ICICI Lombard General Insurance Company Ltd

NSE:ICICIGI

Earnings Call Transcript 2024-Q4

[Operator]

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited's Q4 FY 2024 and FY '24 Earnings Conference Call. From the senior management, we have with us today Mr. Sanjeev Mantri, MD and CEO of the company; Mr. Gopal Balachandran, CFO; Mr. Alok Agarwal, Executive Director; Mr. Girish Nayak, Chief Technology and Health Underwriting and Claims; Mr. Sandeep Guradya, Chief Corporate Solutions Group; and Mr. Anand Singhi, Chief Retail and Government business.

Please note that any statements or comments made in today's call that may look like forward-looking statements are based on information presently available to the management and do not constitute an indication of any future performance as the future involves risks and uncertainties, which could cause results to differ materially from the current views being expressed.

I now hand the conference over to Mr. Sanjeev Mantri, MD and CEO, ICICI Lombard General Insurance Limited. Thank you, and over to you, sir.

[Sanjeev Mantri, executive]

Thank you. Good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard Limited for quarter 4 and financial year 2024. Let me give you a brief overview of the industry trends and developments that we have witnessed in the past few months. Post this, our CFO, Mr. Gopal Balachandran, will share the financial performance of the company for the quarter and the year ended March 31, 2024.

During the quarter, the Indian economy continued its robust growth trajectory, with key high-frequency indicators reflecting healthy economic conditions. For the financial year 2024, India GDP growth is expected to be 7.6%.

Looking ahead, a normal southwest monsoon should support agriculture activity, boost rural demand and help overall sentiments. However, any worsening of geopolitical tensions or a global slowdown may have an adverse impact.

Now talking about auto industry, private car sales witnessed robust growth for the financial year 2024, aided by improved supplies and sustained customer demand. As for SIAM data, 4.2 million vehicles were sold in the year. The industry also saw a shift in the customer preference from an entry-level cars to SUV. Thus contribution of SUV in private car segment has gone up from 37% to 49% in last 2 years.

As mentioned in the last earnings call, uptick in rural demand saw 2-wheeler sales grew by 25% in Q4 to touch 4.5 million. The annual 2-wheeler sales also surpassed the financial year 2020 figure and stood at 18 million vehicles. During the year, around 1.7 million commercial vehicles were sold, which was driven primarily by good traction in infra and other core sectors.

Health insurance continued to be the largest product segment for the industry. As per data published in the IRD annual report for financial year 2023, the growth in number of lives have been primarily given by the group health business and we expect this trend to continue for financial year 2024 as well.

The commercial line of business, witnessed growth supported by strong government capital expenditure related to infrastructure development. Consequently, engineering lines of business witnessed a robust growth during the year. We remain optimistic that the industry will continue to grow given the favorable macros, regulatory changes, no penetration and relatively positive consumer sentiments.

Coming to performance. The general insurance industry delivered a year-on-year gross direct premium income, growth of 12.8% for financial year 2024, excluding crop and mass health, the growth stood at 14.8%.

Overall, the combined ratio for the industry was at 112.2% for 9 months financial year 2024, as against 115.2% for 9 months financial year 2023. For Motor, the combined ratio was 118.2% for 9 months financial year 2024, as against 121.9% for 9 months financial year 2023.

In our last earnings call, we had mentioned improvement in the industry combined ratio for Motor for H1 financial year 2024 by 400 basis points to 119.4% from 123.5% for H1 financial year 2023. There has been a further improvement of 300 basis points for quarter 3 only in the combined ratio for Motor at 115.9% as against 118.9% during the same period last year.

The Motor combined ratio for private players in Q3 financial year 2024 was at 110.7% versus 111.8% for the same period last year. This improvement indicates assemblance of discipline coming back to the market.

As you may be aware, no Motor TP hike has been announced for financial year 2025 as yet, really watchful of how the industry responds or through this in coming days.

Now I would like to touch upon certain regulatory announcements. On March 20th, 2024, after a comprehensive review of regulatory framework, the authority notified a number of principal-based prescriptions. The new regulations include denotification of all tariffs notified by the Erstwhile Tariff Advisory Committee, which continued to be in force since December 2006.

With the denotification of the existing tariffs, the company is at the liberty to design all the general insurance products in line with its own underwriting policy. This would facilitate insurers to respond faster to the emerging market requirements and to design innovative products to cater to customers' need. It may be mentioned that the pricing of Motor TP line of business continues to be under the tariff regime.

Rural social sector and motor third-party obligation prescribed the minimum insurance business to be undertaken by the insurers. The compliance and measurement of these strategy obligations has been revised in order to enhance the insurance penetration, Bima Sugam, insurance electronic marketplace revolution, allow for establishment of our digital public infrastructure, insurance electronic marketplace.

With this, the authority has set out a vision of democratizing insurance to achieve the goal of insurance for all by 2047. We believe the regulatory developments are favorable for the industry. I would like to further reiterate that the company, we will look at -- as a company, we will continue to leverage the benefits of being a diversified multi product and multi-distribution organization as we capitalize on the existing and emerging business opportunities in the sector.

Now, I will speak about the business impact for us in quarter 4 and financial year 2024. The [indiscernible] grew by 22% during quarter 4 financial year 2024. Excluding a one-off transaction in the motor segment last year, growth was 15.8%, which was higher than the industry growth of 9.5%. For financial year 2024, the company grew up by 17.8% as against the industry growth of 12.8%. Excluding the one-off transaction last year, growth for financial year 2024 was 16.4%.

