ICICI Lombard General Insurance Company Limited (ICICIGI) Q4 FY23 Earnings Concall Transcript

ICICI Lombard General Insurance Company Limited (NSE: ICICIGI) Q4 FY23 earnings concall dated Apr. 18, 2023

Corporate Participants:

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Gopal Balachandran — Chief Financial Officer

Analysts:

Swarnabha Mukherjee — B&K Securities — Analyst

Avinash Singh — Emkay Global — Analyst

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Shreya Shivani — CLSA — Analyst

Nidhesh Jain — Investec — Analyst

Madhukar Ladha — Nuvama — Analyst

Supratim Datta — Ambit Capital — Analyst

Sanketh Godha — Avendus Spark — Analyst

Gaurav Singhal — Aspex Management — Analyst

Neeraj Toshniwal — UBS Securities — Analyst

Nischint Chawathe — Kotak Mahindra — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. A very warm welcome to ICICI Lombard General Insurance Company Limited Q4 and FY ’23 Earnings Conference Call. From the senior management, we have with us today Mr. Bhargav Dasgupta, MD and CEO of the Company; Mr. Gopal Balachandran, CFO and CRO; Mr. Sanjeev Mantri, Executive Director; and Mr. Alok Agarwal, Executive Director.

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 future involve risks and uncertainties, which could cause the results to differ materially from the current views being expressed.

[Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

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 — Managing Director and Chief Executive Officer

Thank you, Nirav, and good evening to each one of you. Thank you for joining the earnings conference call of ICICI Lombard General Insurance Company for Q4 and FY 2023. I will 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 year ended March 31st, 2023.

The Indian economy is showing signs of resilience while the global economic uncertainty remains elevated. Domestically, all the leading indicators are pointing towards sustained momentum in the economic activity. However, persistence of elevated inflation in advanced economies, tightening financial conditions, and ongoing geopolitical tensions may impact domestic growth going forward.

For the quarter, as per data published by SIAM, the new vehicle sales continue to deliver growth year-on-year for private car. However, the pent-up demand seems to have settled. Commercial vehicle segment continue to deliver robust growth, while the two-wheeler segment, in terms of volume, is still below the pre-pandemic level. Health insurance continue to deliver robust growth. The commercial lines witnessed growth in line with the current market environment. The overall growth of the industry was highest in the last five years. We remain optimistic that the industry will continue to grow, given the favorable regulatory changes, low penetration, and positive customer sentiment.

Speaking of the performance, the GI industry delivered a GDPI growth of 16.4% for FY 2023. At the same time, the underwriting performance remain weak with the combined ratio of the industry at 116.2% for nine month of this year as against 119.2% for nine month FY 2022. For motor business, the combined ratio for the industry was 123.5% for half year of this year, which improved to 118.9% for Q3 FY ’23, as per public disclosures. While there will be gradual signs of improvement in the motor segment, the combined ratio remains higher than FY ’22 levels, which was at 115.6%.

The authority in the current financial year introduced various reforms seeking to expand the market and increase the penetration of insurance products. During the quarter, the authority notifying[Phonetic] expense of management and the payment of commission regulations proposing an aggregate limit at a company level with effect from 1st April, 2023.

Moving to the business impact for us during the quarter. The Company grew by 6.7%. Excluding crop and one-off transaction in the motor segment, the company grew by 12.6% as against the industry growth ex crop of 17.9%. Coming to the growth of key segments —

Operator

Sorry to interrupt you. Sir, there is a slight disturbance coming from the line. Participants please stay connected [Speech Overlap]

Bhargav Dasgupta — Managing Director and Chief Executive Officer

[Speech Overlap] Yeah, is it better now?

Operator

Yes, sir, now it’s better.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Okay. So I’ll just repeat the last line that I spoke. Coming to growth of the key segments during the quarter. In the commercial lines, we experienced robust growth, driven by growth of 15.9% in the SME segment. Further during the year, we accredited[Phonetic] market share across segments, such as engineering, liability, and maintain our market share in the fire segment. In addition to the above, another development in the commercial lines segment was the discontinuance of IIB rates, as minimum rates in the fire reinsurance treaties due to a regulatory directive.

Also, the impact of global hardening on reinsurance terms, especially on natural catastrophic protection, was experienced by the insurers during April 1 renewals. We believe that although this may create short-term disruption, in the long-term this is expected to be positive and bringing underwriting discipline. At the same time, for players like us who have capital brand and presence across multiple lines of business at scale, we should benefit from this. In motor, we degrew by 11.5%. Excluding the one-off transaction, the growth was muted at 0.6% as against the industry growth of 13.1%. We continue to focus on profitable subsegments using historical granular data and rebalance our portfolio resulting in a CV mix at 22.3% and two-wheeler mix at 27.8% for FY 2023.

Similar to the previous year, the overall health segment continued to be the fastest growing segment of the industry. During this quarter, we grew at 31.1%, which was higher than the industry growth of 29.7%. In group health, the employer employee segment, the change in underlying industry pricing sentiment resulted in customers moving towards companies, which have better underwriting and service capabilities, resulting in a group health segment to grow by 35.7% during the quarter and 43.9% for the year.

As a result of a continued investment in retail health distribution, we have outgrown the industry for Q4 FY 2023 with a growth of 19.4%, and in the month of March with a growth of 27%. This was driven by business sourced through retail health agency vertical, which grew at 30.9%. Further in the month of February, we undertook a price increase in our Retail Health Indemnity renewal book at approximately about 19%.

I would also like to share that our one-stop solution for all insurance and wellness needs, IL TakeCare app, has surpassed 4.6 million user downloads till date. The incremental download for the quarter was close to 1 million. For Q4 of FY ’23, quarter-on-quarter growth of premium sourced through this app was 50.4%, which is over the previous quarter Q3 of FY ’23, thus contributing INR55.1 crore to GDPI. For Q3 of FY ’23, this number was INR347.9 million or INR34.7 crore. For Q2, it was INR27.4 crore, and for Q1, it was INR10 crores.

