icici lombard general insurance company ltd share price Management discussions


I. Macro economic environment and Non-Life Insurance industry developments

During the fiscal 2023, the Indian economy faced several headwinds such as geopolitical uncertainties, liquidity tightening, trade tensions, volatile oil prices and interest rate. India withstood all these challenges and has been one of the fastest growing economies in the world.

As per the provisional estimates by the National Statistical Office (NSO), the GDP grew by 7.2% during the fiscal year 2023 led by strong investment activity supported by the government?€™s capex push and buoyant private consumption. Going forward, rising borrowing costs and slower income growth will weigh on private consumption, and government expenditure will remain subdued due to the withdrawal of pandemic-related fiscal support measures. The probability of El Nino conditions could further lead to a slowdown in agriculture and rural demand.

GST collection for the fiscal 2023 stood at Rs. 18.1 trillion1 posting strong expansion of 21% over the collections of

Rs. 14.9 trillion1 during the previous fiscal. Buoyancy in the GST collection was driven by better compliance, increase in coverage and higher receipts from goods & services imports.

The Union budget for FY2024 continued to focus on growth, inclusive development, job creation and maintained fiscal prudence. The budget focused on investment and capex as against populist expenditure and hoped to cut the fiscal deficit to 5.9%2 in FY2024 from 6.4%2 in FY2023. Lot of attention was towards capital investment which increased by 33.4%3 and higher allocations were made for roads and railways and to the states which would improve the state level capex.

This could give a boost to the infrastructure oriented sectors and create multiplier effects in the economy which is likely to increase consumption.

The credit growth continues to remain in double digits since April 2022, with a 15%4 growth recorded on year-on-year basis for fortnight March 24, 2023.This is the highest credit growth that the country has experienced in last 11 years. The credit growth has been broad based and driven by industrial lending, personal loans, and disbursement in NBFCs.

Global economic activity remains resilient amidst the persistence of inflation at elevated levels, turmoil in the banking system in some advanced economies, tight financial conditions and ongoing geopolitical tensions. The macroeconomic developments that have taken place across the globe seems to indicate that the monetary tightening phase by global central banks especially the FED and the RBI is almost closer to its peak or nearing its end. In line with the stance of central banks, sovereign bond yields in advanced economies were quite volatile and then fell sharply in March on safe haven demand. Global economy has faced a very steep and fast policy rate tightening in last year to contain high inflation and this is going to impact the global and domestic growth in the upcoming year.

Withliquiditytighteninggloballyandmostoftheadvanced economies witnessing slightly positive to flattish growth, the domestic benchmark indices BSE Sensex and Nifty returns were 0.72%5 and -0.60%5 respectively.

II. Non-Life Insurance Industry developments

(A) Regulatory Updates

The Authority appointed Mr Debashish Panda as the Chairperson in March 2022 and since then the insurance industry has seen many radical changes in the regulatory landscape. Amid the current need to increase insurance penetration in the country, the Authority under the Chairmanship of Mr. Panda announced several measures for the benefit of policyholders and towards ease of doing business for insurers. This includes reducing compliance burden on regulated entities by rationalizing regulatory framework, forming working committees towards regulatory reforms, easing of the expenses related prescriptions, encouraging open architecture for distribution channels, simplification of filing of products and introduction of innovative products, simplification of registration and ease of raising other forms of capital etc.

The reformative agenda of the Authority is aimed at

‘Insurance for all?€™ by 2047, commemorating 100 years of

Independence. These reforms undertaken by the Authority would not only facilitate penetration of insurance business but also enable the insurers to augment value preposition for the customers.

Motor TP Rate Hike

On May 25, 2022 the Government of India via Ministry of Road Transport and Highways in consultation with the IRDAI Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules published revision in base premium for Motor Third Party insurance for various classes of vehicles effective from June 1, 2022. The rate hike has been marginally positive, however the rise was not commensurate with the loss experience and inflation that the industry has experienced in this segment.

Use and File Procedure for all Insurance products

On June 1, 2022, the Authority prescribed the ‘Use and File?€™ procedure for all the Health Insurance products and almost all the General Insurance products by moving from the current regime requiring prior approval for launching retail products to a regime where products could be launched without any prior approval. Further on

July 14, 2022 ‘Use & File?€™ was also extended to agricultural and allied activities. On March 31, 2023, the Authority dispensed the requirement of prior filing of documents relating to products. The complete set of documents relating to products is now required to be submitted with Product Management Committee (PMC) of the insurers. Further, PMC has been made responsible to ensure that the product filing documents are complete, correct, digitally signed and are in compliance with regulatory requirements. The Authority had also mandated that insurers should upload product related documents on its website before launch of the product or within seven days of allotment of Unique Identification Number, whichever is earlier. Introduction of Use & File Guidelines, would help in increasing the scope of innovation and the essence would be the speed to market of the product.

Master Guidelines on AML and CFT

The Authority issued the Master Guidelines on Anti Money Laundering/Counter Financing of Terrorism (AML/CFT) with effect from January 1, 2023, whereby insurers have been mandated to conduct Know Your Customer (KYC) for all customers. The Guidelines also require insurers to classify the customers into high risk and low risk based on individual?€™s profile and product profile. In case of customers with high risk profile, the insurers are required to conduct enhanced due diligence in accordance with regulatory prescriptions. This presents a whole set of opportunites for the industry to design products & services to help increase insurance penetration.

Introduction to new add-ons in Motor Insurance

On July 5, 2022 the Authority permitted general insurance companies to introduce the following tech-enabled concepts for the Motor Own Damage as an ‘add on?€™ to basic policy:

1. Pay as You Drive

2. Pay How You Drive

3. Floater policy for vehicles belonging to the same individual owner for Two Wheelers and Private Cars.

The Company had launched similar products under the regulatory Sandbox initiative in FY2020 wherein there was a limitation of Rs. 5.0 million of premium or 10,000 policies, whichever is achieved earlier. In line with the above regulatory change, the Company launched the aforesaid

‘add on?€™ covers during the fiscal year. These add-on products would enhance the scope of insurance in the underpenetrated segment of motor insurance and would facilitate the customers with options to use variants within the products.

