ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2021-Q3

[Operator]

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited's Q3 and 9-month FY '21 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; 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, sir.

[Bhargav Dasgupta, MD, CEO & Director]

Thank you, and good afternoon, good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard for Q3 2021 and for 9 months 2021. I hope all of you and your colleagues are staying safe and healthy. So what I'll do is I'll give a brief overview of the industry trends and developments that we've witnessed for the past few months. Post this, our CFO, Gopal Balachandran, will share the financial performance of the company for the quarter and 9 months ended December 31, 2020.The growth trajectory seen in the economy since the second quarter of 2021 has picked up in this quarter. The high-frequency indicators like automobile sales, railway freight traffic, growth in non-oil and non-gold imports seen during third quarter shows hopeful sign that -- of a sharper recovery than what we anticipated at the beginning of the year. In fact, some of the worst-hit sectors such as hospitality and travel have also seen some pickup in the third quarter. And the introduction of the vaccine is expected to catalyze economic activities further, which can provide tailwinds for India's economic growth. Now in this context, the general insurance industry has been a safe harbor even through the times of uncertainty with gross direct premium income back in the black. Segments such as motor insurance saw encouraging performance during this quarter, driven by growing need for personal mobility and spillover demand from the festive season. The pent-up demand for health insurance seen in the first half has shown some signs of tapering. As far as commercial lines are concerned, the fire segment continued to show robust growth, aided by the rate hike that came into force in Jan 1, 2020, while marine and engineering lines witnessed some pickup with the resumption of economic activity in this quarter. With the current macro and micro integrators coming to play, we remain confident that the GI industry is set to outperform in terms of growth. Now speaking of the performance, as per the disclosure on the website of 0IRDAI, the general insurance industry registered a growth of 2.5% for 9 months 2021 over the previous 9 months, with the industry GDPI moving up to INR 1,456.79 billion in 9 months 2021 from INR 1,420.85 billion in 9-month 2020. The combined ratio for the industry was 105.2% in the first half of 2021 as compared to 115.7% in the first half of 2020 based on available information from public disclosures, excluding one company which has not disclosed its numbers for Q2 FY 2021 as yet. Further, the overall combined ratio for the private multi-line general insurance was 103.0% in H1 2021 as compared to 107.2% in H1 2020. Since our half yearly results call, we have witnessed new regulatory announcements that are focused on policyholders' benefit, including the exposure draft with standard terms and conditions issued by the authority, in order to make available standard travel insurance, personnel accident and named indemnity-based vector borne products with common coverage and policy wording across the industry. The authority also issued guidelines on certain standard products that shall be mandatorily offered by general insurance, carrying out fire and allied perils insurance business with effect from April 1, 2020. The standard products include Bharat Griha Raksha, meant for homebuilding and home content; Bharat Sookshma Udyam Suraksha, meant for enterprise with total value at risk up to INR 5 crores; and Bharat Laghu Udyam Suraksha, meant for enterprises with total value at risk from INR 5 crores to INR 25 crores. The authority had also issued an exposure draft on withdrawal of existing long-term credit-linked group insurance products under the health insurance business, with effect from January 1, 2021, the industry through the GI Council has represented to the industry. Let me now turn to the claims behavior observed in the recent quarters. With the economic activity normalizing post motor OD claim -- normalizing, motor OD claim frequency has reached previous levels. In case of health, overall claim frequency has almost reached pre-COVID levels. For the industry, COVID claims reported as on December 31, 2020, was roughly about 7.68 lakhs, of which 39,000 claims were reported with ICICI Lombard. However, the new COVID cases reported in the month of December has seen slight moderation. The recent pandemic provided us an opportunity to foster and accelerate innovation, deliver improved customer service, upskilling and reskilling of our employees and distributors. Over 97.5 policies -- 97.5% policies issued by us in the 9-month ended December 2020, were -- are in paperless form. Under the SME segment, close to 91% of the business sourced were through these digital solutions. During the quarter, we also launched a website dedicated for our small and medium businesses. The new platform will serve as a one-stop solution for SME owners to buy all renew insurance products, endorse their insurance policies and register claims. This is first in the industry. In our previous call, we also shared about our new technology enablements, including the AI and ML solutions, that help in policy issuance, claims and fraud control and servicing. Our automated AI solution auto-approved close to 66% of motor break-in and self-inspections in December 2020, up from 40.6% in March 2020. On the health insurance front, under group health policy, 63.1% of the fresh cashless requests were authorized by an AI/ML enabled engine for December 2020 as compared to 31% in March 2020. Our mobile app, IL Take Care, has crossed 3.44 lakh downloads, enabling more and more customers to avail our insurance and wellness solutions. We continue to add digital capabilities in servicing, including the process of endorsements. Since its launch last year, 73% of all group held premium bearing endorsements are now done digitally, reducing processing time from weeks to minutes. And roughly about 45% of our motor policy endorsements from agency channel are processed real-time using our digital solutions. We've also introduced a revised HR policy wherein employees can work from anywhere, even post the pandemic, while ensuring work environment we create is comfortable and secure. Through this unprecedented year, our laser focus has been on enhancing customer experience, new product offerings, creating workplace transformation, thereby adding value to our stakeholders. We are continually focusing on evolving our strategies to further consolidate our position in the general insurance segment, while retaining our mission of creating long-term value for our stakeholders through prudent risk selection and sustained profitability. 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 3 this year and 9 months this year. 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 105.25 billion in 9 months FY '21 as compared to INR 101.32 billion in 9 months last year, a growth of 3.9% compared to industry growth of 2.5% for a similar period. On a quarterly basis, the GDPI grew in quarter 3 by 9.2% over quarter 3 last year compared to the industry growth of 4.9%. Our focus on preferred segments primarily drove our GDPI growth. Consequent to the increase in minimum prescribed rates for certain occupancies under the fire segment, this portfolio registered a robust GDPI growth of 44.8% in 9 months FY '21, thereby catalyzing the GDPI growth of our property and casualty segment. Going forward, the growth in this segment is expected to normalize. As indicated in our results presentation, the overall property and casualty segment grew by 22% for 9 months FY '21 over 9 months FY 2020. On the retail side of the business, motor segment was back in the black registering a growth of 2.1% in 9 months FY '21. Individual health indemnity business grew by 25.7% for 9 months FY 2021. 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, including the point-of-sale distribution or POS, increased to 55,615 as on December 31, 2020, up from 52,785 as on September 30, 2020. The advance premium numbers was INR 31.97 billion as at December 31, 2020, from INR 31.60 billion as at September 30, 2020.In so far as the progress in relation to the scheme of arrangement with Bharti AXA is concerned, we have filed the application with NCLT. And NCLT has directed us to convene a meeting of shareholders to consider and approve the scheme of arrangement on February 23, 2021. The expenses incurred of about INR 0.36 billion has been absorbed in the P&L during 9 months FY 2021. Our combined ratio stood at 99.1% in 9 months FY 2021 compared to 100.5% in 9 months FY 2020, despite the cyclone and flood losses. Excluding the impact of cyclone and flood losses, the combined ratio stood at 97.7% in 9 months FY 2021 as against 99.5% in 9 months FY 2020. Combined ratio for the quarter 3 stood at 97.9% compared to 98.7% in quarter 3 last year. Excluding the impact of cyclone and floods for the quarter 3, the combined ratio stood at 96.6% in this quarter, as against 98.7% in quarter 3 FY 2020. Our investment assets rose to INR 298.92 billion at December 31, 2020, as compared to INR 291.62 billion at September 30, 2020. Our investment leverage net of borrowings was 4.05x at December 30, 2020, as compared to 4.13x at September 30, 2020. Investment income increased to INR 16.59 billion in 9 months FY '21 as compared to INR 14.41 billion in 9 months FY 2020. On a quarterly basis, investment income increased to INR 5.68 billion in quarter 3 FY '21 as compared to INR 4.27 billion in quarter 3 FY 2020. Within this, our capital gains was at INR 2.92 billion in 9 months FY '21 as compared to INR 2.24 billion in 9 months FY 2020. Capital gains for quarter 3 FY '21 was at INR 1.08 billion, as compared to INR 0.17 billion in quarter 3 FY 2020. Our profit before tax grew by 13.4% to INR 15.04 billion in 9 months FY '21 as compared to INR 13.26 billion in 9 months FY 2020. Whereas profit before tax grew by 7.3% to INR 4.18 billion in quarter 3 FY '21 as compared to INR 3.90 billion in quarter 3 FY '20. This includes upfront expensing of acquisition cost relative to the growth of 9.2% in GDPI for quarter 3 FY 2021, whereas the full benefit of the earned premium will be realized over the policy period. Consequently, profit after tax grew by 23.6% to INR 11.27 billion in 9 months FY '21 as compared to INR 9.12 billion in 9 months FY 2020, primarily due to lower effective tax rate of 25%. Profit after tax grew by 6.6% to INR 3.14 billion in quarter 3 FY '21 as compared to INR 2.94 billion in quarter 3 FY 2020. Return on average equity was 22.4% in 9 months FY '21 as compared to 21.8% in 9 months FY '20. The return on average equity for quarter 3 FY '21 was 17.6%, as compared to 20.3% in quarter 3 FY 2020. This includes the upfront expensing of acquisition cost, which I referred to earlier, relative to the growth of 9.2% in GDPI for quarter 3 FY 2021, whereas the full benefit of earned premium will be realized over the policy period. Solvency ratio was 2.76x at December 31, 2020, as against 2.74x at September 30, 2020, continued to be higher than the minimum regulatory requirement of 1.5. As I conclude, I would like to reiterate that we ended quarter 3 and 9 months with healthy financials. Our competitive strength, which contribute to sustainability and positions us well for future growth, includes consistency in market leadership, diversified product mix with multichannel distribution network, excellence in customer service and technology, robust risk selection and strong investment returns on diversified portfolio. Through our business performance, we have always endeavored to create long-term sustainable value for all of our stakeholders. I would like to thank you all for attending this earnings conference call, and we'll be happy to take questions that you may have. Thank you.