Our Bancassurance and Key Relationship Groups grew at 25.7% this quarter. Within this, ICICI Bank distribution grew at 14.2% and the non-ICICI Bank distribution grew at 32.2%. Post-pandemic, the recovery in credit growth, along with increase in wallet share in distribution partners acquired through the demerger, has been the key growth driver.

Our business sourced through our Digital One team grew at 19.4%. Overall, our digital focus has enabled us to increase our digital revenues, which includes the IL TakeCare app to INR3.14 billion, which accounts for 6.3% of our overall GDPI for the quarter. We remain on track and are focused on growth levers, such as innovation, digital advancements, launching new products, strengthening our distribution engine, rationalizing cost, while scaling up our preferred lines of business.

I will now request Gopal to take you through the financial numbers for the recently concluded quarter.

Gopal Balachandran — Chief Financial Officer

Thanks, Bhargav, and good evening to each one of you. I will now give you a brief overview of the financial performance of the Company for quarter four and FY 2023. We have uploaded 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 was INR210.25 billion in FY 2023 as against INR179.77 billion in FY ’22, a growth of 17% against the industry growth of 16.4%. Our GDPI growth was primarily driven by growth in the preferred segments. The overall GDPI of our property and casualty segment grew by 18.9% at INR59.73 billion in FY ’23 as against INR54 billion in FY ’22.

On the retail side of the business, GDPI of the motor segment was at INR85.82 billion in FY ’23, as against INR82.8 billion in FY ’22, registering a growth of 3.7%. Excluding the one-off transaction that Bhargav referred to, the growth was at 6.9%. Our agents, including the point-of-sale distribution count, was around 1,13,000 as on March 31, 2023, up from one 1,06,119 as on December 31, 2022.

The advance premium was INR32.7 billion as at March 31, 2023 as against INR32.79 billion as at December 31, 2022. Resultantly, combined ratio was 104.5% for the full year as against 108.8% in FY ’22. Combined ratio for the quarter was 104.2% this year as against 103.2% in quarter four FY ’22. Our investment assets rose to INR431.8 billion at March 31, 2023, up from INR414.51 billion at December 31, 2022.

Our investment leverage, net of borrowings, was 4.15 times at March 31, 2023, as against 4.16 at December 31, 2022. Investment income for the full year was INR29.77 billion as against INR30 billion in FY 2022. On a quarterly basis, investment income increased to INR8.17 billion in Q4 FY ’23 as against INR7.06 billion in Q4 FY 2022.

Our capital gains, net of impairment on investment assets, stood at INR4.53 billion in FY 2023 as compared to INR7.38 billion in FY ’22. Capital gains in quarter four FY ’23 was at INR1.59 billion as compared to INR1.36 billion in quarter four FY ’22. Our profit before tax grew by 25.5% at INR21.13 billion in FY ’23 as against INR16.84 billion in FY 2022, whereas PBT grew by 39.5% at INR5.73 billion in Q4 FY ’23 as against INR4.1 billion in Q4 FY ’22. Consequently, profit after tax grew by 36% at INR17.29 billion in FY ’23 as against INR12.71 billion in FY ’22, whereas profit after tax grew by 39.8% at INR4.37 billion in Q4 FY ’23, up from INR3.13 billion in Q4 FY ’22. PAT includes the reversal of tax provision of INR1.28 billion in Q2 FY 2023.

The Board of Directors of the Company has proposed a final dividend of INR5.5 per share for FY ’23. The payment is, however, subject to approval of shareholders in the ensuing Annual General Meeting of the Company. The overall dividend for FY 2023, including the proposed final dividend, is INR10 per share. Last year, it was INR9 per share.

Return on average equity was 17.7% in FY ’23 as against 14.7% in FY ’22. The return on average equity for the quarter four FY ’23 was 17.2% as against 14% in Q4 FY ’22. Solvency ratio was 2.5 times at March 31, 2023 as against 2.45 times at December 31, 2022, continues to be higher than the regulatory minimum of 1.5 times.

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

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.

Swarnabha Mukherjee — B&K Securities — Analyst

Hi, sir. Thank you for the opportunity. Two — three questions. First on the motor side. So I think recent — in the recent conversations, you have mentioned that there has been some small but positive development on the pricing side in motor OD. But despite that, I think what we are seeing in your numbers is that there has been a degrowth in the motor premium. So just wanted to understand, sir, what is playing out there and what has resulted? Is this a high base effect or anything else that we need to understand [Indecipherable] degrowth that we have seen [Indecipherable]. And also, sir, maybe if you can highlight the reason for the motor TP loss ratio being higher this quarter because I checked the reserve [Indecipherable] and there seems to be reserve releases. So has there been any kind of adverse one-off impact that you have seen in the motor TP book this quarter?

Gopal Balachandran — Chief Financial Officer

So on the first one, Swarnabha, on the motor own-damage growth numbers, I think in line with what we have been talking about. We continue to be a bit cautious, given the fact that the competitive intensity on motor stays elevated. Having said that, you are right, we did talk about maybe some bit of easing in pricing that one had expected to kind of play through on the motor segment, which is why when you look at the industry combined ratios, for the half year, the industry combined was at roughly at about 124%. If you look at that number for quarter three, that number was about 118%. So clearly, I think there seems to be some signs of a bit of easing insofar as the industry participants are concerned.

Insofar as ICICI Lombard, I think if you recollect, what we had said was, obviously, we continue to write the motor segment through a combination of both new as well as relatively older segment. And as we have been explaining, we have been also looking at segments which are slightly older, which typically comes with a slightly higher loss experience, and the relative cost of acquisition for that particular segment is relatively lower. So hence, from an ROE perspective, it made a lot of sense for us to look at writing that part of the business, and hence, to that extent, you would possibly see maybe the loss ratios slightly elevated. Having said that, I think what we would always urge is to not look at maybe any numbers on a quarter-on-quarter basis, but rather look at it more on a full year basis in terms of the opportunity. So that’s one.