Expenses of Management and Payments of Commission

In March 2023, the Authority issued the IRDAI (Expenses of Management (EoM) of Insurers transacting General or Health Insurance Business) Regulations, 2023 which prescribed that EoM of non-life insurance companies should not exceed 30% of Gross Written Premium (GWP) in a financial year. Further, the Authority has permitted additional allowable expenses towards head office (for foreign branches and IIO), expenses related to rural sector schemes, Pradhan Mantri Fasal Bima Yojna, Pradhan

Mantri Suraksha Bima Yojna, etc. and expenses towards

Insurtech and Insurance awareness. The Authority has also issued IRDAI (Payment of Commission) Regulations, 2023, which supersedes the earlier regulatory prescriptions governing payment of commissions/ rewards/remuneration. As per the revised regulation, total amount of commission payable to the insurance distributors shall not exceed the EoM limits specified in the IRDAI (Expenses of Management of Insurers transacting General and Health insurance business) Regulations, 2023. This would enhance responsiveness towards market innovation and would provide flexibility to the insurers to manage expenses based on growth aspirations and the ever changing insurance needs.

The revised prescriptions will provide more flexibility to insurer in managing their expenses. It will allow judicious deployment of funds to develop capacity and better practices, making insurance an attractive proposition. It will also enable the insurers to focus on growth and innovations while facilitating their business aspirations.

Amendments to Regulatory Sandbox Regulations

On October 12, 2022 the Authority issued amendments to Regulatory Sandbox Regulations and in March 2023, issued the revised Guidelines on operational aspects pertaining to Regulatory Sandbox whereby the Authority removed the limited validity period of the Regulation, increased the experimental period from 6 months up to 36 months, enhanced the limits of experimentation i.e. number of customers participating in the experiment increased from 10,000 to 1,00,000 and limit of premium increased from Rs. 5.0 million to Rs. 50.0 million, cohort based approach for filing applications has been done away with and a review mechanism has been introduced in case of non-consideration of application.

Insurance Intermediaries Amendment

On December 5, 2022 the Authority had amended the applicable regulatory prescriptions concerning insurance intermediaries, whereby Corporate Agents were permitted to tie up with 9 insurance companies in each category (previously 3 in each category) and Insurance Marketing Firm could tie up with 6 insurance companies in each category (previously 2 in each category) within a State. The above stated regulatory changes has created fresh opportunities for the Company to enter into new tie-ups for distribution of insurance products.

Other Forms of Capital

On December 5, 2022 the Authority notified IRDAI (Other Forms of Capital) Regulations, 2022 thus prescribed regulations with respect to ‘Other forms of Capital?€™ wherein insurers can raise capital by the way of preference shares or subordinated debt without prior approval of the authority subject to certain terms and conditions.

Registration of Indian Insurance Companies

On December 5, 2022 the authority issued IRDAI (Registration of Indian Insurance Companies) Regulations, 2022, simplifying the process of registration for insurance companies and to promote ease of doing business. Further, the Regulation permits Private Equity (PE) Fund to invest directly in an insurance company as a promoter as well as investor. PE Fund can invest upto 25% of paid up capital in the capacity of investor in an insurance company as per the revised limits. This would enable more investment opportunities for investors leading to more insurance market participants.

Circular on Reinsurance treaty agreements on Fire & Engineering

On December 19, 2022 the Authority issued circular clarifying that IIB published rates may not be embedded as minimum rates within Reinsurance Treaty Agreements for the risks commencing on and after April 1, 2023, thus leading to discontinuance of IIB rates as minimum rates in the Fire Reinsurance treaties. Further the impact of global hardening on reinsurance terms especially on natural catastrophe protection was experienced by the insurers during April 1, 2023 renewals. The Company believes that although this may create short term disruption, in the long term this is expected to be a positive change and bring in underwriting discipline.

(B) Financial performance:

The non-life insurance industry registered growth of 16.4%6 in fiscal 2023. The industry has grown at a CAGR of approximately 15.5% since fiscal 2008. Despite this, non-life insurance penetration in India continues to be around 1.0%7 of Gross Domestic Product against world average of 3.9%7 and given India?€™s demographic dividend, the sector is poised to reach newer heights in the coming years.

Health (including Travel & PA) segment continued to remain largest GDPI contributing segment in the Industry constituting approximately 38.0% of the market share in

FY2023.

The industry growth is driven by growth in Motor, Retail Health, Group Health, Liability and Engineering line of businesses. Retail Health, Group Health, Liability and Engineering grew by approximately 15.3%, 25.9%, 16.0% and 20.2% in fiscal 2023.

The GDPI market share of Private players and SAHI showed an increasing trend in FY2023 while the share of Public Sector undertakings continued to decline.

III. Discussion on Financial Performance and Analysis of Financial Statements a. Overview of our business

We are the second largest non-life insurer in India based on gross direct premium income in fiscal 2023. We offer our customers comprehensive and well-diversified range of insurance solutions, including Fire, Motor, Health, Travel & PA, Crop, Marine, Engineering and Liability through multiple distribution channels.

For fiscal 2023, we issued 32.7 million policies and covered over 160.1 million lives and our gross direct premium income was Rs. 210.25 billion, translating into a market share of 8.2% among all non-life insurers in India and 15.9% among private-sector non-life insurers in India. Our key distribution channels are direct sales, individual agents (including POS), and corporate agents - banks, corporate agents - others, Motor Insurance Service Providers (MISPs), brokers and digital, through which we service our individual, corporate, government and rural customers.

(Merged figures are presented from April 1, 2021 onwards, hence figures of FY2021 are not comparable)

We have maintained leadership position among the private sector non-life insurers in India across Motor, Fire, Engineering, Liability and Marine segments in fiscal

2023. The Company?€™s market share has increased in the overall Health segment to 5.3% in fiscal 2023 from 4.8% in fiscal 2022, commercial lines to 13.0% in fiscal 2023 from 12.5% in fiscal 2022. The market share in Motor segment stood at 10.6% in fiscal 2023 as against 11.8% in fiscal 2022, this was mainly due to cautious approach in the segment due to elevated competitive intensity.

