of sum assured, it seems that, okay, there has been a massive increase, 9% has gone to, I mean, more than 11% so far. So do you think that still, it remains, I mean, not profitable? These are my 2 questions.

[Bhargav Dasgupta, MD, CEO & Director]

So if you look at -- if I answer your first question, I think the segment that we see, and I'm talking about more the short- to medium-term perspective here. The segment that we believe will become more profitable in the next -- from this quarter, the current quarter itself and going forward, the next year, we expect will be the fire segment. As we discussed, there was a price increase in certain occupancies, now that has been extended to almost the entire industry. And we believe that should help in terms of the loss ratio for the fire segment. Now these are very competitive markets. We'll have to see how that leads to pricing aggression in, let's say, marine transit or group health because we go and offer a bouquet of products to a corporate, there is a risk that someone will -- some companies may use the margins in fire to undercut marine and health, we will have to watch that. That obviously won't be, in the long term, a sustainable strategy, but some people will do that is our view. But on balance, we believe there will be a big benefit out of the fire price increase for the industry and for us.If you recollect this -- in the beginning of this year when the GIC increased the rates for 8 occupancies, 8 industries, we had decided to take -- retain 10% extra on our books, on our -- in terms of retention, and we believe that strategy has played through well. If you see our loss ratio for fire, quarter-on-quarter, it's really improving. And as we speak, for this quarter, the fire loss ratio has dropped to about 50%. And now going ahead next year, we believe that will help us in terms of the overall numbers as well.The second area where this year has been a difficult area is apart from the motor own damage, which we talked about. And we are hopeful that it will be a matter of time when things stabilize and start improving. So that could be upside going ahead. But it's very difficult to predict when and how much. But the second area that has been a tough area of -- tough ask -- market for us has been the NBFC prices. And we are one of the largest players in terms of the health benefit product that we sell with the -- through the NBFCs. So if that recovers, again, very difficult for us to predict when it will recover, that will be a positive. So on balance, I think, in most other segments, things have probably reached a certain level where -- from where it should only go up. So next year, we will be a bit more optimistic about how the market starts behaving, but we'll have to wait to see whether their optimism plays out. I mean back to your question on crop, as I said, look, at the end of the day, the economics of the model also works with the reinsurance rate and there are times when, for a short period of time, in the rabi segment, given that is a small -- relatively small size compared to the kharif and most of the capacity has been used up in this year's kharif underwriting, the prices did go up in rabi. That does not mean that in the next quarter for kharif again prices will stay elevated. I think the larger issue for us is that if you look at the reinsurance commission that we get from the reinsurers, it's actually lower than the cost of procuring business. So you have a stream right in the beginning of writing that business. And then you have to buy protection. Our, of course, has always been conservative to write a protection and used to write a protection -- buy a protection at 110. The cost of buying a protection at 110 is much higher than if you buy the protection at 130 as, let's say, some companies do. But if you buy the protection at 130 in a good year, we make money, but in a bad year, we may lose a lot more money. So it's a strategy. And of course, that we have vis-à-vis maybe someone else and at this point in time, we don't see any change in our approach on the crop side.

[Avinash Singh, Lead Analyst]

Okay. Quickly, just a quick follow-up on motor OD. Now with this -- in this backdrop of regulatory imposing fine on some of the OEM-led broker and also sort of forcing them to open their platform. And now you have been sort of one of the big incumbent in those platforms. Now could it mean that, okay, in the near term, very near term, some of the new players who will get access to these platforms, they can again go sort of a very, very insensible in the pricing and sort of leading to a sort of price war? Because, for them, of course, they will lose money, but they're willing to lose money to sort of gain market there. Is that a possibility?

[Bhargav Dasgupta, MD, CEO & Director]

Avinash, that's absolutely possible when someone enters in OEM network, that is highly possible that someone will come in and be very aggressive. As I said to the earlier question, most of the brokers have appealed the order. We will have to see how it plays to in the -- in SAT. And then we'll know what happens on the ground. But if all companies come into OEM network in relationship, definitely, there is a scope for a bit of price aggression because of -- because of attempt to enter a new relationship. That is possible.

[Operator]

The next question is from the line of Ajox Henry from B&K Securities.

[Ajox Frederick H., Research Analyst]

Sir, can you give me the proportion of long-term versus the older one in terms of motor OD and motor TP or within motor?

[Bhargav Dasgupta, MD, CEO & Director]

Ajox, if you're referring to the penetration of the long-term policy?

