ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the ICICI Lombard General Insurance Limited Q4 FY '20 Earnings Conference Call. From the senior management, we have with us today, Mr. Bhargav Dasgupta, MD and CEO of the company; Mr. Gopal Balachandran, CFO; Mr. Sanjeev Mantri, Executive Director, Retail; and Mr. Alok Agarwal, Executive Director, Wholesale. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Bhargav Dasgupta, MD and CEO, ICICI Lombard General Insurance Limited. Thank you, and over to you, sir.

[Bhargav Dasgupta, MD, CEO & Director]

Thank you, Steve, and good evening, everybody, and thank you for joining the earnings conference call of ICICI Lombard for Q4 FY 2020 and for the full year of 2020. So I would like to give you a brief overview of the recent developments in the industry and our responses to them, post which our CFO, Mr. Gopal Balachandran, will share the financial performance of the company.As we speak today, we are operating in unprecedented times. The COVID-19 pandemic has disrupted every aspect of our life. At the last count, the virus has affected 210 countries across the globe. As far as India is concerned, timely measures taken by the states, such as the country-wide lockdown to break the transmission chain, calibration of trade and commerce activity, social distancing norms, et cetera, have helped limit the contagion. At the same time, this would lead to significant economic impact, the extent of which is not exactly quantifiable at this stage.Now at ICICI Lombard, we have reorganized ourselves to service our customers and support our channel partners while ensuring the safety and well-being of our employees. We've been able to achieve this, thanks to the technology journey that we have traveled over a decade. Today, our customers can experience the entire insurance process from purchase to policy servicing to claim intimation to renewal in the digital mode.Right in the purchase stage, we offer multiple options for transacting through web, mobile apps, et cetera. Today, about 96.5% of the policies issued by us are in paperless form. With regard to claims settlement, we offer multiple digital solutions for quick processing, case to the point is InstaSpect for motor own damage claims. The feature available on our mobile app does away with the need to physically survey the damaged vehicle, allowing real-time claim assessment and approval. Since its inception in 2017, we have approved more than 6.5 lakh claims instantly throughout -- using InstaSpect. During the lockdown, we managed to conduct damage assessment of 100% of the cases using InstaSpect.On the health insurance front, we introduced an AI-enabled claim settlement engine to authorize some of the health claims. During the lockdown in April, 31% of all the health claims were authorized using this tool.For policy servicing and query resolution, we are encouraging our customers to make use of our digital solutions amid the lockdown. We have experienced that more than 50% of the customers calling the call center prefer to opt for our digital platforms when given the option to do so. We are heartened by this response to the same. As we look ahead, we will continue to promote our digital services available 24/7 to our customers.Now going beyond customer support, we've been pursuing ways to truly address customer needs in these challenging times. We introduced a dedicated product, COVID-19 Protection Cover, that provides 100% of the sum insured on the first diagnosis of the virus. We have offered this relevant proposition across channels, including entering into tie-ups with entities such as Flipkart, BharatPe, et cetera, to reach their customer base.Amidst this lockdown, obtaining medical advice is a big challenge. So harnessing our health ecosystem and the technological prowess, we've introduced a tele consult feature on our mobile app, IL Take Care. Within 4 months since its launch in January 2020, we have seen a surge in utilization of this facility. The app that was first introduced to corporate customers witnessed an increase of more than 50% during the lockdown among its base. Further, the app is being rolled out to our entire retail customer base. It will enable us to expand our scope of wellness and other value-added offerings to customers going beyond addressing their insurance purchase, claim intimation and query servicing needs.Engaging with customers beyond business is critical in these times. We introduced several initiatives, including online wellness to help customers stay positive, cyber safe and engage. Each of these sessions witnessed participation of over 4,000 customers. Further, for corporate customers, we've conducted focus sessions involving eminent professionals from the health care space and our senior members to discuss relevant risk and insurance aspects. We reached out to more than 3,500 corporate and SME clients in the process.Turning to our channel partners. As you know, our diverse distribution setup forms a key component of our competitive strength. Over the years, we've deployed technology solutions to equip our channel partners with the right tools to conduct business and service their customers. In these trying times, ensuring customer retention becomes an important growth lever for our channel partners, to help them in their retention efforts, we have deployed the latest technological tools, for example, robo calling and CRM tools for motor dealer partners.We've also activated our remote work-from-home call center for this purpose. Further, we have encouraged increased usage of digital tools like MyRA and iPartner for sourcing and servicing customers. While many of our partners were already using these tools, some of them required handholding. We have conducted training programs for these partners to familiarize them with these tools and guide them to -- on other challenges being faced amid -- during this lockdown. More than 4,500 channel partners have gained from our online webinars conducted by our senior leaders.April, May are the months when we run a focused campaign called Udaan for the SME segment. This year, despite the constraints, we have launched this initiative through our multiple digital platforms, positioning it as digital Udaan. This approach has yielded results as we have witnessed 89% of business sourcing through our digital solutions during the lockdown for this segment.Even as we work towards supporting our customers and channel partners, we've been ensuring the safety and well-being of our employees. In fact, we have taken steps on this front in early March before the lockdown. At our key office setups, we had introduced social distancing norms, use of sanitizers and deployed screening equipment to monitor employee health. As we moved to a complete work-from-home scenario post the national lockdown, our technology solutions and remotely deployable IT infrastructure have helped us in maintaining service continuity. Today, our employees have the right tools to operate and collaborate with colleagues across more than 250 branch offices and virtual office locations.Further, we have been engaging with our employees in multiple ways. During this time, we accelerated our efforts towards upskilling our employees by leveraging technology platforms. In this regard, we introduced e-learning programs, self-consumption videos and scheduling live training events. Over 3,200 learning hours were consumed through e-learning modules. Further, our employees were given access to 987 videos with 150-plus hours of learning content on our video portal, K-point. For those requiring special assistance, we have scaled up our internal platforms such as Santulan, which provides online counseling. While ensuring well-being and productivity of our employees, given the unprecedented scenario, the management committee, the senior-most level of the organization, has decided to forgo 50% of its annual bonus of FY 2020 and salary increment for FY 2021 in order to contain the expense of management.At ICICI Lombard, we are committed to support the efforts of policymakers and the society in containing the impact of the pandemic. As part of our CSR commitment, we have contributed to ICICI group support of INR 1 billion towards initiatives aimed at curtailing COVID-19 impact. This includes contribution of INR 500 million to PM CARES Fund by our company as well as voluntary salary donations by our employees with contributions ranging up to 1-month salary donation as well, amounting to INR 12 million.Further, we have introduced free COVID-19 testing for the underprivileged sections of the society. For this, we have partnered with reputed diagnostic brands. In addition, we have provided personal protection equipment, or PPE, in medical -- to medical staff treating COVID-19 patients at certain government hospitals in the high-impact cities like Mumbai.Amid our efforts, authority has been forthcoming and has announced several measures for the benefit of policyholders and to ensure smooth operations of insurers. This includes directing insurance to simplify claim procedures, ensuring claim authorization within 2 hours, et cetera. It has also ensured a swift response to product approval, enabling insurers like us to introduce dedicated COVID-19 solutions in time. Further, the authority has been instrumental in ensuring that insurance is classified as an essential service.I would also like to touch upon a few specific announcements by the regulator. The authority had notified on March 27, 2020, that insurance companies shall continue to charge the prevailing rates for motor third-party liability insurance covers from April 1, 2020, onwards until further order is issued. This will impact the industry loss ratio adversely for the current year.Further, in April 16, 2020, the authority announced further relaxation for payment of premium on renewals for motor third-party and health insurance policies till May 15, 2020. For the industry, this could lead to short-term impact on premium growth as customers may choose to renew at a later date. Additionally, subdued auto sales in the last few quarters, followed by temporary shutting of OEMs, are expected to impact new business sourcing. It would