As of March 31, 2023, we had Rs. 431.80 billion in total investment assets with an investment leverage (net of borrowings) of 4.15x. Our investment policy is designed with the objective of capital preservation and achieving superior total returns within identified risk parameters. Our philosophy of generating superior risk adjusted returns along with protection of capital has resulted in a total portfolio return of 9.77%8. Since fiscal 2008, our listed equity portfolio has returned an annualised total return of 17.23%, as compared to an annualised return of 9.77% on the benchmark S&P9 NIFTY index.

b. Competitive Strengths

Our strategic objective is to build a sustainable organisation that remains relevant to the agenda of our stakeholders. We believe in providing value to our clients, while creating growth opportunities for our employees and generating profitable returns for our investors.

The following competitive strengths which contribute to our success and positioned us well for future growth:

Consistent market leadership and profitable growth: Our industry leadership has been reinforced by our comprehensive and diverse portfolio of insurance products that we continuously adapt to evolving needs of customers and changing industry dynamics. We have maintained leadership position among private sector non-life insurers in India across Motor, Fire, Engineering, Liability and Marine segments in fiscal 2023.

Diverse product line with multi-channel distribution network: We continue to offer products and solutions that address the untapped and evolving needs of customers and we have established ourselves as a reliable one-stop insurer for diverse customer requirements. Further, we have been expanding our distribution network to increase penetration in tier 3 and tier 4 cities. Our Virtual offices network stood at 917 as on March 31, 2023. Our individual agents (including POS Agents) increased to around 1,13,000 as on March 31, 2023.

Further the company is also strengthening its digital channel of distribution i.e policy issued directly through www.icicilombard.com.

Excellence in Customer Service and Technology: Our customer-centric approach to delivering value focuses on providing convenience and customised solutions. The number of policies written stood at 32.7 million for fiscal 2023. We have been at the forefront of leveraging technology in the Indian non-life insurance industry. We leverage technologies such as Artificial Intelligence, Machine Learning, Advanced analytics, Internet of Things etc. from issuance of policies to settlement of claims and fraud detection. With an aim to enhance the customer engagement and experience and to provide better services, our one stop solution for all insurance and wellness needs, IL TakeCare app has surpassed ~4.6 million user downloads till date, incremental downloads for FY2023 was ~3.3 million.

Our investment in capability building is focussed on culture of data-enabled decision making and enabling its employees to deliver customer-centric solutions. As on March 31, 2023, the headcount of the company was 14,417.

Further the Company?€™s investments in scaling digital capabilities have enabled to increase its digital revenues (including premiums sourced through IL TakeCare App) to Rs. 10.95 billion for FY2023 which accounts for 5.2% of our overall GDPI. IL TakeCare - a one stop solution for all the wellness needs. It facilitates policy life cycle needs along with a host of solutions for wellness, emergency and preventive care and OPD (outpatient department) solutions. Our customers can access several tech-oriented solutions including easy online renewals, policy purchase, and easy claims registration, tele-consultation and policy services. Our objective is to get closer to our customers by providing a unique digital platform for continuous engagement to help them take care of their Health, Motor, and other risks anytime anywhere.

Robust risk selection and management framework:

We take a holistic approach to risk management, which includes a data-driven risk selection framework, conservative reserving and quality reinsurance. As per IRDAI guidelines, non-life insurers in India are not allowed to discount their reserves. We test our reserves regularly based on claim experience, claim inflation and other factors. We were the first company to have been disclosing aggregate reserving triangles as part of our annual reports since fiscal 2016. The Company has enhanced disclosure requirement of reserving triangles by giving separate reserving triangles for Motor TP and Non Motor TP lines of business since fiscal 2022. This is in accordance with the Regulatory guidelines on public disclosures applicable to all companies.

When it comes to investment management, the company has tighter internal exposure norms as against regulatory limits. The company has invested in high proportion of Debt portfolio and has 88.7% in sovereign and AAA10 rated securities as on March 31, 2023. All the Bonds and Debentures are AA rated & above. Zero instance of default in IL?€™s Debt portfolio since inception.

Strong investment returns on diversified portfolio: Our total investments assets increased to Rs. 431.80 billion as of March 31, 2023, with an investment leverage of 4.15x.

We have achieved a realised return on total portfolio of 7.50% for fiscal 2023.

c. Strategy and Future Outlook

In fiscal 2023, the company strengthened its focus on its strategic priorities of growth within preferred profitable segments while sustaining profitability. Going forward, the Company would strive to build this growth momentum while focusing on underwriting profitable segments and maintain cautious approach in underwriting lumpy tender driven segments. Further the company would continue making investments in people and digital initiatives required to steer the growth in segments such as the health insurance. The company is geared to remain customer?€™s preferred choice and continue to serve customers with excellence.

Overall, the core strategy of the company for the ensuing fiscals will be to strengthen growth in key segments, increase in return on equity and sustain combined ratio at optimal levels.

Basis of preparation of financial statements

The financial statements have been prepared and presented on a going concern basis in accordance with Generally Accepted Accounting Principles followed in India under the historical cost convention, unless otherwise specifically stated, on the accrual basis of accounting, and comply with the applicable accounting standards specified in section 133 of the Companies Act, 2013 read with Companies (Accounting Standards) Amendment Rules, 2021 dated June 23, 2021 to the extent applicable, and in accordance with the provisions of the Insurance Act, 1938, Insurance Laws (Amendment)

Act, 2015 (to the extent notified), Insurance Regulatory and Development Authority of India Act, 1999, the Insurance Regulatory and Development Authority of

India (Preparation of Financial Statements and Auditor?€™s

Report of Insurance Companies Regulations), 2002 (the Regulations) and orders / directions prescribed by the Insurance Regulatory and Development Authority of India (the IRDAI) in this behalf, the provisions of the

Companies Act, 2013 (to the extent applicable) (the

Act) in the manner so required and current practices prevailing within the insurance industry in India.

The management evaluates, all recently issued or revised accounting pronouncements, on an ongoing basis. The Financial Statements are presented in Indian rupees rounded off to the nearest thousand.

i. Revenue Account and Profit and Loss Account

The revenue account contains income and expenses relating to policyholders, and the surplus or deficit generated in this account is appropriated to the profit and loss account every fiscal.