On motor third-party loss ratios, again, we will continue to make the same stance, which is to say that, in a given quarter, there are lot of factors that influence the loss experience, and therefore, insofar as if you ask us, whether there has been any change in our reserving philosophy or approach, there has been no change in the reserving philosophy or approach. And Motor TP being unlike some of the other segments, which are short-tail in terms of loss development, as we know, it’s a relatively long-tail of claims. And there again, I think we would again urge all of you to look at numbers more on a full year basis. And if you look at on a full year basis, the motor third-party loss ratio for the current year stands at 72%. So that’s a better reflection of the loss experience as compared to looking at the numbers on a quarter-on-quarter basis.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Just to add one more point to what Gopal said, when you compare Y-o-Y numbers, last year Q4 for us was a very big quarter for — in motor business. That base has played out in terms of the growth numbers for us this quarter. But otherwise, in terms of pushing price increases, that we are actually taking. We have pushed through some price increases. We will see whether others follow.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. got it, sir. Also, I mean, in terms of the overall cost structure, sir, I mean, ideally, I understand that Q4 is generally a retail heavy quarter and hence our commission outgo is generally much higher, but this time the net commission ratio is somewhere around 2% to 2.2% in our number. So is there any impact on the one-off transaction in this? If you could highlight the reason. And also, the one-off transaction, if I were to triangulate the number somewhere in the P&L, how should I look for it?

Gopal Balachandran — Chief Financial Officer

So at least insofar as the net commission is concerned, I think there is definitely nothing which is more one-off. We, obviously, see cyclicality in some of the outcomes when you see on a quarter-on-quarter performance. Particularly, for example, on some of the commercial line portfolios, we get to see the experience of how good or bad the portfolio outcome has been, that gets demonstrated at the end of financial year, particularly in quarter four. And hence to that extent, you will possibly be able to see some element of maybe profit commissions that typically gets recognized in Q4, but there is nothing which is like one-off. And in general, as we have been talking about on the commercial lines, our portfolio experience has been, in that sense, profitable, and therefore, the terms of commissions that we get from the reinsurers is what has possibly resulted in maybe the net commission ratio reflecting a different number. But otherwise, there is no one-off insofar as this particular recognition is concerned.

Operator

Swarnabha, sorry to interrupt you. I’ll request to join the queue again for a follow-up question. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.

Avinash Singh — Emkay Global — Analyst

Yeah, hi, good evening. Two questions. First is more on the regulatory side where regulator has sort of bringing, I would say, vague clause saying that benefit of a direct distribution to be passed on to the policyholders. Now, here my question is that, is the regulator sort of saying to you or the industry that, okay, you have to have a kind of a direct version of the same policy, or if not, I mean, I’m saying that simply that, okay, what if a health policy — retail policy a customer coming for renewal, now are you supposed to pass on that if the customer is willing to pay to your branch and your portal directly, are you willing or are you required now to pass on this commission difference? I mean, I am talking about renewal where, I mean, there is definitely no — almost no cost in terms of direct. I can understand the cost on the new issuance. But when a customer is coming for the renewal directly for health, I mean, virtually there is no distribution cost involved. So I mean, are you going to pass on or are you required? That’s number one.

And second on the expense of management side, I mean, of course, the new regulation has come, but even for the existing regulation perspective, I mean, for you at scale, the 31% kind of reported expense of management, it looks — I mean, there is something, I mean, the operating leverage is kind of a bit evasive. And to — add to that, if I see the P&L, there is some close to 900-odd-crores or like close to 4% of your gross premium that is being charged with shareholders account, whereas the ratio says 31%. So why is — I mean, at least on the ratio, it does not appear as if you have breached expense of management by that kind of amount. So what sort of connection I am missing here? These are my two questions. Thank you.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Thanks, Avinash. Gopal will take the second question. Let me answer the first. I think the direction that the regulator is taking is making the regulation more principle-based and leaving independent companies with lot more flexibility to manage their business in the way they think appropriate. Everything that they’re doing, at least our read of the matter is, they’re giving insurance companies a bit more choice than what we had in the past. So even when it comes to the fact that you can give a lower commission, that is also a choice given, which in the past we were not explicitly given. As a company, we still have been giving a lower price in the online policies by 2.5% to 5%, so that’s the practice that we’ve been doing and we will continue to do that.

Coming to what will happen because of this, I think it is too early to comment on how market would adjust to these changes. But as I said, my sense is that it is giving a lot more flexibility to us and different companies will plan out what they want to do with these flexibilities. Do remember that, in certain products, the agent, even if with the customer reduce[Phonetic] online, sometimes agents do play a role in recommending that and driving that behavior. They’re not be true for everything, but a lot of times it is — that is how it is. But as I said, more importantly, it’s a choice given to insurance companies to plan their business strategy.

Gopal Balachandran — Chief Financial Officer

So Avinash, on the second point, I think the number what you are saying of 31.4% basis for quarter four, based on regulatory stipulated way of computing the expense of management ratio. So there if you see the denominator, as what is being put out on the footnotes, it’s based on the gross direct premium income. Having said that, the threshold on the expense of management works on the basis of gross written premiums. So when you kind of compute the numbers on the basis of gross written premium, that 31.4% will stand revised to, let’s say, 29.5%, which is within the threshold of compliance, insofar as the limits on expense of management is concerned. The same number on a full year basis, what you’re saying of 29.6%, which is again based on gross direct premium income in line with the requirement of the regulation, which is on gross written premium, that number will be looking like 29%, which is again within the threshold on limits that has been laid on by expense of management. So that’s one.