thus be a challenge for the motor insurance segment to maintain the desired growth trajectory in FY 2021.Pursuant to regulatory guidelines and prudent management of financial resources, the Board of Directors have not recommended final dividend for FY 2020. In this scenario, the interim dividend declared by the company will become the final dividend for FY 2020. It is important for you to note that despite the current meltdown, we have demonstrated a strong solvency position of 2.17x as at March 31, 2020. Our solvency ratio continues to be well above the regulatory minimum of 1.5x.Let me now apprise you of the industry performance in the recently concluded fiscal year. The general insurance industry registered a growth of 11.7% in FY 2020 over FY 2019, with the industry GDPI moving up from INR 1,893.02 billion in FY 2020 from INR 1,694.48 billion in FY 2019 as per GI Council report. Excluding crop segment, this growth would be 10.7%. The overall growth and growth excluding crop segment was 1.7% and 4.3%, respectively, for Q4 2020 as compared to Q4 FY 2019. The combined ratio for the industry was 112.6% in 9-month FY 2020 as compared to 113%. Further, the overall combined ratio of the private multiline general insurance was 106.5% in 9-month FY 2020 as compared to 103.4% in 9-month FY 2019. These numbers are based on available public disclosures information published on their respective company websites, excluding National United, Reliance Health and Aditya Birla.Coming to the outlook for the year ahead, it is extremely difficult to gauge the exact economic damage and consequent impact on our industry at this point. At this -- as such, giving a guidance at this stage could be misleading. Having said that, I would still like to share our current view of how different segments could behave in the near term.Now as far as the commercial lines are concerned, given the increase in rates for some of the occupancies, we expect the fire portfolio to grow reasonably well. However, marine and engineering segments may witness de-growth due to reduced transit of consignments and delay in project commencements. We have also witnessed policy extensions, installments due to working capital-related constraints. Group health penetration should increase, given the overarching health concerns and The Ministry of Home Affairs' directive on workers. We expect rural segment to witness faster turnaround post lockdown. As the lockdown is lifted, idled plants and stalled construction projects may lead to start-up risk on resumption. We expect event insurance, credit and liability insurance segments may see increased claims. Demand for pandemic risk cover should rise as it is currently not a prevalent cover in India.As far as retail lines are concerned, motor portfolio growth would be -- would get impacted due to subdued growth in new vehicle sales, further influenced by the 0 hike in third-party premium rates till further intimation from the authority. We expect lower impact on agency and point-of-sale based channels due to a higher focus on renewal portfolio. While we are currently experiencing lower claim incidence in motor portfolio, there could be a surge in claims once lockdown is lifted.Further, with regard to the retail health indemnity portfolio, we expect subdued growth in Q1 FY 2021. In particular, we expect health agency should grow during this period, given our efforts to build this network over the last few years. Talking about the health benefit portfolio, we expect muted disbursement in banking, NBFC and HFC sector, which may have an impact on growth of this segment. Travel segment demand would be most adversely impacted. On the other hand, we expect the SME channel to continue exhibiting higher growth given its move to digital adoption.Amidst the current challenging operating environment, we continue to reorient our business model as the event unfolds, even though this -- through this unprecedented situation, the fundamentals of our company remains strong. We are also preparing to unlock underlying opportunities that this event has provided to us. Our focus will continue to be creating value for all our stakeholders through prudent risk selection, harnessing technology and pursuing sustained profitability for the long term. In spite of the immediate challenge, we remain confident that the long-term prospects for the industry remains robust and, in fact, may become even stronger in certain segments. Our effort would be to disproportionately benefit from any long-term positive that may emerge for the industry.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, everyone. Hope everyone is staying safe and healthy. I will now give you a brief overview on the financial performance of the company for the quarter and the year ended March 31, 2020. We have put up the results presentation on our website. You can access it as we walk you through the performance numbers.Gross direct premium income of the company stood at INR 133.13 billion in FY 2020 as compared to INR 144.88 billion in FY '19, a de-growth of 8.1%. Excluding the crop segment, our GDPI increased to INR 133.02 billion in FY 2020 as compared to INR 120.36 billion in FY 2019, registering a growth of 10.5%. This was in line with the industry growth. Excluding crop segment, the GDPI growth was 2.9% in quarter 4 FY 2020 over quarter 4 FY 2019 as compared to industry growth of 4.3% for the same period. Our GDPI growth was primarily driven by our focus on preferred segments, such as fire, health, motor, marine and liability.Consequent to the increase in minimum prescribed rates for certain occupancies under fire segment, this segment registered a healthy GDPI growth of 42.9% in FY 2020, thereby aiding the GDPI growth of our property and casualty segment. As indicated in our results presentation, the overall property and casualty segment grew by 20.4% in FY 2020 over FY 2019.On the retail side of the business, SME and agency channel and health indemnity continued to grow faster and remain our area of focus. 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 individual agents, including the point-of-sale distribution, were 47,548 as of March 31, 2020, as against 35,729 as on March 31, 2019. The long-term motor penetration for private cars increased to 19% for the period ended March 31, 2020, from 3.6% for the period ended March 31, 2019. And for 2-wheelers, it stood at 15.8% for the period ended March 31, 2020, from 28.8% for the period ended March 31, 2019. The advance premium was INR 30.25 billion as at March 31, 2020, from INR 13.24 billion as at March 31, 2019. Combined ratio stood at 100.4% in FY 2020 as compared to 98.8% in FY 2019, primarily on account of long-term motor policies, change in product mix and losses from catastrophic events.Combined ratio stood at 100.1% in quarter 4 2020 as compared to 99% in quarter 4 FY 2019. Our investment assets rose to INR 263.27 billion at March 31, 2020, as compared to INR 248.45 billion at December 31, 2019. Our investment leverage net of borrowings was 4.21x at March 31, 2020, as compared to 4.16x at December 31, 2019. Investment income increased to INR 18.47 billion in FY 2020 as compared to INR 17.55 billion in FY 2019.On a quarterly basis, investment income decreased to INR 4.06 billion in quarter 4 FY 2020 as compared to INR 4.14 billion in quarter 4 FY 2019. Investment income of quarter 4 FY 2020 and the full year 2020 included impairment on equity investment assets of INR 1.2 billion as per its policy consequent to market volatility at the end of the year, resulting from uncertainties and impact of COVID-19 event. Our capital gains, including the impairment of equity investment assets was lower at INR 1.99 billion in FY 2020 as compared to INR 4.25 billion in FY 2019.Capital gains, again, including the impairment on equity investment assets in quarter 4 FY 2020 was at a negative INR 0.25 billion as compared to INR 0.56 billion in quarter 4 FY 2019. As a company, we have always exhibited tighter internal exposure norms as against regulatory limits.On the fixed income side, we continue to focus on safety, liquidity and returns in that order of priority, given that we do have a large fixed income portfolio, including government securities. Accordingly, we have invested a high proportion, 81.7% of the debt portfolio in sovereign or AAA and above-rated securities. Further, we are focused on the quality of portfolio. On this front, we have 0 exposure of our fixed income portfolio in securities rated below AA. We do not have a single instance of delayed interest or default over the last 19 years. We will continue to adopt a disciplined approach in terms of the investments that we make.Our profit before tax grew by 6.2% to INR 16.97 billion in FY 2020 as compared to INR 15.98 billion in FY 2019, whereas profit before tax grew by 7.3% to INR 3.71 billion in Q4 2020 as compared to INR 3.45 billion in Q4 FY 2019. As stated in the previous quarter's earnings calls, the company has elected to exercise the option of lower income tax rate. The effective tax rate was 29.7% in FY 2020 and 23.9% in quarter 4 FY 2020.Consequently, profit after tax grew by 13% to INR 11.94 billion in FY 2020 as compared to INR 10.49 billion in FY 2019, whereas profit after tax grew by 23.8% to INR 2.82 billion in quarter 4 2020 as compared to INR 2.28 billion in quarter 4 2019. Return on average equity was 20.8% in FY 2020 as compared to 21.3% in FY 2019. The return on average equity for quarter 4 2020 was 18.8% as compared to 17.5% in quarter 4 FY 2019. Solvency ratio was 2.17x at March 31, 2020, as against 2.18x at December 31, 2019, continued to be higher than the minimum regulatory requirement of 1.5x.As we conclude our address, I would like to summarize that we ended quarter 4 FY 2020 and the full year 2020 with a diversified product portfolio and healthy financials. The company continues to focus on prudent underwriting while improving its competitive positioning. Further, we remain focused on enhancing our digital capabilities and drive the agenda of sustainable growth.I would like to thank you all for attending our earnings conference call. And we would be happy to take any specific questions that you may have.