The statement below summarises the Revenue account.

Revenue Account

(Rs. billion)

Particulars FY2023 FY2022
Premium earned (net) 148.23 130.32
Income from Investments (net) 23.21 22.91
Contribution from Shareholders 8.91 7.70
Funds towards excess EoM
Other income 0.60 0.37
Total (A) 180.95 161.30
Claims Incurred (net) 107.26 97.82
Commission paid (net) 4.72 6.34
Operating expenses related to 45.15 39.20
insurance business
Total (B) 157.13 143.36
Operating Profit / (Loss) (C) = (A)-(B) 23.82 17.94

The profit and loss account contains the income and expenses pertaining to shareholders.

The statement below summarises the Profit and Loss account.

Profit & Loss Account

(Rs. billion)

Particulars FY2023 FY2022
Operating profit / (loss) 23.82 17.94
Income from investments (net) 7.32 7.03
Other income 0.44 0.03
Total (A) 31.58 25.00
Provision (other than taxation) 0.61 (0.48)
Other expenses 9.84 8.64
Total (B) 10.45 8.16
Profit before tax 21.13 16.84
Provision for taxation 3.84 4.13
Profit after tax 17.29 12.71

Premium earned (net) (NEP)

(Rs. billion)

Particulars FY2023 FY2022
Premium from direct business written 210.25 179.77
- net of GST or service tax (GDPI)
Premium on reinsurance accepted 7.47 5.85
Gross Written Premium (GWP) 217.72 185.62
Less: Premium on reinsurance ceded 62.32 50.72
Net Written Premium (NWP) 155.40 134.90
Less: Adjustment for change in 7.17 4.58
reserve for unexpired risks
Premium earned (net) (NEP) 148.23 130.32

Premium from direct business written net of GST which we refer to as GDPI, is the total premium received by us before considering reinsurance assumed and ceded. This is calculated net of GST on such premiums.

Our GDPI grew to Rs. 210.25 billion for fiscal 2023 from

Rs. 179.77 billion for fiscal 2022, a growth of 17.0%. The GDPI growth was mainly due to growth in our preferred lines of businesses such as Health & PA, Commercial segments such as Fire, Marine cargo, Engineering & Liability and Motor.

Of Health & PA GDPI, Individual, Group Others, Group Employer-Employee and Mass contributed to 20.1%,

30.5%, 49.4%, and 0.1% respectively for fiscal 2023 and 23.5%, 23.8%, 52.6%, and 0.1% respectively for fiscal 2022. The company witnessed market share accretion in commercial lines such as Engineering and Liability, while maintaining its market share in the Fire segment.

The Company experienced robust growth in commercial lines primarily, driven by growth in the SME segment of 24.0%.

Further, during the fiscal, Company continued to remain a market leader in the private Motor segment and commercial lines such as Marine Cargo, and Liability.

The company has underwritten PMFBY (Pradhan Mantri Fasal Bima Yojana) scheme under surplus sharing model (SSM) in Maharashtra and continued to write the same scheme under 3 years tender from FY2021 in Karnataka. The company continued to take a cautious approach in tender driven businesses viz. livestock, weather and mass health segments during the fiscal. The contribution of crop/weather segment to overall GDPI of the company during Fiscal 2023 was 4.2%.

Further the Company?€™s investments in scaling digital capabilities have enabled to increase its digital revenues (including premiums sourced through IL TakeCare App) to Rs. 10.95 billion for FY2023 which accounts for 5.2% of our overall GDPI.

Premium on reinsurance accepted is the premium received by us due to risks that we reinsure, which we also refer to as ‘reinsurance inward?€™. Premium on reinsurance accepted stood at Rs. 7.47 billion for fiscal 2023 from Rs. 5.85 billion for fiscal 2022, a growth of 27.8%. Motor TP, Fire and Liability segments primarily contributed to premium on reinsurance accepted.

Consequently, our GWP grew to Rs. 217.72 billion for fiscal 2023 and Rs. 185.62 billion for fiscal 2022, a growth of 17.3%.

Premium on reinsurance ceded is the premium in relation to the risk that we cede to our reinsurers. In the case of non-proportional reinsurance, like risk, excess-of-loss or catastrophic excess-of-loss, this amount is the premium that we pay to our reinsurers. In the case of proportional reinsurance, this amount is calculated based on the premium we receive for ensuring a particular risk and the proportion of such risk ceded to our reinsurers.

The premium on reinsurance ceded grew to Rs. 62.32 billion for fiscal 2023 from Rs. 50.72 billion for fiscal 2022, growth of 22.9%. This was primarily driven by growth in segments such as Fire, Health, Crop and Marine Cargo.

Consequently, our NWP stood at Rs. 155.40 billion for fiscal 2023 from Rs. 134.90 billion for fiscal 2022, a growth of 15.2%

Our NEP stood at Rs. 148.23 billion for fiscal 2023 from

Rs. 130.32 billion for fiscal 2022, a growth of 13.7% primarily driven by Motor, Health and PA Segments.

Our segmental NEP is shown in the table below:

Segmental NEP

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Motor:
Motor - Own Damage 40.38 40.93
Motor - Third Party 43.55 37.60
Motor - Total 83.93 78.53
Health Insurance 38.77 29.24
Crop / Weather 2.40 1.18
Marine:
Marine - Cargo 4.36 3.73
Marine - Other than Cargo 0.03 0.04
Marine - Total 4.39 3.77
Personal Accident 4.46 4.30
Fire 6.52 6.74
Engineering 1.78 1.48
Aviation 0.25 0.27
Workmens Compensation 0.90 0.76
Public / Product Liability 0.52 0.29
Credit Insurance 0.02 0.02
Others 4.29 3.74
Total 148.23 130.32

Our NEP from Motor segment increased to Rs. 83.93 billion for fiscal 2023 from Rs. 78.53 billion for fiscal 2022, an increase of 6.9%.

Our NEP from Health & PA increased to Rs. 43.23 billion for fiscal 2023 from Rs. 33.54 billion for fiscal 2022, an increase of 28.8%. This was primarily driven by growth of GDPI in indemnity and Group health insurance business.