To your second point on there seems to be an amount of, let’s say, close to about INR900 crores, which is reflected as a part of the P&L disclosures, what the regulator, as also under the earlier regime, which is valid until March ’23, had also stipulated, one, compliance at an aggregate level, which is what I explained, we are well within the limits on laid down with the regulation. Two, as you know, they had also laid down limits for individual lines of businesses. And in case if there are any line of businesses where possibly the limits on expense is slightly elevated, then to that extent, from a disclosure perspective, so much of the excess is required to be separately disclosed as a part of the P&L numbers. But when the computation of the combined ratio happen, it factors in for all the operating expenses that we incur as a company. So it’s more a disclosure that is stipulated by the regulation, as compared to the fact that it is not a case where, at a company level, we have exceeded the limits on expense of management. We are well within the threshold.

Avinash Singh — Emkay Global — Analyst

Okay, thank you. A quick follow-up — I mean, sorry, a different one. On the reinsurance side, if I see, there are three kind of changes happening. One, of course, the global hardening in the reinsurance market. The second thing I see that kind of a regulator, nudging the primary insurer that, okay, go ahead without any sort of a reinsurance prescribed floor rate that was kind of a practice in commercial lines, of course, that’s the kind of a second impact. And thirdly, with the new EoM regulations coming on the GWP basis, probably, I mean, the way some primary companies or even the reinsurance companies soliciting certain reinsurance businesses where commissions might be, I mean, get a bit disturbed, the kind of reinsurance commission they would be paying, because now this, I guess, new EoM regulation of 30% will be applicable on all. These three things that, a bit of dislocation in commissions, the reinsurance driven floor rates not really mandatory rather insurers trying to choose. And thirdly, the global reinsurance market hardening. All this, net-net, how is going to sort of impact that yours or the industry behavior as far as the commercial line or kind of a heavily reinsurance back line are concerned?

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So no, you’ve — that’s a great point, Avinash. And we’ve been talking about the fact that, in commercial lines, there’ll be a fair amount of change. Even in the last quarter before these, things were explicitly clear. We were talking about the fact that some of these changes would have impact. Of course, we couldn’t anticipate the rate hardening on the reinsurance side till that time, but that’s now evident. So the point that you’re making is absolutely valid. So globally, if you look at rates in certain markets has gone up by 50%, 60%, in our market it’s also gone up by 45% to 60% for most players in the market. That’s an input cost to us. Largely, the — on the non-proportional side, the cost has gone up. The commissions that reinsurers give on the proportional side has gone down. So it’s a significant increase in cost.

The second, as you rightly said, that pricing is largely not mandated to be in line with the burning cost of the industry, so individual companies can charge whatever they want to. And hence, there is a risk that the pricing can drop. Our sense is that EoM, of course, will be there, but at the end of the day, finally, it’s within overall combined, and we see EoM as a very positive development in the sense that it’s expected from the regulator that companies will reduce their expense of management even if they’re below the threshold, and those above the threshold, have to bring it down to 30% within three years. So that should drive positive behavior, anticipation. So that EoM I don’t see as a negative in this sense.

From the first two perspective, I think the way we are seeing the market has been the first month, the — or the second issue in terms of rates coming down, episodically, one or two bases have come down, but on aggregate, the rates haven’t come down as much as we would be worried about. It’s come down a little bit, but nothing material. Our sense is that usually April is a big month, gives a sense of where the market is headed. And in future also, we are not anticipating a major drop in commercial rates in the market, simply because the industry cannot afford to. As you rightly identified on one side, the cost has gone up and it’s not as if the combined ratio for the industry was very healthy. So I don’t think the industry has too much of a wherewithal to reduce prices much. Maybe there is one or two episodic cases that will happen, but not at scale.

The last point that I would make is that if, let’s say, certain companies go very aggressive on the property side, and in effect, end up burning their treaty, the reinsurance market, with this hardening that we are seeing and the attitude hardening, [Indecipherable] don’t have appetite to give treaty capacity which you can keep burning and that’s what we’ve seen in the market this year, right? So if that happens, if any company does that, our sense is that, in the next year, they will find it very difficult to get proper treaty capacity. I think this year itself some companies struggle, more will struggle if that happens. I think if that happens, I think we are on a better wicket because we have the capital and the solvency and the size to continue, and the quality of the book that we have been writing and the disciplined underwriting, we should stand to benefit.

Our experience or our estimate for the year, we’ve been giving a guidance as a company that, over the next two years, we want to bring it down to 102. We are not changing the guidance in spite of this cost increase on the reinsurance side.

Operator

Thank you very much. We’ll move to the next question. The next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Yeah, hi, good evening, everyone. A few questions from my side. Firstly, could you highlight as to when this one-off transaction happened in February and there will be some income and which line item does that income income sits in?

Secondly, is there some seasonality in motor TP loss ratios? Because in past three years, we’ve seen Q4 being far more elevated than Q3. And then one of the, I think, if I recollect well, in one of the fourth quarters, you had mentioned that this was — that was because of adverse judgment in that case.

And thirdly, we’ve seen a sharp — a good decline in terms of absolute cost for advertisement and publicity, sales promotion, employee remuneration, and recent decline in terms of sequentially. So what is the kind of run rate that we should think about from your perspective of next year?

Gopal Balachandran — Chief Financial Officer

So Prayesh, on the one-off transaction, which we have been kind of explaining, that’s something that has happened in quarter four, and this is, in that sense, something that we did in line with what, let’s say, other market participants have been possibly doing it in the current year or maybe in the earlier years as well. So hence, to that extent, it’s a commercially viable transaction that we have kind of undertaken. And hence to that extent, the outcome of the transaction will be reflected in the overall underwriting result when you look at the aggregate numbers. Insofar as your motor third-party loss ratio trend line of seasonality between quarter four, there is — in that, there is not any specific seasonality that typically gets attached. So for example, if you recollect two years back, which is in FY ’21, at that point of time when we had possibly seen elevated levels of motor third-party loss ratios being higher, we kind of talked to the market to say that we did see, at that point of time, incrementally new Supreme Court judgment that had come through in terms of defining the basis on which compensation will get paid to victims of accidents. And hence to that extent, when we kind of evaluated that particular book, we obviously wanted to make sure that we did not know in which direction that would take shape insofar as future settlements are concerned.