[Operator]

[Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie.

[Suresh Ganapathy, Head of Financial Research]

So I know it is a very, very tough environment and difficult to give any guidance. And there are several moving parts here. But if I were to really look at your combined operating ratio, considering that there will be losses in third-party and there is a certain operating leverage in the motor business, how do you see this panning out, Bhargav Ji? Would it increase from, say, 100.4%? Directionally, we just move on to a number for financial year 2021. Or you think there is a possibility that you can contain it? Because currently, the claim experience is favorable, right? I mean because there are lower accident claims and stuff. So can it offset the negative impact coming from COVID-19?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So Suresh, this is genuinely a very tough question to answer at this point in time. Because as you rightly said, there are many moving parts. There are changes that are coming in from quarters that you didn't anticipate ever in your planning exercise. Having said that, when we look at our current view, looking at the situation today, unless there are some unpleasant surprises that we haven't -- we couldn't anticipate, on balance, given the positives and negatives that you yourselves have articulated plus what I talked about in terms of some claims increases that we see plus the fact that TP price increase won't happen, also the frequency of claims right now are lower, on balance, we believe that we should be able to continue to deliver on our objective of keeping the combined around 100%, even for this year. But as I said, I -- this is -- it's very, very difficult to give a guidance. It is only -- you should look at this as our estimate currently. This estimate can very easily change soon, if the underlying reality changes that we haven't been able to anticipate as of now.

[Suresh Ganapathy, Head of Financial Research]

And one more question is in the group health where you are seeing a reasonable amount of demand. Would you really think this could be a profitable product proposition because maybe at the individual level, of course, the product is far more profitable than really focusing at the group level?

[Bhargav Dasgupta, MD, CEO & Director]

Look, if you see what we've been doing relative to the industry mix, so if you see the industry's mix of health, the composition of group health for the industry is roughly about 50%, which is the corporate employer-employee segment -- should be lower than 50%, maybe 49% or something. For us, that number is roughly around 37%, which tells you that -- and you know our approach, right? So we are focusing on -- we always focus on building a sustainable portfolio. So generally, group health has been a segment which has been difficult in terms of pricing in the marketplace. So the point is anyway valid, the point that you're making.So having said that, in this environment, one should expect a bit more reasonable approach on underwriting from the marketplace. If at all we find pricing being sensible, then we would look at it. If it is not, then we will remain cautious the way we've been operating. What we've been doing, even when you're looking at that share of mix that I talked about, our approach has been more granular, focused on the SMEs, mid-market, small clients, not go for the big ticket policies from BFSI or IT companies with huge employee base, where the competitive pressure drives the premium down to a level, which is not sustainable. So we've not been anyway winning any of these contracts, and we have deliberately let them be for others. See, the approach and the philosophy will continue. We will see how it plays out in terms of pricing. So in terms of the price changes needed because of COVID, that is, of course, a bit of a modeling that we are doing. And like millions of models that are floating around, it makes a lot of assumptions on what will happen to the number of people who will get infected in India. And there is that element of risk that we are carrying.

[Suresh Ganapathy, Head of Financial Research]

Okay. And finally, one last question is on the investment book. I mean if you were to look at globally, the interest rates are really heading downwards and structurally, it looks like it's going to be a very low interest rate environment globally. I don't know how long it will be sustainable. In this environment, your ROE, of course, has always been pretty good in 20%-plus range. Wouldn't that be addressed because of structurally lower investment returns considering the way the interest rates are heading or likely to head in future?

[Bhargav Dasgupta, MD, CEO & Director]

This has been true even before this event. And we can also have a long debate on what this could do macroeconomically over a longer period of time as the global supply chain gets disrupted, what it does to inflation while the central banks will obviously drive rates down to lower levels. But it's again very, very speculative to estimate what will happen to interest rates 1 or 2 years into the future. Our approach has been through these 20 years, we've seen cycles. We would want to continue to focus on delivering on the ROE, if we believe that interest rates are going down to a level which is not sustainable, we would want to improve the combined. Of course, that depends on the market condition in terms of the competitive intensity. I think on competitive intensity, we believe this event could potentially strengthen the stronger simply because of the balance sheet strength that some of the companies have built over the years, the solvency cushion that we have, also the digital leadership that we have in the market, we believe, should help us. But I think the point that you're making remains valid in any scenario. Of course, today, we are talking about a scenario, which is very, very unpredictable.

[Operator]

[Operator Instructions] Next question is from the line of Mary MW from JPMorgan.

[Myung Wook Kim, Vice President]

I have 2 questions. One is about your technology side. Now it seems to be a pretty tough time for the -- every industry. It means that, overall, the -- not only the marketing, the claim and underwriting probably very challenged as well. So my question is how do you rate the company's technology in both claim adjustment and underwriting perspective compared to the industry?And then the second question is about the specific underwriting. So still, the overall underwriting related with the factory insurance is probably relatively small, but the COVID-19 seems to be the major pandemic globally. So I just want to know whether any concern we should have related to the business interruption coverage. So any update on this is appreciated.

[Bhargav Dasgupta, MD, CEO & Director]

Okay. Let me take the second one first, and then I'll answer the first question. On the second one, there are 2 types of BI covers, which you would know. There are BI that triggers on a damage -- material damage, and there are non-damage BI, which gets triggered without a material damage, like let's say, triggered by the pandemic.In India, there is no NDBI that has policies in the market. So all the BI policies that we write are with a trigger of a material damage, and pandemic is an exclusion. So contractually, we don't see any risk. We -- I'm sure you are aware what is happening globally on this matter. But from a contractual perspective, we don't see a risk.Coming to your first question, I think that's a great one. And honestly, the way we see it is that some of the capabilities that we've built, I talked about the sourcing side in terms of the fact that today, we launched for the SMEs, these are 2 big months of policy procurement. And we could launch our initiative, which we do every year, as a digital initiative. And 89% of policies we've sourced digitally, and the SME business has grown in this period. And that probably tells you the digital capability that we've built.On the claims side, and that's probably the most interesting aspect that you've talked about, there are lots of elements that we've built on the retail side we keep talking about. I talked about the InstaSpect, the visual -- the virtual inspection that we do. Today, as of now, in this lockdown phase, 100% of motor claims that are getting paid or getting settled are using that capability. Similarly, the AI-based health insurance claims.But on the corporate side, this has been a period where we've done a lot of innovative work, and I'll talk about a couple of them, and I'll then ask Alok to add anything that he may want to add. So on the risk inspection side, we've started virtual risk assessment. We are doing a video-based risk assessment virtually without having to send our risk inspection -- inspectors in. We are providing remote risk advisory on planned operation. We anyhow have a team of specialists who provide risk advisory. We are doing that remotely. We provide IoT-based monitoring tools. Not a very large number of customers who use some of these solutions, but the ones that are using it are getting triggers sitting at home. So similarly, we've done drone-based loss survey in this period to help customers. Alok, you have anything else that you want to add?

[Alok Kumar Agarwal, Chief Marketing Officer]

Yes. Apart from the value-added services that you mentioned, on the claims side, what we have done is, on the basis of virtual documents, we have started settling claims, which has helped in reducing the backlog of claims tremendously.

[Bhargav Dasgupta, MD, CEO & Director]

Just to give you a sense of the number of policies, for example, in this lockdown period, using the chatbot or the e-mail bot, what do we call it, the RPA solution that we have, we've been able to issue more than 40,000 policies. And these are corporate policies.

[Myung Wook Kim, Vice President]

Yes. I think that's very clear. So just want to confirm. So are you very optimistic on the company's the market share gain or the market positioning after COVID-19 because the experience, for example, in China, Korea and other many developed markets, this strong innovation seemed to give more opportunity for the company. So I just want to get some color how the management think about the company's future after the COVID-19 then?

[Bhargav Dasgupta, MD, CEO & Director]

We remain very optimistic relative to the other players in the market. As I said, we are definitely cautious about the larger environment and what it will do to the economic growth and, consequently, insurance business. But within that, as I said right in my opening address, we should be able to benefit disproportionately because of some of these points that we made: innovation, technology capability as well also balance sheet strength.

[Operator]

The next question is from the line of Shreya Shivani from CLSA India Private Limited.