Our NEP from Marine segment grew to Rs. 4.39 billion for fiscal 2023 from Rs. 3.77 billion for fiscal 2022, an increase of 16.4%. This was largely contributed by Marine cargo segment.

Our NEP from Fire segment stood at Rs. 6.52 billion for fiscal 2023 from Rs. 6.74 billion for fiscal 2022, the marginal decline was consequent to change in terms of reinsurance arrangement.

Income from investments (net) (revenue account)

Income from investments (net) (revenue account) consists of net profit on sale and redemption of investments and gross interest, dividend and rent received from our investment assets. The table below summarises the Income from Investments (revenue account).

Income from investments (revenue account)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Net Profit on sale and redemption of 3.86 5.32
investments
Interest, Dividend and Rent - Gross 19.35 17.59
Income from investments (net) 23.21 22.91
(revenue account)

Income from investments (revenue account) increase to

Rs. 23.21 billion for fiscal 2023 from Rs. 22.91 billion for fiscal 2022, an increase of 1.3%. The gross interest, dividend and rent (revenue account) increased to Rs. 19.35 billion in fiscal 2023 from Rs. 17.59 billion in fiscal 2022, a growth of 10.0%. This can be attributed to increase in total investment assets attributable to the revenue account. The increase in total investment assets was primarily due to improved cash inflows from efficiency in operations and realised investment income.

Other income (revenue account)

Other income (revenue account) consists of foreign exchange gain or loss, investment income from the pools, contribution from Shareholder Funds towards excess Expenses of Management (EoM) and miscellaneous income. The table below summarises the other income (revenue account).

Other income (revenue account)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Foreign exchange gain / (loss) 0.06 (0.01)
Investment income from pools 0.52 0.35
(terrorism & nuclear)
Miscellaneous income 0.02 0.03
Total 0.60 0.37

Other income (revenue account) stood at Rs. 0.60 billion for fiscal 2023 from Rs. 0.37 billion for fiscal 2022, a growth of 64.4%. For fiscal 2023, there was a foreign exchange gain of Rs. 0.06 billion and foreign exchange loss of

Rs. 0.01 billion for fiscal 2022. Additionally, the investment income from pools (terrorism and nuclear) was Rs. 0.52 billion for fiscal 2023 from Rs. 0.35 billion for fiscal 2022. The miscellaneous income stood at Rs. 0.02 billion for fiscal 2023 as compared to Rs. 0.03 billion for fiscal 2022.

Claims Incurred (net) Claims incurred (net) are the total claims incurred by us during a given period, both paid and outstanding including IBNR/IBNER reserves, net of claims recovered from reinsurance ceded. Under guidance issued by the IRDAI, IBNR and IBNER reserves, which also constitute claims outstanding, are not discounted. The statement below summarises the Claims Incurred (net).

Claims Incurred (Net)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Claims paid Direct 106.66 96.14
Claims paid on reinsurance accepted 4.02 1.36
Gross claims paid 110.68 97.50
Less: Claims recovered from 24.54 21.21
reinsurance ceded
Net Claims paid 86.14 76.29
Add: Increase / (decrease) in claims 21.12 21.53
outstanding (net)
Claims incurred (net) 107.26 97.82

Claims incurred (net) increased to Rs. 107.26 billion for fiscal 2023 from Rs. 97.82 billion for fiscal 2022, an increase of 9.7%. This increase was lower than our increase in NEP of 13.7% for the same period. There was decrease in overall loss ratio to 72.4% for fiscal 2023 from 75.1% for fiscal 2022. Net claims paid increased to Rs. 86.14 billion for fiscal 2023 from Rs. 76.29 billion for fiscal 2022, an increase of 12.9%. The decrease in claims outstanding (net) stood at Rs. 21.12 billion in fiscal 2023 as against Rs. 21.53 billion in fiscal 2022.

Segmental loss ratios

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Motor:
Motor - Own Damage 72.6% 68.1%
Motor - Third Party 72.2% 74.0%
Motor - Total 72.4% 70.9%
Health Insurance 81.5% 100.5%
Crop / Weather 80.1% 107.9%
Marine:
Marine - Cargo 71.8% 77.2%
Marine - Other than Cargo 178.7% 117.8%
Marine - Total 72.4% 77.6%
Personal Accident 40.8% 31.9%
Fire 49.3% 53.1%
Engineering 55.1% 69.3%
Aviation 96.1% 89.4%
Workmens Compensation 66.8% 51.2%
Public / Product Liability 84.4% 59.4%
Credit Insurance 99.6% 85.8%
Others 57.5% 47.8%
Total 72.4% 75.1%

Theoveralllossratioimprovedto72.4%infiscal2023from 75.1% in fiscal 2022. The loss ratio of Motor increased to 72.4% in fiscal 2023 from 70.9% in fiscal 2022, primarily due to heightened competitive intensity under Motor OD segment coupled with increased frequency as compared with fiscal 2022, where lockdowns were witnessed due to Covid-19. Further to combat intense competition in the Motor OD segment the Company continues to focus on profitable sub segments within the Motor business using historical granular data and rebalancing of the portfolio. Further the Health loss ratio has improved to 81.5% from 100.5%. The Health loss ratio was adverse last year due to impact of Covid-19 in fiscal 2022.

Commission paid (net)

Commission paid (net) comprises of Commission paid

Direct, Commission paid on reinsurance accepted deducted by commission received from reinsurance ceded.

Commission on reinsurance ceded refers to the commissions on reinsurance arrangements received by us. This commission is generally computed as a percentage of the premium on reinsurance ceded. In the case of certain proportional reinsurance contracts where the premium rates are defined, the difference between the premium we receive for ensuring a particular risk and the premium rate so defined in the reinsurance contract is considered as commission on reinsurance ceded.

Commission paid (net)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Commission paid - Direct 17.00 14.73
Commission paid on reinsurance 0.95 0.61
accepted
Gross Commission paid 17.95 15.34
Less: Commission received from 13.23 9.00
reinsurance ceded
Commission paid (net) 4.72 6.34

Commission paid - Direct increased to Rs. 17.00 billion for fiscal 2023 from Rs. 14.73 billion for fiscal 2022, an increase of 15.4%. The increase was due to increase in Health & PA, Commercial line of business such as Fire, Engineering, Marine and Motor.