[Ajox Frederick H., Research Analyst]

Yes, sir. What proportion?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So if you look at private cars, the proportion of policies that we write, which is 3 year own damage and 3-year third party. That number, as of date, stands at about 12%, which was as at the end of half year at about 10%. And on 2-wheelers, the proportion of policies, which are 5-year own damage, 5-year third party. That number stands around -- stands at about 22%. This number as at the end of half year was about 24%.

[Ajox Frederick H., Research Analyst]

Okay. So 2 wheelers it has come down.

[Bhargav Dasgupta, MD, CEO & Director]

Marginal reduction is what we have seen.

[Ajox Frederick H., Research Analyst]

Okay. And sir, last time, in last quarter, we were discussing about possible price increase in motor OD after talking to specific OEMs. So have any of that been [ specified ] or we're still in discussion. Is there any possibility of price increase at all?

[Bhargav Dasgupta, MD, CEO & Director]

As I said earlier, there has not been a major change in the OD rates. Of course, as I said, we will always keep on trying to push to see if we can. And that attempt is on, but largely, pricing on the OD side has remained stable as Q2.

[Ajox Frederick H., Research Analyst]

Okay sir. Sir, on health, actually, the superficial growth number is because of that reclassification alone in terms of that group health particularly.

[Bhargav Dasgupta, MD, CEO & Director]

No. So there the classification issue confuses the number, it will look like a very high growth for group. I earlier, to another question, explained the number on a like-to-like basis where you add the group-others and retail. Both are effectively retail business, which we used to classify earlier as retail. Group-others are basically not employer-employee policies. These are policies that we write through bancassurance partners. So that number, as I said, has been growing really well. In this quarter, that growth, which is basically retail policy -- GDPI growth is about 38%.

[Ajox Frederick H., Research Analyst]

And in terms of group health growth, how much is that, just group -- corporate group?

[Bhargav Dasgupta, MD, CEO & Director]

That number is roughly about 12%.

[Ajox Frederick H., Research Analyst]

Okay. And we are not focusing on this number, right?

[Bhargav Dasgupta, MD, CEO & Director]

That is really -- it depends on the pricing and the underwriting standards. So as we've been saying till last year -- for last year, the growth was very high because it was coming off a very poor base of pricing. And we had said that this year, we don't expect that to sustain. And hence, the growth has got muted. We would obviously want to pick up business when it comes to a group health as in employer-employee health, where it makes sense from an underwriting perspective. And we keep selecting each of the transaction.

[Ajox Frederick H., Research Analyst]

Got it, sir. And one more question. What were the 2-wheelers that Q2 saw very good growth because of Motor Vehicles Act implementation, has that come down a bit? Or it's still -- the implementation is still giving that push for the people to go and buy insurance?

[Bhargav Dasgupta, MD, CEO & Director]

So of course, Ajox in the initial months, we did see some kind of a significant uptick on incremental number of inquiries as a result of the amendments that happened in the Motor Vehicles Act, wherein there was a lot of news around the increase in fines that happened. But some of the states, as we had kind of been talking about, some states are still to kind of completely implement, let's say, the increased amount of fines. So obviously, relative to what we had seen in the first month after the announcement of the increase in fines, the subsequent months, we have not seen a similar kind of an uptick. But some of the states have said that they would kind of look at implementing the increased fine over a period of time. As and when that starts to happen, we should possibly get to see similar level of inquiries going up in terms of customers who have not renewed their policies in the past.

[Operator]

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

[Rishi Jhunjhunwala, Vice President]

Just wanted to understand a bit on the TP loss ratio trajectory. So it has clearly improved significantly over the past year, 1.5 years. And there is some impact possibly that could come through as a result of implementation of Motor Vehicles Act. So the 2 aspects to it. One is what has changed in the past 1, 1.5 years, whether is it -- actually, the experience has been lower or our provisioning has been lower because we think that we have adequately provided for. And secondly, on the Motor Vehicles Act, is it applicable to claims that are registered or basically accidents that have happened after the implementation of the Act or when the new policies will get registered, then only it will become applicable. So I'm just trying to gauge from when can we possibly see that 6 month, post 6-month benefit coming through?