Let me now touch upon our performance in key business segments during the quarter and financial year '24. In the Commercial business segment, we continue to consolidate our market position by leveraging our unique distribution network, enhanced by value-added services, food and risk-based underwriting and highly rated reinsurer capacities.

During quarter 4 2024, we grew at 11.3% as against an industry growth of 11%. For financial year 2024, we grew at 14.7%, which was higher than the industry growth of 10%. Further, during the year, we accrued market shares across segments such as fire, marine, cargo, engineering and liability. As we speak, we are at an industry leading position in Marine Cargo and liability line of business while being the second largest in Fire and Engineering line of business.

Last year, we experienced significant rate hardening in the reinsurance terms in line with global trends. However, as anticipated, the recent April 1st renewals have largely been benign. Motor continues to be the largest contributor to our product mix. Over the years, we have developed strong capabilities across distribution, underwriting, claims, servicing and actuarial practices. Given our presence across all 3 subsegments of private car, 2-wheeler and CV, we will continue to balance our portfolio mix depending on the market opportunities.

As we saw some disciplined return to the market, we scaled up our position in a calibrated manner and consequently entice the year as an industry leader. The growth for us during the quarter was 27.3%. Excluding the one-off transition last year, the growth for quarter 4, 2024, was 13.4% as against the industry growth of 9.6%.

For financial year 2024, we grew at 12.3%, excluding the one-off transaction last year, the annual growth was 8.9% against the industry growth of 12.9%. The growth in motor segment was aided by strong growth in new private car segment is due at 23% for quarter 4, 2024, and 28% for financial year 2024, which was higher on SIAM volume growth of 12% and 8.4%, respectively.

Our new 2-wheeler growth was 11% for quarter 4 and 13% for financial year 2024, while the SIAM volume growth was 24.9% and 12.3%, respectively. As real demand picks up, we expect to see the trend continue for 2-wheelers. In the new CV segment, we degrew by 2.1% in quarter 4, 2024 and 1.9% in financial year 2024, while the SIAM volume growth was 0.1% and 14.4%, respectively.

For financial year 2024, our mix of private car, 2-wheeler and commercial vehicle stands at 51.4%, 26.8% and 21.9%, respectively. We also continue to build efficiency in motor claims. In quarter 4, 2024, we were able to service 70% of our agency and direct claims through a preferred partner network up from 54% in quarter 4 2023.

For the next year, we expect mid-single-digit growth in private car sales, while the 2-wheeler segment is expected to deliver 8% to 10% growth. CV sales are expected to grow in double digits in line with the previous year on account of demand from Infra sector. The Health segment continued to be the fastest-growing segment for the industry. We grew faster than the industry, both in quarter 4 and financial year 2024, registering a growth of 29% for the quarter and full year.

The Group Health employer employee segment, we grew at 31.7% in quarter 4, 2024, and 30.3% in financial year 2024. The change in the underlying industry pricing sentiment resulted in customer moving towards insurer with superior servicing capabilities. Our retail health business grew by 21.8% in quarter 4, 2024, against the industry growth of 19.9%.

For financial year 2024, our retail growth grew -- retail business grew at 20% as against the industry growth at 19.1%. We will continue to invest in this segment in terms of human technology -- human capital, technology and knowledge capital to further improve our market share. Our current retail agency manager count stands at 1,600. We will continue to strengthen our growth lever as we expect to achieve far more in this segment.

Our bancassurance and key relationship grew at 16.7% for the quarter and 20.2% for the financial year 2024. Within this, ICICI Group distribution grew by 39.4% for quarter 4 financial year 2024 and 22.5% for financial year 2024. We will continue to deep mine our existing relationships by creating new value streams and at the same time, focus on acquiring new relationships.

During the year, we added over 80 bank partnerships. In our last call, we spoke about a vision of One IL One Team. Under this one of our initiatives that we had outlined in our One IL is our One IL One Digital strategy. Through this, we aim to consolidate our customer-facing digital assets of IL Take Care website and alliances along with our distribution facing front-end. This will allow us to exploit the synergies across all our platforms, which will result in benefits to the company.

Our one-stop solution for all insurance and wellness needs the IL Take Care app has surpassed 9.3 million user downloads till date. We continue our growth momentum with 0.8 million user downloads for the quarter. In the same period, we source premium over 1.13 billion and a premium of 3.66 billion for financial year 2024, registering a 3x increase on a Y-o-Y basis.

Our overall customer-facing digital business grew at 29.5% in quarter 4 and 39% in financial year 2024, and constitute 6.8% and 6%, respectively, of our overall business. Last week, we announced a strategic tie-up with Policybazaar. Our tie-up is aimed at leveraging the strength of the 2 institutions to create a superior customer value proposition.

After transitioning to cloud, we have continued to make significant investments on modernization of our technology platform. Along with this, our core business and technology transformation project Project Orion is also underway. Project Orion will entail 3 pivotal pillars of reimagining processes with a digital-first approach modernizing technology by shifting away from legacy systems and enhancing stakeholder experience to superior engagement models.

