Skip to content

    Chola Financial

    CHOLAHLDNG
    Financial Services·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

    5
    • 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

    2
    • 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.

    What Changed2

    vs Q4 FY25

    Guidance items5 → 1 (-4)Q&A highlights8 → 4 (-4)
    Key financials

    Metrics

    11

    Periods

    4

    Headline

    3
    • Investment Corpus (Dec 2024)
      ₹17,640 Cr
    • RoE Asset (Dec 2024)
      13.6%
    • Solvency Ratio
      2.14 x

    Q3

    5
    • Gross Direct Premium
      ₹2,003 Cr
      YoY+8%
    • Claims Ratio
      72.6%
    • Combined Ratio
      111.7%
    • PBT
      ₹137 Cr
    • Investment Income
      ₹332 Cr

    9M

    2
    • Gross Direct Premium
      ₹6,095 Cr
      YoY+10.3%
    • PBT
      ₹486 Cr

    Health & PA, Q3

    1
    • Health Loss Ratio
      75.5%

    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
    List

    Guidance & targets

    1
    CategoryTargetPriority
    Profitability
    Health Loss Ratio
    around 72 or so
    Medium

    Health Loss Ratio Improvement

    Next quarter / going ahead
    Current75.5% (Health & PA combined)
    TargetAround 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.

    How to verify

    key_financials.metrics[label='Health Loss Ratio (Health & PA, Q3)']

    Risks & concerns

    2
    RiskSeverity

    Deterioration in health loss ratios

    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

    medium

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

    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

    medium

    Q&A highlights

    4

    “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

    2 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.