[Operator]

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

[Hitesh Gulati, Analyst]

Sir, my question is related to the benefit policy that you spoke about. Sir, can you just update us on what is the latest regarding what IRDA is saying regarding the policy attached along with their known product? And also if you could help us with how much of benefit versus indemnity we have done in Q3? And what has been the claim ratio of the 2 categories?

[Bhargav Dasgupta, MD, CEO & Director]

So let me answer the first part of the question, Hitesh, and I'll ask Gopal to explain the overall numbers on the benefit side, this quarter vis-à-vis Q3 of last year. So in terms of the circular, the circular had given a -- it was an exposure -- it was a kind of an exposure draft, which said that from January 1 onwards, these policies will be stopped. As an industry, we obviously represented. This would have, we believe, a negative impact. So we represented. As of now, we've not heard anything either way. But the fact is that the draft policy hasn't been converted into a final regulation effective January 1. So as of now, it's not been withdrawn. That is the status. When we finally get a confirmation, we can give you the final picture from the regulator's perspective. One of the things that has happened for us in ICICI Lombard is that a large part of our benefit -- health benefit policies is -- comes through bancassurance channel in any case. And within that, from ICICI Bank. And separate from this circular, ICICI Bank had anyway decided sometime in early this quarter that they would reduce the focus on distribution of health insurance business, particularly in the attachment side because they are focusing on building out the core banking business. Given that in the first half, it was slow and the opportunities are high, they wanted the team to focus on core banking business. The bank has indicated that it would obviously reassess this approach in due course. But because of that call of the bank, anyways even whether the circular is effective or not, as of now, our benefit business has come down significantly. And if you look at our aggregate health numbers, that's one of the reasons why we've been impacted adversely. But specific details about numbers, I'll ask Gopal to give you.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes, Hitesh, I'll give you the numbers for the retail segment because that's what would be of importance. If you look at the breakup of the retail business that we do, the indemnity business that we did in 9 months last year was about INR 531 crores. This year, 9 months, that number is about INR 644 crores, a growth of about 21.3%. Insofar as the benefit is concerned, the same numbers for 9 months last year was about INR 638 crores. That number for the 9 months this year is at about INR 287 crores.And to your other point with respect to what are the loss ratios that we get to see insofar as indemnity is concerned, is the last year, again, 9 months, the indemnity loss ratios was roughly at about 70%. This year, 9 months, the indemnity loss ratios are operating at about 83%.

[Hitesh Gulati, Analyst]

Okay. And just for the benefit product, sir, what would be the loss ratios that we are operating at?

[Gopal Balachandran, CFO & Chief Risk Officer]

Benefit product, Hitesh, as we have always explained, inherently, generally, it has been a profitable segment. The loss ratios kind of ranges anywhere between, I would say, closer to 40 -- 35% to 50%, depending on the experience that we see between periods.

[Hitesh Gulati, Analyst]

So actually, the reason I'm asking is because over the last 3 years, our combined ratio in health has been very strong at around 90%. So now that we are doing also benefit policies and also even if we look at the 9-month numbers, our health insurance claim ratio -- combined ratio is also looking -- well, is expected to go high. Will that be the trend going forward?

[Gopal Balachandran, CFO & Chief Risk Officer]

I think so far as the trend is concerned, I think what we have explained even in our prior calls, insofar as the nature of the indemnity business is concerned, again, when you split the -- now I'm talking about indemnity in the aggregate. When you look at the corporate part of the business, inherently, they come with a very high loss ratio, but the cost of acquisition for that portfolio is relatively in the single-digit number. And insofar as the retail portfolio is concerned, the loss ratio tends to kind of be relatively lower. However, the cost of acquisition tends to be higher. But both the portfolios put together, I think, the attempt for us has been to try and run the overall combined ratio at the threshold level of about 100% that we have spoken about. Insofar as the way forward is concerned, I think the attempt will be to exactly continue to do that. Insofar as this particular period is concerned, as I said, obviously, there has been an impact insofar as the growth in the benefits segment is concerned. But however, insofar as the way forward is concerned, I think we would logically expect some of this benefit growth to play through. And the overall health loss ratios is something, as I said, or the combined ratio is something that we'd expect to maintain at the threshold of 100%. That's one. The second aspect is what I spoke about also with respect to, let's say, COVID claims. What we have seen, of course, clearly, that all of us can see is the incremental number of intimations seems to be on the decline, which is quite evident, and even we have kind of seen that particular experience. Obviously, one will have to wait and see how the developments takes place so far as quarter 4 is concerned. If the current trend continues, then obviously, to that extent, the experience on the loss ratio should get better so far as COVID claims are concerned. But at the same time, on the non-COVID cases, if you recollect in terms of what we have been speaking over the last few quarters, whenever logically we would expect a reduction in COVID cases, the non-COVID cases will start to come back. And in quarter 3 specific, we have already started to see the claim intimations coming back to, in fact, slightly higher than even pre-COVID times. So hence, a mix of both. The attempt will be -- to answer your point, I think the attempt will be on an overall health portfolio, we would want to kind of run the book at a combined ratio of around 100%.