We are excited to share that we have kick started the transformation journey with some of our preferred line of businesses and are witnessing the initiatives shaping up nicely. We firmly believe project alliance will be a key enabler on our vision of One IL One Team. As we impact on the new financial year, we will focus on leveraging our multiproduct multi-distribution strategy through effective use of data, digital advancement and launching new products, will maintain focus on scaling up our profit pool while continuing to grow as One IL One Team.

Now I would request Gopal to take you through the financial numbers for the year -- for the recently concluded quarter and the year.

[Gopal Balachandran, executive]

Thanks, Sanjeev, and good evening to each one of you. I will now give you a brief overview of the financial performance of the recently concluded quarter and financial year. We have uploaded the results presentation on our website. You can access it as we walk you through the performance numbers.

During the quarter, ICICI Bank acquired additional equity shares of the company. Consequently, the shareholding of the bank in the company has increased to more than 50% and the company has become a subsidiary of the bank. Gross direct premium income of the company was at INR 247.76 billion in FY 2024 as against INR 210.25 billion in FY '23, a growth of 17.8%, which was higher than the industry growth of 12.8%. Excluding crop and mass health, the GDPI growth of the company was at 17.1%, which was higher than the industry growth of 14.8% in FY '24.

GDPI of the company was at INR 60.73 billion in quarter 4 FY '24, as against INR 49.77 billion in quarter 4 FY '23, a growth of 22%. This growth was higher than the industry growth of 9.5%. Excluding crop and mass health, GDPI growth was at 22%, which was again higher than the industry growth of 13.8% in quarter 4 FY '24. Our GDPI growth during FY '24 was primarily driven by growth in the preferred segments, the overall GDPI growth of our Property and Casualty segment grew by 14.7% at INR 68.51 billion in FY '24 as against INR 59.73 billion in FY '23.

On the retail side of the business, GDPI of the Motor segment was that INR 96.34 billion in FY '24 as against INR 85.82 billion in FY '23, registering a growth of 12.3%. The advanced premium was at INR 33.3 billion at March 31, 2024, as against INR 33.04 billion as of December 31, 2023. GDPI of the Health segment was at INR 61.71 billion in FY '24 as against INR 47.82 billion in FY '23, registering a growth of 29.1%.

Our agents, which included the point-of-sale distribution count was at 1,28,411 as on March 31, 2024, up from 1,25,088 as on December 31, 2023. During the year, we witnessed catastrophic events, namely Cyclone Biparjoy, North Indian Floods and Cyclone Michaung, resultantly combined ratio was 103.3% for the full year FY '24 as against 104.5% for FY '23. Excluding the impact of these cat losses of INR 1.37 billion for the full year, the combined ratio would have been at 102.5%.

For the quarter, combined ratio was 102.2% in quarter 4 FY '24 as against 104.2% in quarter 4 of FY '23. Our investment assets rose to INR 489.07 billion as at March 31, 2024, up from INR 468.67 billion as at December 31, 2023. Our investment leverage net of borrowings was 4.09x as at March 31, 2024, as against 4.11x as at December 31, 2023.

Investment income was at INR 35.26 billion in FY '24 as against INR 29.77 billion in FY '23. On a quarterly basis, investment income was INR 9.3 billion in Q4 this year as against INR 8.17 billion in Q4 of last year. Our capital gains net of impairment of investment assets stood at INR 5.51 billion in FY '24 as compared to INR 4.53 billion in FY '23. Capital gains net of impairment and investment assets stood at INR 1.56 billion in quarter 4 FY '24 as compared to INR 1.59 billion in quarter 4, FY '23.

Our profit before tax grew by 21% at INR 25.55 billion in FY '24 as against INR 21.13 billion in FY '23, whereas profit before tax grew by 21.9% at INR 6.98 billion in Q4 FY '24 as against INR 5.73 billion in Q4 FY '23. Consequently, profit after tax grew by 11% at INR 19.19 billion in FY '24 as against INR 17.29 billion in FY '23. Excluding the impact of reversal of tax provision in Q2 FY '23, profit after tax grew by 19.8% in FY '24. Profit after tax grew by 18.9% at INR 5.2 billion in Q4 FY '24 from INR 4.37 billion in Q4 FY '23.

The Board of Directors has proposed a final dividend of INR 6 per share for FY '24, this payment is however subject to approval of shareholders in the ensuing Annual General Meeting of the company. The overall dividend for FY '24, including the proposed final dividend is INR 11 per share. Last year, the overall dividend was INR 10 per share.

Return on average equity was 17.2% in FY '24 as against 17.7% in FY '23. Return on average equity for the quarter 4 FY '24 was 17.8% as against 17.2% in quarter 4 FY '23. Solvency ratio was at 2.62x at March 31, 2024, as against 2.57x as at December 31, 2023, continued to be higher than the minimum regulatory requirement of 1.5x.

As I conclude, I would like to reiterate that we continue to stay focused on driving profitable growth, sustainable value creation and safeguarding interest of policyholders at all times. We would like to thank you all for attending this earnings call, and we'll be happy to take any questions at this point. Thank you.

[Operator]

The first question comes from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

Congratulations on a good set of numbers. I have 3 questions. The first is on the overall growth outlook. So a health book for us has done quite well since past 2 years. Since FY '22, the growth has been north of 25%, 30%, 40%, right? So expecting some moderation in growth going ahead, what would be the key drivers for growth in FY '25/'26? Which segments would be driving majority of the growth? And how much higher than industry growth can we deliver in the years to come, given that motor segment is still -- the combined ratio is still though there has been an improvement and discipline has come in, but it's still quite a high combined ratio for us to -- for one to expect us to grow very fast in the motor segment. So that's my first question on key growth drivers and how much faster than industry can we grow in FY '25/'26?