But having said that, given that we have always followed a prudent approach to reserving, we obviously wanted to strengthen the reserves at that point of time. And hence to that extent, you would have possibly seen maybe an elevated quarter four motor third-party loss number. The last year, again, is more a function depending on how things have come back in terms of normalcy because last two years typically has been periods where we have seen, in different quarters, COVID experiences play out, and hence to that extent, the scale of operations will possibly also be a function of what kind of loss experience that one exhibits. And thirdly, as we keep saying, one should always look at particularly long-tail line of businesses experiences more on — ideally over longer years, but definitely not on a quarter-on-quarter basis. You should look at it — we’ll look at more on annual numbers as compared to, let’s say, looking at quarter-on-quarter trend.

The last point of yours, I think as we have kept saying, we do kind of look at productivity and efficiency in the overall means of doing business, and hence, is where we had kind of spoken about what Bhargav just mentioned where, clearly, the direction that we want to take is to bring down the overall combined from the current levels of closer to 104 that we have been operating down to, let’s say, 102 over the next two years. And within that, we are extremely focused on looking at every element of cost, whether it is the cost of doing business or even any other investments that we’re kind of looking through. So in that sense, it is not that there is any significant change. We continue to make investments in the health agency platform that we have spoken about. We continue to stay invested in digital. And in line with our recent Digital Day that we had, which we kind of shared with all of you, we continue to stay invested in these various technology transformation projects as well. So hence to that extent, that is how we should look at in terms of the loss, in terms of the expense ratio trend line. Nothing specific that is there, it’s a one-off insofar as the quarter four numbers is concerned.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Thank you.

Operator

Thank you very much. The next question is from the line of Shreya from CLSA. Please go ahead.

Shreya Shivani — CLSA — Analyst

Hi, thank you for the opportunity. Sir, I have — most of my questions are answered. I have one doubt — basic doubt that the reinsurance that is added to the gross direct premium and eventually becomes gross premium written is high for fourth quarter seasonally or — because even last year fourth quarter, it was a higher number, this year, again, it’s a higher number. If you can help me understand this.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So that’s — so nothing unusual, Shreya, in that sense. I think we look at any — again, the reinsurance inward is again an opportunity that one sees depending on how we are able to get businesses for a particular period. So in general, yes, there could be some kind of a seasonality attached to it. For example, you would see on the corporate side to be significantly heavy in Q1. You may see retail to be significantly heavy in Q3. You may see Q2 and Q3 seasonality attached to crop. So therefore, different businesses exhibit, and maybe retail health for the matter of fact, to some extent, I would say, attached to some seasonality in Q4 as well. So hence, there are different lines of businesses that exhibit seasonality. And hence to that extent, the reinsurance inward could also be one of them. But at the end of the day, whichever segment that we’re talking about, we obviously look at it from the ultimate lens of profitable growth.

Shreya Shivani — CLSA — Analyst

Sir, in fourth quarter, this is heavy because of health is what you’re — because commercial is mostly first —

Gopal Balachandran — Chief Financial Officer

Not necessarily. All that I was referring to is different segments of businesses could have seasonality attached to it. As an example. I’m not saying in the context of reinsurance inward, even on the direct side on retail health, you will possibly see Q4 to be a slightly seasonally higher quarter. Reinsurance inward could be a mix of business across different segments, it need not be necessarily only health.

Shreya Shivani — CLSA — Analyst

Okay, okay. Okay, got it. Yeah, that was my only question. Thank you.

Operator

Thank you. Next question is from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

Thanks for the opportunity. Sir, three questions. Firstly on the combined ratio, what is the impact of this one-off transaction on our combined ratio, 104.2% for the quarter? Secondly, what is the health agency GDPI in absolute terms for FY ’23 and Q4 FY ’23? And lastly, we have got access to HDFC Bank and Axis Bank, if you can share how is the progress there, what is the business which we have been able to source from these channels in FY ’23 or Q4 FY ’23? These are the three questions, sir.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So let me — Nidhesh, let me take the third one. I think we’re quite happy with — we said in the covering remarks. Most of the distribution channels that we got through the demerger with BAGI, we are quite happy with the progress that we’ve made. In those specific partners that you’re talking about, the large banca partners that we’ve got, in both these relationships, we’ve increased the share of wallet, in fact, month-on-month, quarter-on-quarter, even during this year. Vis a vis, when we had announced this transaction to now, there’s been a significant increase in share of wallet.

I’ll ask Gopal to answer the last two — the first two questions.

Gopal Balachandran — Chief Financial Officer

Yeah, so insofar as — maybe I will take the second part first. In terms of the split of health GDPI that for the full year is at about INR47.82 billion, that’s for FY ’23, and for FY ’22, that number was INR34.87 billion. On the point on the impact of combined ratio, Nidhesh, the fact that it’s a commercially viable transaction is why we have done that. And hence to that extent, in terms of it did not have any material impact insofar as the overall combined ratio is concerned. [Speech Overlap]

Nidhesh Jain — Investec — Analyst

There’s minor positive impact on combined ratio is what — that is the way we should look at it.

Gopal Balachandran — Chief Financial Officer

That is correct.

Nidhesh Jain — Investec — Analyst

And sir, on the health agency, I was talking about health agency GDPI for FY ’23 or FY ’22. So INR47.82 billion is retail health GDPI, right? Health agency GDPI I was looking for.

Gopal Balachandran — Chief Financial Officer

So the health agency GDPI for the full year stands at about INR5.6 billion.

Nidhesh Jain — Investec — Analyst

INR5.6 billion. Okay, okay. Thank you, sir. Thanks a lot.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Thanks, Nidhesh.