[Shreya Shivani, Research Analyst]

Sir, I have one question regarding -- so there was an IRDA regulation -- not a regulation, but there was a committee setup, which is going to talk about indemnity-based health products to be sold by life insurers as well. So I want to understand how this will impact the general insurance industry or ICICI Lombard as such, specifically? And do you see, because of this, the price competition going ahead and the product becoming less competitive for you guys to keep growing in the way you've been growing?And also, second thing, which I wanted to understand, because you have a group company, which is also doing -- which will get the license to do indemnity health if IRDA approves it, how does that affect? Like what kind of -- can you throw some light on that? How does that affect your group strategy, et cetera?

[Bhargav Dasgupta, MD, CEO & Director]

So the -- let me probably answer the third one first because that's separate from the response to the rest. Wherever there are segments of business where we have similar products like for health benefit, we compete in the marketplace, and that's how it is. And if this happens, in the indemnity side, we would also compete in the marketplace. We wouldn't worry about that.Coming back to the larger question that you're asking, yes, the committee has been formed, but the committee, as far as I know, couldn't meet because of all of this. I don't believe their meeting has happened unless in this lockdown period a virtual meeting has happened that I'm not aware of. So the committee has to come together and give the report. We'll have to wait for the report that the committee gives.If you -- having said that, while we don't know what the committee will say, if you step back till about 2015, '16, there was no such separation. The life companies were allowed to write all types of health. And in fact, we, as an industry, we, as a company, wanted to write long-term health, which we were not allowed to at that point in time. The separation came at that point in time. It wasn't as if in those days also, the life companies were doing a lot of health indemnity business.And let me get into the elements of that business. As I said, if you look at the overall health business, roughly 50% or almost 50% of the business comes from group health. Now in group health, typically, we offer a bouquet of solutions to corporates, which has fire, which has marine, which has liability, and we offer that bunch. Now logically, there shouldn't be any big competitive advantage that a life company may have unless they want to undercut further. That is one area. And if they want to do that, that's a best choice, but generally, we wouldn't expect that to be a sustainable strategy. So large part of the volume of business comes from group health. And we, as an industry, have scaled up that business, including managing the -- using that flow to manage the network.And the other thing that you have to realize is that apart from distribution capability, there has to -- you have to have many other capabilities on the health side to be able to compete, be it in terms of in-house claims service. I mean we took claims service in-house in 2008. There is some capability and technology advantage that we've built, for example, the AI-based claims solution that I talked about. You can start writing health insurance on the retail side, using a TPA. But I don't know if that really helps in terms of building these capabilities. So that's number one.Number two. If you see the approach that we are taking, even if, let's say, life companies do come in, the approach that we are taking, if you see what we've been talking about on the IL Take Care is really taking health insurance to another level of providing complete solution to our people. So for example, in this lockdown period, on the IL Take Care app, we have a feature for our corporate clients, where you can do a tele consultation with doctors. And we have a dedicated partnership which delivers it. That piece, we've now opened up for all our customers. You don't necessarily have to be a health customer, and that's really picked up at this point in time. These are capabilities that we've built over the years in terms of network, in terms of ecosystem, in terms of technology, in terms of data analytics. If someone is able to come in and compete, so be it. We wouldn't really worry about that competition. Having said that, we don't know if the regulator will allow it. We'll have to wait for the committee report.

[Operator]

The next question is from the line of Jignesh Shial from Emkay Global.

[Jignesh Shial, Research Analyst]

I just wanted you to reconfirm the kind of -- I mean elaborate a little further on your opening remarks that you talked about the growth, the future growth prospect from individual segment from fire till the health and all. If you can elaborate a little detail into it whereby you said that -- where you're expecting fire to grow well whereas marine to be a little slow down and all? So that segment, if we can elaborate once again a little bit of detail or granularity, that would be really helpful.

[Bhargav Dasgupta, MD, CEO & Director]

Yes. We can -- I can do that in a granular manner, but it could be very difficult to predict or give any guidance on where we see the numbers for obvious reasons. So if you look at the corporate segment, the larger segments are fire, where we've had price increases during this year and last year. And corporate customers generally don't want to keep their assets uninsured. So the B2B segment, I think, largely will be protected. Now within that, fire will -- should grow -- should have a positive growth this year. The rest of it is a bit of a uncertain picture because, for example, marine transit, which is what you -- where you ensure the logistics chain, that obviously is stalled as of now.Now how do we predict a number if we don't know when a red zone will become an orange zone and when an orange zone will become green. So even when we are planning for numbers on a day-to-day basis, we are reviewing it very, very frequently internally within our teams. Having said that, we probably couldn't anticipate this extension this quarter -- in this month. Now we don't know what will happen 15 days from now. So very difficult to give you a sense of what these numbers will be for the year. What we've decided is that we will watch it. I mean every part of our business, we are basically looking at what is happening on a daily basis.We've completely changed our dashboards of monitoring the business in this period, right from even before we went into work from home as a whole company, we realized that this is a big change that is happening. So we completely changed our dashboard. So all we are doing is staying very close to the ground to see what is happening and reacting to it in terms of seizing any opportunity that we see. So -- but on balance, what we are saying, fire, we think will be positive. Marine would be negative. Engineering would be negative. Now extent of negative, we can say for this quarter, definitely negative. Thereafter, we don't know.Liability, I've talked about the 2 key ones. Liability, I think, should be okay. Motor and health, health should do well. Though in this quarter, it may be a bit slow. But overall, for the year, it should do okay -- do reasonably okay. Motor will be affected. It again depends on when dealerships are open and new vehicle sales comes. Now again, on new vehicle sales, let's assume 2 months from now, the whole country has been opened up and dealerships are opened. Can you predict with any level of confidence the customer psyche at this point in time? There are 2 contrary points of view. Some of you understand the auto sector as well. One segment believes that there will be more adoption of personal mobility. So people will use vehicles more, and so people may buy more vehicles, at least in the lower end. There's another point of view that the amount of travel itself will come down. So -- and people won't have discretionary spending ability. So they may not actually buy cars. Either one of them can happen. And anyone who predicts, I think, is -- at least, I wouldn't predict with any level of conviction. So we will have to watch what is happening rather than be brave and saying that we know this is what's going to happen. I think what is most important for us to do is protect the balance sheet; focus on risk management; digitize as much as possible so that you benefit inordinately; and related to the market, outperform. That's what we will try to do.

[Jignesh Shial, Research Analyst]

Okay. And in health, just confirming that you said there will be some acceleration happening in the group health plan, but that you're focusing in a smaller corporate compared to BFSI or IT companies, right? Just to make that pricing a little more favorable towards you.

[Bhargav Dasgupta, MD, CEO & Director]

No. So those large group pieces we, anyway, were avoiding because of pricing being unsustainable even in the past. I think the point I was making to Suresh is that if the pricing improves, there is an opportunity. If the pricing doesn't improve, we'll stay focused on the segments that we are staying focused on, which is the mid-market and the SME segment.

[Operator]

The next question is from the line of Bharat Shah from ASK Investment.

[Bharat Shah, Executive Director]

Bhargav, did you say the COVID event would be positive same thing over a period of time for the general insurance industry? And is there...

[Bhargav Dasgupta, MD, CEO & Director]

Bharat, I couldn't hear the question. Could you just repeat that?

[Bharat Shah, Executive Director]

Actually, whether the COVID event would provide any tailwind for the industry over a period of time? And haven't you -- have you rethought any part or all of the business based on the COVID event as a future strategy?

[Bhargav Dasgupta, MD, CEO & Director]

So we believe this will be in the long-term positive for the GI. Events like this make people more aware of the risks that we have. It's unfortunate. That's the nature of our industry. But when things like -- these things happen, people realize the importance of risk management and protection. So in the -- and particularly, if you look at the health insurance space, even when SARS happened, post that in Hong Kong, health insurance demand went up naturally. So on balance, we believe this will be positive for the GI industry in a medium term. In the short term, it will be very -- a lot of the top line will disappear because I think all companies right now must be de-growing at this stage, particularly driven by motor.In terms of approach, as I said, what we are trying to do is we are enabling all our -- the entire part of our organization and the extended arm, which is our distributors, to enable them to do as much of business as they can from home, using tools, using training, et cetera, that we're talking about. And actually, we are kind of opening up a bit more segments to do business than what we were earlier willing to, particularly in, let's say, motor insurance. Even in health, we are going very, very focused in terms of scaling up the business, particularly into the interline, et cetera.So it's not a big change in segments of business, but the focus is in terms of the renewal, the old book and how do we get a higher share of the market using our digital capabilities.Sanjeev, you want to add anything more to what I just said?