Second is on the Motor TP segment. Looking at the reserve triangles -- reserving triangles for the Motor TP segment specifically. So there has been a much higher reserve release in accident year '18, '19, '20. I mean the trend looks much better than the previous -- prior year trends. So how should we read this data? Does this also significantly add to your FY '24 loss ratio improvement on a Y-o-Y basis apart from more new cars being sold. So that's my second question.

And sir, the third question is on the combined ratio. We've done quite well on the combined ratio side already at -- for the fourth quarter that has gone by much better numbers over there. So going ahead, what is our guidance on combined ratio? And one question that I also asked at the analysts meet about considering natural calamities as business as usual going ahead, does that change the combined ratio guidance? These are my 3 questions.

[Sanjeev Mantri, executive]

I guess let Gopal take the other one, then I'll tell you what is our view.

[Gopal Balachandran, executive]

Yes. So I think if you look at -- on the first one Shreya, I think -- if you look at it from an overall market perspective, I think as we have always been saying, we have been -- we have always been looking at this business in the context of being a multiproduct, multi-distribution setup. And therefore, to that extent, a different segment of businesses present opportunities for growth maybe at different points of time. And hence, to that extent, is where I think we have been able to kind of put in place a model in place by which we are able to leverage the growth potential.

So -- and it is in that context when you look at the overall year gone by, I think we have been able to have an outperformance relative to the market growth. And if you look at -- in terms of how we are heading into the next year, I think there's a lot of positive momentum that we see from an overall market perspective as well. One, of course, this slew of regulatory reform that we spoke as a part of the introductory remarks. I think that augers well both from a market standpoint and even from the opportunity that it gives for ICICI Lombard I think it's very, very positive.

Second, I think if you look at the thrust that the government is putting on in terms of in general, looking at significant thrust of infrastructure development. That obviously presents a lot more opportunities on multiple segments of businesses, whether we look at it in the commercial line space, maybe for example, trust on engineering projects to begin with. Obviously, to that extent, it kind of aids in logistics transportation to again look at growth profitably.

And more importantly, it is also expected to lead to, let's say, a higher number of jobs. And therefore, to that extent, I say kind of augurs very well in terms of the opportunity that one sees.

Specific to your point on health, I think as we have always said even in the past, I think the kind of opportunity that one sees in the market, if you look at a few years back, the market was significantly stressed in terms of the loss experience and more importantly when you look at it from a combined ratio standpoint. Given that some of the players are already kind of looking at reversing some element of pricing within group health and particularly on the employer-employee side, it obviously kind of augurs well. And that's the reason why you see us continuing to grow disproportionately relative to the market.

And even as we head into FY '25, we believe health for the industry as well will continue to be by far one of the fastest-growing segments. And within that, even for ICICI Lombard, we see an opportunity on health, both in the group's health as well as on the retail health segment.

So that -- whether the growth will be continuing to be at 25%, will it slightly get moderated, I think we will obviously wait for things to evolve. But honestly, as we have said even in the past, I don't think -- from a market perspective, we will continue to see prolonged periods of 25% to 30% growth from an industry standpoint. So I think that's something that we will obviously watch for.

The second question on yours in terms of the motor third-party reserving triangle, I think it's good that the market is starting to look at the triangle disclosures from an overall market perspective. I think that, again augurs well because then every company is being kind of to appropriate level of scrutiny from a market perspective. And hence, to that extent, it again augurs well from an overall market discipline.

In terms of the -- some of the, let's say, the releases that we spoke about, I think if you ask us, the way I would kind of respond to it is whether have we -- is there any change in the approach of our reserving philosophy? The approach has not changed. And in line with what we have been speaking even in the earlier quarters, I think the way to look at on the third-party book, as you rightly mentioned, it's more on an annual basis. And in fact, if you recollect, even last time in the quarter's earnings call, we did speak about the range within which we see the loss experience play out for motor as a category.

And just to kind of refresh that, we had said motor own damage loss experience is something that we see in the range of 60% to 65%. And motor third party as a segment, we had said we would be kind of operating at a range between 65% to 70%. And both of that blended is where we had said motor as a category would run in that range of 64%, 65%.

And if you look at the full year numbers, both on motor own damage as well as on motor third party, I think broadly, the outcome of the book that we have been able to underwrite has been within that range that I just kind of refreshed. Having said that, one of the key deliverables that we would obviously watch for, which also -- which we put as a part of the introductory remarks is on motor third-party pricing.

Now as we speak, a segment of practice, we have not seen a price change. So we will watch for development in that space. And therefore, to that extent, the risk selection will continue to be driven by some of the factors that we see accretive in terms of no price increase thus far. So we will be guided more by that in terms of how we see the opportunity. The range of loss experiences is a function of what I kind of mentioned.

Your last point on combined ratio...

[Sanjeev Mantri, executive]

I think, sure, clearly, I mean, the quarter 4 numbers on the combined ratio, which leads at 102.2% and they're about where does it play? The overall commentary in terms of what we spoke on tailwinds available sectoral reforms, which are being initiated by the regulator. We see a player and we do see that we can have overall 50 basis improvement further to what we have said we will achieve as a team by quarter 4 of next year. But again, we will keep revisiting and absolutely, we'll keep communicating, but we do see green shoots that kind of an improvement can come in overall for us as an entity.