Commission paid on reinsurance accepted increased to

Rs. 0.95 billion for fiscal 2023 from Rs. 0.61 billion for fiscal 2022, an increase of 56.2%. The increase is primarily due to higher growth in premium on reinsurance accepted under Motor, Health & PA segment and Commercial lines such as Fire.

Commission received from reinsurance ceded increased to Rs. 13.23 billion for fiscal 2023 from Rs. 9.00 billion for fiscal 2022, an increase of 47.1%; primarily due to increase in the Commercial lines business and due to increase in Health & PA segments which can be attributable to opening of the economy and consequent growth in disbursement by HFCs (Housing Finance Companies) and NBFCs (Non Banking Financial Companies).

Operating expenses related to insurance business

Operating expenses related to insurance business includes employees?€™ remuneration, rents, rates and taxes, advertisement, sales promotion, business support service and others.

During the fiscal 2023 the company?€™s focus remained on accelerating its investments towards delivering excellence in technology, innovation, building people capabilities and value partnerships. Resultantly, Operating expenses related to insurance business increased to Rs. 45.15 billion for fiscal 2023 from Rs. 39.20 billion for fiscal 2022, an increase of 15.2%. The increase was driven by spends on digital initiatives and building Health agency distribution workforce and Commercial lines of businesses.

Operating profit

Based on the above, operating profit increased to Rs. 23.82 billion for fiscal 2023 from Rs. 17.94 billion for fiscal 2022, and an increase of 32.8%. Fire insurance contributed 25.0% and 22.8%, Marine insurance contributed 1.0% and -0.4% and Miscellaneous insurance (including Motor insurance, Health insurance and other lines of insurance) contributed 74.0% and 77.7% of our operating profit for fiscal 2023 and fiscal 2022, respectively. The increase in operating profit is largely driven by improvement in loss ratios for certain lines of business.

Income from investments (net) (profit and loss account)

Income from investments (profit and loss account) consists of interest, dividend and rent, and net profit on the sale and redemption of investments. The table below summarises the Income from investments (profit and loss account).

Income from investments (profit and loss account)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Net profit on sale and 1.32 1.63
redemption of investments
Interest, Dividend and Rent - 6.00 5.40
Gross
Income from investments (net) 7.32 7.03
(profit and loss account)

Income from investments (profit and loss account) increased to Rs. 7.32 billion for fiscal 2023 from Rs. 7.03 billion for fiscal 2022, an increase of 4.1%. The gross interest, dividend and rent (profit and loss account) increased to

Rs. 6.00 billion for fiscal 2023 from Rs. 5.40 billion for fiscal 2022, an increase of 11.3% which was primarily due to an increase in total investment assets attributable to the profit and loss account.

Other income (profit and loss account)

Other income (profit and loss account) consists of interest income on tax refund, profit on sale/discard of fixed assets and recovery of bad debts written off.

Other income (profit and loss account)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Interest income on tax refund 0.30 0.00
Profit on sale/dicard of fixed assets 0.00 0.03
Recovery of bad debts written off 0.14 -
Other income (profit and loss account) 0.44 0.03
Other income (profit and loss account) increased to
Rs. 0.44 billion for fiscal 2023 from Rs. 0.03 billion for fiscal
2022. Also, interest income on tax refund was Rs. 0.30
billion for fiscal 2023 as against NIL for fiscal 2022.
Provisions (other than taxation)
Provisions (other than taxation) consists of provisions for
diminution in the value of investments, doubtful debts,
future recoverable under reinsurance contracts, and
other provisions.

Provision other than taxation (profit and loss account)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
For diminution in the value of 0.78 (0.43)
investments
For doubtful debts (0.17) (0.05)
Provision other than taxation 0.61 (0.48)
(profit and loss account)

Provisions (other than taxation) increased to Rs. 0.61 billion for fiscal 2023 from Rs. (0.48) billion for fiscal 2022 due to additional provision made towards impairment of investment in debt securities as per company policy.

Other expenses (profit and loss account)

Other expenses consist of expenses other than those related to insurance business, which include certain employees?€™ remuneration and other expenses, managerial remuneration, directors?€™ fees and CSR expenditure, charges on issuance of the Debentures, expenses related to investment property and Contribution to Policyholders

Funds towards excess Expenses of Management Other expenses also cover, bad debts written off and loss on sale/discard of fixed assets.

Other expenses increased to Rs. 9.84 billion for fiscal 2023 from Rs. 8.64 billion for fiscal 2022, a growth of 13.9% which can be attributed to increase in expenses of management in Motor line of business as compared to previous fiscal.

Other expenses for fiscal 2023 includes CSR expenditure and loss on sale of fixed assets.

Profit

As a result of the above, profit before tax increased to

Rs. 21.13 billion for fiscal 2023 from Rs. 16.84 billion for fiscal 2022, an increase of 25.5%.

Provision for taxation stood at Rs. 3.84 billion for fiscal 2023 as compared to Rs. 4.13 billion for fiscal 2022, a decrease of 6.8%.

Profit after tax (PAT) increased to Rs. 17.29 billion for fiscal 2023 from Rs. 12.71 billion for fiscal 2022, an increase of

36.0%. PAT includes reversal of tax provision of Rs. 1.28 billion in Q2 of fiscal 2023.

ii. Financial Position: Balance Sheet

The following table sets forth, at the dates indicated, our summary balance sheet, which is based on our financial statements.