[Bhargav Dasgupta, MD, CEO & Director]

That's a great question, Rishi. Let me answer the second one first. Technically, it is applicable to all policies that get written after that date. So accidents coming out of policies that got written after September 2019, the new act gets applied. But we are a bit hopeful that some of the provisions, say, for example, pay and recover, which are basically provisions, which were there in the earlier Motor Vehicles Act, where even if you were not and you hadn't insured the vehicle, and if you ended up being called to the MACP for some reason or the other, you were told to pay and then asked to recover that money from the uninsured vehicle owner. That clause -- that provision has been dropped from the new act, rightly so. So we hope, and we are beginning to see some early signs of changes in the behavior of the courts, but nothing that is material and meaningful in terms of quantifiable impact, right? So now coming back to your specific question on what is happening in terms of motor TP. The changes that has happened in Motor Vehicles Act, as I said, we are relooking at some of our portfolio calls, making educated guesses on judgment calls on how the TP book will play out in future, using our past data and looking at the new act provisions. And taking a bit more calls on certain segments that earlier, we may not be writing, but we are now beginning to write that. But that's more from the future business perspective. The TP loss ratio that you are seeing, the point that you made in the beginning. If you see our 9 months TP loss ratio has dropped from last year, I think, about 90.9% to 86.3%. That is largely because of how the data plays through, and as you know, our actuaries keep looking at the numbers and accordingly adjust the estimates. And we've also, as you know, kind of recalibrated the mix this year in terms of the private car and 2 wheeler and reduced the mix in terms of the CD. So that also helped in terms of reducing this loss ratio. So it's not a call on the reserves of the past that we are taking based on what may happen because of the Motor Vehicles Act. We are taking a call on what may happen on the new business that we are sourcing because otherwise, we might lose that opportunity, we believe. But we are not using this judgment to aggressively cut down the reserves of the passbook, that we will look at how the reserves are developing and accordingly take natural and normal course that actuaries do.

[Rishi Jhunjhunwala, Vice President]

So is it fair to assume that the benefits of Motor Vehicles Act on the reserving portion will probably play out after, say, 18 or -- 15 or 18 months from now?

[Bhargav Dasgupta, MD, CEO & Director]

Correct.

[Rishi Jhunjhunwala, Vice President]

And also, if you can give some sense of how much of the claims were actually intimated after 6 months in the past?

[Bhargav Dasgupta, MD, CEO & Director]

So a very large number of claims were intimated after 6 months. But the point is we should not jump to conclusion that none of those claims will be intimated now. Because there was, in essence, freedom to intimate claims forever, people may have been a bit lax in terms of filing the claims. But a lot of these claims will come within the 6 months' time frame. Now as probably -- we've discussed in the last call also, it's very difficult for us to predict how many of those will come in, in the 6 months because of this change. We always believe that some of the claims that used to come after 4, 5, 6 years, were not so kosher claims maybe. But the exact quantification of the number is very difficult because if we had known, we would have not paid those claims. So we will have a reduction in frequency, but the exact number, we'll probably have to wait for 18 months to give you a sense.

[Operator]

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

[Sanketh Godha, Vice President]

Just 2 questions. Fire as a segment has not grown despite the price hike in the quarter basically. So the quarter it has declined marginally. So just wanted to understand what led to that decline in the fire segment? And the second question is with respect to the previous question asked on motor third party, or the loss ratios declining to 82 percentage almost in the quarter. Should we read it along with the investment leverage not growing because the loss ratios have improved? Float has been not created and the investment leverage has not grown. So is it the way to read why the investment leverage has not grown or -- and this number will further come down if the Motor Vehicles Act benefit crystallizes as the industry is expecting it to be?

[Gopal Balachandran, CFO & Chief Risk Officer]

Sanketh, I will take the second question first. I think if you look at what Bhargav explained, I think on third-party loss ratios there is clearly a function of the mix of business that we are writing today, and that's possibly the reason why you get to see a relatively reduced trajectory of the loss ratio when you look at relative comparison over the 9 months of the previous year or, let's say, even on a sequential basis, you would put -- especially in the loss ratios. So far as the leverage is concerned, leverage, I think, if you clearly see, it's purely a function of what kind of volumes of business that you write. And kind of -- and related to that, what kind of outflows that you would have seen in this particular period. So for example, in this quarter, we also did have an outflow on account of the acquisition that we had announced, which also contribute -- the benefit of the acquisition will kind of play through over the next 3 to 4 years. Whereas the outflow in the form of the purchase price for the acquisition will tend to play out in this particular quarter itself. So some of those elements is something that will drive the extent of the investment leverage. And in so far as the trajectory for that particular number, as we had kind of mentioned this just before to someone else on the call, earlier we would have expected, but for this change in the Motor Vehicles Act on time of limitation, leverage would have continued to see an upward trend over the next 3 years going up to closer to 4.5%. But with the introduction of the time limit of intimation under the Motor Vehicles Act, we may not get to see the leverage going up to those levels of 4.5% over the next 3 years. On the contrary, we may possibly see some -- in fact, some amount of the leverage playing pretty much closer to the same levels as what we see or maybe possibly a small reduction also in the extent of leverage, which, of course, will be more than offset by the reduction in the reserve requirements that we may have on the underwriting side. So it will be a function of both, which is why, I think a better number that we have always spoken about is look at more in terms of the return on equity objectives that we have set as a company, which we believe we should continue to sustain that number at 20%, whether it is in the medium term or over the long term.