[Operator]

[Operator Instructions] We take the next question from the line of Ajox Frederick from B&K Securities.

[Ajox Frederick H., Research Analyst]

Sir, my question is with respect to motor underwriting loss ratios. So -- sorry, underwriting quantum. So that was pretty worse versus last 3Q. However, the loss ratios are much better. So does this imply that we are upfronting acquisition costs, and therefore, the underwriting profit is showing in such a big negative number? Or has there been any change to the commission structure? That's my first question. Second is with respect to the change in IBNR as a proportion of total claims, that has been a pretty low number this quarter. Again, is it because of the conservative assumption we have done earlier? So those are my 2 questions.

[Bhargav Dasgupta, MD, CEO & Director]

So again, I'll ask Gopal to answer the second one. Let me answer the first one. So if you remember, one of the things that we had said at the beginning of the year was -- or after the first quarter, we had seen some benefit in terms of frequency reductions on the motor side. But we had said that it would be imprudent to take the full benefit in the first quarter because there would be increase in frequency as people come back and personal mobility picks up and we would prefer to even it out for the year. So that's a call that we took. And I think in hindsight, that's -- it was a conservative call and in hindsight, that was the right call. So when you look at the loss ratio, you have to keep that in mind in terms of what's happening. And so I would -- so look at it on an annual basis rather than just on quarterly basis. The second point is, what you're saying is absolutely right. So the basic accounting policy that we have in general insurance is that the -- so we don't have DAC, as in the sourcing cost is not deferred over the period of the policy, it is upfronted. So whenever in a quarter, we have high growth relative to the prior quarters, because the income or the earning of the policies that were written in the prior quarter comes in now, but the premium that we write is again spread over the next 12 months, but the sourcing cost, if it is significantly -- as in the percentage of -- if the growth is very high, then the upfront cost becomes -- comes and impacts it in that quarter. A bit like what happens in strain for life business with a shorter duration. So that happens. So if you see this quarter, our motor growth was roughly about 14%, 14.3%. But if you go back to our motor growth in Q1, was about 22% minus. And for the whole year -- half year also, it was negative 6.5%. So we are seeing tremendous growth in this quarter relative to what we saw in the previous quarter. So that has had the impact that you've identified.Gopal, on the IBNR.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. On the second point, Ajox, I just want to kind of get clarity. Are you referring to within the context of motor? Or are you referring in the context of overall?

[Ajox Frederick H., Research Analyst]

Overall, sir, overall.

[Gopal Balachandran, CFO & Chief Risk Officer]

So overall, obviously, I think the -- it will obviously -- and overall, you are looking at IBNR as a percentage of?

[Ajox Frederick H., Research Analyst]

Total claims.

[Gopal Balachandran, CFO & Chief Risk Officer]

Total claims. So obviously -- yes. So I think, obviously, what happens, Ajox, is, obviously, IBNRs are based on estimations of losses that we expect on the various segments of businesses. And to the extent some of the portfolio claims are actualized, then obviously, a large part of those claims will get reduced from IBNR and logically kind of get converted as a part of either claims paid or to that extent, it will be a part of claims outstanding, assuming if any of them are yet to be settled. So that's one. The second factor is in this particular quarter, I think what has also happened is in line with what we had mentioned even in the earlier quarters, some of the outstanding crop receivables, the receipt of which had happened in quarter 1 and quarter 2, there has been outflow of claims which has happened in quarter 3. So hence to that extent also, there is an element of both claims outstanding as well as, let's say, to the extent of the IBNR that we would have carried on the crop portfolio, that would have significantly seen a decrease.And the third factor is insofar as the approach to reserving is concerned, there has been no change in the reserving approach vis-à-vis quarter 3 as compared to any of the prior periods. The approach has pretty much remained the same. And in fact, when you look at the loss ratios, specifically in the context of motor, for example, you would have seen, for example, on own damage for quarter 3, the loss ratios were actually at almost about 63% vis-à-vis, let's say, almost 59% that you had seen in quarter 2. Or for the matter of fact, even third party, quarter 3 loss ratios are about 65% as compared to, let's say, the TP loss ratio of about 62% in quarter 2.So hence, from an approach or a methodology, there's been no change. It is just that some of those IBNR reserves that would have been created in the earlier periods, they would have got actualized in terms of claims getting reported and paid.

[Operator]

The next question is from the line of Udit Kariwala from AMBIT Capital.

[Udit Kariwala, Research Analyst]

Am I audible, sir?

[Bhargav Dasgupta, MD, CEO & Director]

Yes, clear.

[Udit Kariwala, Research Analyst]

My question was on account of the -- in relation to the investment leverage. Now this is, I guess, in this quarter, it has come down to 4.05. So you could some color around this, what do you expect going forward and some rationale behind this dip?

[Bhargav Dasgupta, MD, CEO & Director]

So 2 major factors. One is, as Gopal explained, there was some of the older policies in crop that we had written. I mean, as you know, money comes in much later. So premium had come in, in the earlier part of the year. And the payout of claims happened this quarter. So there was a large amount that went out. That was one.Secondly, even in terms of the leverage for last year, I think for the year gone by and even for half yearly, we've not paid an interim dividend because of the regulatory mandate that we've got that none of -- no insurance company or no bank is allowed to pay dividend. So effectively, normally, we would have paid out some dividends that would have reduced the denominator. But also, we had the impact of the crop claims being paid out in one shot. So -- but for this, the number would have been in the 4.11 or 4.13, depending upon what number you look at, in that ballpark.

[Udit Kariwala, Research Analyst]

So sir, if I've understood you correct, you're saying that because the dividends were not paid, your denominator as in the PAT was -- the earnings was inflated.

[Bhargav Dasgupta, MD, CEO & Director]

Yes.

[Udit Kariwala, Research Analyst]

And in the -- and your numerator took a hit because of the outflow on account of the crop flows.

[Bhargav Dasgupta, MD, CEO & Director]

Yes.

[Gopal Balachandran, CFO & Chief Risk Officer]

If you look at that, Udit, in the context of relative comparison with the 9 months of previous period. I think Bhargav's response is in that context. Yes.

[Udit Kariwala, Research Analyst]

And what crop outflows are these? When were these written? I mean, if you could? Sorry, I missed that part.

[Gopal Balachandran, CFO & Chief Risk Officer]

So these are crop portfolios, Udit, that we have written during the year 2018/2019, some of which were outstanding with respect to collectibility of premiums. And during this year, which is '20/'21, as I explained, in quarter 1 and quarter 2, we were able to realize a large part of those outstanding premiums for the crop business that we had underwritten in 2018/2019. And in quarter 2 and quarter 3, quarter 3 largely is where we have been able -- we have been -- we have had a share of outflow with respect to settlement of those claims.