[Sanjeev Radheyshyam Mantri]

No. Absolutely right. And also just to mention, even year before last, we had added virtual offices across the country, and that has hold -- held us good even in the month, which has just gone by, April. A drop is there, but relatively, there is still some bit of activity in those regions. So we will probably use what you also stated, Bhargav, the extensive physical resources that we have created through virtual offices across the country will hold us good in the time to come now.

[Bharat Shah, Executive Director]

Okay. And secondly, as far as the fixed income and the equity ratio of the total investment book is on 31st December '19 and 31st March '20?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, you want to take that?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes, sure. So I think on the equity book, I think at cost as on 31st December 2019, the holding would be -- about 10% of the overall investments will be into equities at cost. That number at the end of 31st March 2020 is at about 10.9%, so roughly about 11% or so. And the rest of the book is largely split primarily on the fixed income portfolio between government securities and corporate bonds.

[Bharat Shah, Executive Director]

And would you read that number that baked in for market value in those 2 dates?

[Gopal Balachandran, CFO & Chief Risk Officer]

I think from a market value perspective, which is what we mentioned as a part of the opening remarks, if you'd have looked at the mark-to-market impact on the equity portfolio, as at the reporting date, I am giving this number before the provision for impairment that we took on the equity assets. The mark-to-market loss on the equity portfolio is roughly about INR 550 crores as at that reporting date.

[Bhargav Dasgupta, MD, CEO & Director]

But we took our impairment also.

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes.

[Bharat Shah, Executive Director]

So in the fixed income book, the investments you secured from mutual funds or directly held by you?

[Bhargav Dasgupta, MD, CEO & Director]

Mostly directly held. We don't -- we keep some money in liquid funds, but we also largely use the TREPs market, but all the fixed income positions is directly held. Little bit exposure is there with some liquid funds, a little bit here and there.

[Bharat Shah, Executive Director]

And then lastly, over a period of time, one of the participants earlier asked that the fixed income written, it looks almost certain that over a period of time, they will diminish. And if you have to predict return on equity, would you not consider apart from, of course, improving combined ratio that you answered, improving equity allocation in the total investment book?

[Bhargav Dasgupta, MD, CEO & Director]

Absolutely, if you see, we've been kind of reducing our equity allocation over the last 3, 4 years. In a sense, we were a bit concerned about the valuations. And in this period, in the month of March, early April, we increased allocation a little bit, but the market ran up much faster than what we expected. Again, we don't know if this is sustainable, but you guys will know that better than us. But we would want to increase equity allocation. What we are doing is we are certain -- so we keep evaluating certain companies that we like. And if it comes within our range of price, we increase our allocation. It's not as if we have a fixed view on, that we want to increase it to X percentage. We go stock specific. And actually, in this period, we've increased the allocation a little bit, not to the extent that we would have liked to, but we've increased allocation. So we would do that.The other point to remember is even in this period when the market froze up in the month -- in March, some extremely high-quality corporate names' yields went up tremendously. And that was a period where we -- even on the fixed income side, we locked in some of these high-quality corporate names. And even from a duration perspective, we just added some little bit there. And that I believe is going to help us in the long term. What you have to realize is that it is an incremental book. Let's say, assume that the interest rate stays at 6% for 10 years. And let's say, AAA spread is 50 basis points or 60 basis points, whatever it is, it's an incremental flow that we have to invest at that level. The old stock remains. We -- since the rate comes down, we have a large mark-to-market positive -- I mean we would have a large mark-to-market positive on the bond side. We would decide if we want to take those profits basis a view of that we have in terms of interest rate reviews. And we've generally been contrarian. I mean about 1.5 years back where everyone was saying interest rates will go through the roof, oil, et cetera, we went long. And that call played out. So again, at this point in time, I will be foolish to predict where it is going to go 1 year from now, but we will watch it very closely, and we will take the right calls.

[Operator]

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

[Ajox Frederick H., Research Analyst]

The commission payout has increased dramatically for the quarter. So what drove that?

[Bhargav Dasgupta, MD, CEO & Director]

Sorry, what went up? I couldn't get your question.

[Ajox Frederick H., Research Analyst]

Commission.

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, you have the answer?

[Gopal Balachandran, CFO & Chief Risk Officer]

So Ajox, think it is purely -- I think if you're referring to the -- are you referring to the net commission ratios?

[Ajox Frederick H., Research Analyst]

Yes.

[Gopal Balachandran, CFO & Chief Risk Officer]

So when you look at the net commission ratio, I think, Ajox, it's obviously a function of: one, what kind of business mix that you write across the portfolio of businesses that we write. One, in that similar kind of split, the net commissions in terms of commissions paid, which is what we kind of incur for sourcing businesses. And the second element is more of an income that accrues to us, which is by virtue of the reinsurance commissions that we earn with respect to the portfolio that we would be doing in terms of risk transfer.Now in this quarter, when you look at the breakdown, insofar as the commission paid or, let's say, the acquisition ratio is concerned, there is not much of a movement in terms of what you see. But in quarter 4, what as -- what we explained as a part of the opening remarks, some of the health benefit portfolio is something that we have not seen as much growth as what we would have expected it to be. And that part of the business is something that we kind of also -- we have been historically reinsuring. And to that extent, the extent of commission income that we would have earned on that part of the business is relatively lower. So hence, when you look at the overall net commission ratio, it looks like there has been an increase. But insofar as the acquisition cost is concerned, it is -- there is not any significant change. That's one. And secondly, I think what we have always kept looking at is more from a combined perspective because that would be a true reflection of the overall operations of insurance that we underwrite. And there, if you would have seen whether it is for the quarter 4 or whether it is for the full year, in line with what we have been articulating also in our earlier years as well as a part of our calls, is to try and sustain the overall combined at around 100%.

[Ajox Frederick H., Research Analyst]

Okay. And sir, on renewals, so business-wise, like motor and health at least, what proportion is new business? Or how much is renewal?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, you want to give the number?

[Gopal Balachandran, CFO & Chief Risk Officer]

So again, if you're looking at the -- let's say, for -- on the motor side, for example, if you look at roughly, we would -- last year, we would have had almost a 50-50 kind of a mix for the full year 2019. New would have been 50% and renewal would have been 50%. For the current year FY '20, given that the new vehicle sales have been relatively lower in terms of growth, to that extent, the proportion of new to renewals, new is about 38% and the renewal will be about 62%.

[Ajox Frederick H., Research Analyst]

And on health, sir?

[Gopal Balachandran, CFO & Chief Risk Officer]

And on the health part of the business, I think given the fact that, I think, we were almost there -- one of the things that you would have to look at on the health side, for example, on the indemnity side, when you look at the overall indemnity growth for health, the new health indemnity growth, which is what we have also put on the presentation deck, that's one area we are significantly focusing on over the last 3 to 4 years. And the new health indemnity growth has grown by about 69%. And if you would have looked at -- because that's on a relatively smaller base, which is why the number looks to be 69% to 70% growth rate. The overall health portfolio, again, on the indemnity side, has grown by about 37%. The renewal book has grown at about 17%.

[Ajox Frederick H., Research Analyst]

Okay. Okay. And sir, just a final question on the corona status?

[Operator]

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

[Nidhesh Jain, Analyst]

Sir, firstly, on the reserve releases. This year also, I think we have seen decent reserve releases. Last year also, we saw good reserve releases. So when we are looking at the full year profitability, how should we look at these reserve releases? And whether we should expect them to be sustainable in future?