Financial Position - Balance Sheet

(Rs. billion)

At At
Particulars March 31, March 31,
2023 2022
Share Capital 4.91 4.91
Reserves and Surpluses 99.01 86.19
Share application money - pending 0.00 0.00
allotment
Total Equity 103.92 91.10
Current liabilities 356.59 330.66
Provisions 87.86 80.58
Fair value change account 2.13 3.59
Borrowings 0.35 2.55
Total liabilities 446.93 417.38
Total equity and liabilities 550.85 508.48
Total investments 431.80 387.86
Fixed assets:
- Cost / gross block 14.01 13.33
- Net block 5.64 5.77
Deferred tax asset 2.65 3.46
Cash and bank balances 2.03 2.93
Advances and other assets 108.73 108.46
Total Assets 550.85 508.48

Total assets increased to Rs. 550.85 billion at March 31, 2023 from Rs. 508.48 billion at March 31, 2022, an increase of 8.3%. This was primarily driven by an increase in total investments assets to Rs. 431.80 billion for fiscal 2023 from

Rs. 387.86 billion for fiscal 2022 along with increase in advances to Rs. 5.43 billion from Rs. 3.47 billion. This increase in total investments assets was contributed by higher inflows from efficiencies in operations and realised investment income. Advances and other assets increased to Rs. 108.73 billion at March 31, 2023 from Rs. 108.46 billion at March 31, 2022, an increase of 0.3%. The outstanding premium (net of provision for doubtful debts) decreased to Rs. 6.10 billion at March 31, 2023 from Rs. 8.74 billion at March 31, 2022, a decrease of 30.2%. This decrease was mainly on account of decrease in government receivables attributable to the Crop line of business. Advance tax paid and taxes deducted at source (net of provision for tax) increased to Rs. 1.89 billion for fiscal 2023 as against 1.79 billion for fiscal 2022 primarily due to relative increase in PBT.

Total liabilities increased to Rs. 446.93 billion at March 31, 2023 from Rs. 417.38 billion at March 31, 2022, an increase of 7.1%. This was primarily due to increase in claims outstanding (gross) of Rs. 269.17 billion as at

March 31, 2023 from Rs. 249.75 billion as at March 31, 2022. Further premiums received in advance stood at Rs. 32.72 billion at March 31, 2023 and Rs. 34.25 billion at March 31, 2022. The advance premium is attributable to long-term motor policies wherein the premium is received upfront and would get recognised in the future years. Fair value change account Shareholder funds decreased to Rs. 0.51 billion at March 31, 2023 from Rs. 0.83 billion at March 31, 2022, a de-growth of 38.4%. This decrease was primarily due to the decrease in the market value of our equity portfolio compared to its cost price. Fair value change

Policyholder funds stood at Rs. 1.62 billion at March 31, 2023 from Rs. 2.76 billion at March 31, 2022 a de-growth of 41.3%. This decrease was primarily due to the decrease in the market value of our equity portfolio compared to its cost price.

The Reserves and Surplus stood at Rs. 99.01 billion as at March 31, 2023 as compared to Rs. 86.19 billion as at

March 31, 2022 due to increase in the Profit after Tax net of dividend paid amounting to Rs. 12.63 billion.

Investments Shareholders stood at Rs. 98.58 billion at March 31, 2023 from Rs. 89.18 billion at March 31, 2022, an increase of 10.5%. Investments Policyholders stood at

Rs. 333.22 billion at March 31, 2023 and Rs. 298.68 billion at March 31, 2022, an increase of 11.6%. This increase was primarily due to an overall increase in the investment book size.

Further, regulatory changes prescribed by IRDAI affecting the notional allocation of investments into Shareholder and Policyholder funds based on the ratio of their respective liabilities and assets also contributed to an increase in the Policyholders fund ratio.

iii. Liquidity and Capital Resources

The following table sets forth, for the periods indicated, a summary of cash flows from our restated summary statement of receipts and payments account.

Cash flow summary

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Net cash flow from (used in) operating 22.90 8.09
activities (A)
Net cash flow from (used in) investing (16.85) 1.12
activities (B)
Net cash flow from (used in) financing (6.95) (8.79)
activities (C)
Net increase / (decrease) in cash and (0.90) 0.42
cash equivalents (A)+(B)+(C)

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Cash & Cash equivalents at the 2.93 2.28
beginning of the year
Cash & Cash equivalents on account - 0.23
of merger
Cash & Cash equivalents at the end 2.03 2.93
of the year

Cash flows from operating activities

Net cash flows from operating activities increased to

Rs. 22.90 billion for fiscal 2023 from Rs. 8.09 billion for fiscal 2022. This increase was primarily due to increase in premium received from policy holders including premium received in advance on account of upfront premium received from long term motor policies, partially offset by an increase in the payment of claims, commissions and taxes.

Cash flows from investing activities

Net cash flows (used in) investing activities increased to Rs.(16.85) billion for fiscal 2023 from Rs. 1.12 billion for fiscal 2022. This was primarily due to increase in funds generated from operating activities and subsequent deployment of funds for purchase of Investments.

Cash flows from financing activities

Net cash flows (used in) financing activities reduced to

Rs. (6.95) billion for fiscal 2023 from Rs. (8.79) billion for fiscal 2022. This was primarily due to repayment of borrowings of Rs. 2.20 billion in the current fiscal as against repayment of borrowings of Rs. 4.85 billion in fiscal 2022.

iv. Contingent Liabilities

The Statement of contingent liabilities is provided below.

Contingent Liability

(Rs. billion)

Particulars Fiscal 2023 Fiscal 2022
Partly paid-up investments - -
Claims other than those under -
policies, not acknowledged as debt
Underwriting commitments NA NA
outstanding
Guarantees given by or on behalf of -
the Company
Statutory demands / liabilities in 4.80 8.74
dispute, not provided for (Refer note
1 & 2 below)
Reinsurance obligations to the extent - -
not provided for in accounts
Others (Refer note 3 below) 0.05 0.05

Note:

(1) The Company has disputed the demand raised by

Income Tax Authorities of Rs. 0.84 billion in fiscal 2023 up from Rs. 0.29 billion in fiscal 2022, the appeals of which are pending before the appropriate

Authorities. Further this excludes:

a) Assessment Years 2006-07 in respect of which the Company has received favorable appellate order, which are pending for effect to be given by the Assessing Authority.

b) Assessment Years 2002-03, 2003-04, 2005-06, 2007-08, 2008-09, 2009-10 and 2010-11, for which the Company has received intimation from the Income Tax Department, for appeal filed with High Court, against favorable Appellate Orders.