Operator

Thank you. Next question is from the line of Madhukar Ladha from Nuvama. Please go ahead.

Madhukar Ladha — Nuvama — Analyst

Hi, good evening. Thank you for taking my question. First, on the regulatory change side, the expense of management now allowable differentiate between the SAHIs and the general insurance as far as the health business is concerned. So SAHIs allowed 35% and — but the general insurance on an aggregate level are allowed only 30%. Does that create some sort of a uneven playing — like an uneven field for the industry and for you guys. And second, I see that your investment income has improved considerably in Q4, and also if you look at the Q3 balance sheet versus Q4 balance sheet, the unrealized gains have dropped significantly from about INR550 crores to about INR213 crores. So has there been an increase in realized gains in this quarter, which has resulted in strong investment income performance? Those would be my two questions, yeah.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Yeah, so Madhukar, if you look at the AUM, I mean, I think principally any difference in our arbitrage in regulation is not something that is useful. But having said that, I think SAHIs have a genuine problem in the sense that they are a single product company, so we can defray cost across multiple businesses, they can’t. When we look at the fact that as a multi-line company, we write different types of businesses where the cost of distribution is lower, we don’t see a big disadvantage because SAHIs have 35% and we have 30%, because we have other products where the cost of distribution would be lower than, let’s say, the health business. Even for us, the health business would — we have some advantage in the other lines of business. On the second question, on the investment side, Gopal, do you want to take it?

Gopal Balachandran — Chief Financial Officer

Yeah. So if you look at on the mark-to-market side, the drop in from INR550 crores to, let’s say, INR200 crores, and in that context, the point that you asked as to whether there is a significant increase in capital gains for this quarter, vis a vis, let’s say, quarter four of last year, so there is — in that sense, there is not significant increase. If you look at Q4 of the current year, the capital gains stood at about INR1.59 billion as compared to INR1.36 billion, which was the capital gain that one had seen in quarter four of last year.

To your other point on the quarter-on-quarter increase in the overall investment income, that is exactly what we have been talking about to say that any increase in the interest rate regime, obviously, augurs well for us given the fact that, as the portfolio starts to get rebalanced in terms of mix of investment assets which gets invested at a relatively higher yield, you will start seeing on an incremental quarters maybe the interest income getting reflected appropriately. So that’s the only reason why you see possibly the increase in investment income. Otherwise, there is nothing else that is attached to those numbers.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Just one more point to add to what Gopal said on the investment side. I think we were probably — we are correct in expecting the interest rate movement in the market. At this point in time, it seems to be a correct decision, where we increased the duration of our portfolio in the first half of the year, and that’s also playing out. Because of that interest rate change that Gopal is talking about, we’ve been able to take advantage because we increased the duration of the portfolio in the first half of the year.

Madhukar Ladha — Nuvama — Analyst

Right. Understood. Thank you.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Thanks, Madhukar.

Operator

Thank you. Next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.

Supratim Datta — Ambit Capital — Analyst

Hello, thanks for the opportunity. So I have two questions. One on the health — retail health side, could you talk about the investment opportunities that you are looking at going forward? Also, what these investment opportunities include an acquisition to drive the retail health channel faster? That’s first.

Secondly, on the URR, and if I look at it on a — compare it with the net written premium, then that ratio comes out to around 56% for FY ’23. Basically, it has been around the 50%, 59% previously. So it seems like you are booking more revenues in FY ’23. So how should I look at it if you could give some clarity around that, that would be very helpful?

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So I’ll take the first two and I’ll request Gopal to take the last one. In terms of health retail, as we’ve said that this is an area that we want to sustain our investments. We’ve talked about the manpower that we’ve added during this year. And we have also said that we wanted to see the productivity gain come through. Clearly, the signs are very, very positive. If you see our second half growth in retail health business, we’re generally outperforming the market.

Having said that, we don’t think that we reached the true level of productivity that we expect them to reach, so there is still some traction on the investment that we’ve made in terms of improvement in the top line from that channel that we’ve added. What we decided to do is, as we go through the year, we would look at how — where we are reaching with that investment and we will opportunistically add more resources to see that — to ensure that the investment focus remains on building the distribution. As we’ve said over the last few years, our retail health market share is much lower than on average and our plan is to enable us to, over the years, build it up. So that focus remains.

With regard to acquisition, I don’t want to get into specific conversation about any one segment or one specific company. I think we’ve always been saying that if there are viable opportunities in the market where an opportunity, which gives us access to a new distribution or a new business, has also comes with a reasonable price, we are always open, but there is nothing specific that we are looking at that, at this point in time.

Gopal Balachandran — Chief Financial Officer

And to the third question on the URR, I think URR, as we have been explaining even in the earlier quarters, is purely a function of earning the premiums over the contract period. And hence to that extent, depending on — again, as I was explaining in response to an earlier call, there are certain lines of businesses which could possibly debit in some quarters, maybe a faster earning. So for example, you will see maybe the crop insurance segment typically operates for particular seasons, not that we are writing a very large proportion of that particular book.

But in terms of any impact that one would see on the net earned premium, you could see some cyclicality attached to it. But otherwise, URR is purely a function of the way the portfolio gets earned over the contract period. And yes, if you had to see last year, for example, in FY ’22, the overall growth was only about 4.7%. Whereas if you look at our growth for the current year, it’s at about 17%. So that’s again a factor that one will have to take into consideration when you look at earnings of URR over a period of time. There is — in that sense, nothing one-offs, which is there as a part of the unexpired risk reserve numbers.

Supratim Datta — Ambit Capital — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.