[Shreya Shivani, analyst]

So what you're saying basically, by FY '25, we were targeting 102%, that can be 50 bps lower at 101.5%, unless there is some other. And what about the catastrophe when are we -- are we still watching it? Or have we come to a conclusion on how we should be dealing with it?

[Sanjeev Mantri, executive]

So clearly, I think Gopal also in the past has been mentioning that the frequency of catastrophic event on an annual basis has got increased. And do we factor that when we speak about it? Yes, there is a level of factoring. But like last year was an exceptional one, which was more than the factoring, and that's why we keep stating in terms of what would have happened is those cat events would not have been in terms of quantum to that extent.

Figure in the business of writing risk at a fundamental level, do we watch -- do we factor all of that is part of the process, but it except the extent of the event is something which we all await. We will keep you updated on that part, but there's some elements which obviously is a big deal when we see that we are overall expecting an improvement of 50 basis points.

[Operator]

[Operator Instructions] We have the next question from the line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

I have 2 key questions. One question is with respect to the regulation. Just my understanding of that the new obligation norms on Motor TP seems to be more stringent than it was in the previous regime. So I just wanted to understand whether we would be confident to fulfill the obligation of Motor TP in the new norms is the point we wanted to -- I mean, just wanted to understand and how you will achieve it? That's one question.

And second, a strategic question, which I want to understand is that you have highlighted about IL. But if you want to quantify the number, due to IL, what are the synergies you are expecting to see, either in the form of GWP growth because you're now aligning agents across the business segment or distribution across the segments. So you expect synergies. And if we quantify the number in terms of GWP, additional GWP or maybe an additional improvement in the expense ratio because of these synergies?

And lastly, on data keeping, if you can share retail and group health loss ratio, and Gopal to last point, sorry, that if the PP price hike this income, are you still confident that 65 to 70 Motor TP will be achievable or not?

[Sanjeev Mantri, executive]

Okay. So I'll take the first 2 and then the other one, the data that you're seeking and the last question, Gopal will come in and give it to you. In terms of the new TP regulations that have come in. See, I mean in the insurance, the authority has clearly said that they're looking for insurance for all by 2047. And for that, some initiation has to be done.

The confuse of how this will emerge for all of us has still to emerge. It's kind of work in progress. But that being said, we are multiline, multiproduct, well distributed franchise, it is so much of retail. I mean, the amount of dealers we do as an entity among us. So we are present, we would definitely back ourselves to achieve the objectives that are set by the regulator, but we would be speculating beyond a point as to where we will be placed. We have complete clarity in terms of what's expected from us. So that's point number one.

Under IL One Team that we have been talking about and really emphasizing quantification fundamentally comes with the quarter results that you will see us announcing and we would briefing from attaching finite value because the overall performance is a bit scrutiny, which we keep announcing to all of you and, are we excited in terms of seeing both top line and cost getting -- controlling a relatively better manner? The answer is yes, definitely, and we do believe coming quarters will accrue. But we would not be calling it out and recalling that this has happened because of this. Overall, the efficiency of the company will be reflected in how we perform as an entity. And there are multiple other aspects that come, we may have some genuine savings, we may choose to reinvest also that. So we would not like to dwell on those aspects.

[Sanketh Godha, analyst]

Sanjeev, you gave a 50 basis point better guidance than what it was last year. So is it because of this IL, what you are trying to...

[Sanjeev Mantri, executive]

What I would, again, rush into, I get for me -- your excitement is coming from. That's only about the controls. We have always maintained that the industry sentiments also as to move in the positive direction. We have always maintained the fact that we would be an output of where the overall industry growth is and how our own placement is. So is this an element that comes in and binds us together as an organization? 110% answer is yes. But to quantify this -- from this output, this much has come because of IL One Team will not be shared is all I'm saying. So there are multiple things that going back.

For the other 2 questions, I'll ask Gopal to revert to you.

[Gopal Balachandran, executive]

Yes. So Sanketh, on the health loss numbers, again, I'll give you Q4 numbers first, and then I will give you the full year numbers. Q4, on the GHI, which is employer-employee segment. This is for quarter 4 of last year, which is FY '23, that number is at 93.2%. That number for quarter 4 of this year is at 88.1%. And on a full year basis, for the same segment, I think the range that we have spoken about is to operate in the range of 94%, 95%. If you look at FY '23, the overall loss ratio on the GHI side was 95.2%, and this year, we are at about 93.7%.

On retail health, again, just to kind of refresh, what we have talked about even in the past several quarters is we are comfortable operating in the loss ratio range, which is between 65% to 70%. In that context, when you look at the quarter 4 FY '23 numbers, retail, which is on the indemnity side, that loss ratio was about 61%. That number for quarter 4 of this year is at 64.6%.

And on a full year basis, last year number was 64.1% and the current year number is at about 65.4%. So that's in response to your second point on the health loss numbers.

The last question of yours in terms of whether the range that I spoke about of 65% to 70% in the context of motor third party. So again, I think that's the range that we have kind of largely operated at. I think the only factor that I would say is in line with, again, what we've been speaking even in the past few quarters, assume to say that what we are seeing on ground is also maybe an increased preference of the courts to start giving compensation in favor of the victims of the insured. And therefore -- so that's a trend that we will obviously observe.