[Udit Kariwala, Research Analyst]

Okay. And just one last piece related to this. Do you incrementally -- related to crop, is there any large outflow still remaining? Or most of it is now...

[Gopal Balachandran, CFO & Chief Risk Officer]

Our outstanding premiums is virtually as good as 0, but for a very small amount of a business that we had of roughly about INR 77 crores is all that remains on the balance sheet. But otherwise, all other crop premiums that were outstanding as at the earlier balance sheet, they have all been received.

[Operator]

The next question is from the line of Prayesh Jain from Yes Securities.

[Prayesh Jain, Executive Vice]

First was a very basic question on the NEP to your NWP, net premium ratio. That seems to have declined substantially in this quarter. So what's the reason for that?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, do you want to explain the accounting?

[Gopal Balachandran, CFO & Chief Risk Officer]

So NEP to NWP, Prayesh, is purely a function of what kind of business that you write. And hence, to that extent, I think whatever earnings that you would -- whatever businesses that you have underwritten, I think they all get on a 1/365 day basis. Hence, to that extent, I think it is purely a function of the volume of premiums that you have underwritten. But more importantly, I think, when you look at quarter 3 specific, I'm not necessarily referring to, let's say, the NEP to NWP ratio. In fact, when you look at the NWP growth numbers, particularly for quarter 3, you would see that the growth is almost about 20%. That was the point that I was kind of referring to.Now what effectively happens is whenever you write the businesses, let's say, especially when the businesses are growing, then what effectively happens is the cost comes and hits you upfront, whereas this NWP growth of 20% is something that will start to get earned over the policy period. And in the past periods, relatively, if you see the NWP growth for, let's say, quarter 1 and quarter 2, more specifically quarter 1 as compared to quarter 2, the growth in NWP has been relatively lower because of understandably so the volumes of business were also not so great. And hence, the incremental earned premium contribution would be lower. But as businesses have started to pick up in terms of growth, logically, you will start to see the NEP to NWP ratios going up.

[Prayesh Jain, Executive Vice]

Sir, going ahead, ideally, this should start moving higher. Is that the right way to think?

[Gopal Balachandran, CFO & Chief Risk Officer]

That is correct. I think in terms of how we -- given the fact that now a lot of activities have started to open up in the context of whether it is the commercial activities, commercial lines of businesses. And motor in specific, again, as Bhargav explained, we have been able to have a significant outperformance insofar as growth is concerned.And even on the health part of the business, while it has been a mixed bag in terms of growth, as we speak, but logically, at least so far as the way forward is concerned, definitely, in terms of opportunity, one sees a lot of positivity. And hence, assuming things start to get much better than what we have seen over the last 9 months, definitely the NEP to NWP ratio will definitely look positive.

[Prayesh Jain, Executive Vice]

Okay. My second question was on the claims bit. The severity of the health portfolio, especially on the retail side, while frequency, as you mentioned that the number of claims is back to pre-COVID levels, but with regards to severity, how is that panning out? And even for the same thing on the motor OD side, do you think that the Q4 could be really badder or really relatively worse compared to Q3.

[Bhargav Dasgupta, MD, CEO & Director]

So in terms of the health claims, what Gopal explained is the numbers have come back, but it's also on a larger base of policy. So if you look at our non-COVID frequency, it's still slightly lower than what it was pre-pandemic, but it's kind of caught up mostly. And within that, when we look at different types of claims, we see the small medical management, this is -- medical management are basically, let's say, you have stomach ache, you go to the hospital for 2 days and come back or just, let's say, fever, you get hospitalized for a couple of days, not surgery or not an accidental hospitalization, et cetera. So those cases, we've seen a lower frequency still, which is similar trend what we've seen in the past in terms of people not going to hospitals unless they really have to. So we've seen that frequency still remain low.What that does is while the frequency comes down, the surgery cases are more expensive. So to that extent, the ACS goes up for -- as a blend, as a mix. But if I look at each of those categories, as in the ACS, or average claim size, increased for medical management cases or elective surgery cases or an emergency case, there the ACS hasn't gone up significantly. It's normal inflation, nothing particularly high. COVID claims, Gopal anyway has given the numbers. That's coming down.

[Prayesh Jain, Executive Vice]

And on the motor side?

[Bhargav Dasgupta, MD, CEO & Director]

Motor side, it's on par. There's no unusual spike in ACS.

[Sanjeev Radheyshyam Mantri]

And also, this is Sanjeev here, vis-à-vis quarter 4 sequentially, as Bhargav had mentioned, we have seen improvement in the season. Actually, the quarter-on-quarter growth, both on private car and 2-wheeler on SIAM number has been very reasonable. We do believe that quarter 4, on an overall from a growth perspective, should remain positive.

[Operator]

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

[Sanketh Godha, Vice President]

Sir, my question is, again, on the benefit based health products, which is one of the major reasons why we have a very strong profitability in health portfolio. Sir, I just wanted to understand, if ICICI Bank is going to become 0 almost on incremental basis, if they continue to focus on core banking products, assuming that [ attaching ] benefit base is allowed by regulator, then can -- should we assume that given ICICI Bank might be contributing bulk, 80% or 90%, of the benefit base what we'd be doing, then again, next year, we could be seeing a significant fall in this business? Or do you think this could be substituted by HDFC Bank or Axis Bank when Bharti AXA will come probably in FY '22. So that is my first question on benefit-based health.Second question which I had was with respect to motor TP. Since people running on vehicles have significantly gone up probably in 3Q compared to second quarter, still the loss ratio what we are reporting in motor TP at 65.5% -- or 65.7% in third quarter, are these numbers sustainable given historically we always had a higher number. And this lower number is largely because lower claim information, which actually is looking at, and therefore, is providing lower? Or is it generally because of a reserve release from the past reserving, which is leading to this improvement? These are the 2 major questions. One small one which I have is with respect to retail indemnity, seems to be -- new retail indemnity seems to be -- has slowed down sharply in third quarter, at around 17% growth versus 27% in Q1 and 48% in Q2. So I just wanted to understand the broader trends there, too.