Sanketh Godha — Avendus Spark — Analyst

Yeah, thank you. Thank you for the opportunity. I wanted to understand what exactly you’re going to do with the crop insurance business in FY ’24 because this year is the last year for the AXA business what you acquired. So given the EoM rules are around, and if you intend to focus more on retail business, which are opex intensive, do we go a little aggressive on the crop business in the current year? That’s my first question.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Yeah, so let me answer that. So are we going — will we go aggressive on crop business just because of EoM flexibility, the answer is no. We had said at the beginning of — or even last year, last couple of years, that post the acquisition, we had said that we will continue to have some exposure to the crop business now, given that overall market has improved. There are new schemes which are coming in, and the capacity in the market, which is, total number of players in the market have reduced. But we have been clear that it will be roughly about 4% to 5% of our business. That narrative does not change. We are not changing any of those objectives just because of EoM.

Sanketh Godha — Avendus Spark — Analyst

Got it. And given the reinsurance market, as you highlighted, has hardened and probably the commercial lines potentially could see a lower profitability in the current year because of the rules changes or the EoM rules. So the glide path what you have mentioned that 104 combined gradually improving to 102 by FY ’25, despite competitive intensity increasing in few profitable lines. You still continue to maintain that 102 by FY ’25 will be achieved or there could be a deviation in it?

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So that’s what we said earlier, our objective hasn’t changed. Yes, while in commercial lines, the profitability may not be in line with what we have in the past, but at the same time, we’ve taken a lot of calls during the year, which will play through in the future is our expectation. Actions that you take now helps you in the next year. So we are reasonably optimistic that we will continue to deliver on that glide path that you’ve talked about. When it comes to commercial lines also, I think one of the things that — which happens on the ground is that there’s a lot of calls that are taken at a client level profitability. So if you’re making a bit of money in fire, you may be a bit relaxed in pricing your group health or marine —

Sanketh Godha — Avendus Spark — Analyst

Right.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

— because you’re looking at overall portfolio profitability. So if, let’s say, fire profitably comes down, group health profitability should — rather the aggression in the group health should reduce. So those are the expectations that we had — that we have, and some of those changes we’ve seen in the group health said, as we speak. We’ve not seen an improvement in the marine rates as yet, but overall, we believe that we will continue to manage the commercial line business profitably. The combined ratio may deteriorate a little bit, but that’s something that we’ll make up from the other lines of business, where this year was very stressed year in terms of combined ratio in some of those lines.

Lastly, the health investment that we’ve made, that was a cost which I think Gopal has been talking about on every call. As the channel becomes more productive, we will get some benefits there. Some of the channels that we got from Bharti AXA, BAGI integration, they were early days of investment into — including some of the large distribution partners, those are all beginning to come within reasonable numbers in terms of combined. So all put together, we are reasonably confident about the numbers that we are talking about.

Sanketh Godha — Avendus Spark — Analyst

Got it. And last one, if you can give the retail health loss ratio and group health loss ratio for the quarter and for the full year. And given the price hike you have taken, 19 percentage, I believe it is both for new and the renewal part. Then, can we expect a significant improvement in the retail health loss ratio, because 19% hospital inflation looks a little unlikely. So the benefit will be baked in FY ’24. Is it safe to assume that way?

Gopal Balachandran — Chief Financial Officer

So on the first part, Sanketh, as usual, so far as quarter four health GHI loss ratios are concerned, that’s at 93.2%. And so retail indemnity loss ratios for the quarter is at about 61%. And if you recollect, even in the last quarter when I think you had only asked what has been the loss ratios, we had kind of talked about saying that the group health will possibly end the year with a loss ratio of closer to about 95%. So if you look at on a full-year basis, the GHI book loss ratio stands at about 95%. And the retail indemnity loss ratio stands at about 64%. So that’s the breakup insofar as the loss numbers are concerned.

Your second point on the increase in the pricing, the increase in pricing is with respect to the renewal book. It’s not that it’s on the entire book, that one has applied the increase in pricing. But having said that, yes, to some extent, there will be an improvement in the overall loss experience. But at the same time, as you rightly mentioned, there is always an element of health inflation that one sees. And going ahead in FY ’24, we obviously will also have to see what kind of a business mix that one is able to source. So there are various factors that would influence the overall loss number. As we have said, even in the past, in general, we believe the retail health indemnity book should kind of operate at a loss ratio range, which will be between 65% to 70%.

Operator

Thank you very much. Sanketh, I’ll request you to join the queue for a follow-up question. Next question is from the line of Gaurav Singhal from Aspex Management. Please go ahead.

Gaurav Singhal — Aspex Management — Analyst

Yeah, hi, thanks for taking my question. Just one question from my side. So for the investment book that we have, what’s the average maturity, and also what’s the difference roughly between the yield that we are realizing on the investment book right now, excluding capital gains and the incremental yield that we can invest thereby by maintaining the same average duration? Thank you.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

So the duration of the book at the end of the year FY ’23 was 4.99. This was slightly lower duration than what we had at the end of nine months because, in the month of March, we had very good inflows into the portfolio, largely because the — now March numbers from a business perspective are positive and also the corporate business some of the premium comes in. So that money obviously was not invested. We didn’t have enough time to invest in the long duration bonds, so that’s sitting on cash. So hence the duration of portfolio was slightly lower than what it was, as on nine months, so it’s about 4.99, roughly about 5. The portfolio is carrying on a yield of about 7.2%.

Gaurav Singhal — Aspex Management — Analyst

Got it. Thank you.

Operator

Thank you. Next question is from the line of Neeraj Toshniwal from UBS Securities. Please go ahead.

Neeraj Toshniwal — UBS Securities — Analyst

Hi, sir, wanted to know thoughts went into Motor Vehicle Amendment Act, are we experiencing the team getting shorter? And is that true, are we going to release reserves and that is considered into our target combined ratio?

Bhargav Dasgupta — Managing Director and Chief Executive Officer

The answer — short answer is no. At this time, it’s not factored in our target combined ratio. We are still not assuming any change in the underlying pattern. As we spoke last time, we — what’s happening on the ground kind of remain the same. We’ve had different judgments in different high courts, some judgments in the favor of insurance industry, some judgments not so favor — in favor of industry. So what we are — we’re observing the trends. There are certain months where it seems like it is accelerating certain months, the data is not very clear.