[Bhargav Dasgupta, MD, CEO & Director]

And as regard to your first question, that's a good catch. What's happened in this quarter is, again, you get to see the month-on-month numbers also for the industry. If you look at the 8-month number for us, the growth in fire was 63.6%. If you look at the 9-month growth for us in fire it was 39.1%. Both numbers much higher than the industry, but it's a sharp drop in 9 months, over 8 months, and I'll explain what happened in the month of December. In the month of December, there was one very large corporate client, who actually restructured their insurance program and the effective exposure of the industry reduced. We have a very large share in this particular account, obviously, I won't name the account. We have a very large exposure in this account. So the total premium drop for us was relatively higher compared to the industry. But all other corporates, SMEs, for example, for us, the SME fire portfolio is growing at close to 65%. So normal business is going as usual. It's just a one-off event because exposure in one large corporate account has been reduced because the client reduced the -- or changed the entire insurance structure. In that client, we have increased our share in spite of -- in spite of this change. But the drop in total premium for the industry has been very high for the month.

[Sanketh Godha, Vice President]

Okay. Just one small continuation to the reinsurance receivable. So there we made a provision of INR 26 crores. Can we assume it is recoverable in nature? Or -- and just wanted to know which are these reinsurer, basically, the ratings of these agency, these insurance are below B or BB kind of a thing where the recoverability of the INR 26 crores would be tough.

[Gopal Balachandran, CFO & Chief Risk Officer]

So one, Sanketh, I think as I kind of explained earlier as well, the provisioning for doubtful debt that we have provided is in accordance with our policy, wherein for various outstanding receivables across different categories of whether it is policyholders or whether it is co-insurers, or whether it is reinsurance. As and when the time period gets triggered in accordance with the policy, we make a provision for it in the books. So in so far as the credit risk that is associated with the collectability of the receivables, we don't foresee any risk of the amount not being collected. It is just that more out of the policy that we have put in place, these amounts is what you get to see in the financial statements. So in this particular quarter, the increase that you have seen in the provision for doubtful debts is with respect to the reinsurance receivables, which has triggered beyond a defined period of outstanding dues. And in so far, as I said, we don't foresee any credit risk. And if you see the kind of placements that we do, we primarily work with reinsurers who have a rating, which is A-minus and above. So even in this particular instance of where the reinsurer receivables have been provided for, the credit rating of the reinsurer happens to be A-minus and above.

[Bhargav Dasgupta, MD, CEO & Director]

And this is global, international A-minus rating, this is not a domestic rating. Just to add to Gopal, if you recall it, last year, we had a very large increase in profits in the first half because of a reversal of one of these provisions that we had made for a bunch of -- one particular transaction, where the receivable was provided for, but the money came back with a lag, and it gave us a big upside last year, first quarter -- first half.

[Sanketh Godha, Vice President]

Okay. And if I can please one question -- okay, no issues, I'll come back in the queue.

[Operator]

The next question is from the line of Vibhooti Jain from Quest Investment Advisors.

[Vibhooti Jain;Quest Investment Advisors;Analyst]

Just one question. Could you give the outlook for the health segment given the huge opportunity available and what is the strategy of the company to capture this opportunity? Secondly, what are -- what different are the standard -- stand-alone health insurers doing for them to be able to grow much faster than the multi-line general insurance companies? Could you please comment on that?

[Bhargav Dasgupta, MD, CEO & Director]

So on the health side, we are obviously very excited about the opportunity, and we believe this segment can continue to grow at around 25% CAGR at an industry level for the foreseeable future, which is why if you've heard us talk about the investments that we've been making, this is one segment where we are constantly making a lot of investment, both in distribution, in terms of product, in terms of network, and in terms of the services that we are adding to our customers. So the approach that we are taking is a lot more holistic in terms of addressing multiple health needs and wellness needs of our customers. Some of the solutions are available with corporates right now. And we are gradually opening them up for retail segments as we go along. As I said earlier, as an industry, we did not touch upon -- touch the roughly about 65% to 70% of the overall health care spends, which was outside of hospitalization. As an industry, we never address that segment. It was only hospitalization that we used to cater to. So we've been doing a lot of experimentation in that area. And about a year back, we started offering these products to our group customers. And the signs of the pickup of that product is also very, very positive, and we'll see how we can scale that up. So in a nutshell, what we're trying to do is really address the complete health care needs of our customers. And of course, investing in distribution products, services, network, et cetera. And if you see the growth for us, in terms of new policies, earlier, we gave -- I gave the number of what's happened in aggregate for the quarter. But for the 9 months, the growth in new policies for us is about 92.8%, way higher than what the stand-alone health companies are doing. Of course, we are coming off a small base. So it may not be exactly comparable. The small -- the stand-alone health companies have a few advantages. The primary one being a regulatory arbitrage when it comes to distribution because they don't have to license agents. They can just start working with a licensed agent of any other company. That's something that we don't have, and that makes the -- a bit more -- it makes it a bit more time consuming for us to build distribution than a stand-alone company. But we have our advantages, separate advantages, which are the advantage of being multi-line, the overall cost structure and all of that, which we use to compete.

[Vibhooti Jain;Quest Investment Advisors;Analyst]

Right. What has led to improvement in your loss ratio in health for the 9 months from 76% to 69%?

[Bhargav Dasgupta, MD, CEO & Director]

So that's largely because of the mix changing as the new book grows loss ratio comes down. As our group portfolio composition reduces because as we explained earlier, last year, we had a very large -- very high-growth in corporate health portfolio. In corporate health portfolio, the expenses are low, but the losses are -- loss ratios are high. In retail, the loss ratios are low, but expenses are high. So as you reduce the proportion of corporate health book relatively, I mean, we've not reduced the amounts, but as the proportion reduces, the loss ratio also improves. Plus on the retail book, we are growing faster than new book that also is better loss ratio.

[Operator]

Next question is from the line of Nischint Chawathe from Kotak Securities.

[Nischint Chawathe, Associate Director & Senior Analyst]

My question actually pertains to the URR and if I really look at it over the 9-month period, there has been a fair amount of decline on a Y-o-Y basis. I mean, I was just wondering how should one think about it.

[Bhargav Dasgupta, MD, CEO & Director]

So Nischint, URR is purely a function of the earnings of the policy over the policy period. So in this particular quarter, there is nothing which is unusual in terms of the movement in the numbers that you see. It's purely a function of what kind of revenues that you would have grown in the previous period. So for example, if you would have seen in the last year quarter 3, relatively, our growth rates were about 25% or so. If you look at the quarter 3 growth for the current year, our growth rate stands at about 8.9% or 9%. So in that sense, that's purely -- that's a driver of -- to what extent incremental URR gets created. But as such, there is no specific change other than, let's say, the growth that you would have seen between the rest of the...

[Nischint Chawathe, Associate Director & Senior Analyst]

So if you look at URR, even for a 9-month aggregate bucket -- sorry, a 9-month aggregate block rather than, let's say, looking at 1 quarter. I'm actually looking at the 9-month number, and that is sort of showing a sharp decline from INR 900 crores to INR 150 crores. That...

[Gopal Balachandran, CFO & Chief Risk Officer]

If you look at it from an outstanding perspective on the unexpired risk reserve relative to, let's say, 9 months of last year and 9 months of current year, one of the factors that would have led also to a decline on a year-on-year basis is last year, we did have the crop business that we had written, let's say, in quarter 3, which would have got earned over a period of time. In this particular period, in this particular year, as we have explained earlier, we do not have any element of crop. And hence, to that extent, that's a logical reduction in the extent of unexpired risk reserve that would have been outstanding at 9 months of previous years and 9 months of the current year.

[Nischint Chawathe, Associate Director & Senior Analyst]

But if I look at the P&L of your -- of the crop business, it does not have really any meaningful URR.

