Cholamandalam Financial Holdings

“There is more efficiency that we need to bring into our cost structures as well as our claims efficiency, which will help us get back to profitable growth and better ROEs as we go into the next year.”

“And motor being our largest line of business, recorded a premium growth of about 4.1% in H1, which was also supported by the growth in the commercial vehicle segment and the passenger vehicle segment.”

“We have also continued to stay, as of now, away from the two-wheeler portfolio, primarily because we feel that the TP pricing in the segment still remains quite inadequate.”

“we have really bucked the trend in terms of the market de-growth on the commercial lines segment, and we have actually grown by about 6%, which is largely driven by an increase in the spread of risk.”

“On the other hand, we have de-grown the group health business because we have shunned all large accounts where we felt the pricing was not sustainable.”

“I would say that nothing is off the table. We have had internal discussions on how to relook at the two-wheeler book because, like any other motor line of business, there are pockets within the two-wheeler portfolio where there is money to be made.”

“The general insurance industry grew by about 8.9% on a GDPI basis for H1, which was driven by a growth of close to 11% in Q1 and 7% in Q2.”

“The motor insurance segment, which was a key growth driver for the industry, registered a 13% growth in H1 over the corresponding quarter for the last year.”

“if you look at the group health business, there continues to be significant pricing pressures on the group business, which is largely the employer-employee segment.”

“the fire segment continued to witness significant pricing pressures due to huge pricing competitive intensity. However, we have seen some discipline return in the market from middle of September, and we are hoping that this pricing discipline would continue as for the rest of the fiscal.”

“September, our growth was at about 6%. If you look at the month of October, our growth has been at around 4%.”

“If you exclude the NatCat, the improvement is quite reasonable and gives us confidence that as the earnings of this book flows into the current fiscal, as well as into next year, the motor loss ratios would start moderating downwards.”

“But on the sourcing book, we have seen a significant reduction in the loss ratio, and we believe, again, as the earnings of this portfolio flow into this fiscal, as well as into next fiscal, the loss ratios will start moderating closer to where the market is.”

“The combined ratio for H1 stood at about 124.2%, while if you exclude the NatCat losses, it was about 122.7%.”

“If we include NatCat events, we have seen approximately a 1% to 1.5% improvement in the gross loss ratio of the sourcing book in H1 this year compared to H1 last year. Excluding the impact of NatCat events, the improvement is in the range of 4% to 5%.”

“We manage close to 4 lakh claims every year, and therefore even a ₹1,000 reduction in average claim severity per claim can have a meaningful impact on the overall loss ratio.”

“Coming to the investment portfolio, the book was at about INR19,050 crores. The carrying yield on the debt book is up by about 20 basis points.”

“So, the carrying yield from March of about 7.13% on the debt book is now at 7.33%.”

“The net worth is at a robust level of INR3,409 crores, with a solvency of 1.88x.”

“So actually, quarter one was at about 7.2%, and quarter two, we are at about 7.45%.”

“There is no stressed assets as far as the investment portfolio is concerned, and there are no exposures to securities which are rated BB and below.”

“I think there is more than sufficient headroom from a subordinated debt perspective. It may require some element of capital restructuring, and that is something we have already discussed internally.”

“Our current paid-up capital is around ₹442 crore, which gives us approximately ₹110 crore of readily available capacity. A ₹100 crore subordinated debt issuance would improve solvency by roughly 5 percentage points.”

“More importantly, with a net worth of around ₹3,400 crore, we have the ability to support a significantly larger amount of subordinated debt, potentially up to ₹1,700 crore.”

“While much of this is currently reflected in reserves and surplus, and the regulations refer specifically to capital and share premium, these are structural matters that can be addressed if required.”

“We will continue to evaluate the trade-off between solvency, IFRS profitability, and reinsurance economics before determining the optimal capital and retention strategy.”

“But the NatCat events have had quite a severe impact, which is a collective impact of Maharashtra, Gujarat, Daman, and Diu, which have impacted the results by about INR71 crores in H1.”

“There is also an incremental impact of about INR14 crores on account of a large risk.”

“For Motor it is At INR10 crores..”

“The operating environment has remained fairly tough in quarter two. We have seen elevated loss ratios on the motor OD book. There has been competitive pricing on the commercial side.”

“First, certain legacy theft claims that have been adjudicated through consumer forums have impacted us. These cases typically carry significant interest components, which have adversely affected the loss ratio.”

“Second, in portfolios affected by floods and other events resulting in total or constructive total losses, the actual claim payouts have been higher than the reserves we were carrying against those claims.”

“The IFRS regime is clearly forcing us to relook at every line of business, whether it is group health, our investments in retail health, or the two-wheeler portfolio, where there has historically been significant accounting strain.”

“Therefore, there is nothing exceptional about the reinsurance structure. The structure is entirely BAU. What has not been BAU is the number and timing of the NatCat events, which prevented aggregation under the contract terms”

“The company reported a gross premium of INR2,386 crores in Q2 and INR4,517 crores in H1, representing a 7.4% and 7.1% growth respectively for both the periods.”

“The profit before tax for the half year was about INR98 crores, and the profit after tax was about INR78 crores.”

“This gives us significant flexibility to gradually retain more business on our own balance sheet. Given the sliding-scale nature of some of our treaties, doing so could also be value accretive.”