So as we’ve been saying, we want to watch this data for some time. I think what we’ll have to see is cases that has got reported with — beyond the six month period, obviously, we are contesting out of that. We will have to see in the fourth how that play through, but we are not assuming any benefit. Though, we remain reasonably hopeful that, in the longer-term, this will come — the court will rule in favor of the insurance industry, because there is a law of the land. But at this point in time, we are not factoring anything in.

The second thing that you remember in TP is that we’ve not seen a price hike, right? And in TP, we assume a certain claim inflation as a norm, as a company. And that claim inflation increase is something that we have continuing to assume even for the coming years. So not only are we not taking a benefit, we are also assuming an inflation in the TP claims, which is what we’ve been doing over the years.

Neeraj Toshniwal — UBS Securities — Analyst

Got it. When is the hike in — especially in the industry, what has been happened, and there were some media article of change in the formula towards repricing?

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Yeah, so that has made for that to come, so — because this is of course something that the central ministry, and March[Phonetic] will have to give, so we have to wait for something to come through. As of now, we have no clarification about the increase or any formulas.

Neeraj Toshniwal — UBS Securities — Analyst

And second, my question is more on opex, though, optically, it will be much lower given the fact that the [Indecipherable] have been there. So fourth quarter last year also we had a lower opex on NWP. How do we — how should we think about it in — absolute amount also is actually lower, so is it sustainable or do we think that the [Indecipherable] jump up or it’s a fourth quarter phenomenon? Any color on that would be helpful.

Gopal Balachandran — Chief Financial Officer

Sorry, I missed, Neeraj, which element were you referring to?

Neeraj Toshniwal — UBS Securities — Analyst

On opex, wanted to know in terms of sustainable, given the fact that it has gone down both absolute and in terms of percentage. Percentage I understand it’s NWP between the — given the higher insurance, so might have been optically a little lower, but wanted your thoughts on the sustainable amount in terms of absolute numbers?

Gopal Balachandran — Chief Financial Officer

No, so, Neeraj, again there, as we keep saying, you should again look at more the combined ratios of the overall operations because different segments, again, will exhibit breakdowns of that combined differently. I mean, there are portfolios, which could be high on LR, but relatively, let’s say, lower cost of acquisition, and conversely, the other way around as well. So obviously, we’ll have to wait and see how the portfolio build-up takes place in FY ’24. But as we have said, clearly, the objective is we would want to kind of stay on that glided path of combined coming down from 104 and 102.

And secondly, what we are seeing as obviously encouraging sign is some of the investments that we spoke about, particularly on the retail health agency franchise, those are starting to play out as you would have — in, let’s say, most of the recent months, our growth percentages have been even faster than even the standalone health companies. So clearly, those signs are getting exhibited. But having said that, we continue to stay invest in building that franchise, which will again mean expensing of cost upfront and the benefit of revenues coming through over a period of time. So a better trajectory to — is to look at more the combined ratios rather than looking at just the, let’s say, expense of management number on a standalone business.

Neeraj Toshniwal — UBS Securities — Analyst

Got it. So can we expect this volatility in the combined ratio to happen in the coming quarters as well because as we much higher compared to what the [Indecipherable] building and — but obviously, as you mentioned that this is more so when we look at on the annual releases[Phonetic], just wanted to understand how one should look at it, I mean, 72% is a little bit on the higher side?

Gopal Balachandran — Chief Financial Officer

So in general, if you look at — I mean, I’m just giving you a slightly broader range, I think if you look at the loss ratios, they’ve kind of stayed in the range of between, let’s say, 70% to 75% in that kind of threshold. So again, as I said, that’s again a function of depending on what segments of business is one able to see as an area of opportunity. And hence, I mean, very difficult to kind of tell you as to what could be the loss ratio number that what we would be kind of working with, what we are largely targeting is the combined ratio threshold to come down to 102 over the next two-year period.

Neeraj Toshniwal — UBS Securities — Analyst

Perfect. That is helpful. Thank you, Gopal.

Operator

Thank you. Next question is from the line of Nischint from Kotak Mahindra. Please go ahead.

Nischint Chawathe — Kotak Mahindra — Analyst

Hi, thanks for taking my question. I’m looking at the advance premium figures, and for last couple of quarters, this is actually not been going up, it has come down a little bit over the last three quarters. This is despite the fact that you actually been growing faster than motor TP. So I’m just curious as to how should we look at this trend?

Gopal Balachandran — Chief Financial Officer

So if you look at — so Nischint, if you look at, in general, I think the relative growth for us on the overall motor has been kind of slightly lower than the market as what you’ve seen from public data. And relatively, if you see the growth on third-party, a large part of the third-party growth for us, again, which is a thought-through approach of increasing the commercial vehicles portfolio, and there, obviously, the commercial vehicle portfolio is not a long-term third-party book, it’s more on private car and two wheelers is where the portfolio typically has a longer-term tenure. Commercial vehicle portfolio in the current context operates as a one-year term. And that’s primarily the reason why you possibly do not see in that sense a significant change in the overall advance premium numbers. As and when, obviously, we see the market coming back as what we have seen some early signs on, let’s say, on the private car side, we should definitely possibly get to see the advance premium numbers maybe increasing.

Operator

Thank you. Sorry to interrupt you, Nischint. Ladies and gentlemen, we’ll take that as the last question. I will now hand the conference over to Mr. Bhargav Dasgupta for closing comments.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Thank you. Thank you everyone for joining the call so late in the evening, and look forward to engaging with you over the next few days. Thank you, again.

Gopal Balachandran — Chief Financial Officer

Thank you. Good night.

Bhargav Dasgupta — Managing Director and Chief Executive Officer

Bye.

Operator

[Operator Closing Remarks]