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So there are 3 questions, Sanketh. So let me try to answer, and Gopal, you can step in and add to -- you know what you're seeing. So in terms of the first question on the credit linked business, so obviously, ICICI Bank contributes a large part of the credit linked business for us, particularly the benefit piece. If I look at the credit linked business in aggregate, that's roughly about -- I mean last year it was roughly about 7% of our business. As we speak for the Q3, given the fact that bank took a call to focus on core products, that's come down to a shade lower than 3% of our business. So it's been a pretty sharp reduction.Now what can happen in the next year? So at this point in time, the bank has clearly said that they want to continue to focus on their core business because in a sense they're coming out of the slowdown in the mortgage business in the past and they're wanting to ramp up that business. And what they've told us is that they will obviously reassess this approach once things stabilize. So we are reasonably hopeful that this is something that we will get to see in the next year coming back.But if you look at just the amount of business the bank does for us on the benefit side relative to the total business that we write, the bank contributes a bulk of the benefit business. We also get a lot of benefit business from the other non-ICICI Bank bancassurance partners, NBFCs, HFCs and other banks. That segment for this quarter has actually seen a growth over last year, roughly 13%, 14%, and it's beginning to pick up. So we are reasonably hopeful that, that segment will now start picking up. But of course, can't replace the bank given the sheer size of the 2 pieces.Now as I said, so next year is, one is, we are reasonably hopeful that the bank will review its -- reassess its approach. But the more important thing is, next year, if you add partners, and by the way, we are adding partners. Last year, we added a couple of banca partners. This year, we've added one more partner, which has, we believe, reasonable potential. And once the integration happens, whatever happens in terms of the banca partners that we will get, obviously, all of that will compensate for any losses, if at all it happens.Your second question was on motor. You see, in motor, again, I'll repeat what I said. One of the advantage -- one of the calls that we took in the beginning of the year was that we will not take the full benefit in the first quarter of the frequency losses, we will -- reduction in frequency, and we'll will average it out over a year. And if you see, some of the other players in the market had a very sharp reduction in, let's say, OD loss ratios in the first quarter and the first half. For us, it was reasonably kind of evened out because we just wanted to be more conservative, and we believe, as I said, that's the right approach.In terms of sourcing -- so it's in a sense, kind of evened out loss ratio that you're seeing. In terms of sourcing, what we see incrementally in the business that we are writing, and as you know, we have a projected loss ratio in the write-up business. We are, in a sense, back to the pre-COVID situation. If you remember, we were saying pre-lockdown that the motor OD business has reached a level where the combined for the industry is probably 110% because the sourcing costs and the loss ratios were pretty elevated because of hypercompetition. And we were saying, if you remember, Q3 of last year and Q4 of last year, we were saying we need to see some price increase. And we are beginning to see those conversations that were happening. That obviously stopped when the pandemic lockdown happened.As we speak today, we are in the same boat in the sense that, because now the frequencies are back to pre-COVID levels, people are using their cars as much as in the past, so we clearly need to see some price corrections in the business. And from our perspective, what we've already started doing this quarter is actually start pushing the system on some price increases. And we are hopeful that the market will also move with us because at this level, on an incremental basis, the business is under severe pressure. So I hope that answers your second question.

[Sanketh Godha, Vice President]

I was largely referring to motor TP, the loss ratios being...

[Bhargav Dasgupta, MD, CEO & Director]

I'm talking about motor OD. I was referring to motor OD.

[Sanketh Godha, Vice President]

That's okay. Sorry, my question was more towards motor third party, where the loss ratios have become like 65%, 66%. So there seems to be very low number compared to our historical past. So whether that number is sustainable or not? Because -- I just wanted to understand, is it because of the reserve release or is it because of basically low claim information. Because we usually used to operate in the range of 80s and maybe before in FY '18 kind of a period around 90% loss ratio. So this 65%, 66% is kind of a number, is more sustainable number? Or we are still -- we are seeing the reserve release benefit or low claim information benefit, and that's why we are seeing this kind of very great -- good set of numbers in motor TP loss ratio?

[Bhargav Dasgupta, MD, CEO & Director]

So on motor TP, you should look at an annual number, as we've always said. There could be periods where for a quarter, we could -- as you know, every quarter, we actually look at the data and take a call on the adequacy of reserves. So there could be some fluctuation on a quarterly basis. You should look at the annualized number. But to answer your question, we believe there's been definitely a positive in terms of frequency drops. We've seen that across our portfolio. We've also seen some releases in this quarter because of the conservative practices of reserving that we've had. But what we are also doing incrementally is, whenever we look at reserving for the new book that we write for the future, we create, again, a conservative buffer, a margin for adverse deviation, as we call it. So that factor hasn't changed. We continue to be conservative in terms of reserving for the incremental book. But we've seen a bit of benefit on both sides, and that's what we are seeing. But I think you should wait for the whole year number before we take a full call. That's on the TP side.And you had a third question on -- I think on indemnity, right?

[Gopal Balachandran, CFO & Chief Risk Officer]

So Sanketh, on the indemnity part, I think if you look at -- in general, if you were to look at, particularly a large part of indemnity gets sold in the context of the industry classification of retail health. There, if we can clearly see the industry growth in line with what we had also indicated that, obviously, in the initial periods of the COVID situation, there was clearly a heightened awareness and the need for one to have some form of a health insurance or the other. And that's also reflective insofar as the overall growth for the market also. So if you look at quarter 1 growth of retail health for the industry, was about 24%. This number, if you see for quarter 2, the industry growth on retail health was almost about 43%. And if you see for quarter 3, the industry growth on retail health is down to about 23%. So clearly, in some sense, some of the pent-up demand that we had seen for quarter 2 to some extent, obviously, we have seen, let's say, a moderation of the growth rates in line with what we had also indicated, saying that the level of incremental growth that we are seeing, particularly in quarter 2, we will have to wait and see in terms of its sustainability. And to some extent, one has already seen that playing off when you look at the overall industry growth for quarter 3 as such.Now in this backdrop, if you look at ICICI Lombard's indemnity growth, again, in the context of retail for -- against the industry of 24%, our quarter 1 growth was about 25%. If you look at quarter 2, the industry growth was about 42%, what I had indicated, 42%, 43%, our growth rate was about 35%. And for quarter 3, for us, the indemnity growth rate has been at about 17%.So in line with the industry trend, even we are kind of experiencing, let's say, a relative slowdown of the pent-up demand that we had seen in quarter 2 specific. And to that extent, obviously, the 17% growth will have an impact insofar as both what we see as new indemnity growth and also the extent of renewals that one gets to see. So largely, the growth rates have been in line with what we are seeing also insofar as the market is concerned.

[Bhargav Dasgupta, MD, CEO & Director]

And just to add to what Gopal said, even if you look at the month-on-month number in Q3, for October, we were higher than the market growth. In November, we relaunched the health product, a complete revamped product. We had talked about it in last quarter here also. And that initially took some time to stabilize in the market because new product, training agents, et cetera. But December numbers are -- has picked up compared to November, and we are almost in line with the market for December. But in aggregate over the 3 months, we are slightly below the industry. So we are reasonably hopeful that we should be continually doing well in the retail indemnity space.

[Operator]

The next question is from the line of Deepika Mundra from JPMorgan.

[Deepika Mundra, Research Analyst]

A few questions from my side. Last quarter, you had mentioned you took a price increase in health. I think your commentary indicated that even in motor OD, the price of this is more or less stabilizing. And you've typically guided to a 99% or -- or to 100% combined ratio. Would you think that we could finally see a meaningful underwriting profile shift with the change in pricing cycle?The second question is on the P&C business. Have you renewed any of the reinsurance TPs in January? And if there's [indiscernible] which would further impact P&C's business.

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, you want to take the second question?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So Deepika, I think you're absolutely right. I think the P&C business, 2 things: One, you have to be mindful of the fact that the growth rates what you're seeing, particularly in the P&C segment, of which a large contributor happens to be the fire part of the business, the industry has done exceedingly well on -- primarily driven by the rate change that we had seen on 2 occasions in the last 12 months or so. So hence, to that extent, when you now look at renewals that, to some extent, happens in January 1 and predominantly bulk of the renewals that will happen from April 1 onwards, you will have to kind of factor in for some kind of a normalization of growth rate insofar as the fire segment is concerned. So that's one insofar as revenues are concerned.To your point on the reinsurance, this is -- quarter 4 is a period where bulk of the discussion starts to happen insofar as renewals are concerned. And hopefully, towards the later part of the quarter is where most of our reinsurances will get stitched in. Because for us, April 1 happens to be a predominantly very large -- a big day for us. And hence, as I said, in quarter -- the later part of quarter 4 is where most of the renewals will happen in the context of reinsurance.Having said that, I think what we are seeing as initial experiences insofar as discussion with reinsurers are concerned, again, it's purely a function of what kind of portfolio experience are you exhibiting with the reinsurance partners. To that extent, I think, given that we have been able to stay disciplined with our overall operating outcomes of combined within that 100% threshold, we believe, again, in terms of renewing the terms which reinsurers are concerned, we should not see any significant shift. But of course, there will obviously some element of -- to some extent of price hardening that one would expect, but we are not expecting anything significant, given the portfolio experience that ICICI Lombard has been able to exhibit relative to the quality of the book that we have underwritten.

[Bhargav Dasgupta, MD, CEO & Director]

And just to add to what Gopal said, if you see January 1 renewals in the global market and what's been happening in the Asian market, what was expected maybe 5, 6 months back in terms of significant hardening of reinsurance rates, that hasn't played through in Asia. And even within that, the TPs that have been performing well haven't seen tremendous rate increases. So we remain reasonably optimistic about the discussion of the reinsurance. Even if there is some increase, it may not be material.Coming back to your first question, Deepika, so I think this is something that we've been saying, right, that if structurally, the interest rate of -- environment of the country comes down and stays down, honestly, we have always been saying that we don't believe that, that may happen but if it happens, the industry will be forced to become a lot more disciplined on combined. From a -- I was referring more to a shorter-term phenomenon, that if you remember, last year also, we were saying that motor OD prices have to increase. And then we had the pandemic and lockdown and hence, there was really no need for that. But I think, again, today, there is probably the same pressure that the industry would be facing. At least we are taking some lead in trying to push the pricing where we believe it's a reasonable ask. And we'll see how it plays through in this quarter. We are reasonably hopeful that we'll be able to take some headwinds.

[Operator]

The next question is from the line of Rishi Jhunjhunwala from IIFL.

[Rishi Jhunjhunwala, Research Analyst]

Am I clear? I mean am I audible?

[Bhargav Dasgupta, MD, CEO & Director]

Yes, Rishi. We can hear you.

[Rishi Jhunjhunwala, Research Analyst]

Okay. Great. Sir, a couple of questions. One on motor. I think in the -- in your initial remarks, you were talking about some business acquisition-related expenses. I'm sorry, I missed a major part of that. What exactly has happened on the OpEx ratio for us, given that there is almost a 35% Q-o-Q increase in both OpEx as well as on the commission side, so just wanted to, again, understand?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, I think you were talking about the acquisition of the transaction that we announced, I think. But anyway, if you can explain that?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So I think, in general, Rishi, what effectively has happened is, I think you're referring to the increase in the overall costs. So what we were indicating was, whenever growth starts to come back as what we have seen in quarter 3, we have been able to see an overall gross premium growth of almost about 9.2%. Within that, if you would have seen, motor growth has been quite reasonable at almost about 14% growth. So whenever growth starts to come back, there is always an impact of the upfronting of acquisition cost that plays through the P&L immediately. Whereas the benefit in the form of earned premium is something that will play through over the policy period. And that's evident when you look at, for example, the net written premium growth rates for quarter 3, that number is at about 20%. So the benefit of that NWP is something that will play through as the earnings happen.However, the cost is something that comes and it's the upfront. However, this largely gets taken care of. So when you look at it from an absolute number, obviously, to that extent, the underwriting number will look a little adverse on an absolute basis. But when you look at it in the context of the expense ratios, I think, for example, when you look at quarter 2, I am talking about both, since you mentioned about both OpEx plus commissions put together, quarter 2, the OpEx plus commission ratios was roughly about 33.9%. That number, if you look at for quarter 3, that number is down to about 32.4%.And within that, if you look at the OpEx ratios, the OpEx ratios for quarter 2 was 27.3%, and quarter 3, that number is about 25.4%. And this -- even if you see vis-à-vis quarter 3 of last year, that number was at 24.7%. I'm just talking about OpEx ratios number, that was 24.7% vis-à-vis 25.4% for quarter 3 of this year. So hence, to that extent, I think, from a combined perspective, the impact of upfronting of expenses gets taken care of. However, from an absolute underwriting outcome, you then -- because of the upfronting of cost, you get to see the underwriting results to be a little adverse.

[Bhargav Dasgupta, MD, CEO & Director]

And just to add to -- one more point to what Gopal said, when you look at Q-o-Q, Q3 is a very big period for motor compared to Q2, right? And if you see the growth rate for Q3 over Q3 last year, and growth rate of Q2 over Q2 last year, we've actually had an even higher growth in Q3. So on both accounts, there would be an increase. And the other point that Gopal, I think, made on the opening call was the fact that the acquisition that we announced, Bharti AXA, that cost has been absorbed in the 9 months.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes, that number is about INR 36 crores in the P&L of the 9 months.

[Rishi Jhunjhunwala, Research Analyst]

Okay. And so it's fair to assume that if the growth rate numbers stabilize at the current level, then OpEx as a percentage will continue to drop over the next 3 quarters as incremental premiums continue to get recognized, but of course, costs have already been incurred or come through the P&L.

[Gopal Balachandran, CFO & Chief Risk Officer]

That is in fact we want to say through insofar as combined, Rishi. If we slow down, yes, related to any quarter, whenever we slow down, that will have an impact. You will see that, yes.

[Rishi Jhunjhunwala, Research Analyst]

Okay. And secondly, can you give us some quantum taking FY '20 as a base year in terms of how much of the benefit business did we do in FY '20 from ICICI Bank? And accordingly, the impact on combined ratio maybe on an overall equity perspective?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, you want to answer that?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. So effectively, I think, Rishi, what we had indicated was, as Bhargav mentioned, obviously, bank is a key distribution partner for us insofar as sourcing of businesses is concerned. And roughly, if you look at the overall contribution that the bank did insofar as premiums are concerned for FY 2020, roughly bank contributed -- so again, I'm talking about the overall contribution of all credit-linked businesses, whether it is indemnity and benefit put together, that number roughly contributed to about 7% of the total gross direct premium income of the company, that's for FY 2020.And in line with what we have been indicating, if you look at for the current 9 months, obviously, it's driven by 2 factors. Even to that extent, the levels of disbursements have also been lower and banks specifically also have been a key factor to it. And this number of 7.1% that I've kind of indicated, that's for the FY 2020. If you look at for the 9-month period, the contribution of, again, the total credit-linked policies through all channels put together, that number is about 2.9% of the gross direct premium income that we have written for the 9 months.

[Bhargav Dasgupta, MD, CEO & Director]

So this number, Rishi, is for all the bancassurance businesses, ICICI Bank and others. The 7.1% has gone to 2.9%. And within the bank and nonbank, bank...

[Gopal Balachandran, CFO & Chief Risk Officer]

Almost should be 75%.

[Bhargav Dasgupta, MD, CEO & Director]

75% would be bank, yes.

