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ICICI Lombard General Insurance Company Ltd
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Thank you. And good evening, everybody. I welcome you to the Earnings Conference Call of ICICI Lombard General Insurance Company Limited for FY 2019 and Q4 2019. Before we update you on the financial performance of the company, I would like to give you a brief overview of the recently ended quarter, post which our CFO, Mr. Gopal Balachandran, will share the financial numbers of the company. The general insurance industry registered a growth of 12.9% in FY 2019 over 2018, with the industry GDPI moving up to INR 1,701.04 billion in FY 2019 from INR 1,506.62 billion last year. The source is IRDA annual report of '17-'18. For the quarter ended March 31, 2019, the growth was 12.6% as compared to the quarter ended March 31, 2018. The combined ratio for the industry was 119.8% in 9 months as compared to 112.9% in 9 months FY 2018 based on available information. The overall combined ratio of the private sector multiline general insurance was 103.3% in both 9-month 2019 and 9-month 2018, the source being GI Council. One of the key development in the general insurance industry during the recently concluded quarters include General -- GIC Re, General Insurance Corporation of India, recently prescribed minimum rates to be charged for certain occupancy under fire segments, which are higher than the prevailing market rates if they are to be ceded via the treaty to GIC Re. These new rates are applicable with effect from March 1, 2019, on all treaties wherever GIC Re participates. Since GIC Re is a leading reinsurer, this development is expected to be positive since it could improve fire segment's profitability of primary insurers over the medium to long-term horizon. The regulator has recently notified that the insurance company shall continue to charge the prevailing rates for motor third-party liability insurance cover from April 1, 2019, onwards until further order is issued. This could, however, impact the loss ratio of the industry adversely. Speaking about the company's performance, the GDPI growth rate for the company in FY 2019 was 17.2%. Excluding crop segment, this number was 20.5%, which was higher than the industry growth rate of 12.9%. The GDPI growth rate, excluding crop for the company in Q4 2019, was significantly higher at 29.4%. In line with the previous quarters, we continue to register an across-the-board increase in growth in preferred segments such as fire, engineering, marine, liability and group health. The contribution of crop segment to overall GDPI of the company has reduced to 16.9% in 2019 from 19.2% in 2018. On the retail side, SME and agency channel and retail health indemnity products continue to grow faster and remain our areas of focus. Further, we registered robust growth in the motor segment, which aided overall GDPI growth in the current quarter. To harness the potential of these segments, we have been expanding our distribution networks so as to increase penetration in Tier 3 and Tier 4 cities. Our virtual office network has increased to 910 in FY 2019 from 135 in 2018. Our individual agents, which include POS agents, were 35,729 as of March 31, 2019, as against 24,379 as of March 31, 2018. Our underwriting performance, measured in terms of combined ratio, continued to be healthy for Q4 2019 as also for the full year 2019. I will now request Gopal to take you through the financial numbers of the recently concluded quarter and financial year.
Thanks, Bhargav, and good evening, everyone. I'll now give you a snapshot of the financial performance of the company for the quarter and the financial year ended March 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 increased to INR 144.88 billion in FY '19 compared to INR 123.57 billion in FY 2018, registering a growth of 17.2%. Excluding crop segment, the GDPI growth was 20.5% for the full year of 2019. The GDPI growth for quarter 4 of the current quarter was 19.1% over quarter 4 of FY 2018. Excluding the crop segment, the GDPI growth for the quarter 4 2019 was 29.4%. On the profitability front, our combined ratio improved to 98.5% in FY 2019 from 100.2% in FY 2018. The combined ratio improved to 98% in quarter 4 FY '19 as compared to 99.5% in quarter 4 FY 2018. As regards to crop segment, the current year's kharif season has been better than the previous years. Consequently, the loss ratio has been revised downward by 5%. Our investment assets rose to INR 222.31 billion at March 31, 2019, as compared to INR 204.45 billion at December 31, 2018. Our investment leverage, net of borrowings, was 4.09x at March 31, 2019, as compared to 3.92x at December 31, 2018. Investment income increased to INR 17.55 billion in FY '19 compared to INR 14.82 billion in FY 2018. Capital gains was INR 4.26 billion for the full year as compared to INR 4.47 billion for the full year of 2018. On a quarterly basis, investment income increased to INR 4.14 billion in this current -- currently ended quarter compared to INR 3.06 billion in quarter 4 2018. Capital gains was INR 0.56 billion in quarter 4 '19 compared to INR 0.43 billion in quarter 4 2018. Our profit before tax grew by 33.6% to INR 15.98 billion in FY 2019 compared to INR 11.96 billion in FY 2018, while the profit after tax grew by 21.8% to INR 10.49 billion in FY '19 as against INR 8.62 billion in FY 2018. On a quarterly basis, our profit before tax for quarter 4 2019 grew by 20.3% to INR 3.45 billion compared to INR 2.87 billion in quarter 4 2018, while PAT for quarter 4 2019 grew by 7.5% to INR 2.28 billion compared to INR 2.12 billion in