Cholamandalam Financial Holdings Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Cholamandalam Financial Holdings reported robust premium growth in Q3 FY25, outperforming the industry. The company saw an improved claims ratio and maintained strong solvency. However, health loss ratios deteriorated, and management acknowledged challenges with EoM compliance due to new accounting norms, indicating a cautious approach to high-cost channels.

Highlights

  • Gross Direct Premium (Q3) of ₹2,003 crores, up 8% YoY, outperforming multi-line insurers' 7.2% growth.

  • Gross Direct Premium (9M) of ₹6,095 crores, up 10.3% YoY, also ahead of multi-line insurers' 6.8% growth.

  • Claims ratio improved to 72.6% in Q3 FY25, lower by 1.9 percentage points compared to 74.5% in the corresponding quarter.

  • Investment corpus grew to ₹17,640 crores as of December 2024, with investment income of ₹332 crores for the quarter.

  • Maintained a strong solvency ratio of 2.14x, well above regulatory requirements.

Concerns

  • Health loss ratio (Health & PA combined) deteriorated to 75.5% in Q3 FY25, higher than previous quarters.

  • The new 1/n accounting method for long-term non-motor business impacts Expenses of Management (EoM) compliance, requiring cautious approach to high-cost channels.

Key financials

4 periods

Headline

  • Investment Corpus (Dec 2024)
    ₹17,640 Cr
  • RoE Asset (Dec 2024)
    13.6%
  • Solvency Ratio
    2.14×

Q3

  • Gross Direct Premium
    ₹2,003 Cr
    YoY +8%
  • Claims Ratio
    72.6%
  • Combined Ratio
    111.7%
  • PBT
    ₹137 Cr
  • Investment Income
    ₹332 Cr

9M

  • Gross Direct Premium
    ₹6,095 Cr
    YoY +10.3%
  • PBT
    ₹486 Cr

Health & PA, Q3

  • Health Loss Ratio
    75.5%

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
    64% Share of Overall Premium (Dec YTD)5.5% Market Share41.2% Cars Composition42.9% CVs Composition15.8% Two-wheelers Composition28% New Vehicles Contribution to Motor Premium

Guidance & targets

Profitability

  • Health Loss Ratio Profitability · going ahead · Medium confidence around 72 or so
    No, given the employer-employee group L, so one can reasonably expect it to be around 72 or so, but I don't see that going back to about 65 or 66.

    — V. Suryanarayanan

What to watch in Q4 FY25

Health Loss Ratio Improvement

Next quarter / going ahead
Current 75.5% (Health & PA combined)
Target Around 72%

Why it matters

Management has guided for an improvement in health loss ratios due to price increases and product revisions; verification of this trend is crucial for segment profitability.

No, given the employer-employee group L, so one can reasonably expect it to be around 72 or so, but I don't see that going back to about 65 or 66.

Risks & concerns

  • Deterioration in health loss ratios

    medium

    Health loss ratio (Health & PA combined) increased to 75.5% in Q3 FY25, attributed to the mix of employer-employee group health business.

    Analyst acknowledged

  • Impact of 1/n accounting on Expenses of Management (EoM) compliance

    medium

    The new 1/n accounting method diminishes the denominator for EoM calculation, posing a challenge for industry compliance and requiring the company to be cautious with high-cost channels.

    Analyst acknowledged

Q&A highlights

4 direct
Asset growth and competition in motor segment Direct
this quarter also, as you will know, represents the festivities season for the business. Particularly, we found the car sales are a little more bullish in this quarter. So, I talked about the new vehicle business coming during the quarter. So, all these have helped. Besides, we have also been seeing an uptick in our agency business, particularly in motor which has also helped in the growth in motor.

Clarifies the key drivers behind the motor business growth in Q3 FY25, including festive demand, new vehicle programs, and agency business, and highlights the strategic shift towards a higher proportion of cars in the portfolio.

Asked by Sanketh Godha

Health loss ratios and corrective measures Direct
The company has been shaping up its employer-employee group health business this year... this probably reflects the loss ratio that are more closer to that segment of business. And then moving on to actually the retail side of the health business. Some of our products, we had a price increase in one of the products coming in from October and in one of the products, we have the division is coming in from January 2025. So, which would also help in reducing the loss ratios as we move along.