[Gopal Balachandran, CFO & Chief Risk Officer]

The crop business generally gets all written at the end of 6 months Nischint. It does not have necessarily an earning period, which would span over a 12-month time horizon. So when you look at the outstanding position as at the December 2018, they would have had an outstanding URR at that particular point of time, all of which would have got earned by 31st of March 2019. And as I said, in the current period, given that we have not necessarily won any new tender insofar as the crop business is concerned, neither is there any kind of a growth in revenues that we have already explained. And also, it does not necessarily translate to any incremental creation of unexpired risk reserve in this particular quarter.

[Operator]

Next question is from the line of Nikhil Walecha from Sundaram Mutual Fund.

[Nikhil Walecha;Sundaram Mutual Fund;Analyst]

My first question is if I look at the sales promotion expense. So that has increased by more than 50% on a sequential basis, so what explains that?

[Gopal Balachandran, CFO & Chief Risk Officer]

So sales -- so again, sales promotion expenses is purely a function of what kind of business mix -- business that you write. If you look at it on a year-on-year basis, relative to -- in the previous year, our mix of business did have an element of the crop business, which relatively tend to have a lower acquisition cost, whereas, in the current period, a large part of the business mix is driven by the increased contribution that we get to see on the retail business, which entails a higher amount of distribution cost, that's one. And secondly, some of the investments that we did in terms of -- some of the investments that we have been doing in terms of expansion of distribution, which you would have got to see in terms of the number of agents that we have as a company, which, in the last 2 years back, the number was about 23,000, 24,000 agents. Last year, the number of agents, which we were operating with was close to about 32,000 numbers. As we speak, as of the end of 9 months, December 2019, the number of agency count has gone up to almost about 44,500 agents. So this entails an amount of cost that you have to incur for expanding distribution. And that's primarily one of the key reasons for this increase in sales promotion expenses that you see.

[Nikhil Walecha;Sundaram Mutual Fund;Analyst]

So these agents are exclusive to us? Or are they also selling other insurance policy or some other products?

[Gopal Balachandran, CFO & Chief Risk Officer]

In terms of the regulations, these agents are tied to the insurance company.

[Nikhil Walecha;Sundaram Mutual Fund;Analyst]

Okay. And my second question is, you mentioned that our retail health have also -- growth has also suffered because of the contribution from HFC -- sorry, NBFCs was very large. So could you please quantify like how much of the business is coming from NBFCs or from -- for retail health?

[Bhargav Dasgupta, MD, CEO & Director]

So if you look at our depth of retail health, roughly about 40% of the business would come from indemnity, and roughly about 60% of the business would come from benefit. So -- and that part of the business is something which we have seen a relative slowdown in growth. The benefit is what we write through the NBFCs and bancassurance partners.

[Gopal Balachandran, CFO & Chief Risk Officer]

Correct. And that part of the business on the retail health is a very large contribution in terms of mix, where we -- as Bhargav explained, we have seen a relative slowdown in that particular space, particularly in the NBFC and the housing finance companies, through which we sell the benefit part of the business. And that has a relatively higher contribution to the overall retail health mix that we write as a company.

[Nikhil Walecha;Sundaram Mutual Fund;Analyst]

Okay. And if I can squeeze one more. Can you explain the acquisition that we have made, how will it help in our business going forward. I mean, I understand it's a CRM software, but anything -- any kind of OpEx measures or anything operating efficiency that you can -- you would have worked on probably?

[Bhargav Dasgupta, MD, CEO & Director]

I think what we've looked at is largely in terms of creating a moat around our relationships. One of the approaches that we always had is with -- even with distributors, apart from -- with customers, we try to look at how can we help the distributor do his or her business well, and that is usually through support and technology. With more -- in more -- in agency, we do a lot of work in terms of the agency app and some of the analytics around that, et cetera. So this was in a sense a similar thought process for the dealerships. But the upside that we see is -- what we've seen is given the quality of that -- the CRM solution, typically, wherever they have gone in, they have seen a good lift in terms of retention. And our experience is that if you renew your own -- the loss ratios are healthier than if you -- in the second year source policy, which was earlier with some other company. So we are hoping that with this acquisition, we will, of course, strengthen our relationship and also improve the retention rates in the OEM network.

[Operator]

As there are no further questions, I now hand the conference over to Mr. Bhargav Dasgupta for closing comments.

[Bhargav Dasgupta, MD, CEO & Director]

Okay. Thank you, guys. I know it's been a bit late this time the call, it is a Friday night, but you also have maybe the weekend to mull over the different numbers that we talked about. Look forward to seeing you during the next quarter, sometime or the other. Thanks again. Bye.

[Gopal Balachandran, CFO & Chief Risk Officer]

Thank you.

[Operator]

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