quarter 4 2018. Profit before tax for Q4 FY 2019 included the upfront -- upfronting of expenses related to acquisition, related to the growth of 29.4% in gross direct premium income, excluding the crop segment, whereas the full benefit of earned premium will be all realized over the policy period. As briefed in the previous quarters, profit after tax for quarter 4 2019 and FY 2019 includes the effect of higher effective tax rates, resulting from the change in income tax regulation taxing long-term gains on sale of investments. Return on average equity was 21.3% for the full year compared to 20.8% for the full year of 2018. The return on equity for the quarter was 17.5% compared to 19.1% in quarter 4 of 2018. Again, on account of upfront expensing of acquisition cost related to the growth of 29.5% in gross direct premium income, excluding the crop segment, wherein the full benefit of earned premium will be realized over the policy period. Solvency ratio was healthy at 2.24x at March 31, 2019, as against 2.12x at December 31, 2018, continued to be higher than the minimum regulatory requirement of 1.5x. Solvency ratio was at 2.05x at March 31, 2018. To summarize, we have ended the full year with a diversified product portfolio and healthy financials, while improving our competitive positions amongst general insurance companies. I would like to thank you all for attending this earnings call, and we would be happy to take any specific questions that you may have. Thank you.
[Operator Instructions] We have the first question from the line of Avinash Singh from SBI Capital Securities.
Yes. Two questions. The first one is, I mean, on your broader strategy, of course, now that you are 20%-plus ROE. Now you are probably -- I mean you have articulated earlier, are now chasing a bit of growth, not looking to go beyond. So now can we see, I mean, this sort of for the full year, of course, I'm not doing quarterly, 98-odd percent of a combined ratio? You are happy with this, the 21% kind of ROE, and you will be chasing growth? If yes, I mean what are the sort of broader contours of growth in terms of distribution and product mix? Secondly, on the similar lines, we see even in '19, I mean, your loss ratio claims -- so in certain lines have gone down a bit, I mean, have increased a bit, particularly on the health because you sort of -- made sort of a comeback into the group health now. So your health loss ratio has gone up. Similarly, I mean, fire, of course, you will -- could you add more color? So claims ratio has gone up. So, I mean, are these claims ratio development in these couple of lines where you've seen sort of a sharp rise in our claims ratio, I mean, within your tolerance limit or your range? So these are two broad questions.
Thanks, Avinash. Yes, great questions. In terms of the first one, there is no real change in our approach. And this is not just for the last 1.5 years. I would -- I could -- if you were listed, you would have seen the same approach over a very long period of time. So at this point in time, the way we see the market, we believe there is almost a onetime opportunity in terms of the market share movement to companies, which have the ability to kind of scale up distribution, focus on building some of these capabilities and grow. And we are going after that opportunity. Now the reason why we feel confident about this is also because in terms of the overall industry dynamics, we are seeing a structural shift. And we believe, given the overall industry combined, a number that you would have studied, it will be very difficult for the industry on an aggregate to continue to remain very aggressive for a long period of time. Having said that, our approach is always calibrated. Whenever we find that they are not just at an industry level, but at a segment level, if we find certain segments behaving in a very unsustainable manner, being very aggressive in pricing, we are usually a bit shy of getting into that segment or we actually reduce our exposure in those segments. In aggregate, our approach will continue to remain focused on delivering an ROE of -- the kind of numbers that we've been doing, not on a quarter-on-quarter basis, because on quarter-on-quarter basis, it's impossible to manage a volatile business like us, but on an annual basis, while going forward, the growth opportunity that we see being there. Now when it comes to growth, we -- as we've been articulating for some time, we are focusing on certain segments, which you asked the question about what is -- which are the segments that we're focusing on. Our focus has been in terms of more granular businesses. So we've -- what we talked about in terms of distribution rollout, the virtual offices, the number of distribution points, the agencies that we add -- agents that we've added, is basically to go into the Tier 3 and Tier 4 cities. It's an investment that we are making. A lot of the investment has happened and the cost has been kind of being incurred as we speak. But we believe this is going to help us in the long-term -- from a long-term perspective. The other aspect about where we are focusing on growth is also where we are not focusing on growth. And again, there's no change in that approach. One of the things that we've been saying is the chunky, the tender-driven businesses, we find very, very volatile and unpredictable. And at this point in time, pricing is not in line with what we would want to see. So that's not a segment that we are targeting for growth. Our focus on growth is the rest of the business, the nongovernment business. We want to continue to grow between 15% to 20%. And the rest of it will happen as it comes.
Yes. Yes. So a quick follow-up. I mean, of course, as you rightly said, looking at the full year, not quarterly. I mean, from 103% to close to 100% and now at 98%. And that 98% also include, as you were saying that, okay, you have made -- started investment in distribution. I mean going forward, I mean, at -- what is the level? Because now, of course, from 103% to 98%, of course, was kind of a required journey. But are you in an industry where, I mean, it's -- you are saying that even private players' combined ratio is going to 104%, do you see, I mean, again, you're improving your 98% or like you are very happy at this level and sort of grabbing more markets here? Do you see a scope of improvement from 98%?
That's why I explained that our approach is if we are delivering an ROE of 20%, we would want to go for growth. That's the philosophy, right? Now the second point about the movement of the combined from 103% to 100% to 98%, I don't think you can assume that we have a glide path because that was -- this is a very volatile issue in our industry, at least based on our experience. I'll give you a couple of changes that are happening, the dynamics that are happening as this -- in the industry as we speak. One, as you've seen this year, the regulator hasn't given a third-party price increase. Now almost 30% of our earned premium is in the form of third-party premium. Now if we don't get a price increase by our standard actual model, given the claim inflation that we see, we will see a loss ratio increase for that book to the extent of the claim inflation. Because, the numerator, there's no change -- sorry, in the numerator, there is change, denominator, there is no change. So we will see -- if we do nothing, our loss ratio will increase by at least 2% at an aggregate company level because of third-party -- or lack of third-party price increase. So I don't think you can assume a glide path in terms of the numbers that we've demonstrated. And our strategy also, as I've been saying, we've been saying that it will be to keep it around 100%. And whenever there are opportunities of growth in our preferred segments, we would want to go for growth at this point in time.
Yes. And [indiscernible] touched the line. But overall just like you [indiscernible] third-party you get 2% combined, you see everything else equal on the aggregate level. Any material sort of a change for you? Because I mean, of course, the GIC circular gives you better growth opportunity with a better pricing environment, so sort of -- because you are well capitalized company. So what sort of impact you see on the property line, I mean?
Yes. So if you look at our mix of earned premium, while -- what you're saying is absolutely correct. We will see improvement in the 8 occupancies that GIC has indicated at this point in time, and it's a positive development for the industry as a whole. And we also will benefit because of that on the fire side. But if you look at the earned premium for us for fire, in aggregate, it is...
Very small.
Well, very small. And within that, we are talking about 8 occupancies where there's a price increase. So it does not move the combined needle for the company. So that's one way to look at this aspect. The only other material change is -- one of the things that we've been saying is the mix of crop will -- we've been saying that we wanted to bring it down. If you would see the full year number, we've actually brought it down to about 16%. That trajectory, I think, may get accelerated given what we are seeing in the marketplace on the crop side. So that would also be another dynamic in terms of our mix of business going ahead.
[Operator Instructions] The next question is from the line of Harshit Toshniwal from Jefferies.
A couple of questions. One, first, the data keeping one. Can I know the balance of advanced premium as -- in balance sheet currently?
So that's about...
INR 800 crores.
Yes, that's about -- at the end of 9-months, that number is about INR 800 crores. And for the full year, that number stands at about INR 1,300 crores.
INR 1,300 crores. Okay. And another thing, sir, on the motor TP business. So as you explained, that if we do nothing, our loss ratios will increase because third-party rates hike are not there. But maybe over a longer period of time, over 2 to 3 years period of time, do you expect that simply because of the nature of the regulation, where I get the float benefit, but I lose on the claim inflation part? The general trajectory of loss ratios will be on an increasing trend, which will be again compensated. But is it okay to build in a gradual increase in the combined ratio over a 3- to 4-year period of time?
So there’s been a structural change. Let me -- I'll take 2 minutes to explain this because it's very important to understand this. If there had been no structural change in the motor business, the structural change that I'm talking about is the fact that we've moved into 5-year for 2-wheeler and 3-year for private car, my answer would have been different. My answer would have been that the regulator looks at the claims ratio, and it is not just one company's claim ratio they look at, they look at the industry claim ratio. And there is claim inflation. And generally, we've been seeing a price increase. So if it -- if there had not been the structural change, we would have, in our opinion, still seen annual price increases because that's required. Having said that, there's been a structural change in the form of the -- 5-year to TP and 5-year in private car. Now by design, when the pricing has been done for the 5-year policies, it's a fixed price for 5 years. As we've explained in the past, and Q3 call also, we explained this, the way it has been priced has factored in the point that you're sitting on the cash upfront. So there is some amount of migration of profitability from underwriting to investment. What I mean by that is the profit component will come more from investment and less from underwriting for these long-term TP businesses, right? So just by sheer tint of that development, you will see the migration that you're talking about, because you've got a fixed price policy, which you've written for 5 years. The accounting policy for TP states that you divide the total premium that you get in -- divided by the number of years, so divided by 3 for private cars, divided by 5 for 2-wheelers and account their income in the revenue side. But the claim inflation is there.
So yes, that's effectively my question. So gradually, we should increase the float and simultaneously build some higher combined ratio?
We believe that will happen for the motor business, you're right. The ROE, in our estimate, our belief is that the -- this mix -- the movement of profitability from underwriting to investment will still lead to slightly better ROE is our estimate as of now. Time will tell if our estimate is right because this is all a new learning for us. Because we are assuming some frequency drops, we are assuming this claim inflation, and we are assuming the cost reduction that we are getting because of the fact that we've done distribution once and it's over, et cetera, and the investment pool that we talked about.
Okay. One more last question, sir, if I may ask. So having said that, I want to understand your opinion on the risk of cannibalization of the own damage business, typically in the 2-wheeler segment? Because again, penetration itself was low in that particular segment. And now if I am having a 5-year third-party, do you see that to be a big risk that the own damage of 2-wheeler might fall down very significantly for the industry?
As of now, the numbers that we've got for the -- so what's happened is that 100% of the vehicles that are getting sold are getting sold with 5-year TP, at least, right? If you look at the past track record, the percentage of people who used to renew after one year when there was no such 5-year scheme, percentage of people who used to renew after one year was itself below 30%, between 20% to 30% for 2-wheelers. So between 70% to 80% of people didn't even renew the TP policy.
70% to 80%, was it?
Yes. That was the drop-off rate after one year. For 2-wheeler, I'm talking about 2-wheeler, right? So as it is, we are getting 5-years of TP, which is a positive. Now the second point is that if you look at the penetration of 5-year own damage on the policies that we are selling at this point in time. So basically, a customer can buy a 5-year TP with a 1-year OD or a 5-year TP with a 5-year OD. So I'm talking about a percentage of people who are buying 5-year OD on the -- with the new policies is more than 20% at this point in time. So we -- now the question is the balance, whatever 80-odd percent, 75% to 80%, who are not buying 5-year OD, we will be able to renew them after 1 year. I think that conversation, we can have at that point in time. So it's difficult to predict. We will, of course, make an attempt, but we don't know what will happen because the ticket size is very small for just the OD component of our 2-wheeler. But even if nothing happens, in aggregate, as an industry, we are benefiting today.
The next question is from the line of Nishant Shah from Macquarie.
Yes. Following on from the previous question actually. So I just noticed in your reserving triangle. So this year, for the first time, we've not had like bad book provisions for the dismantled third-party pool. So is this something which is happening at the industry level as well and one of the reasons why there have been no price hikes in the third-party segment this year? Or is it just purely because of the long-term policies that have been -- long-term tenure policies that have been introduced is why you've not received any hikes?
No, it's neither of that. Actually, we had told -- spoken even at the end of last year that we believe the strengthening cycle for the long-term -- the dismantled pool book is over. We had indicated that even at the end of our last year's numbers, which is what has really translated for us in terms of this year's numbers. This is largely company-specific because we don't have data on the motor pool number for the other companies. We don't know if they have reserved adequately or inadequately, so we cannot comment on that. That picture will be very different for every different company. And if you see the overall combined ratio for the industry being at the level that it is, our guess is it's also because of bad book provisioning that some companies are having today. So it's different for different companies.
Okay. So what then, essentially, is the reason for not having any price hikes? If it is not the long-term policies and not the bad book provisions for the industry going out, like what reasons explain this?
So that -- we'll have to get into realms of speculation as that question, only the regulator can answer. But what they've said is that -- at this point in time. So we are hopeful that we will get some increase. We do not know if we will.
Okay. Fair. And just one very quick question on the crop segment. Are you actively trying to degrow the segment? Or is it just like it's not going to keep pace with the growth in the other segments, and therefore, the proportion is going to sharply reduce?
So there are two things. One is the -- one of the developments is the fact that -- one of the factors is the fact that it's a tender-driven business. Until last year, we had a 3-year policy with one of the states. So there was a committed business that we were anyway getting until last year. So we could predict with some certainty. This year, we can't predict with adequate certainty because every tender is billed out, right? That's number one. So it's very difficult to predict growth. That's why we don't kind of talk about that as a number that we've kind of baked in our plans. That's point number one. Point number two is if you see what's been happening to the overall business from the first year to the last 2 years, as there's been significantly higher level of aggression in the market and the reinsurance market has been tightening over the last 3 years, which is why we've been reducing our share of that business in our overall portfolio. Now, where it has come to now, the aggression, and even more importantly, the reinsurance structures, are such that the breakeven for that business is now reached to a level which is, in our opinion, unsustainable from a social insurance perspective. So we should be cautious simply from that perspective. And that is why we are saying that it will sharply come down. That's our estimate.
Fair. And one question. Again, I don't -- I'm not quite sure how to structure this, but I'm going to give a stab at it. So now that a lot of these dealers are now trying to bundle the insurance policy as a part of the discount package or something like that for the 2-wheelers or the 4-wheelers, it's them, the dealers or the B2B side, taking this cost on their own P&Ls. Is there a chance that they may try and negotiate some rates for you and like you might see some pricing pressure come through? Because ultimately, it's these guys who drive where or what insurance company the policy is bought from. And is there a chance that, like not in the third party, which is regulated. But in the OD segment, you see some price corrections happening because it's moving in the nature from a B2C to a more B2B kind of environment given that the dealers are bearing this cost now?
So this is not new. These things keep happening in the industry, and it's been happening over the years. Even this year, 2-wheelers, there was a -- this happened to some extent. So it's not new for us. And what we end up doing is, obviously, we negotiate with the OEMs whenever they want to run these schemes to push their underlying volumes. And we negotiate to a level where it makes sense for us. So the way to look at it is, at a structural level, if for the industry, the motor own damage book is running at very high loss ratios, we hope that it should not get passed on further. Having said that, it is completely dynamics that happens every year. What we can tell you is that the motor own damage rates have come down already tremendously for the industry. Post MISP, the rates have -- prices have dropped and the loss ratios for the industry is getting quite adverse in our estimate. So we hope that we do not see further reduction for the coming year. But this is a -- there is nothing new. This is usual dynamics that gets paid out between the industry and the OEMs on a regular basis.
The next question is from the line of Nidhesh Jain from Investec.
Sir, the question is on the profitability. If we look at this year, there has been [indiscernible] from a results final -- this has not been added, there was strengthening on the motor TP. Last year, we have strengthened our reserves in motor TP. So on a profitability basis for this particular year, how one should look at the profitability? Because if we do that, it will mean that the profitability for this year -- just for this year, maybe adverse versus the profitability of last year.
So in terms of absolute number, you're absolutely correct. Until last year, what we were explaining was that -- so the practice that we have, which is something that we've always articulated, is that at the time of reserving, we remain conservative. And as the data flows through, if we see the opportunity to release, we do some releases. And that's the standard global practice of the reserve redundancies that you see. I mean the 2% to 3% reserve redundancy is a good number for -- which is considered a good number at a global level. Now until last year, what we've been articulating is that there was some amount of strengthening that we were doing for the TP book, particularly the dismantled pool. So it was getting consumed in that. This year, we've not had that incremental provisioning. So there is no doubt about the fact that this year, we benefited from the reserve releases, which we did not in the last year. Having said that, one of the things that we've had to kind of factor in this year is the incremental growth that we've seen in the last 2 quarters. If you look at this quarter, for example, if you take out crop, our growth was about 29%. And as we explained in the previous years -- previous quarter's call also, when you grow much faster in these retail lines of businesses, you do have kind of a strain for about a year in the sense that the expense -- the upfront cost of sourcing that business is expensed upfront, and the benefit in terms of premium -- earned premium plays out over the last -- over the next 12 months. So that has had some impact for us this year. And thirdly, as we've again been saying, we've been investing in terms of the distribution. We've in a sense timed it, and we were fortunate to be able to time it when industry was going through a churn where we felt the timing was right in terms of market share growth, as also our ability to invest in terms of our profitability improving.
Can you quantify the impact of these two aspects of growth, which has led to -- and as well as investment that we are doing in the future? Any percentage which has led to higher OpEx ratio for us.
So if you see, Nidhesh, I think even last quarter, we had kind of said that the growth was about 25%, and it definitely had an impact insofar as upfronting of expense is concerned. And as Bhargav said, even this quarter 4 has been at about, let's say, 29% growth, excluding the growth in crop segment. In terms of -- and therefore, from an ROE or from a growth of profit after tax standpoint, you would have seen the growth in quarter 4 stand at about 7.5%. If one was to, let's say, adjust for this incremental growth, which we have seen in quarter 4 of current year relative to quarter 4 of last year, we could potentially see an increase in our growth in profit after tax numbers, which would be higher by about another 15% to 20% increase, over and above the 7.5% growth that you have seen in quarter 4 profits in this quarter.
Sure, sir. Sure. And then, lastly, on the OD segment, there has been an increase in loss ratio from FY '18 to FY '19. So is it a new normal because the pricing has become adverse or you expect it to...
Whether it's new normal or not, we'll have to see, but it is in line with what we've been saying post the MISP. We have been saying that some of the benefits will get passed to customers. Our sense is that it is probably swung particularly extreme now. And one of the questions that someone had earlier was the industry OD loss ratios. The 9-month numbers for the industry has gone from 67-odd percent to about 73%. So the industry is actually suffering on the OD side as we speak. We don't know if it will sustain at this level. Obviously, my guess is most insurance companies will try to push back in terms of the pricing, et cetera, on that. We will see how it plays out going ahead. But at this point in time, yes, the OD loss ratios have definitely gone pretty adverse for the industry and even for us.
[Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital.
So just from the OpEx point of view, we see a sharp growth in sales and promotion expense, which is -- for the full year is almost 83%, and for the quarter, it is almost 2.3x of what you reported in Q4 FY '18. So I just wanted to understand where we are spending this? Because after MISP, I was under the belief that we can't do any expenses. Is it outside the dealers where we are spending? Or these spends are towards virtual sales offices or the agency channel expansion? Just wanted to understand more detail where these expenses are happening. That is my first question. And the second question, I'll come back after this thing, yes.
So if you look at the expansion that we've done this year, we've added almost 25% headcount as a company in one year. So we were around 8,000-odd number. We've added 2,000 more people this year in terms of headcount. Add to that the infrastructure spends and the offices, et cetera, so that has had a pretty large impact as we speak.
Okay. So basically, because the employee cost grew only just by 13% for the quarter, but the sales and -- sales promotion expense, the way it's been classified, it has grown 2.3x. So it's more because of the infra, addition of branches and all those things led to the higher cost?
Yes, all of that.
Okay. And just wanted to understand, I mean, so given -- I mean this OD business, the way we have grown, it has been far superior compared to the industry average, where the industry is struggling to grow the primary sales. How we have managed to grow? And I also see that Maruti, which is biggest OEM for most of the insurers, have now opened to multiple players like Go Digit and Magma kind of smaller players, too. So the competition in one of the largest OEM is intensifying. So I just wanted to understand what is driving motor OD business growth for us? And whether the kind of growth we reported in the full year be sustainable from the current levels?
So the competitive intensity actually played out even this year, not just for next year, in terms of number of new partners that some of the OEMs added happened even this year. And of course, there are more partners that are getting added. In terms of what we've been able to do are two things. One, given the entrenched relationship that we have at dealer levels, we've been able to hold on to our market share in most of the OEM platforms. Some cases, we've lost a little bit. Some cases, we've increased a little bit. But on balance, we've been able to hold on. Where we've grown is in terms of the agency channel, channels that we've kind of invested in, in the Tier 3, Tier 4 towns, where we will be adding this distribution. Our view -- numbers, as we said, has gone up to about 910 virtual offices from about 135 last year. And the number of agent count, as we explained, has gone up significantly. So we begin to see traction coming out of some of those. Going ahead, how it will play out? Yes, the competitive intensity is increasing. But we believe, given all the other strengths that we've had, the relationship with the dealers, the service infrastructure that we've created, the technology investments that we've made on virtual service, et cetera, we should be able to hold on to our market share.
Okay, great. Just a final one data point. This advanced premium breakup, which you said around INR 1,300 crores, can you break it into OD and TP and 2-wheelers and cars, if possible?
Mostly TP.
Mostly TP. And between 2-wheelers and cars?
So I think -- Sanketh, I think that number even -- I think that's a slightly sensitive number, so we're not actually giving a split at this point of time.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
A couple of questions. One, on the crop portfolio. So you would have gone through a large part of the tendering process for next year's kharif. So I just wanted to understand what is the status there? Have we won or lost any of the clusters? And also in terms of loss ratios for FY '19, we were provisioning 117%. It's now come down to 107%. But is it -- is there still a lot of provisioning there and which could reverse? And if yes, then will that impact, actually, flow through in FY '20?
So on the first question, Rishi, we've not won any tender as of now. Most of the kharif tenders, you're right, have been done, but there's still some tenders left. We've not won any tenders until now. The -- on the second question, what we were doing, as we were telling you, is that we were holding 100% because even the kharif numbers were not very clear to us in Q3. Kharif numbers have come through. We are more or less certain over the kharif numbers. And that seems to be quite healthy. And in terms of our mix of business, about 75% of business was written in kharif, 25% was written in rabi. Rabi numbers, we don't know, and we don't want to take a call on the rabi numbers at this point in time. But what we see, given the mix and given the loss ratio on the kharif numbers, we were comfortable to release about 5% of our loss ratio numbers. So the loss ratio that we're holding has moved from 100% to 95%. We've had some -- other releases from the previous years, which is why the number has come down to 117% to 107%. But for this year, we are holding 95% plus the -- all the reinsurance costs, that's what we are holding. The exact number, we will know when the rabi numbers come through. I mean it's so difficult to predict this. I don't want to misguide you to say that there will be releases or otherwise. We hope that will not be otherwise. That's why we've taken the 5% reduction. But if the rabi number stays within some reasonable number, yes, there will be releases. If not, there won't be releases.
Okay. So -- and on the tendering thing, so I mean if you haven't won anything as yet, and I'm assuming that MP tendering is already done and over with. So effectively, I mean, there is a possibility you can pretty much go down to 0.