[Rishi Jhunjhunwala, Research Analyst]

Okay. And one last question on the regulatory side. So a couple of things. One is that has the rule around claim intimation for 6 months, has that been notified and when do we start expecting that to play out over the next year or 12 months hence on our leverage and other aspects of the P&L? And secondly, there is some recommendations about introducing a new premium, which is related to traffic violation. Do you think that is something which could potentially pass and pose an upside risk? I mean, how does that play out? And what do you think about those?

[Bhargav Dasgupta, MD, CEO & Director]

On the claims, I don't see it to be a big impact for us because anyway, 6 months, we would have -- we would pay most claims within that time frame. So we don't see too much of an impact financially for us.On the second one, this is just a report that has come from the committee. Obviously, there is a lot of interest across all policymakers in bringing down accidents on the road and improving road safety. And one of the obvious factors is the way people drive. So this is something for which the time had come. Whether it will happen in this -- in the coming year or not, that's difficult to predict. It may not happen so soon, but it will happen in due course. There will have to be a lot of system, in a sense, or data exchange that we'll have to do as an industry and with the other, the police systems, to be able to do that seamlessly. But it will happen in due course. It may not happen in a matter of 6 months, of course, but will happen in due course is our sense. And I think we didn't answer your question on the combined impact on the credit linked. Just to complete that. I think what we've been also saying is that roughly about 7%, 7.5% of our profit comes from this business. So that has had an impact in this quarter. And it has an impact of about 1.3% to 1.7% of our -- on our combined, the credit-linked health business that we write.

[Operator]

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

[Nidhesh Jain, Analyst]

Firstly, if I look at the motor segment, we have gained significant market share in 9 months and in this quarter. So what has driven that, whether we have gained market share in the new segment or it's used segment or any particular 2-wheeler, 4-wheeler and -- or CV, which segment we have gained market share? And secondly, we are talking about that incrementally the loss ratio in this segment has reached pre-COVID levels and probably the incremental combined ratio for the industry in motor segment is around 110%. So in this environment, is it prudent to gain market share and grow this segment at a fast level?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So I think -- let me answer the second one, and then I'll ask Sanjeev to answer the first question. That's a very excellent question in terms of when to grow market share. And as you know, we are traditionally, if I can call it countercyclical, we are countercyclical. And our focus on gaining market share in the first 6 months and maybe first 7, 8 months was very, very high. As we speak, really from the month of December, we've turned a bit more cautious on the motor segment, again, becoming a lot more selective based on what we believe in terms of the future loss ratio rather than the loss ratio that we've seen in the last maybe 7, 8 months, so we are making those adjustments. Absolutely correct. But Sanjeev, you want to take the first question on where we've grown in the 7, 8 months that we've done?

[Sanjeev Radheyshyam Mantri]

I think we grew, on a quarter 3 number, if you look at it, we would have -- we've grown in private car, 2-wheeler as well as commercial vehicle. Clearly, our growth has been extensively driven on -- has been almost 30%, 32% on the commercial vehicle side. But that being said, the -- I think in a way, what Bhargav also mentioned, that we will continue to see where the opportunity lies, and we'll keep growing in those particular segments. But if you see in terms of the contribution of new to the overall book, we used to be almost 33%, thereabout. It's gone down to almost 29%. We have also gone back to our efficiency in terms of using Autoninja, which we had acquired last year in October. So we have got our retention, the quality of retention that we're able to do. All of that has gone about in terms of driving our growth in the previous 9 months. But our approach primarily will remain tactical as to where we see an opportunity. If we see something bordering on levels which don't make sense at the portfolio level for us, we would feel free to withdraw from it. And we've done that to some extent in some of the 2-wheeler markets also in the last 9 months because we felt that it was not making economic sense for us as a company to get in. So we would -- that's the probably overall approach that we will drive. And we felt that in commercial vehicle, there was a good opportunity available, we have gone and grown that.

[Bhargav Dasgupta, MD, CEO & Director]

Yes. Just to give you the breakup of Q3 and 9 months for new/old, Q3, the last quarter, was about 33%/66%. For 9 months, was about 30%/70% that Sanjeev talked about.

[Operator]

[Operator Instructions] The next question is from the line of Prateek Poddar from Nippon India Asset Management.

[Prateek Poddar, Research Analyst]

I just wanted to check, when you talk about growth in relation to upfront cost, that was there in the base also, right? So still, we are seeing that the increase in costs are outstripping the increase in NWP growth? And also in relation to this, the employee cost seems to be flat Y-o-Y. So what's going over there? Is it just work-from-home policy plus the digital initiatives? That's question number one. Second is on -- question number two was, I'm a bit puzzled as to, when you say that ICICI Bank is focusing on core, I thought core was also about selling ancillary products so as to generate ROE because it's ROE accretive. And does that mean that ICICI Bank has also stopped selling SME products such as fire, health on the SME side? And lastly, sir, your thoughts on the third-party hikes, which didn't happen in FY '21. Will they happen? I mean, are you reasonably confident? Or is there some indication that they might happen in FY '22 so to speak?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So let me -- the first question, I'll ask Gopal to answer in terms of the accounting and the impact and the employee cost, et cetera, operating cost. On the second -- no, the bank is selling all the other products. So all branch linked indemnity policies that we sell to retail customers, the SME business, they are continuing to do that. I think the focus that we talked about for the bank probably was more on the mortgage side. And that's where would be the attachment policies, where the credit-linked policies were sold. So that's a segment that they have said that they want to focus on scaling that business up. And it's probably, they see it as an opportunity at this point in time and maybe coming from low numbers in the first half. So no, the SME and the other businesses are continuing with the bank.With relation to your third question, sorry, I just missed that question.

[Gopal Balachandran, CFO & Chief Risk Officer]

The TP hike, Bhargav.

[Bhargav Dasgupta, MD, CEO & Director]

TP hike. Look, my sense is that, look, as an industry, we believe we deserve a TP hike because last year, we didn't get it. So we are optimistic that we'll get a hike in the coming year. Normally, we've always seen TP hikes every single year. So there should be -- there's no reason why we shouldn't get it this year, particularly given the fact that last year, we didn't get one. There will always remain a concern of what the economic growth and where there's any concern on price increase affecting growth, which, in reality, there isn't, in this case. But on balance, we remain very optimistic that we'll get an increase on April 1. Gopal, you want to take?

[Gopal Balachandran, CFO & Chief Risk Officer]

So on the first point, Prateek, I think, what -- in line with what we have been saying, obviously, the market has also been equally quite competitive insofar as intensity is concerned. And therefore, to that extent, that will also be a factor insofar as acquisition costs are concerned, and which is what I kind of indicated. Whenever kind of growth obviously comes back, to that extent, you will have to see it in the context of what costs you are required to incur for sourcing the business and correspondingly, what is the loss ratio that you are exhibiting on the overall portfolio, and thereby take a call with respect to the combined ratios that you want to operate at.And that's the reason, if you look at it from an expense ratio standpoint, on a -- if you look at it on a sequential basis, both operating expenses plus acquisition costs put together, the numbers for quarter 2 was roughly about 33.9%. However, this number, when you look at it for quarter 3, that number is at about 32.4%. So obviously, the cost that you have incurred will get expensed out immediately. The benefit is something that will play through over the next term of the policy period.On the employee cost, I think the costs have more or less remained the same because we -- I think, clearly, the focus for us is to derive significant efficiency based on the operating model. And the point that you made is absolutely right. Obviously, the operating model is a key factor. And we have not -- and we are kind of largely making additions to people, particularly in areas where we want to continue to make investments there in. Otherwise, the rest of the functions, obviously, we want to kind of realize both productivity improvement as well as efficiencies in the overall cost. And that's the reason why you get to see that number on a sequential basis remaining more or less flat.