[Bhargav Dasgupta, MD, CEO & Director]

Look, the exact release will obviously depend on our actuarial analysis that we keep carrying out monthly and quarterly. But the principle remains the same. When we -- I think Gopal has been talking about to you, Nidhesh, over the quarters that we -- when we reserve, we are conservative about reserving. And because we don't know how -- whether all our assumptions will play out, and that's the right approach that most quality insurance companies do across the world. And over the periods, if the actual trend proves to be in line with or rather better than what we had anticipated, we would have had some releases. So if you look at our reserve releases, we would -- exact quantum, we can never predict that next year it will be so much. But we should continue to have some amount of reserve releases if we continue with the same strategy. And our strategy and our conservatism in terms of reserving hasn't changed.

[Nidhesh Jain, Analyst]

Sure. And then secondly, going into the next year, our top line growth may remain slightly subdued. In that environment, how much flexibility we have from an operating expense perspective? And also, we have seen a decent expense of management allocation, which we have to do some shareholder accounts, which means that probably in some line of businesses, we were not able to -- our OpEx was higher than what regulatory required.

[Bhargav Dasgupta, MD, CEO & Director]

Yes. So the second one, I'll ask Gopal to answer. But in terms of the first one, if you see the true fixed cost, I mean, if you look at our expense ratio, there is a distribution cost, which is a commission that we pay, and a true operating cost, which is the, in a sense, fixed, nothing is fixed, but that is kind of fixed cost. If the top line -- and that number is actually kind of a single-digit number, the operating cost. So if you see the element of the sourcing cost, if the top line goes down, that will also go down for us.Also, what we are doing is, we are looking at all our costs with a fine-tooth comb. And we believe, from the longer-term perspective, obviously, right now, we are going through a certain phase, but we believe there are huge learnings that we've got out of this last 1 month experience, which we would want to continue to leverage in -- as we go along. We would want to become 100% digital company. We would want to have 50% of our employees work from home even in the foreseeable future. So these are things that we are kind of working on, and we are working on those plans for future. It may not have an immediate benefit in terms of operating cost. But in the longer term, it should give us some leverage. But honestly, for us, the -- out of the combined ratio, that part is a relatively small part, as I explained. The real large number is in the claims ratio and the distribution costs.Gopal, if you want to add anything to that and answer the second question?

[Gopal Balachandran, CFO & Chief Risk Officer]

Sure. I think I will answer the second question, Bhargav. So Nidhesh, I think when you look at -- as a company, we have always wanted to ensure compliance to regulations insofar as expense of management is concerned. So in that regard, as a company, we have been in absolute compliance to the regulatory requirement, which is on an aggregate basis, where they expect every company to be within those limits on expense of management.But your point is correct. There is always an element of expense allocation that happens across subsegments, which is also what is laid down by regulation. And as per the requirement, if in any of the subsegments basis the allocation of expenses that happens to each of those lines of businesses, in case if there is any subsegment that exceeds the limit that has been laid down, to that extent, the excess of those expenses is required to be borne out of the shareholders' fund. And that is exactly what we have done. But on an aggregate basis, as a company, the attempt has been always to make sure that we are in compliance with the overall limit that has been laid down insofar as regulations are concerned.And just to add on, I think one other point, which is something that we have spoken about also on the -- in the past, just to add to what Bhargav said, one should also equally be mindful of the fact that when it comes to fixed costs, one of the things that we have been telling over the last couple of quarters, in particular, is the acquisition of the CRM platform that we did in quarter 3. Now that obviously entails some element of fixed cost in the form of depreciation, that kind of comes through over -- quarter-on-quarter. But the impact in terms of revenue basis the expectations that we had already factored in as a part of buying the CRM platform, that would happen over a period of 3 to 4 years. Now in that regard, the platform that we had acquired in quarter 3, again, has been kind of progressing very well in terms of the expectations that we would have set. In fact, in these times of uncertainties, we have actually been able to deploy that CRM platform quite effectively. And we have been able to do -- when we kind of also indicated as a part of the introductory remarks, that we have been able to do a lot of robo calling and other related aspects to ensure continuity of customers for renewability of their policies. We have actually been able to use this platform to our advantage.

[Bhargav Dasgupta, MD, CEO & Director]

Sanjeev, you want to add to what Gopal just said about that one?

[Sanjeev Radheyshyam Mantri]

Yes. So absolutely, the Autoninja platform has been a great boon to us. And when we picked up in October, it was more of -- from our insistence where we used to go to the dealer and offer this platform. In the current situation, it has created an even pull-demand from their side. They also want this to be installed. We'll be happy to note that in April, when actually things have been accessed, we have been able to activate almost 67 dealers to become part of the platform. So we are very excited, and this should go a long way in terms of strengthening our relationship with the dealers as well as helping them to reach out their customers for the renewals, which will be the key thing at least for quarter 1 in a big way.

[Operator]

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

[Rishi Jhunjhunwala, Vice President]

A couple of questions. One is, can you elaborate what is the policy regarding recognition of equity impairment because if you really look at it at INR 120 crores, almost 5% of what your equity book would have been as of the end of previous quarter. So is it spread across just -- is it only regarding 1 stock? Or how do you arrive at that? And what are the chances of that recovering back?And secondly, on the health side, you mentioned that because of your probable shift from benefit to indemnity, the reinsurance commissions have come off. Is this something which is tactical for the short term? Or should we take it as a long-term trend? And as a result, the overall profitability on that segment could be under pressure considering there was pretty heavy reinsurance commission that we used to receive?

[Bhargav Dasgupta, MD, CEO & Director]

So let me answer the first one. And I'll cover a bit of the second one, and I'll ask Sanjeev to elaborate on that. In terms of the impairment, we have a policy. This is not a requirement, but we have a policy as a matter of prudence, where we test for impairment when there is a substantial fall in market price of security, below our acquisition cost. Now this is obviously something that happened in the month of March when the market fell as much as it did. And we do an assessment whether the fall in price is temporary, permanent, whether there is an underlying change in the intrinsic value of the investment -- of the investing company. And if we believe that it is prudent to take kind of impairment to reflect the change in the fair value of the investment company or investing company, then we take an impairment as a matter of prudence. We need not, but we do that. So that's something that we've tested this time and it's not one company. There are a few companies that we've taken a call on and adjusted the value to what we believe is a fair value.Now it is not as if you believe -- so if you believe that a stock is in a sense something that will not deliver returns in the future, we would exit -- sell and exit. And maybe gradually, we've done that over the years. Even during the year, we exited some of the print media stocks. We took the loss and we took it because we didn't see a future there. But these are not stuff that we believe that we will not get returns in the future. So we've taken a prudent -- it's a prudential call in terms of taking that hit.In terms of the second question that you have, obviously, it's not a tactical call to shift out of benefit. We like the benefit business. But as I think Gopal explained that the NBFC disbursements have -- went down in the last quarter, and it's been down for a fair period. And hence, the amount of business that we got from our NBFC partners were relatively lower. But we are growing that business elsewhere, and I'll ask Sanjeev to explain that to you.

[Sanjeev Radheyshyam Mantri]

No, clearly, I mean, we love benefit part of the business. And we've been market leaders in that particular segment. We would love to grow that. But unfortunately, for last 18 months, as Bhargav also mentioned, the NBFC sector has gone through a bit of tightness in terms of disbursement and that has impacted it. Even in this year with respect to ICICI Bank, as a bank when they were disbursing, we were able to grow our business with them in a very reasonable pace. But the fall in the NBFC side was very sharp. We are diversifying. We are keen on doing new tie-ups. We have done a few critical tie-ups on the banking side also last year. So we will continue to exploit new opportunity on this segment. And as and when the turnaround happens, our relationship is very thick with our partners, and we will get rolling on that front also.

[Rishi Jhunjhunwala, Vice President]

Great. And just quickly on -- so clearly, we are seeing right now, loss ratios in motor segment going down substantially during the lockdown. And on the other hand, we have also seen the regulator postponing the hike in motor TP for the timing being. So just wanted to understand, I mean, how do you see that play out at least for this year? And do you intend to reconsider your -- the inflation that you bake in for motor TP provisioning for this year?

[Bhargav Dasgupta, MD, CEO & Director]

So we will have to watch the numbers, Rishi. I think, it's a great question that you're asking. And this is something that our actuarial team will evaluate on an ongoing basis. And obviously, if the incurred claims drop to a level that it drops and stays down, they would have to factor some of that into the assumptions. But it's really very difficult to predict what will happen when things start reopening. As I said, there are very, very logical and rational views on both sides in terms of where the people will use their -- use vehicles more because of personal mobility rather than taking public transport and will it increase claims. The jury is out. We'll have to watch the numbers and then take a call. But if it stays down, we believe the actuarial team will adjust some of this.