The other factor, which would again -- which we have again spoken of, which should be directionally positive is also this whole 6 months law of limitation in terms of how that gets paid out. Last year, of course, we did see some developments. And finally, as we have been saying, the matter is presently at the Supreme Court. Once the verdict comes out, I think we will again have to see in terms of how that plays -- gets paid out on ground. So hence, there are, again, balancing forces in terms of ones that could possibly see or reflect an increase in the loss experience, that clearly then it's up to us in terms of what kind of risk selection do we do.

And the second is more a positive benefit, at least for ICICI Lombard from an overall [indiscernible] standpoint. And hence, to that extent, that should kind of aid us in terms of maintaining the loss ratio in range of 65% to 70%. So there are a lot of moving parts. Now at this point of time, I think we would want to kind of stick with the 65% to 70% range. And of course, we will see some of these factors in terms of how that gets paid out through the year.

[Operator]

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

[Nidhesh Jain, analyst]

First question is on IFRS, so any update what are the contents for the expected implementation of IFRS? And what would be the impact on our P&L and balance sheet of IFRS?

[Gopal Balachandran, executive]

So, Nidhesh, I think again, in line with what I had mentioned even in the last earnings call, I think we had said that we are pretty much progressing well in terms of doing the impact assessment, making sure that we get ourselves ready for the implementation, which is effective from FY '25/'26 financial year. And even last quarter, we did say that we will come back in maybe a couple of quarters' time frame.

So honestly, internally, while we are doing all of those and also watching for the development in terms of all the necessary guidelines and standards getting issued in the context of the IFRS transition. So therefore, at this point of time, too early to call out. But as I've always maintained, I think we have clearly spoken about 3 or 4 key areas or aspects which is where we would likely to see the impact of transition play out in the context of IFRS.

So that doesn't change, whether it is in terms of acquisition cost, whether it is in terms of discounting of reserves, whether it is in terms of mark-to-market on the investment book. And maybe for a few set of companies which have kind of issued, let's say, stock units or stock options, so there will be an element of cost through the earnings. So those are 3 or 4 key areas where one would see an impact of the transition play out. Specifically to call out, I think we will come back and obviously keep all of you updated in terms of where we are on the IFRS at this time.

[Nidhesh Jain, analyst]

Sure, sure. And secondly, in terms of solvency ratio, we are operating at significantly higher number versus the regulatory threshold. And our ROEs have also now improved from 17% to 18%. So do you think of better utilization of capital going forward?

[Gopal Balachandran, executive]

No. Of course, that's obviously something that we kind of -- is something that we always look for. I think one of the factors that you see, which also led to, let's say, improvement in solvency and, of course, improvement in earnings over the last few years has been our approach to -- as what Sanjeev has also been talking about is to sustain profitable growth as a team. And hence, in let's say, relative to the market, I think we have been slightly going slow on some of the segments. And therefore, to that extent, we have not been able to completely utilize the solvency capital.

What we are seeing is what we kind of put out as a part of the introductory remark, which is to say that on ground, we are seeing semblance coming back in some of the segments where we have been a bit cautious, and therefore, to that extent, as we see, let's say, incremental growth play out in line with our approach to continue to grow as well as kind of remain profitable. Obviously, there will be consumption of capital that one would see in terms of the way forward.

And secondly, I think the approach of the philosophy that ICICI Lombard has always worked with used to be slightly more prudent in terms of the level of solvency that we want to maintain, given the fact that the Indian market still continues to operate on a Solvency I regime, while again, thanks to the regulators, they have been significantly working on getting the market, again, transition to a risk-based capital regime. Obviously, we will get to know more in terms of the firm date of implementation in terms of the transition.

So hence, that's something again that we will see in terms of how does that result into insofar as the consumption of capital is concerned. So while we do see growth opportunities and hence to that extent, we believe we will continue to use the capital judiciously.

[Nidhesh Jain, analyst]

And just lastly, on the provision for diminution in value of investment of around INR 68 crores. What is the reason for that? And when we disclosed our numbers that is excluding this?

[Operator]

Can you rejoin the queue for follow-up questions. The next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

So firstly, just a clarification, when you say 101.5 as the guidance, that is for the exit rate of Q4 of next year or it's for the full year? Secondly, if I -- like just going back to one of the previous questions on the Motor TP business on your -- the obligation. If the share of CV goes up, do you still believe that, that 65% to 70% guidance can be maintained? And within that, Gopal, time and again, we've seen Q4 loss ratios improve sequentially -- increase sequentially for Motor TP. Is it just because of the adverse regimen that come in Q4? Or what is it that really gives that kind of a loss ratio uptrend in every fourth quarter? Yes, I think those were my 2 questions, yes.

[Gopal Balachandran, executive]

Yes. Maybe I'll take the TP loss ratio part first. I think whenever, there is, let's say, a possible reduction in the TP loss ratio, the question gets asked the other way around. And therefore, to that extent, I think I have always kind of maintained that this is a book which is much more long tail in terms of loss development. And therefore, to that extent, given the nature of the business, you will always see cyclicalities less fluctuations in the loss experience of the book in terms of its outcome. So therefore, which is why I keep harping on looking at the numbers, ideally over longer term, but definitely not between quarters, look at it more on an annual basis.