(2) Includes disputed refund / demand (including interest and penalty) of Rs. 3.96 billion in fiscal 2023 from Rs. 8.45 billion in fiscal 2022 from Service Tax Authorities / Goods & Service Tax Authorities / Jammu and Kashmir Sales Tax, the appeals of which are pending / in the process of being filed before the appropriate Authorities.

(3) Others include:

(Rs. billion)

Particulars At March 31, At March 31,
2023 2022
Relating to penalty / penal interest 0.01 0.01
towards non-meeting operational
guidelines (OG) of Pradhan Mantri
Fasal Bima Yojana (PMFBY) scheme.
Relating to property tax (including 0.04 0.04
interest)
Total 0.05 0.05

(4) Excludes, payment of Rs. 1.04 billion under protest pursuant to a GST proceeding on account of alleged ineligible input tax credit claim and applicability of GST on salvage adjusted on motor claims settled during the period from July 2017 to December 2021. The Company has been advised that its tax position on both the matters is legally valid and that the Company should not be liable to pay the said amounts. Accordingly, the Company has treated the amount paid as deposit under

‘Advances and Other Assets?€™ as at December 31,

2022. Further, the Company will file refund for these amounts in due course.

(5) Excludes, GST of Rs. 0.50 billion deposited under protest during an ongoing proceeding evaluating

Input Tax Credit entitlement on certain marketing expenses for the period from July 2017.

The Company has not received a Show Cause Notice in the matter; however, the Company believes that the adopted tax position is legally tenable.

Accordingly, the Company has treated the amount paid as deposit under ‘Advances and Other Assets?€™ as on March 31, 2023.

v. Borrowings

As of March 31, 2023, Borrowings stood at Rs. 0.35 billion, total net worth of Rs. 103.92 billion and a total debt to net worth ratio of 0.003 times. During the year, the Company exercised call option and redeemed Debentures in full along with the final interest due on August 23, 2022. There was a repayment of borrowings of Rs. 2.20 billion in the fiscal 2023.

Disclosure of key changes in financial indicators:

Pursuant to SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, w.e.f. April 01, 2019, following details have been provided:

(a) Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, alongwith detailed explanations thereof:

Sr. No. Ratio FY2023 FY2022 Change (FY2022 vs FY2023) Reasons, if any
1 Gross Direct Premium Growth Rate 17% 28% -40% Refer Note 1
2 Gross Direct Premium to Net Worth Ratio 2.02 1.97 3% Not Applicable
3 Growth rate of Net Worth 14% 23% -37% Refer Note 2
4 Net Retention Ratio 71% 73% -2% Not Applicable
5 Net Commission Ratio 3% 5% -35% Refer Note 3
6 Expenses of Management to Gross Direct Premium Ratio 30% 30% -1% Not Applicable
Sr. No. Ratio FY2023 FY2022 Change (FY2022 vs FY2023) Reasons, if any
7 Expenses of Management to Net Written Premium Ratio 40% 40% 0% Not Applicable
8 Net Incurred Claims to Net Earned Premium 72% 75% -4% Not Applicable
9 Combined Ratio 104% 109% -4% Not Applicable
10 Technical Reserves to Net Premium Ratio 2.29 2.44 -6% Not Applicable
11 Underwriting balance ratio (0.06) (0.10) -40% Refer Note 4
12 Operating profit ratio 16% 14% 17% Not Applicable
13 Liquid Assets to Liabilities Ratio 11% 17% -36% Refer Note 5
14 Net Earnings Ratio 12% 10% 20% Not Applicable
15 Solvency Ratio 2.51 2.46 2% Not Applicable

Note 1: Gross Direct Premium growth is derived by growth in GDPI in comparison with the previous year. The growth of previous year is based on standalone ICICI Lombard hence not comparable with growth of current year.

Note 2: Growth Rate of Networth is derived by comparison of networth with previous year. The growth rate of previous year is based on standalone ICICI Lombard hence not comparable with growth of current year.

Note 3: Net Commission Ratio is a function of net commission paid to net written premium during the year.The net commission paid registered a de-growth in fiscal 2023 as compared to fiscal 2022 consequent to favourable reinsurance portfolio outcome leading to higher re insurance commission.

Note 4: Underwriting balance ratio is derived by dividing the underwriting result (Underwriting result

= NEP Net Claims Incurred Net Commission Paid Operating expenses related to insurance business) by NEP. The underwriting result for fiscal 2023 has improved as compared to the fiscal 2022. There is an overall increase consequent to the improvement in the combined ratio from 108.8% in fiscal 2022 to 104.5% in fiscal 2023.

Note 5: Liquid assets to liability ratio is arrived at by dividing short term investments and Cash and Bank balance by Gross claims outstanding, Reserve for unexpired period and reserve for premium deficiency. The reduction in liquid assets to liability ratio can be attributed to increase in duration of investments assets and increase in short term liability such as gross claim outstanding and risk of unexpired reserves due to growth in premium.

(b) Details of change in Return on Net Worth as compared to the immediately previous financial year alongwith detailed explanation thereof:

Return on Net Worth (RONW) is computed dividing the PAT by Net Worth (Share Capital + Reserves & Surpluses). RONW stood at 16.6% for fiscal 2023 as compared to 14.0% for fiscal 2022. The increase in networth can be attributable to increase in PAT for the fiscal 2023 and also includes the reversal of tax provision of Rs.1.28 billion in Q2 of fiscal 2023.

IV. Internal control systems and their adequacy

The internal controls of the Company are commensurate with the business requirements, its scale of operation and applicable statutes to ensure orderly and efficient conduct of business. These controls have been designed to provide a reasonable assurance with regard to maintaining proper accounting controls, safeguarding of resources, prevention and detection of frauds and errors, ensuring, operating effectiveness, reliability of financial reporting and compliance with applicable regulations. In addition, internal audits are undertaken to review significant operational areas regularly. The audit reports submitted by internal auditors are reviewed by audit committee and corrective actions are initiated to strengthen the controls and enhance the effectiveness of the existing systems. Statutory and Internal auditors are also invited to the Audit Committee meetings to ascertain their views on the adequacy of internal control systems.

The management believes that strengthening of internal controls is a continuous process and it will therefore continue its efforts to keep pace with changing business needs and environment.