[Operator]

The next question is from the line of Jaimin Shah from RWC Partners.

[Jaimin Shah;RWC Partners;Analyst]

Two questions. One is could you talk a bit on the government regulation of compulsory health care insurance and how do you think that pans out for you and the industry also in terms of preliminary kind of queries you get from companies, especially on the SME side where you are strong and they're probably not kind of covered? That's question one.The other question was more on kind of -- I wanted to understand the consumer psychology here. You've launched the COVID-19 product quite early. Who are inquirers? Who were the buyers, existing customers? How was this kind of being kind of spread because eventually that could kind of give you a lot more kind of thought process on personal individual health care kind of as well?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. I think, Sanjeev, you want to take the 2 questions on the SME and the COVID experience?

[Sanjeev Radheyshyam Mantri]

So clearly -- so I'll reply the COVID one first, Bhargav. Clearly, when we launched this product, it was pretty early when things started building up from an India perspective where we had a lot of cases coming up. Acceptance has been very good. We have followed 2 strategies primarily. One is B2B and other is B2B2C, where we've also gone and offered these options from the corporates or the SMEs who wanted to cover their employees and their families. And we also in a much bigger way given it to B2B2C player, where we have joined hands with the players who are in the online stream, and they are the ones who are offering it to their customers. The initial response has been very, very encouraging. But I must say that we also are very closely looking in terms of the distribution so that we don't have a concentrated portfolio coming up. So we've done all our cuts and balances. So far the acceptance, and quite naturally, I'm sure each one of us will agree that anything on COVID that comes in because it's the imminent risk, evidently, we all are living in a day-to-day basis, it becomes a very, very practical way to take a cover on that. While I must also say the normal indemnity cover, which each of the customer has, there also COVID expenses in case of hospitalization are fully covered.On the SME...

[Bhargav Dasgupta, MD, CEO & Director]

Sanjeev, just one -- let me just add one point to explain what Sanjeev said. So we've given it to B2B2C or B2B so as to eliminate adverse selection risk. And we are also monitoring the portfolio diversification across the country so that we don't get into any concentrated pockets. Sanjeev over to you.

[Sanjeev Radheyshyam Mantri]

Okay. Yes. Thanks. And also on the SME side, in terms of the compulsory health coverage, typically, on an ongoing basis, we do know that the smaller GHI coverages, the group health coverages, have been far more beneficial from the company's side, and we're also able to provide our exceptional service, which we have created for even larger corporates and to SMEs. We have been growing that portfolio at a reasonable pace of 20% to 25%. We do believe that any progress in corporate, any which way, should end up offering group health. So there should be further demand coming in. We will keep investing it. But as Bhargav had also mentioned initially, we have complete clarity that we will pick up this business if it makes commercial sense. If there's tremendous rate war, we will certainly abstain from participating in that sort of a business.

[Bhargav Dasgupta, MD, CEO & Director]

Alok, are you seeing any inquiry, et cetera, on that, that you want to just touch upon from your corporate segment on that -- on the SME sector?

[Alok Kumar Agarwal, Chief Marketing Officer]

So the worker policy that the government has made it compulsory from the Ministry of Home Affairs, we are seeing increased inquiries and -- from the medium-size and large-size corporates. Especially, from construction side, there are a lot of inquiries and a few policies that have been converted. And they are the people who are going back into construction of projects, and they have workers in those areas working. But one more point I want to add is that most of the people who are employing workers have an ESI cover, which is applicable for people earning INR 21,000 or below. So -- but that -- most of the ESI hospitals don't have COVID facilities. So therefore, COVID-only product also they can take for people who have ESI cover for the workers.

[Jaimin Shah;RWC Partners;Analyst]

Great. Just on the COVID-19. So the buyers on kind of non-B2B2C, are these kind of new customers or largely kind of existing customers kind of talking about -- for Lombard.

[Alok Kumar Agarwal, Chief Marketing Officer]

So this typically would be our own existing SME customers or corporate customers who have been dealing with us, who have -- who we have been in relationship over the last few years.

[Bhargav Dasgupta, MD, CEO & Director]

But the other part, the benefit policy that -- COVID-19 policy that we are selling through, let's say, digital platforms because this is going to a segment which is probably below our current customer base. These are probably new customers.

[Jaimin Shah;RWC Partners;Analyst]

Yes. So B2B2C will be new customers, right?

[Bhargav Dasgupta, MD, CEO & Director]

Yes. Yes. The B2B maybe existing customers who have some other relationship with us.

[Operator]

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

[Madhukar Ladha, Research Analyst]

Number one, on the existing benefit policies that we've written, would they kind of get triggered with a COVID-19 case? And what is our risk assessment on that? So what sort of reinsurance do we have? How well are we covered over there?

[Bhargav Dasgupta, MD, CEO & Director]

Sanjeev, you want to touch upon that? And then I'll add to it, if I need -- want to.

[Sanjeev Radheyshyam Mantri]

See, the current benefit structure, the policies that we have done in the past, COVID claims fundamentally don't get triggered on that. There's clearly -- the instances are very well listed. And at that point of time when we actually had done the policies, there was nothing like a coronavirus or COVID, which could have been sought by the purchaser also. In future, how the scenario involves, we will see it as it comes. But as of now, 7 months of COVID cover, there's a COVID benefit policy and we spoke about it; and our normal indemnity cover policy, if any customer has it, they're fully covered in terms of medical expenses on that.

[Bhargav Dasgupta, MD, CEO & Director]

So just to add to what Sanjeev said, our benefit policies usually have specific illnesses that are covered in them. These are critical illness policies. COVID was not considered at that point in time. And these are reinsured with some of the global leaders in reinsurance.I have a point to add to what we just said in terms of your question on risk. I mean these are the imponderables and -- which we can't predict. I mean it's -- suddenly, there is some regulatory pressure to pay for these claims, which are nonpayable, those are things that we can't pay it as of now, but they should not be because these are not covered.

[Madhukar Ladha, Research Analyst]

Right. Right. And how are motor renewals behaving so far from the last week of March until now? You would have a TP book and a OD book, which would be renewing. What has customer behavior been there?

[Bhargav Dasgupta, MD, CEO & Director]

There is a slight drop in retention numbers, but we've seen for the month of March within the last few days, we've seen a small drop in retention. But even in April, we've seen a small drop. I'll ask Sanjeev to elaborate on it. But week-on-week, we are seeing improvement. Sanjeev, you want to add?

[Sanjeev Radheyshyam Mantri]

So clearly, from that perspective, when regulator has given dispensation and given continuity benefits to the policies which are falling due between the lockdown period, some of them will be -- to manage their own cash flows have deferred their renewals. But that being said, we have seen marginal drops. If you go it channel-wise and try to put across, we have seen slightly more sharper drop on the dealer side because they themselves are not active, and we are using various technology-based options like Autoninja or sending them Bitly to get things reviewed through remote calling or robo calling.On the agency side, it's been even better because agents are able to follow up and then push these customers into the digital mode to do the renewals. But yes, as Bhargav said, there has been a marginal drop, but a matter of time before it will come in because there is a statutory requirement. Also one more thing on the TP side, which I must mention that any new policy that they sold over last year, they were all long term. So the TP, any which way, is covered by and large, and only the own damage part, which needs to be renewed.

[Operator]

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

[Sanketh Godha, Vice President]

I just wanted to understand the motor TP loss ratios have now fallen to probably the best we have seen, 78.5% in the fourth quarter and the full year, it's around 84%. So just wanted to check whether this is sustainable. I believe this is largely because of the increase in contribution of two-wheelers. Then if mix changes due to any reason other than -- do you think this 84.5% kind of motor TP loss ratio is sustainable or not ? And within -- with respect to third-party, just wanted to understand your view on the minimum quota formula, which has been changed based on the noninsured vehicle for motor TP business? And whether -- to what extent it will impact -- could be an impact on our overall TP business?