And as I keep saying, again, there are various factors that influences, let's say, the loss experience of the book. I think -- so hence, to that extent, you will get to see fluctuations in the TP loss ratios across quarters. On a full year basis this is what I spoke about in terms of trying to maintain us operating at a segment -- I mean, segment loss ratio in that range of 65% to 70%.

Now coming back to your first -- second part of the question in terms of linked to motor third party is the obligation. Now obviously, the obligation is something that is applicable to industry at large. And therefore, as a company, I mean, we have to make sure that we kind of meet those obligations. And I'm sure we will have in place a plan by virtue of which we are able to meet the regulatory expectations.

I think the thought process in terms of where the regulatory is coming out with the need to bring about this change is, again, very, very positive because the whole thought process is to try and make sure that the industry kind of comes under the ambit of insurance. And to that extent, it's very, very positive. And if you are able to do as an industry, we're able to work collectively and maybe bring the larger set of let's say, uninsured vehicles within the ambit of insurance, that to my mind, is a great positive.

And hence, to that extent, I think we would obviously work and make sure that we're able to meet those obligations on the third-party side.

The first part on the combined ratio part. I think, obviously, yes. I think directionally, the lens that we have talked about, Prayesh, is that we have been saying that directionally the trajectory for us is to bring down the combined over a period of time. And obviously, this has to be looked at in the context of how we see the market environment operate at, which is why I think even as a part of the introductory remarks, we did point out to say that the market is clearly showing signs of -- at least from the reported numbers on a 9-month basis, there is almost a 400 basis point improvement in combined from an overall market perspective.

And within that, one of the key segment, which has been a larger contributor of significant competitive intensity has been motor. That's again a segment which has, again, not just on a half yearly basis, even if you look at the quarter 3 numbers for the market, that's again shown an implement of almost about 300 basis points. So which is why I think we kind of put out to say that there seems to be some kind of a semblance coming back and that's also getting reflected in terms of the growth numbers that many of these players were exhibiting in terms of competitive aggression.

Clearly, you can see a lot many players are starting to kind of pull back. So that gives us possibly some kind of a confidence in terms of how do we look at achieving that the combined objective that we laid out. And hence, to that extent, even in the past, I think what we have maintained is -- I mean, if the market environment is favorable, there is no reason why we would not be able to accelerate the expectations of combined. And that is why we stand. And in all [indiscernible], we hope to kind of achieve the thought process that we laid out from a combined perspective.

[Prayesh Jain, analyst]

It's for the full year, right? That's the clarification I want.

[Sanjeev Mantri, executive]

I think and we will be in touch on this, Prayesh. We believe the exit would be overall to the 50 bps less. There are serious plans of investments also. We would continue to update as the quarters unfold because as Gopal said, these are early signs that makes us optimistic and seize the visibility on this. But there are multiple things that will unfold. As of now, in our mind, it will be probably exit by quarter 4 is where we would see this. And if it gets further accelerated, we'll come back and connect with you all by end of quarter 1 of this year.

[Operator]

We have the next question from the line of Madhukar Ladha from Nuvama Wealth.

[Madhukar Ladha, analyst]

Congratulations on a great set of numbers. So most of my questions have been answered. I wanted to understand investment yields have improved again this quarter. And even if you exclude the capital gains, we're doing quite well. So what is the number that we should be sort of looking at in this? And what is the duration? How are we driving this actually? That's one question of mine.

[Sanjeev Mantri, executive]

Gopal?

[Gopal Balachandran, executive]

Yes. So again, Madhukar, I think, again, I would kind of respond this in the context of I'm sure you guys know this far better. I think obviously, investments have to be looked at in terms of its written profile over a period of time. And hence, to that extent, is how -- what we keep saying is to look at market opportunities in terms of having a blended mix of the right asset classes between both fixed income and equity. And that's what we have been kind of looking at over the period of time in terms of realizing the opportunities.

Now specifically to answer your point on what led to, let's say, the increase in the interest yield or, let's say, the overall return on the portfolio, it is in line with the higher interest rate regime that we have seen. And obviously, one leverages the opportunity. And even if you look at historical past, in terms of what kind of a mix of our overall returns have been in terms of interest accruals to, let's say, capital gains. That mix has broadly been on the interest accrual side in the range of 75% to 80%. And on the capital gain side, a number that could range between 15% to 20%, 25% around that kind of a threshold.

So hence, to that extent, is how we see the opportunity play out. And specifically, if you look at our yield to maturity, on the fixed income side, the yield to maturity currently stands at about 7.4%. So hence -- and that's the opportunity that one was able to seize in the market. And now can we sustain this? Obviously, we will have to wait and see how the interest rate cycle play out. There are clear expectations that you will start seeing some kind of a rate reduction cycle play through at some point of time. Again, we are positioned well even to capitalize that opportunity. But what could happen at those points is our ability to reinvest those realized loss will obviously get invested at a lower return on the accrual side. But obviously, we are well positioned to capitalize the opportunity from a capital gain standpoint.

And therefore, now to answer your point on the overall range of returns that we can operate with, again, if you look at FY '23, I think the overall return on the realized book was roughly at about 7.5%, this number, if you look at for FY '24 was roughly at about 7.98%, closer to 8%. And the range -- I mean, internally, the range that we kind of run with is to kind of give a return profile between 7% to 7.5%. But over our last now that we are almost to 23rd, 24th year of operations, I think the return profile has been definitely better than that particular range. So that's the range that we would be comfortable with. And hence, to that extent, is where we would like to operate at.