There's always a possibility, absolutely.
Okay. Secondly on...
On the -- Rishi, honestly, as we've been saying, our focus is in the rest of the business. That's the business that we want to focus on growing, between 15% to 20%.
No, absolutely. I mean it will be EPS accretive. We are happy with that. Secondly, on -- the changes that you talked about on motor TP from a structural shift, and as a result, probably the underwriting profits will not look as good going forward. But that will reflect in float income. So is it fair to assume that we are now also structurally moving towards higher investment leverage as a result of that?
Yes. You've seen it in the last 2 quarters, right? It's moved up every quarter. And I think last quarter, a year -- the one before that, we talked about the leverage going up to about -- within 3 years, we think it will go to between 4.5 to 5.0x.
In the last quarter call.
Last quarter, I talked about that, yes.
Understood. And one last question. Just wanted to understand, and this is not related to this quarter, but if you look at your health insurance segment, the commissions that you get on that is almost 65%, 70% of the amount that you are ceding. And by commission, I mean commission on the ceded business. Why is that such a high number? I mean, effectively, you're doing this business for free?
For free is it?
I mean, so why is the commission rate that you're getting from GIC such a high number, 65% of your premiums that you're ceding to the company or reinsuring?
So, Rishi, I think historically, I think for us, any business that we underwrite, I think we always look at it in the context of how much to retain and how much to reinsure. If you look at on the health point that you're talking about, obviously, we do write a couple of product construct, which is the indemnity and the benefit construct. Historically, I think on the benefit side, in particular, on the indemnity side, largely you kind of retain the risk on the net account. On the benefit, I think we have kind of also explained this in the earlier quarters as well. Benefit, historically, we have been operating under reinsurance structure. And hence, what -- the levels of commissions that you get to see is as a result of the reinsurance terms that we have been able to negotiate on the portfolio. And that's why you get to see those levels of commissions.
So they give 70% of the premiums as commissions, too?
So it's a question of, Rishi, in terms of how you structure the terms. And as I said, historically, so far as the benefit portfolio is concerned, we have always operated through a reinsurance structure. And...
And benefit is a very profitable segment, which is the point that we made in the last quarter. One of the impacts that we've had in the last 2 quarters has been the NBFC kind of crisis. And effectively, what that did was benefit business came down. So there is -- that segment is very, very profitable. Of course, there's a lot of cost as well in terms of distribution cost to write that business.
Understood. And you don't see any major risk to that, considering how GIC has otherwise been strengthening their commission rates?
Well, this treaty is not just GIC. There are other global reinsurers. So I'm sure they do their profitability modeling.
The next question is from the line of Rahul Jha from Bay Capital.
Yes. So my question is just on motor segment, OD specifically. The industry is flattish but you have grown around by 10%. Is it because of new relationships with OEMs or you have gained market share in existing OEM?
We have gained market share in 1 or 2 of the OEMs. We've added a couple of new OEMs. We've also -- as I was explaining, we've added a pretty -- almost close to 50% growth in number of agents by the end of the year. When I say agents, it includes the point-of-sale agents. So it's a mix of all these factors. So basically, we've been able to get market share in terms of the motor business.
Right. And can you provide how much of the contribution by volume? For example, you have given contribution by amount. But volumes in 2-wheelers, private cars and commercial vehicles?
So if you look at the aggregate number of policy count for the company as a whole, I think given that we write almost like about 70% to -- 70% of the overall premiums in terms of both motor and health. So the aggregate policy count for the company as a whole has increased from about 23.5 million policies to about 26.5 million policies.
The next question is from the line of Udit Gadia from Premji Invest.
I just want to know what is the strategy on the digital channel? So if I look at the March GWP premium numbers, one of the digital player, Go Digit, has seen a sharp uptick, like they've written about at least INR 80 crores of premium, which is almost as half of what we have written. So what are your thoughts?
So this is clearly a key focus area for us and one of the areas that we are investing. We didn't want to talk about it because it's not a big number in terms of impact on overall numbers. But one of the things -- decisions that we took, which is a public information, is the fact that we've kind of created a separate, quasi -- it's much more than a division. We've always had a digital division, but we've kind of created a quasi independent company within a company with all the resources, including engineering, underwriting, actuary, finance, HR, et cetera, to make that part move faster than what we, as a large organization, can do. What we are focusing there are 3 things. One is the growth in business on our own channels, as in digital channels, be it in terms of online or through mobile. Second is the digital ecosystem, as in the partners, working with some of the players in the ecosystem. And third is seeing if we can come up with completely different approach in terms of new product construct. The third one is probably more of a long-term investment. But the first 2 are pretty real. And we've seen reasonable growth in those numbers in the last, I would say, about 4, 5 months since we've done the structural change that I'm talking about. So there's a number of new partners also that we've tied up. One of the bigger ones recently, which we went public with, is MobiKwik and that segment is growing pretty well. So in terms of focus, yes, that's a big -- obviously a big -- it has to be a big strategic focus for us. We are putting a fair amount of money behind this initiative. We hope to see how -- we hope to see this play out really well for us.
