Cholamandalam Financial Holdings Limited — Q1 FY26 earnings call

Call held 8 Aug 2025

Management summary

Cholamandalam Financial Holdings reported a mixed Q1 FY26, with GWP growth and improved expense management, but faced challenges from a higher claims ratio and elevated combined ratio. The company's investment portfolio performed well, and its solvency remained strong. Management is addressing the claims ratio and seeking to offset a significant anticipated drop in crop insurance premium.

Highlights

  • Gross Written Premium (GWP) for Q1 FY26 was INR 1,997 crores, an increase from INR 1,945 crores in the corresponding quarter of the previous year.

  • The Expense of Management (EOM) for the quarter improved to 30.4% (without 1/n effect), down from 33.3% in the previous year.

  • The investment portfolio corpus stood at over INR 18,140 crores, generating mark-to-market gains of over INR 690 crores.

  • The solvency ratio remained strong at 2.17x as of June 30, 2025.

Concerns

  • The claims ratio increased to 81%, higher than the previous year, impacted by motor third-party reserving (3.53%) and large fire claims (1.78%).

  • The combined ratio for the quarter was elevated at 114.8% (111.5% without the 1/n effect).

  • Profit before tax for the quarter was INR 145 crores, with a non-annualized return on equity of 3.45%.

  • The company anticipates a significant drop of INR 500 crores in crop insurance premium for the current year due to industry shifts.

Key financials

  1. Gross Written Premium (GWP) ₹1,997 Cr +2.7%YoY
  2. GWP (Previous Year) ₹1,945 Cr
  3. Expense of Management (EOM) 32%
  4. EOM (without 1/n) 30.4%
  5. EOM (Previous Year) 33.3%
  6. Claims Ratio 81%
  7. Combined Ratio 114.8%
  8. Combined Ratio (without 1/n) 111.5%
  9. Investment Portfolio Corpus ₹18,140 Cr
  10. Mark-to-Market Gains ₹690 Cr
  11. Profit Before Tax ₹145 Cr
  12. Return on Equity (not annualized) 3.5%
  13. Solvency Ratio 2.17×

What they filed

Q1 FY27: revenue up 19.6%, net profit up 42.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue8,090 8,489 8,913 9,296 9,461 +17%9,949 +17%10,366 +16%11,114 +20%
EBITDA4,553 4,718 5,204 5,154 5,102 +12%5,462 +16%— —
Net profit1,125 1,093 1,362 1,260 1,214 +8%1,386 +27%1,626 +19%1,789 +42%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Motor Business
    5.2% Market Share50% Car Composition38% CV Composition12% 2-Wheelers Composition25% Premium from New Vehicles
  • Reinsurance Accepted Business
    9% Share of GWP

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Solvency ratio at 2.17x as at 30th June is comfortable. Investment portfolio corpus over INR 18,140 crores.
    The investment portfolio corpus at over INR18,140 crores, which is excluding the fair value change. The company had mark-to-market gains in both the debt and equity portfolios amounting to over INR690 crores. The profit before tax for the quarter was at INR145 crores and the return on equity not annualized at 3.45%, solvency ratio at 2.17x as at 30th June is comfortable.

Guidance & targets

Profitability

  • Expense of Management (EOM) trend Profitability · Ongoing · High confidence Continue and maintain downward trend
    So our intent will also be to continue and maintain that trend. And when that happens, it can possibly start reflecting even on the COR.

    — V. Suryanarayanan

Business Mix

  • Reinsurance accepted business as % of GWP Business Mix · Through the year · High confidence 8-10%
    See, actually, Sanketh, I guess, we can expect this number to be around this level, about 8% to 10% is something that we can expect it through the year.

    — V. Suryanarayanan

Business Outlook

  • Overall GWP Business Outlook · Current year · Low confidence INR 8,300 crores
    That's our intent. we'll have to see. Of course, the competitive intensity in the market is quite high with the kind of discounts and payouts. So we'll have to see that because we are very clear that we won't be chasing top line. So the inherent economic viability of the business is what will drive our appetite.

    — V. Suryanarayanan

What to watch in Q2 FY26

Claims Ratio Trend

Next quarter
Current 81%
Target Decline towards 72-73%

Why it matters

Management indicated Q1 is typically elevated and expects a drop in subsequent quarters, crucial for profitability.

And generally, it is elevated in Q1 and then drops down through the other quarter.

Risks & concerns

  • Elevated Claims Ratio

    high

    Claims ratio at 81% is higher than previous year, impacted by 3.53% from motor TP reserving and 1.78% from large fire claims, leading to a 76% underlying ratio which is 2-3% above normal.

    Management acknowledged

  • High Combined Ratio

    high

    Combined ratio stood at 114.8% (111.5% without 1/n effect), indicating underwriting losses.

    Management acknowledged

  • Significant Drop in Crop Insurance Premium

    high

    Chola MS expects an annualized drop of INR 500 crores in crop insurance premium for the current year due to industry shifts and revised pricing, impacting overall GWP.

    Management acknowledged

  • Stagnant Motor Third-Party Premium

    medium

    No increase in motor third-party premium for 3-4 years, despite rising severity in court awards and third-party claims, necessitating higher reserving.

    Management acknowledged

  • Competitive Intensity in the Market

    medium

    High competitive intensity with discounts and payouts means the company will not chase top line and will prioritize economic viability of business.