[Operator]

The next question is from the line of Madhukar Ladha from HDFC Securities.

[Madhukar Ladha, Research Analyst]

Sir, our health claim ratios are down this quarter. And how should we think about this? Were there reserve releases on the health segment as well this quarter? And on the investment portfolio, can you tell us what is the duration and yield of the fixed income book?

[Bhargav Dasgupta, MD, CEO & Director]

So let me take the second question. Gopal, you can -- you could answer the first question. So in terms of the duration, the duration of the book has increased to about 4.05. What we did during this quarter, which was a slight increase from the duration that we had as on September 30. The call that we took in early part of this quarter was that the short maturity papers were running at very low credit spreads and were probably overpriced. So we reduced some of the exposure there and increased exposure in the medium term notes, largely government securities and state development notes. I mean we only invest in a few states, which we like in terms of the quality. And that has turned out to be a good trade because, coincidently, RBI announced an OMO for SDLs later. So that's the move that we made. We still believe that interest rates will remain range bound at least for a couple of quarters, at least. And we want to kind of be very watchful about positioning our book appropriately at a time when our views change. So at this point in time, we just wanted to shift the book to a slightly longer duration because we felt that the short-duration bonds were overpriced at that point in time. Gopal?

[Madhukar Ladha, Research Analyst]

And sir, the average yield, and then would that also mean that most of the capital gains is from equity this quarter?

[Bhargav Dasgupta, MD, CEO & Director]

No, we've had a mix of capital gains. And as I said, the short duration bonds, some of the corporate bonds in the short duration we exited. We had some capital gains there. Because as we said, we felt it was overpriced. And we shifted to SDLs and some G-Secs. Overall yield, we are -- it's ahead of what we've kind of been talking about that what we need. I don't want to give the exact number, but if you look at the realized return on the portfolio, it's running at about, if I remember, it's about 7.9%, if I remember. Gopal, you can correct that.

[Gopal Balachandran, CFO & Chief Risk Officer]

The realized rate on the portfolio is roughly at about 7.9%, on an annualized basis, yes.

[Bhargav Dasgupta, MD, CEO & Director]

Yes.

[Gopal Balachandran, CFO & Chief Risk Officer]

To your point, Madhukar, with respect to the health loss ratios, I think if you look at it on a year-on-year basis, obviously -- actually, we'll see an increase from almost about 69.6% to about 77.3%. But yes, you're right. When you look at it on a sequential basis, you get to see the number kind of going down in quarter 2 from about 81.9% to about 74.6%. This obviously includes, let's say, health, personal accident and travel all put together. Within this, I think, a large part of that is with respect to health. That health numbers, when you look at it for quarter 2, the loss ratio for the overall health book was about 91%. That number, if you see for quarter 3 is at about 88.1%. So in general, I think what we have seen is, in terms of the approach that we have taken insofar as reserving for IBNR is concerned, keeping in mind the fact that there could be a possibility of claims that could kind of come in the subsequent period, to that extent, I think we did not necessarily, as we have indicated even in our earlier calls, not to necessarily factor in for the whole of the benefit in the initial period, but rather kind of be a little conservative and see the actual losses kind of playing through over the subsequent quarters.And hence, when you start to see numbers between quarters, you would get to see some kind of a reduction in the overall loss ratio numbers. But honestly, as we keep saying quarters may not necessarily be representative of what the true experiences is because there are multiple factors that go into the loss ratio numbers. An ideal thing will be to look at more on a year-on-year basis and ideally on an annual basis. I think that's what we would kind of largely suggest. And there, even on the health numbers, you would actually see when I gave out the numbers for 69.6% to 77.3%, that again included all the 3 components of health, personal accident and travel. Within that, the health loss ratio has actually increased from about 83% to 88%.

[Operator]

We'll be able to take one last question. We take the last question from the line of Shreya Shivani from CLSA India Private Limited.

[Shreya Shivani, Research Analyst]

Sir, just wanted to check on this. My understanding on the commission absolute number. So given that the retention ratio is high this quarter at around 78%, whenever the retention ratio is high, the net commission number tends to go up because the commission that you're earning from giving it to reinsurer sort of goes down. Is my understanding correct on this? Is that also one of the factors pushing up the commission number for the quarter?

[Gopal Balachandran, CFO & Chief Risk Officer]

So retention, Shreya, is a function of multiple segments. Particularly when you look at most of the retail lines, I think they -- I mean, in line with what we have spoken, whether you look at motor, for example, on the aggregate portfolio, this year, we have actually seen, particularly on motor own damage until fiscal year 2020, we had a small reinsurance support beyond the 5% obligatory on the own damage portfolio till FY 2020. From FY 2021, even that particular reinsurance support, which we had indicated even at the beginning of the year's call, is something that we have done away with. And hence, to that extent, you will get to see an increase in the overall retention numbers. So that's one.And similarly, I think the more you write retail businesses, I think, as what we have indicated, even the retail indemnity book for us has done reasonably well. And there, that's, again, a business where we kind of retain predominantly 95% of the risk leave aside the 5% obligatory.The one segment where, over the last so many years, we have always had a reinsurance support is with respect to the retail benefit. And that in line with what we have spoken earlier during this call. That's a segment where we have seen some bit of challenges insofar as growth is concerned. So hence, a factor of all of this is what is leading to an increase insofar as retention numbers are concerned.And corresponding to that is where your net commission numbers could undergo a change. So that's, again, purely a function of what businesses do we write. For example, motor, quarter 3, we have kind of written -- we have grown by almost 14%. So that obviously we'll have. And there, there is not so much of reinsurance support, as I explained. It will be purely an increase in acquisition cost.And similarly on health indemnity, whatever business that we source, again, will be a very high retention portfolio. But insofar as the cost of sourcing is concerned, that effectively comes as a part of your net commission numbers. So you have to look at it in the context of which lines of businesses have grown? What is the retention corresponding to each of those? As I said, for motor, predominantly 95% on the net. Health indemnity, again, predominantly 95% on the net. But the cost of sourcing is something that comes as a part of your net commission numbers.

[Bhargav Dasgupta, MD, CEO & Director]

And just to add to what Gopal explained. So the one retail business that we traditionally have been reinsuring is the -- this credit-linked benefit business, which this quarter has seen a tremendous drop. So even for that, the reinsurance commission we get has dropped.

[Operator]

We'll take that as the last question. I would now like to hand the conference back to Mr. Bhargav Dasgupta for closing comments.

[Bhargav Dasgupta, MD, CEO & Director]

So just thank you, everyone. It's been a late evening call that we are doing. Thank you for joining us. Stay well. Stay safe. Thank you.

[Gopal Balachandran, CFO & Chief Risk Officer]

Thank you so much.

[Operator]

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