Okay. Okay. And second question, on the investment yield. So the investment yield in F '19 has been much lower than what it was there in F '18. So is that has been just because of booking lower profits from our equity investment book?
So if you see our capital gains number for the 2 years have largely been the same. So all the total gains that we've had in the investment book this year or over last year is largely driven by the interest income and the dividend income. So if you look at the total number, the total investment income for us was INR 17.55 billion. As against that, the previous year was INR 14.72 billion. So roughly about INR 2.8 billion increase. But if you look at the capital gains number this year, is INR 4.26 billion. Last year was INR 4.29 billion.
The next question is from the line of Prakhar Sharma from CLSA.
So I just wanted to have a couple of things. One, on the nonoperating results line, expenses other than insurance business and provision for doubtful debt. Could you explain what these -- the spike here reflects? And is there a sort of one-off here? Also on the doubtful debts, anything else that you would need to provide for?
So I think -- so on the doubtful debt side, Prakhar, I think we do have outstanding balances, which are due from, let's say, reinsurers as well as coinsurers. And what we -- while these are balances, which are definitely -- there is no doubt insofar as recoverability of the balance is concerned. But internally, as a company, we follow a practice of in case if the balance becomes sticky. And the period that we kind of largely reckoned is, let's say, any balance, let's say, outstanding for -- greater than 3 years, we kind of make a provision in the books. That does not necessarily mean that the balance has become bad. So that's more an internal law. And one of the coinsurance balances kind of crossed the period -- threshold period of 3 years, which is why we had to kind of take a provision in this particular quarter. Other than this, I think there is no specific balances, which we think that could kind of come as provisioning for us. But as I said, this is more a policy that is driven internally by the organization.
So if you see every quarter, we have some of the -- if you remember, Q2, we had one of these old provisions that we had made in the past come back and come in as a onetime gain. So this is -- every quarter, you will see something crossing the threshold and we will provide for it. Some of it may come back at some other time, which will be right. Because most of these are usually with coinsurers and reinsurers, we should recover most of them. And there will be some government receivables, which in due course we should receive.
Nothing related to investment book here, right?
There's nothing related to investment book.
No, nothing.
Okay. And the OpEx other than insurance, what, the INR 43-odd crores? It's a sharp rise.
So that again I think -- yes, so what -- I think again, IRDA does is I think there are certain expenses, which they believe is not necessarily a part of what they call is the revenue account. For example, any element of interest on the sub-debt that you have. So that will be a part of expenses that will directly go into the P&L and will not flow through the revenue account. And given the fact that, let's say, for example, the investment income gets allocated between the revenue account as well as the profit and loss account. The cost of the investment function will also be something that will be allocated equally between the revenue account as well as the profit and loss account. And thirdly, I think the spend that we are required to do in terms of the social obligation on the CSR front, which is driven by 2% of the profits of the last 3 years. So that again is a number that kind of goes directly into the P&L and does not kind of go through the revenue account. So those are the key contributors insofar as the expenses, which is there in the profit loss statement.
The next question is from the line of Nischint Chawathe from Kotak Securities.
This is Nischint here. Just trying to understand why is the solvency ratio gone up?
Nischint, solvency, again, I think if you look at it, I think it's clearly a function of efficiency in operations that you get to see. And so clearly, if you would have seen, I think our combined ratios have been kind of operating at levels of about 98% and so that's one of the key drivers of improvement in solvency. And the second point, I think one of the questions, which was asked earlier in the call, was the fact -- in terms of how the overall loss experience on the crop portfolio has been. And as we kind of explained, at least insofar as the kharif season is concerned, the season looks to be favorable and which is why we kind of decreased the loss ratio numbers from 100% to 95%. So that again kind of leads to a betterment insofar as the required solvency margins are concerned. And finally, any amount of profits that you make in the business automatically kind of adds to the solvency. So those are the 3 contributors insofar as the solvency position is concerned.
Sure. Just one last -- sorry, small question, which investment property was converted to a fixed asset?
So we have a property here itself in Bombay in Peninsula Business Park, which we are now -- when I talked about the digital business, we've kind of housed our digital entity in a separate location. We wanted to house it in a separate location. So that team is sitting in the Peninsula Business Park, which we moved out of our investment asset into the operating asset.
Thank you very much. Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to Mr. Bhargav Dasgupta for any closing comments.
So thank you, guys. I know it's pretty late and middle of -- almost a holiday season for the market. So thanks for staying up. And I look forward to meeting you as and when you have more clarification. Thank you.