    Management acknowledged

Q&A highlights

3 direct
High Claims Ratio and Future Outlook Direct
So this is about 2% to 3% higher than our normal average of anywhere between 72.5% or 73%. The contributing element is of course the elevated loss ratios in the motor OD segment... Some corrective action has been taken. And generally, it is elevated in Q1 and then drops down through the other quarter.

Analyst questioned the significantly higher claims ratio (81%) compared to historical levels, and management explained the contributing factors and indicated an expectation for improvement post Q1.

Asked by Sanketh Godha

Motor Third-Party Reserve Enhancement and Price Hikes Direct
It may not go back to that 72% level, but it can be lower than this number. But then, see, what we have to recognize is that the industry has not had any increase over a fairly long period. And the severity inflation is real... if any company manages to hold on to its TP reserves continuously at that same level for a long period, it only means 2 things... the right direction for the motor TP is actually to inch up from the earlier levels.

Analyst sought clarity on whether the increased motor TP reserving is a new normal. Management indicated that TP reserving should ideally increase given severity inflation and lack of premium hikes, implying a higher base than historical 72%.

Asked by Sanketh Godha

Growth of Reinsurance Accepted Business Direct
See, actually, Sanketh, I guess, we can expect this number to be around this level, about 8% to 10% is something that we can expect it through the year. And it is actually a combination. So one, there are profitable opportunities that also come through. And then incidentally, it may also bring in the EOM advantage and support there...

Analyst noted a significant increase in reinsurance accepted business (9% of GWP vs 2% last year) and management confirmed this is a sustainable trend (8-10%) driven by profitable opportunities and EOM benefits.

Asked by Sanketh Godha

Impact of Crop Insurance Changes and Overall GWP Outlook Partial
Chola MS also had last year about INR500 crores of premium from crop last year, which will not be there for the current year. So this drop annualized is about INR500 crores. We will see it unfold and as at June, it was about INR50 crores and maybe as at July, it's about INR145 crores. So this drop will definitely be there for Chola MS. We are looking at alternate avenues to step up and make good this shortfall.

Analyst inquired about the impact of changes in crop insurance on overall GWP. Management confirmed an anticipated INR 500 crore annual drop and stated they are seeking alternate avenues to compensate.

Asked by Sanketh Godha

Health Insurance Loss Ratios Partial
It is a fact that our volumes in PA have been toned down a bit given the EOM and other considerations, which is also a reason for the company had related loss ratios. But then we have written some group health in the quarter 1 though, still we continue to be fairly low, probably fourth from the bottom in terms of the group health volume of business. And there, I should say that perhaps we are also making provisions conservatively there.

Analyst questioned the high loss ratios in health insurance. Management attributed it to toned-down PA volumes, conservative provisioning, and low group health volumes, expecting a clearer picture in H2.

Asked by Sanketh Godha

2 min read 7 chapters

Detailed narrative

Q1 FY26 Performance Overview

Cholamandalam Financial Holdings reported a Gross Written Premium (GWP) of INR 1,997 crores for Q1 FY26, an increase from INR 1,945 crores in the corresponding quarter of the previous year. The company's motor business maintained a market share of 5.2%, with a composition of 50% cars, 38% commercial vehicles, and 12% two-wheelers. Approximately 25% of the total motor premium was derived from new vehicles.

Claims and Combined Ratio Analysis

The claims ratio for the quarter stood at 81%, which is higher than the previous year. This was significantly impacted by a 3.53% increase due to motor third-party reserving and a 1.78% impact from large fire claims. Consequently, the combined ratio reached 114.8%, or 111.5% excluding the 1/n effect. Management noted that the underlying claims ratio, after adjusting for these specific impacts, was around 76%, which is 2-3% higher than the normal average of 72.5-73%.

Expense of Management (EOM) Improvement

A positive highlight was the improvement in the Expense of Management (EOM), which came in at 32% for the quarter, and 30.4% when excluding the 1/n effect. This marks an improvement from 33.3% in the corresponding quarter of the previous year. Management emphasized that this trend is lower than their approved glide path and expressed intent to continue and maintain this downward trajectory, which is expected to positively impact the combined ratio.

Investment Performance and Solvency

The company's investment portfolio demonstrated strong performance, with a corpus exceeding INR 18,140 crores (excluding fair value changes). Mark-to-market gains from both debt and equity portfolios amounted to over INR 690 crores. Despite the challenges in underwriting, the profit before tax for the quarter was INR 145 crores, and the solvency ratio remained comfortable at 2.17x as of June 30, 2025.

Reinsurance Accepted Business Growth

Reinsurance accepted business saw significant growth, contributing approximately 9% of the current GWP in Q1 FY26, compared to just 2% in the previous year. Management expects this contribution to stabilize in the 8-10% range throughout the year, driven by both profitable opportunities and the advantage it provides in managing the Expense of Management.

Crop Insurance Business Outlook

The company anticipates a substantial impact on its crop insurance business, with an expected annualized drop of INR 500 crores in premium for the current year. This is attributed to industry-wide shifts, including business moving from private players to AIC, and revised pricing. Chola MS is actively exploring alternate avenues to compensate for this projected shortfall in premium.

Health Insurance Strategy

In the health insurance segment, volumes in Personal Accident (PA) have been toned down due to EOM considerations. While some group health business was written in Q1, the company's overall group health volume remains relatively low. Management indicated a conservative approach to provisioning in this segment and expects a clearer picture of its performance and strategy by the half-year mark.

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