[Operator]

Ladies and gentlemen, we will now take the last question for today from the line of Aditi Joshi from JPMorgan.

[Aditi Joshi, analyst]

Just one follow-up question, which I wanted to understand from you on the investment intensity in the channel. So for the full year 2025, what is the outlook has been of the investments in the channel. In terms of the intensity, are you going to increase further? Or just wait for the investments in the last couple of years to fructify and then just some guidance on that will be helpful.

[Gopal Balachandran, executive]

So let's say again, if you look at, I think, what we put out, even it's a part of the introductory comment is, I think, just to kind of refresh again, I think we always looked ourselves as a multi-distribution company. And therefore, to that extent is how we see opportunity play out across different channels.

If you ask us, would we stay entrenched with each of these channels? The answer is a clear yes. I think in so far as, let's say, as we see new motor vehicle sales gaining momentum and therefore, to that extent, obviously, we will kind of leverage on the access/partnership that we have been able to create historically of working with OEM/more importantly, the dealership touch points.

And that's the reason if you look at across years, the proportion of dealership access that we have had out of the total number of dealerships as a country. Again, just to kind of refresh that number used to be between 50% to 55% at the time when we did our listing. Currently, we have been able to reach that number closer to slightly upwards of 65% in terms of the total number of dealerships.

So that will continue to be an important channel of distribution. Agency, which kind of encompasses between motor held SME has always been an area of opportunity, and that's a segment which, obviously, we have been kind of expanding a lot more. And clearly, we have seen benefits of the investments play out, whether you look at on SME, I think the growth rates over the last several years have been very positive. Even on, let's say, I would say agency motor, I think that's a segment where we have talked about trying to create a balanced mix between dealership agency and, let's say, our direct distribution.

So hence, to that extent, obviously, we will continue to leverage on motor agency specifically. And in specific, since we're talking in the contract of agency, retail health is always a positive opportunities that one sees. And that's the reason why we put out that number of the head count that we have on our own health agency managers, which is currently at about 1,600. And we would want to continue to see expansion in that particular space. So you will obviously see a lot more expansion initiatives being undertaken in the context of retail health, and therefore, the direction that should logically translate into an improved market share in that particular segment.

While even this year, we would have loved to have done better. But honestly, we have not been able to completely leverage the opportunity that one sees. But given the fact that we have been able to strengthen our leadership team as well. I think one would expect a lot more to happen in terms of expanding distribution, launching new products and obviously, strengthening the technology deliverables.

So that agency will continue to be a very, very important channel of sourcing. And Sanjeev, in the last earning calls, did speak about IL One Digital channel. And therefore, that will again continue to be a very, very important channel of sourcing. And if you look at just from the current year standpoint, the overall contribution of the digital opportunity that spans across IL Take Care website, alliance partners, et cetera, et cetera. That contribution has been almost in the range of about 6% to 7% of the overall revenues. And that's again kind of compounding well in excess of almost about 20% year-on-year.

So all in all, I think it is going to be a combination of all channels. I think there is going to be thrust of investments in each of them. If you ask me which channels we by far gain the maximum traction, obviously, retail health is an area where we would want to kind of significantly leverage faster. And then, of course, we have the digital opportunity that one sees, and then we will continue to leverage on the other channels. And more importantly, I just -- I did miss one of them, which is the bank partnerships. I think, again, that will be a very, very important area of sourcing. And within that, ICICI Group will be a very, very important contribution for us. And hence, we would obviously want to leverage on each of this channels of distribution.

[Aditi Joshi, analyst]

Can I just squeeze in one more. Can you share your outlook of the health pricing, both in the retail and the group that would be helpful.

[Gopal Balachandran, executive]

Outlook on health?

[Aditi Joshi, analyst]

Pricing.

[Gopal Balachandran, executive]

Pricing.

[Aditi Joshi, analyst]

The health insurance pricing. Yes, in both the retail segment as well as in the group.

[Sanjeev Mantri, executive]

I think it's a function of loss ratio. And as you said, we will continue to be a prudent underwriter in both the segments. Most of the industry including us have taken a hike on the retail health side last year. So we would believe as things stand, we would like to operate in this range. And while we will obviously keep revisiting in terms of frequency as well as the loss ratio that comes along with it. But that's what our view as retailer as is.

The group has this far more dynamic and driven by multiple factors in the market. Is it holding up overall? Yes, there has been some bit of a discipline that continues to exist, that's what stays and we would obviously scale element. If it does not work out for us, we would not hesitate to move away and let go that business if it's not making sense. That clarity we have.

And you always -- we can again reiterate that profit pools keep moving. And accordingly, we have to be agile as an organization. We will take those calls because we want -- to the best of our efforts, we want to ensure that we deliver what the market is expecting with us for the multiline, multi-product company like us.

[Operator]

I would now like to hand the conference over to Mr. Sanjeev Mantri, for closing comments. Over to you, sir.

[Sanjeev Mantri, executive]

Thank you so much for joining in. It's an auspicious day of Ram Navami, and probably some of your holiday. It's always a pleasure interacting with all of you. But the opportunity, as it says, the momentum that we developed, we are excited about the opportunity ahead. I look forward to interacting with you in time to come. And all the best. Take care. Thank you so much.

[Operator]

Thank you. On behalf of ICICI Lombard General Insurance Company Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.