[Bhargav Dasgupta, MD, CEO & Director]

Gopal, do you want to take question number one?

[Gopal Balachandran, CFO & Chief Risk Officer]

Yes. Sure, Bhargav. So I think Sanketh, I think our approach to underwriting risk is something that we have been talking about for the last so many quarters. Yes, the loss ratios are -- is clearly a function of what kind of a mix that we write in terms of private car, two-wheeler and commercial vehicles. One other thing that you should be equally be mindful of is also the point that we mentioned, which is with respect to -- for FY '21, so far there is no rate hike that is being proposed. So doing nothing that by itself will kind of push up the TP loss ratios for the overall industry. And even for the portfolios that we write, obviously, it will have an impact insofar as loss ratio numbers are concerned.Having said that, I think what we have tried to do over the years is to capture the opportunity of the business mix, which we think are appropriate at different points of time. And that in each of those occasions, we have recalibrated the mix depending on the pricing environment that operated. And in that regard, if you would have seen possibly the mix of business that we write on the overall motor between private car, two-wheeler and commercial vehicles have undergone a significant change even over the last couple of years. I mean you would have seen those mixes when we would have announced results, let's say, March '18, the mix of those 3 segments was very different as compared to the mix of business that you would have seen for March '19. And even when you look at it for the current year, I think the mix of business would be slightly different. So in that sense, obviously, it's a function of what kind of pricing environment operates. And within that, we will continue to be this selective on the mix that we would want to kind of underwrite and keep looking for opportunities so that we're able to try and sustain the overall profitability objective that we have set for our ourselves as a company. And that's the way one would look at how these loss ratios could play through.

[Sanketh Godha, Vice President]

Okay. Just on the minimum quota formula, which is getting changed with respect to TP based on the noninsured vehicle, just wanted to understand whether it will impact our business or is it neutral event basically?

[Gopal Balachandran, CFO & Chief Risk Officer]

Sure. So I think, Sanketh, there, again, I think if you look at the current obligation, I think purely -- it's purely a function of the value of the premium that you write. And again, there are being defined formulae basis which the quota is determined. And on that basis, you are expected to write a particular volume of business in order to meet your quota objectives.Insofar as the new norms are concerned, I think the working group has submitted their report. And rightfully so, if you were to look at in that context, I think the thought process of moving the quota based on the number of policies. And then, of course, there is also a factor of the extent of the uninsured vehicles, which is also that one has to consider, is something in that sense, I think, in the right direction, which would ensure that a larger section of the motor vehicle owners are taking their insurance policy, something that has been a challenge for the industry as a whole. So in that sense, when you look at the new guidelines that has come through as a part of the working group recommendation, it is definitely a step in the right direction. Obviously, we will have to basis that recalibrate the mix of business that we have to kind of write between those private car, two-wheeler and commercial vehicles and ensure that we are in compliance with the norms.

[Sanketh Godha, Vice President]

But initial working do suggest that we need to dramatically change our mix in the sense that we comply with the newer formula?

[Gopal Balachandran, CFO & Chief Risk Officer]

It's all a function of, as you said, what kind of mix will that entail? As I said, you need to kind of strike a right balance between all the 3 segments, whether it is private car, two-wheeler or commercial vehicles.

[Sanketh Godha, Vice President]

Okay. Got it. Sir, just one broader question. When we said that maybe the stronger companies will gain market share post COVID, then still -- which segment do you think the market share gain could happen? And whether you could see, again, any price competition in those segments which you believe market share gain could happen basically?

[Bhargav Dasgupta, MD, CEO & Director]

So this -- some of the segments that we've seen this. I mean we've been talking about this shift in any case without this current event. We've been saying that gradually market share will shift to the stronger companies. And some of the segments we've seen that play through. So if you see -- even this year, in certain segments, which, let's say, for example, fire segment where pricing went up last year, our market shares increased from roughly about 9.3% to 9.8%. Engineering market share increased. So as we said, in the commercial lines, definitely, market share should increase. In the SME segments, given what we just talked about over this call, in terms of claim service also, the market share should increase. We've increased market share in motor own damage. We've now become the #1 company in own damage. Again, because of some of these strengths that we've built. And incrementally, we are seeing faster growth in the health segment in the last maybe about 2 years. And Gopal gave the number for indemnity growth for this quarter, significantly higher than the market. So we expect even their market share gains to come through.I think that the point is more generic. I mean if you see the overall mix, if you see the private sector company -- earlier we used to talk about between the private and public market share movement that you've seen. But our sense is if you see even in private sector, depending upon how -- where people are and how the market plays out in terms of claims, et cetera, there are certain pressures that are developing. We will see if that leads to some relative benefit for us. Definitely, as I said, because of balance sheet, technology capability and the fact that we've been able to manage this engagement even in this period, we should see some benefit. That would be our endeavor.

[Sanketh Godha, Vice President]

Okay. Just a data keeping question. Loss ratios, can we do based on group health? Group others which include benefit based, and retail, if it's possible? And vis-à-vis what -- was there a similar number in the last year?

[Bhargav Dasgupta, MD, CEO & Director]

So broadly, Sanketh, I think when you look at the overall health portfolio, I think what we have also been talking about in terms of loss ratios behavior, I think corporate health will fundamentally as a business line will have -- exhibit a high loss ratio. That number, if you see, has broadly remained at about 93%, 94%, whether you look at FY '19 or whether you look at FY '20. And inherently, again, by the nature of the business, I think the retail part of the business is something that continues to exhibit a relatively lower loss ratio experience. And it does tend to have a higher cost of acquisition as we look at ramping up the growth opportunity. Again, there, if you had to look at the indemnity loss ratios, they have also kind of more or less remained at the levels of 62%, 63%, whether you look at FY '19 or whether you look at FY '20.

[Sanketh Godha, Vice President]

And on group benefit side, what is the benefit this time?

[Operator]

[Operator Instructions] The next question is from the line of Akshen Thakkar from FIL.

[Akshen Thakkar;Fidelity International;Analyst]

I had actually the question on market share, which got addressed by the previous caller. So I'll ask the 2 follow-up questions. One was on duration on your fixed income book. Could you just help us understand how that's moved towards the cost given that interest rates have been volatile? That was one.And second was, through the year, if things remain tough, if inorganic opportunities come your way, what are the areas within your industry that you are open to look at? Just those 2 questions.

[Bhargav Dasgupta, MD, CEO & Director]

So on the second one, we've always said that we are open to inorganic opportunities. It should come at a price where we can deliver value to our shareholders in terms of giving a return. And if opportunities open up, even at this stage, we will always be open. We would look at what franchise incrementally we get out of it. It could be certain distribution franchise, certain relationships or certain businesses, which could be additive, where we could see some synergy benefits otherwise. So the answer to that question is yes, open, but it has to be at a price that it makes sense for us.In terms of the duration of the portfolio, if you see, the overall duration of our portfolio is about 3.72 at this point in time. The duration of the portfolio last year was about 4.76. We are keeping it -- keeping the duration a bit low because -- we've kept it low because we were -- I mean, from our perspective, the long duration bonds did not give us an adequate margin of safety at the levels that it was, of course, one didn't anticipate a pandemic. So to that extent, it's gone down further. But pre-pandemic, at those rates, we were not seeing the relative value. We wanted to keep our portfolio flexible, so that we could reallocate our bond portfolio in a direction that we preferred. That was our approach last year. So we kept it slightly low so that we could swivel whenever we wanted to. Right now, our approach is, particularly given the volatility that we've seen, whenever we are seeing some market dislocation and interest rates are going up, we are trying to lock in and slightly increase the duration.

[Operator]

Ladies and gentlemen, due to time constraint, that was the last question. And I will hand the conference over to Mr. Bhargav Dasgupta for closing comments.

[Bhargav Dasgupta, MD, CEO & Director]

Thank you, everyone. Thank you for joining. Difficult times, I understand, for everyone, and this is Saturday evening, though I don't know in these days whether we can make out what is a Saturday or a Friday or a Tuesday. Anyway, thank you for joining. Stay safe. Take care of yourself.

[Gopal Balachandran, CFO & Chief Risk Officer]

Thanks, everyone. Thank you.

[Sanjeev Radheyshyam Mantri]

Thank you.

[Operator]

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