Addresses the deterioration in health loss ratios (75.5%) by explaining the impact of the employer-employee group health business mix and outlining specific actions like price increases and product revisions expected to improve these ratios in the future.

Asked by Sanketh Godha

Impact of 1/n accounting on profit and combined ratio Direct
In the 3rd Quarter, you are right that the net earned premium will not have any impact due to 1/n because the pro-rata premium is being same between the old and new. But there are smaller amount of impact that it creates from the point of view of the RI commission that is also there... So, overall, the profitability for the company is not impacted other than the direct commission in a smaller way and the RI commission to some extent. So, this has impacted PBT slightly negatively. There is not much of a difference. Rs. 7 – Rs. 8 crores difference in the Q3 may not be a material part.

Clarifies that the 1/n accounting method's impact on PBT is minor (₹7-8 crores) and primarily due to reinsurance commission, not a significant change in net earned premium, providing clarity on the financial implications.

Asked by Sanketh Godha

1/n accounting impact on EoM compliance and regulatory leeway Direct
Sanketh, with respect to the diminished denominator while computing the EOM levels, which is what you are explaining. So, they have taken this explanation and the industry hopes that in subsequent years it will probably help in some guidance which could actually help the industry... From a company's point of view, if there are certain high-cost channels at this point in time are high-cost products, however profitable they may be, we may need to take a more cautious call keeping the EOM compliance in mind.

Highlights the industry-wide challenge with Expenses of Management (EoM) compliance due to the 1/n accounting method and the company's strategic decision to be cautious with high-cost channels to maintain compliance, indicating potential shifts in business strategy.

Asked by Sanketh Godha

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Cholamandalam Financial Holdings reported a robust Q3 FY25 with a gross direct premium of ₹2,003 crores, marking an 8% year-on-year growth, surpassing the multi-line insurers' average of 7.2%. For the nine months ended December 2024, the Gross Direct Premium Income (GDPI) reached ₹6,095 crores, growing by 10.3% against the industry's 6.8%. The company recorded a profit before tax of ₹137 crores for the quarter, contributing to a nine-month PBT of ₹486 crores, and maintained a healthy solvency ratio of 2.14x.

Motor Business Performance and Composition

The motor business, the company's principal line, saw its share in the overall premium slightly decrease to 64% as of December YTD, from 65.9% in the previous fiscal year. The company's motor market share expanded to 5.5%. Within the motor portfolio, cars now constitute 41.2%, commercial vehicles 42.9%, and two-wheelers 15.8%. Approximately 28% of the total motor premium originates from new vehicles, with Q3 growth benefiting from festive season car sales, new OEM programs, and an uptick in agency business.

Claims and Combined Ratio Analysis

The claims ratio for Q3 FY25 improved to 72.6%, a 1.9 percentage point reduction from 74.5% in the corresponding quarter, despite the impact of the Natcat event from Fengal Cyclone in Pondicherry. The combined ratio for the quarter stood at 111.7%. When adjusted for the 1/n accounting effect, the combined ratio would have been 108.9% for the quarter and 109.4% for the nine months, comparing favorably to 110.3% and 110.4% respectively in the prior periods.

Impact of 1/n Accounting Method

In Q3, the industry adopted the 1/n method of accounting for long-term non-motor business, leading to an additional Gross Direct Premium (GDP) recognition of ₹124 crores, now reflected as premium received in advance. Management clarified that while this method impacts the combined ratio, its effect on profit before tax was minor, estimated at ₹7-8 crores, primarily due to its influence on reinsurance commission rather than net earned premium. This method also impacts Expenses of Management (EoM) compliance by diminishing the denominator.

Health Loss Ratios and Corrective Actions

The health loss ratio (including Personal Accident) for Q3 FY25 deteriorated to 75.5%. Management attributed this to the growing employer-employee group health business, which typically carries higher loss ratios. To mitigate this, the company implemented price increases for some retail health products in October and plans further product revisions in January 2025, with an expectation to reduce loss ratios to approximately 72% going forward.

Technology Spend and Investment Corpus

The company's technology spend for the nine months ended December 2024 increased to ₹92 crores, up from ₹70 crores in the corresponding period, which had a marginal influence on the Expenses of Management (EOM) ratio. The investment corpus grew to ₹17,640 crores as of December 2024, generating an investment income of ₹332 crores for the quarter, supporting the company's financial stability.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls